David Trossell, CEO and CTO of Bridgeworks, discusses the changing attitude of the banking industry to technologies in Information Age.
Banks traditionally like to keep their IT in their vault, and so they have often been wary of using the public and hybrid clouds. The catalyst for the new-found confidence in cloud computing within the banking sector is said to be the level of security that’s now available. Subsequently, the banks have more faith in cloud service providers that they used to have, but the arrival of the European Union’s Payments Services Directive (PSD2) seem to have helped with building confidence in the viability of cloud technology.
You have got to have a smidgen of sympathy for the banks. After hundreds of years of the same security methods that have been tried and tested, they are being forced to adopt new ways of delivering services to a generation of users that expect instant access to services online. This brings a new challenge to the way services are delivered at a time when the days of banks hiding away all their systems in back rooms away from scrutiny, have gone.
Although online banking has been around for a while now, it has tended to be via the use of the PC and primarily during the evening. Now, however, people expect to transact multiple times a day at any time during the day with mobile banking and payments. This, in turn, has led to changes in how these services are provided by banks.
In fact, the challenge of providing online services for an indeterminate number of users at any time has tested many online providers. So has the fact that online service providers have invested millions of pounds in their current IT infrastructure, which has been developed over decades; To change or re-write now is simply untenable.
Subsequently, there has been a hiatus between how things are done now to meet changing customer demands, and the way they were done before.
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Just look at the situation of the credit card providers during Black Monday. MasterCard had to provide for over a 25% increase of traffic, with up to 4 million transactions an hour in 2014. To manage that size of infrastructure – and only for one day – is just plainly uneconomical, even for the banks. Finally, with the increased security of the cloud, it is now possible to have the best of both worlds.
By moving the front-end system to the cloud, they can enable the ability to scale at a moment’s notice, interfacing to the tried and tested backend systems in-house. With the cloud, banks can also benefit from a range of cloud services; such as disaster-recovery-as-a-service (DRaaS), software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS).
Martin Häring, chief marketing officer at Finastra, says there has been “a significant turnaround in banks’ attitudes to the use of cloud in financial services over the last few years – and there’s no doubt this is being driven in part by PSD2 and open banking.”
“In the past, banks and financial institutions showed hesitation in adopting cloud-based offerings, citing potential security concerns and risks associated with migrating from on-premises systems. Today, it’s more common for financial institutions to embrace cloud-based applications, as they realise the benefits they can deliver in terms of cost reduction and efficiency.”
He rightly points out, too, that many banks have stuck with private cloud solutions. Cloud security has been a long-held concern. However, he finds that public cloud adoption in banking is now growing. “With Azure, Microsoft has seen strong cloud adoption in the financial services industry, with more than 80% of the world’s largest banks and more than 85% of the global, systemically important financial institutions now using their solution”, he comments.
For IT and data security reasons, as well as for regulatory compliance, banks have, in the past, felt it necessary to follow a closed approach to their systems and customer data.
This was the norm, but they are now being pushed to adopt open banking by opening up their systems to collaborate with a wide range of partners. This new approach to banking is forcing them to need to change.
Slow to change
However, change doesn’t happen overnight in the banking sector. Banks have, therefore, taken a slow and cautious approach towards adopting public and hybrid clouds. “While they recognise it can be beneficial in delivering agility, innovation and cost reduction, there have previously been concerns around regulation, security, data and legacy technology, says Häring.
Educating businesses from the top to the bottom of their organisational structures remains the biggest challenge. Banks now need to adopt an increasingly cloud-focused culture, and this must be pervasive throughout their organisations. After all, every type of cloud has proven to be viable for hosting solutions. Over the course of time, this will create more confidence in the technology to the point that it will become commonplace.
Yet to achieve this, banks must adopt a cloud-focused culture throughout their organisations. First, there is the perception that the cloud isn’t secure. To some people that is just a myth, but data security is as crucial as it has always been – whether or not the looming spectre of compliance to the EU’s Global Data Protection Regulations falls on 25th May 2018. Protecting your customer data, software and systems has always been an imperative – one that can be achieved with all the types of cloud.
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So Häring is perhaps right to cite that cloud providers, such as Microsoft, “have already demonstrated that they can offer services securely to multiple industries on a global basis. In addition, there are multiple regulatory, privacy and security rules that these providers must adhere to, and with the GDPR deadline fast approaching, these services can only become even more secure.”
“PSD2 and open banking herald a shift from a closed banking model to one in which banks must be able to support customer requests to share data securely with other trusted third-party providers. To adapt to this model and become more customer-centric, banks must open up their systems and collaborate with partners. A cloud-based approach is important in enabling this collaboration and data sharing in a secure and cost-effective way that’s responsive to customer needs. As the industry moves in this direction, banks are becoming increasingly confident in the viability of the cloud.”
He adds that open application programmable interfaces (APIs) “are crucial, in that they enable banks and Fintechs to collaborate and share third-party data and services within their applications.” The purpose of this is to deliver the highest service level to banking customers. However, he warns that the banks that fail to adapt to the new open ecosystem by not responding to customer demands, “run the risk of becoming irrelevant over the longer term.
“Technologies, such as platform-as-a-service (PaaS), are also key in enabling innovative new providers to enter the banking sector and deliver their services to a wider audience in a nimble and cost-effective way”, he claims, before suggesting that a cloud-based approach will help banks to become more agile. This is because it will enable them to bring new products and services to market much faster than they could previously. After all, the traditional arguments for adopting a cloud approach still stand tall today because it can enable them to scale up and scale down to meet demand – created by customer needs.
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“The cloud…can enable banks to scale their services more rapidly and efficiently than is typically possible in a legacy environment,” he explains, before rightly stressing that there is no one-size-fits-all approach to the cloud. Each bank and financial service organisation will have varying needs, and different business cases to address. However, the likely combination is going to involve public and private cloud usage – a hybrid cloud model, which must have the right security in place whenever there is a need to store, archive, manage, analyse and generally handle customer data.
With data security high up on the agenda, there is a need to have the capacity to backup, compress, deduplicate and restore data fast. This can be achieved with a WAN data acceleration solution, such as PORTrockIT. This solution permits banks to maintain their existing legacy infrastructure, while offering the ability to handle even larger amounts of data for Hadoop and big data analysis by mitigating the effects of data latency and by reducing packet loss.
Traditional banks have got a massive amount of current and historical data they can put to work, and the cloud is the perfect place for it. Yet, one of the traditional inhibitors to this is the inability to move these vast amounts of data to the cloud in a timely manner over a wide area network (WAN). Latency and packet loss are the devils that cause everything to slow down to a snail’s pace. They can quickly kill the performance of data transfers between on-premise and the cloud, rendering them ineffective, as the transfers take too long.
Now time is money, and data is today’s gold, so banks can use a solution such as this to make the most of the different types of cloud. During transmission, the data is encrypted and compressed – which is something that most traditional WAN optimisation solutions fail to achieve.
So, with the right cloud approach and the right solution in place – that employs artificial intelligence and machine learning – to support fast, secure and unhindered WAN data movements, banks no longer need to fear the cloud.
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