DCA REVIEW Industry Trends & Standards
A cloudy future for the banks
By Stephen Scott, Managing Director, Sentrum Colo.
CLOUD COMPUTING has taken off in recent years with Gartner senior analyst Ben Pring calling it the “phrase du jour”, a feeling that is popular in the industry. According to a recent report by Technology Business Research Inc., private cloud adoption will generate $69 billion in revenue by 2018.
However, banks are seemingly hesitant about moving to the cloud, Stephen Scott, Managing Director, Sentrum Colo, outlines below the potential reasons behind this and how this will play out in the future.
Why banks are not taking the plunge Banks have very sophisticated IT and communications systems, and in some cases, these systems are quite complex due to past mergers. As banking sits in a heavily regulated sector, industry leaders may have concerns around the potential loss of control, availability and access to data. This can make it very difficult for banks to justify the investment required for cloud migration.
In order for banks to meet customer expectations for water-tight data security measures, and to benefit from the flexibility offered by cloud computing, more banks are exploring opportunities around the private cloud. Banks have the opportunity to boost the security of their data by storing it in two or three locations within a private cloud, instead of a single, owned legacy data centre. Although widespread public cloud adoption is unlikely to take off in the banking sector in the near future, the industry will see more and more banks move non-business-critical applications such as document management and email to private cloud.
In terms of new entrants to market, banking newcomers will typically focus on lending and they aren’t held back by legacy systems, which should make migration to the cloud a simpler decision for them. Despite examples from Australia where cloud computing is very much mainstream in the banking industry, it is unlikely that a major UK bank with a more complex business model will move its whole infrastructure to the cloud.
Australia is currently leading the crowd when it comes to cloud use in banking, with CommsBank and National Australia Bank taking the leap. However, in the same way that an aircraft manufacturer may be tempted to switch from Rolls-Royce engines to a new, cheaper alternative, but with concerns regarding reliability, a bank is likely to think twice before taking the plunge with cloud computing. The industry leaders are aware that if anything goes wrong, like an aircraft using a new-to-market engine, the consequences could be disastrous and a PR nightmare.
UK banks generally have a very complex IT and communications infrastructure, which would make could migration costly and time-consuming – this remains to be a major barrier. mAll banks – both industry heavyweights and newcomers – should also bear in mind that if they choose to adopt cloud computing, they may face a backlash from customers looking for a guarantee that large deposits and transactions aren’t compromised because of a new infrastructure.
The significance of a highly- regulated environment Currently, from a legal standpoint, no cloud- specific laws exist and in the European Union, the use of cloud computing by banks is generally governed by the same rules as outsourcing, namely by the Markets in Financial Instrument Directive (MiFID) and the Capital Requirements Directive (CRD).
The MiFID states that banks that are using cloud computing must ensure regulators have “effective access” to “data” and “premises”, which can pose a barrier for the use of public cloud services. Putting the regulations and concerns over data security and integrity to one side, there is also a cultural barrier present to overcome. Traditionally, banks have built their own highly sophisticated infrastructures so technology decision makers may feel reluctant to let go of their systems through the use of cloud computing.
Security concerns that affect the banking industry exclusively Banks have a huge responsibility to protect their customer data and any transactional data within their IT and communications infrastructures. Due to this, banks need to decide whether a move to the cloud will have an impact on the security level the company guarantees to its customers. This will also produce a knock-on effect for any of their insurance obligations.
Cloud computing and the future The continued digitisation of services and the flexibility and cost benefits that cloud computing delivers are going to make it difficult for banks to keep away from the cloud. Cloud computing enables banks to keep up with technology changes while reducing costs, and to reinvent their business and operating models. When it comes to expanding a bank’s service offering through a new product or a branch, the cloud delivers a risk-free environment for testing and scalability.
Notwithstanding a gradual move to cloud services for latency and, to some extent, security insensitive applications, widespread cloud adoption by UK banks is still probably 10 years away. The industry is seeing many banks starting to move to third party data centres, where they might share floor space with a cloud service provider; providing companies an opportunity to try out the private cloud with applications such as document management or email.
It is very likely that when a bank needs to conduct a major upgrade to its infrastructure or network, they will start looking at moving some core applications to the cloud, but as it currently stands, a move to using cloud computing would instigate a large, time- consuming move with a lot of justification to stakeholders and customers alike.
May 2014 I
www.dcsuk.info 19
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