A recent survey of 29 senior technology executives at financial institutions found that cloud computing holds the potential to redefine the relationship between corporate tech departments and financial institution business units. More important, the change is coming at a time when costs and regulatory compliance are high priorities, according to the Boston-based Aité Group.
The different demands enable banks to choose from several types of cloud applications such as private clouds, for the more sensitive data, and public clouds to store other information. More frequently, banks are going with a hybrid model that combines the two, Aité Group analyst David Albertazzi said.
“I think the new solutions are much better in terms of technology … and therefore they are being viewed as less risky,” he said.
The Aité Group found that 50 percent of those surveyed responded that they were likely or highly likely to use private clouds in the next 24 months.
Cloud certainly has risen to top of mind. In July 2013, PriceWaterhouseCoopers LLP reported that 71 percent of financial services respondents said they would invest more in cloud-based technologies this year compared with only 18 percent the year before.
In the U.S., cloud computing for banking tends to lag, unless you could service bureaus like FIS, Fiserv and Jack Henry as cloud providers. While they do provide remote processing they don’t offer the dynamic reconfiguration of cloud service providers which can allocate computer resources by the hour for applications, testing and development.
European cloud banking got a boost last summer when De Nederlandsche Bank (DNB), the Netherlands’ national banking regulator, cleared Amazon Web Services for a range of banking services including websites, mobile applications, retail banking platforms, high performance computing and credit risk analysis.
Amazon Web Services (AWS) has scooped up significant business from financial services firms which have been early adopters of cloud.
Robeco Direct N.V., a Dutch bank offering saving products, investment funds, mortgages and other services currently manages over €8 billion in assets. It recently moved its entire retail banking platform to the cloud. To reduce complexity and costs while improving agility, the bank selected a banking platform from Ohpen, a banking technology provider based in Amsterdam.
The sixth largest bank in Spain, Bankinter, uses the Amazon cloud to run credit risk simulations in 20 minutes, down from 23 hours before. A major American investment firm uses AWS to run credit risk simulations for its long-term debt and equity-backed securities in its London branch. By using AWS it can scale up vast amounts of technology infrastructure on demand and pay only for what it uses. Having such vast compute capacity available on demand is extremely important in the capital markets industry where milliseconds can mean millions of difference in profit, the company has said.
An English wealth management group decided to build all of its new systems on AWS. New functionality included data warehousing and an electronic business processing system to replace a paper-based application system. It has now started to move legacy systems to the cloud which can accommodate its fast growth — nearly 50 percent year on year.
Australia has also been a strong market for AWS. Suncorp Bank Australia placed an emphasis on innovation and launched a working virtual private cloud and virtual data center in under three months with plans to move 2,000 applications to the AWS Cloud along with large parts of their core banking. Commonwealth Bank of Australia said moving storage to the cloud cut costs in half while it achieved similar savings in app testing and development. Expanding technology has also become easier and cheaper; while before it took the bank eight weeks and several thousand dollars to stand up a new server, now it takes eight minutes and 25 cents to do the same thing in the cloud, making the bank much more responsive to changing customer demands.
In Africa, Zitouna Bank in Tunisia has selected IBM’s cloud capabilities to host its Temenos banking platform.
IBM said the project will support Zitouna Bank’s objectives to open up to 18 new branches per year and roll out of new mobile and Internet banking services.
“Benefits are expected to be reduced waiting times for customers, a greater choice of banking channels and services, and extending services to the nation’s unbanked and underbanked citizens.”
Adopting a cloud model will provide the bank with a platform that is secure, scalable and can handle mission-critical workloads while offering greater flexibility and performance, the company said.
Zitouna Bank’s expects to open up to 18 new branches per year and roll out new mobile and Internet banking services.
“Our aim is to provide a diversified portfolio of modern banking services to enterprises and individuals, and establish ourselves as a leader in Tunisian banking,” said Lasaad Jaziri, CIO for Zitouna Bank. “IBM’s cloud capabilities will help us roll out a wider range of services and products, such as new mobile and Internet banking services, while also improving efficiency of internal banking processes and reducing our operational footprint.”
While the US has lagged in cloud adoption in banking, that could be changing, according to a publication from Unisys consultants.
“The cloud conversation at many banks has been reenergized by regulators’ latest demand for higher bank capital levels, wrote Robert Olson, Colin Lacey and Ashwini Almad in BAI’s Banking Strategies. “Cloud offers the tempting opportunity to shrink capital expenditures on technology and shift them to operating expenditures.
“Agility and time-to-market also augur for a more aggressive cloud strategy. When a competitor ups the ante on your mobile application and your bank wants to quickly match it to avoid losing customers, saying “months or weeks” is unacceptable. If cloud can answer “hours and minutes,” cloud is where that application is going.
“And cost remains a powerful force behind cloud. At 14.3%, banks’ Information Technology (IT) spending as a percent of total costs (14.3%) is highest of all industries. Measured another way, as a percentage of revenues, banks’ IT costs (7.3%) are about twice the average across all industries surveyed (3.7%).”