Just five or ten years ago, the idea that banks could run any systems in the cloud, even non-critical ones, seemed very far off. But a global recession, legacy IT systems and customers who are rapidly embracing new technologies has changed all that.
Ask market observers now and they’ll tell you the cloud is coming for banks and financial firms; some might say it’s already here. Thawing attitudes in the UK led to a flurry of announcements at the end of last year, with building societies leading the charge.
In October, HP Enterprise Services announced that Leeds Building Society would be joining Yorkshire Building Society in a shared services alliance that had been launched just a month earlier. The building societies have moved their core mortgage and savings application processes into a virtual private cloud running on a UK data centre, with HP managing the service.
Another three building societies, Ipswich, Loughborough and Dudley, signed a similar deal with Unisys for a software-as-a-service solution for mortgages and savings in November.
Bigger banks have been slightly more reluctant, but most are at least beginning to dabble. Barclays has taken the rather unusual step of offering the cloud to its own customers, with its Cloud It service designed to store customers’ important documents. In Spain, banking giant BBVA signed up with Google almost two years ago, using its enterprise tools for internal communication.
But even these success stories highlight a hesitancy that remains in the financial sector. Although the building societies are shifting core systems, they’re sticking with private clouds, while others like BBVA have only signed up for superficial systems. Most major UK banks meanwhile, remain tight-lipped on the cloud.
Ask market observers now and they’ll tell you the cloud is coming for banks and financial firms
Jane Tweddle, industry principal for financial services at SAP, thinks the technology is there, but challenges for cloud adoption remain. “The solutions and the vendors, and the market, have matured tremendously, so all the concerns about security and data technically aren’t that valid,” she says, “but emotionally and regulatory-wise, they are still valid.”
That emotional attachment to their software and their data comes from two places for banks – customers and control. Most financial firms are afraid that customers won’t be happy with a bank that doesn’t hold their data onsite; BBVA was quick to point out at the time of signing with Google that data and key systems would be staying in its own data centres.
Banks are also keen to keep tight control over their IT, an issue that’s already led to problems with legacy systems.
Frederik Bjilsma, Europe, the Middle East and Africa business unit manager of cloud for Red Hat, says banks need to change the way they think about IT. “Banks need to think of their IT programmes as a portfolio of services and classify their workloads according to criteria like quality, cost and agility metrics,” he says. “With that public and hybrid clouds become just another part of the standard portfolio.”
As well as the emotional issues, banks have to be wary of the regulatory environment. The recession, while giving banks the same reason to love the cloud as everyone else – cost – has also resulted in greater scrutiny of their systems. Regulators expect banks to be able to lay their hands on important data quickly and react fast to new requirements, which makes financial firms warier of the cloud.
But cloud could be a part of the solution to these problems as much as the cause. Like Mr Bjilsma, Ms Tweddle expects hybrid systems to be a stepping stone into greater adoption, helping to ease the emotional stress of letting go of customer data and core systems.
“On-premise and cloud are not mutually exclusive,” she points out. “You can have a hybrid environment, where you can have some solutions through the cloud and others onsite, or you might have a solution that can be consumed by different parts of the organisation through cloud or on-premise.”
She also sees cloud as a way for banks to customise their IT systems without needing the complex and clunky machinery they’re dealing with now.
“Traditionally banks and some insurers have customised their core systems to give them that outside differentiation – sort of customising at the wrong end of the scale,” she says. “Some of the customers we’ve worked with, who have transformed their systems, have built one that shows all that standardisation on the inside, but still allows them to differentiate themselves on the outside.”