5 min read

Using the cloud to fly sky high above the competition

David M. Brear

At 11:FS, we often talk about technologies and products that are tipped to disrupt the way financial services operate. The internet is littered with hype cycles and magic squares, with many of them growing into nothingness and obscurity.

But cloud computing is probably the technology where we risk preaching to the choir more than any other topic, and yet adoption has still been slow.

We know that any company, literally as Conway’s Law describes, is and always will be a manifestation of the systems within it. Surely, slow, expensive and hard to change systems are not the basis for which you’d want to manifest your business?

So it’s 2020: cloud computing is nothing new. We get it - from cost-saving to improved cross-company collaboration, cloud computing is the way that it's done today in most industries.

No fintech in 2020 reading this right now will be wondering where to put their three data centres. None. We have, as an industry, moved beyond this.

But while this might be so, and the big banks have been sold on the many benefits, they’re also very aware of the risks.

So if we want to encourage adoption of the cloud, we need to change tack. Instead of trying to convince banks of just the benefits and the fact it’s the right thing to do, it’s time we helped them find solutions to the real - and perceived - risks of moving to this new infrastructure.

Why has cloud adoption been so slow in financial services?

Firstly, moving legacy applications to new environments takes money, time, and skill sets that organisations might not have to hand given the current climate.

So there’s a cost involved. It’s a short term cost, relatively speaking, but making a business case relies on people winning hearts and the ability to sell it to the top dogs internally. It’s no surprise that leaders can be deterred by the upfront costs before they’ve been convinced of the long-term benefits of migrating.

One positive we’ve seen from the global pandemic, however, is that COVID seems to have been a wakeup call for many to put wider business support behind the resources needed to make these changes. In the face of widespread remote working and budget cuts, the cloud is surfacing as an increasingly appealing option.

Secondly, bank-grade security and alignment with regulation are critical.

But fears that the cloud can’t possibly provide this level of security and encryption are misguided. People are beginning to realise that their data isn’t necessarily more secure in a private cloud and that being able to walk around a physical data centre doesn’t guarantee greater security.

So it’s clear that perceptions are changing - albeit slower than we’d like.

In the face of widespread remote working and budget cuts, the cloud is surfacing as an increasingly appealing option.

Trust is key

If the regulator ultimately holds the bank responsible for keeping their customers’ data under wraps, then having reliable partners in place is crucial. While the beauty of the cloud lies in alleviating the administrative burden for IT teams, it’s important to remember that the cloud is still run by humans, and mistakes can happen.

This surfaces as a procurement challenge, because the small print and legal contracts can be just as much of a blocker to progress. Banks can have pages and pages of watertight contracts in place with their cloud provider, but ultimately, the responsibility for their infrastructure lies with them.

Regulation: a hindrance or a help?

Following several well-publicised bank outages (such as Lloyds TSB, whose system failure left thousands locked out of internet and mobile banking on New Year’s Day) regulatory focus has increased. But is this increased regulatory scrutiny necessarily a bad thing?

The FCA’s use of supervision leadership - which requires the CEO and board to own their IT strategy, not just the CTO - shows that regulation can also benefit the financial services industry. And while state-level regulation in the US makes it more difficult, regulators seem to be collaborating more willingly, which should help to provide clarity for the industry.

Regulators are also keeping an eye on how financial services companies are handling risk management and business resilience. If multiple organisations are in the same cloud, there’s an inherent risk - one of the prime dangers being the exposure of private information to the rest of the internet.

In the case of a crisis, a bank needs to be able to rapidly claw back their data, which might involve diversifying their underlying providers. If done properly, this gives them the benefits of the cloud and they can then drop in ‘best of breed’ providers. If they’re able to handle things across multiple providers, this will add resilience to their higher level tech stack. In the future, it’ll be essential for banks to be able to balance workloads across multiple providers.

What’s exciting is that institutions are now coming together and creating long term partnerships to find innovative ways to meet the expectations of regulators. The industry is being disrupted by non-regulated fintechs, so banks and tech organisations have acknowledged that they need to join forces and solve the problem together.

IBM’s partnership with Bank of America is a fantastic example of this. The tech company’s industry-first platform has allowed the bank to put “data security, resiliency, privacy and customer information safety needs at the forefront of decision making.”

Simply hitting ‘go’ on the cloud doesn’t give you an instant competitive advantage - it’s what you do with it that matters.

But once you have it, how will you use it?

When it comes to running your business, cloud computing fundamentally changes everything. But simply hitting ‘go’ on the cloud doesn’t give you an instant competitive advantage - it’s what you do with it that matters.

With more and more companies entering financial services through SaaS-based services (like Shopify, for example) embedded finance opens up a raft of opportunities and competition for traditional banks.

When technology becomes an enabler, promising strategic competitive advantage rather than something you need to manage, mindsets start to shift.

Plus, there’s no escaping the continuously increasing customer expectations. From slick experiences to 24/7 banking and the downfall of cash, people want access to the best financial products, regardless of who’s providing them. Because of this, financial services companies have no choice but to consider how the cloud could facilitate continuous development for them.

The real question is, in an increasingly crowded market where people are spoilt for choice, how can the cloud help banks to simplify their processes and not just stay in the race, but win it?

About IBM Public Cloud

Combining the speed of the public cloud with the security of the private cloud, IBM Public Cloud for Financial Services is an industry-first. With more than 30 software vendor partners and a number of banks involved, IBM’s Public Cloud helps institutions host their applications in a secure environment. It meets both the demands of financial services and the ever-changing needs of users, helping banks retain a competitive edge while maintaining regulatory compliance. Learn more about IBM Cloud for Financial Services™ here.

This blog post was kindly sponsored by IBM.

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 David M. Brear
About the author

David M. Brear

David is the CEO of 11:FS and since his dream of being a sportsperson was crushed (along with the ligaments in his knee!) and he had to get a proper job, he has worked in pretty much every angle of financial services industry but never lost that competitive desire to win.

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