Are Financial Services the Next Workload to Move to the Cloud?

by Finance

Lower costs, scalability and centralisation have lured a number of industries to move their IT infrastructure to the cloud. Historically, financial services have been slower to adapt to this change, with greater loyalty to legacy systems. But the influx of disruptive fintech start ups using the cloud is putting enormous pressure on banks to also innovate, with McKinsey forecasting that between 40 and 90 percent of global bank workloads will be moving to the cloud in the next decade.

Recently, Dr Michael Gorriz, CIO of multinational bank Standard Chartered, shared how they have been heavily investing in their cloud infrastructure. In an effort to expand digitalisation of a number of the bank’s services, Gorriz found that the demand for compute varied highly across its different locations and time zones. Speaking on the spread of the bank’s activity, Gorriz noted “We have a balance sheet in each of these markets but, because we are everywhere in terms of footprint, there’s no ideal place for hosting (the systems to support all of these).” Because of this, a more flexible, adaptive IT model was required, with the cloud fitting the bill.

Gorriz goes on to describe the “varying compute need, dependent on the presence of different countries and regions at different times of day and the pattern of their activities”. This inconsistency in demand for compute power can cause issues if systems can’t scale quickly. Cloud systems, while powerful, often struggle to deal with scaling up and down due to the hefty amount of middleware involved. One possible solution is through a load balancing function, where compute power scales dynamically in order to meet demand and ensure a persistent performance.

Standard Chartered joins a number of modern banks and fintech start ups in their efforts to build financial cloud services from the ground up, with Gorriz placing a high value on making sure new systems are ready for a distributed model from the off. Their digital bank Mox was recently launched in Hong Kong and runs entirely through the cloud, with other big players doing the same, such as Capital One moving their platform entirely to Amazon Web Services and Google announcing partnerships with Goldman Sachs and Deutsche Bank. Alleviating the burden of system management is cited as one of the key motivations for these huge deals, with Capital One saying “The most important benefit of working with AWS is that we don’t have to worry about building and operating the infrastructure.”

Having a ‘cloud first’ mentality in this fashion is well placed, as re-architecturing systems that were originally on-premise based can be a highly complex and labour heavy process. While the cloud-native approach is important in this regard, some firms express concern around the security of data with this method. This is where multi-cloud structure has filled in the gaps. By increasing the flexibility of shared services, other cloud services can provide support when needed. Attacks or crashes that occur on one service are unlikely to cause as much harm if the safety of data is secured by other providers.

Wider economic trends are also continuously pushing towards cloud solutions in finance. Economic hardship caused by the pandemic is demanding that banks cut costs. The ‘pay for you use’ function of the cloud is therefore another motivating factor. On top of this, branches everywhere are in decline, heightening the importance of digital banking which is putting greater pressure on IT systems.

The significance of cloud computing is likely to be further driven by the advent of open banking. Open banking has challenged one of the historic central tenets of banking, in that customer information is no longer treated as exclusively private to the bank they are using. By increasing the accessibility of this data, financial services everywhere are able to tailor their customers’ experience exactly to their needs without any compromise in security. It has both improved individual control over people’s money as well as encouraged a wave of new innovation in finance.

In any exchange of big data such as this, the cloud can play a key role, with a number of firms already moving in this space. Processing large amounts of data from a variety of different sources requires a flexible system, which can adjust to meet demand. Open banking has also gone hand in hand with the increase in financial inclusion, where previous outsiders to the financial world are becoming more involved. Open banking has led to a number of firms to offer easy-to-use trading services that have encouraged this and overall it’s led to a general boost in demand for financial services. Scalable systems will ultimately be best equipped to deal with this rapidly changing world.

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