Data centres 80% 23% Gartner
In 2020, the top five infrastructure as a service (IaaS) providers accounted for 80% of the market, and nearly 90% of all IaaS providers exhibited growth.
for core functions, while databases are transferred to either public or private cloud infrastructure. A recent Accenture survey of 150 bank executives highlighted that more than 80% plan to move at least half of their core workloads to the cloud within five years. In fact, some have even begun to predict the demise of traditional bank-owned data centres.
Worldwide public cloud end-user spending is set to have grown by 23% in 2021 from $270bn to $332.3bn.
Then along comes a black sheep – with JP Morgan investing heavily in new strategic data centres. The move is part of a significant technology overhaul, begun in 2021 and which aims to improve the bank’s product and service offering. The new data centres – which are already handling host-to-host and managed file transfer applications used to exchange files with customers – constitute just one pillar of JP Morgan’s broader IT project, which also includes the upgrading or retirement of many applications. The bank spent $12bn on technology in 2021, with $2bn going towards the new data centres, even as it continues to simultaneously move more elements of its core IT infrastructure to the cloud. What, then, is driving JP Morgan’s continued loyalty to physical data centres?
“JP Morgan has the scale and the scope to make it worth it to invest in their applications and in their own physical data centre assets,” says Gilles Chemla, professor of finance at Imperial College London and co-director of its Centre for Financial Technology. “This may sound expensive to some analysts, but cyber risk is probably underestimated by many of them.”
Public, private or on-premise? The past two years has seen more banks reach for the cloud to relieve some of the stress put on their systems by the Covid-19 pandemic. Employees were forced to work from home and access systems remotely, and customer demand for online services naturally went through the roof. This lit a fire under digital transformation projects, in which the cloud plays a central role. That is largely thanks to its ability to deal with large volumes of data in a scalable way, and to efficiently handle data-heavy workloads. “There is now a clear shift toward cloud-based solutions and data centres,” says Chemla. “Cloud enables better customer understanding and service, more flexible working conditions, such as working from home, and more flexible operations. But using external software on public clouds offers lower performance than private clouds and may be risky in terms of cyber risk and in case a software is discontinued. “Public cloud infrastructure is cheaper, but offers less customisability, a lower performance, and less security than a private cloud infrastructure,” he adds. This is fundamentally a question of platforms. Public clouds use shared infrastructure, as with AWS, Microsoft Azure or Google Cloud. Conversely, private clouds typically use an organisation’s own
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infrastructure. In 2021, Virgin Money – the UK’s sixth-largest bank, with six million customers – signed a strategic partnership with Microsoft to launch a cloud-based platform to drive agility and productivity. The deal will see the bank move workloads from on-premise data centres to Microsoft Azure. “This partnership with Microsoft is an important element of our digital first strategy,” said David Duffy, chief executive of Virgin Money UK when the scheme was announced. “The partnership will drive efficiencies by simplifying our existing IT infrastructure and enable faster development times to help us grow, while empowering our colleagues to build a market-leading digital customer experience at scale.” In fact, Virgin Money is one of the first banks to collaborate with the American giant on its new Microsoft Cloud for Financial Services, an industry- specific public cloud offering that considers the needs of the banking sector in terms of privacy, security and regulatory compliance.
Also in 2021, Commerzbank announced that it would expand its partnership with Google Cloud with the intention of moving 85% of applications to the platform as part of a four-year, €1.7bn programme of digitisation and automation. This follows a similar move by Deutsche Bank in 2020, which is moving to replace many parts of its core banking system with Google’s cloud-based solutions. Some banks, however, are keeping a foot in both camps. For if some banks are going public, even as others stay private, a third group is instead drawn to a ‘hybrid’ solution – using both public and private clouds. One example is ING, in the Netherlands, which is developing its own cloud platform to store and process data for its core processes, while also using public cloud. The bank currently runs 25% percent of its global infrastructure on its ING Private Cloud platform. This balance makes sense. Private clouds come at a greater cost as they offer less in terms of economies of scale – the major cloud hosting providers (CSPs) having millions of tenants on their global platforms. Going private also means there are ongoing expenses to support, manage and upgrade the cloud infrastructure.
The key advantage to going private, however, is that security in a private cloud is firmly the responsibility of the bank that owns and operates the platform. Furthermore, there is zero latency for local applications, so some key processes will work faster on a private cloud than its public cousin. In 2020, HSBC signed a major global deal with AWS to access storage, database, and analytics, among other features, and to develop new digital products and support security and compliance standards for its personal banking customers. At the same time, however, it is also committed to its own private cloud infrastructure.
Future Banking /
www.nsbanking.com
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