Six reasons why cloud computing will transform the way banks serve clients – and the five hurdles to overcome
The European Commission wants to bring down the barriers to cloud computing in a move that promises to revolutionise the way transaction banks can serve clients, writes Alastair Brown.
By providing near-unlimited hardware and software resources on an off-the-peg, pay-as-you-go basis over the internet, cloud computing drives down costs, enables innovation and creates the flexibility to respond to change.
Traditionally banks were reluctant to embrace such technologies, especially on security grounds. There are other challenges too, such as regulation and the potential complexity involved in managing many different suppliers spread all over the world.
But the past year has seen them taking a closer look as they start to fully understand the benefits it can bring and in response to growing use of the cloud by clients. Most companies believe it will play a central role in their future strategies, according to a survey from IBM. They are also demanding greater connectivity with their banks, a process eased by the cloud’s use of standard technologies.
The EC is also waking up to the possibilities. In a recent policy paper, the EC’s European Cloud Partnership spelt out the need to tackle issues around data, privacy security and legal differences across national boundaries. Its vision is to create a secure environment in which private and public sector organisations can use, buy and sell cloud services.
What is cloud computing?
Cloud computing lets people use the internet to tap into hardware, software and a range of related services on demand from powerful computers usually based in remote locations.
Successfully enabling the widespread adoption of cloud computing could add €250 billion to European GDP by 2020, thanks to greater innovation and productivity, according to research conducted by International Data Corporation on behalf of the EC. Nearly four million new jobs could be created as a result.
This would amount to more than 3.8 million new jobs, although this number does not include jobs lost to cloud-related business reorganisations and productivity gains.
Cloud computing can help meet all these challenges. There are few areas of transaction banking it does not touch — from cash management, trade and supply chain finance to payments, mobile banking and business analytics. The key to competitive advantage will lie in the know-how brought to bear on behalf of clients.
All this momentum is building at a time when banks are under increasing pressure to use their IT budgets more efficiently, while competition from non-bank payments providers is much tougher and the need to serve clients better is becoming more acute.
But it is not a technological Valhalla – there are disadvantages too.
Six big benefits of the cloud:
1. Cut costs: cloud computing means banks will not have to invest heavily in dedicated hardware, software and related manpower. It is much easier for them to update their IT infrastructure and the cloud’s modular, pay-on-demand model means they pay only for the hardware and software they need.
2. Improve flexibility and scalability: the cloud gives banks the ability to respond quickly to changing market, customer and technological needs. They can scale up and scale down technology according to requirement. The ability to respond quickly will be an important competitive edge.
3. Increase efficiency: banks will enjoy improved efficiency ratios and operating leverage. The standardisation inherent in the cloud could makes it easier to integrate new technologies and applications in the future. Because technology and business operations can be much more closely aligned, the cloud gives banks a golden opportunity to drive out complexity.
4. Serve clients faster: cloud computing makes new and bundled products and services easier to develop and launch, either on a stand-alone basis or in partnership. It eliminates procurement delays for hardware and software. Banks will be able to boost computing power to meet demand peaks and provide the latest treasury solutions without needing to worry about whether the technology is up to date. Corporates will be able to access bank systems using web browsers from anywhere at anytime.
5. Forge stronger client relationships: The combination of big data and potentially unlimited computing power will allow banks to develop systems capable of providing better insight into clients and make better decisions on their behalf. Services could become more customised.
6. Bring clients closer to their clients: transaction banking eases payments between buyers and sellers. At the moment the activities needed to process payments are inherently inefficient because they use different technology. But buyers and sellers could be brought together on shared applications in the cloud.
The five main challenges:
1. Security and compliance: maintain at all times the security of data. Banks need to demand stringent safety measures from suppliers and ensure new applications meet the latest and most rigorous security standards. Service Level Agreements (SLAs) are a must.
2. Reliability: ensure that applications and data are always available in the event of a natural disaster or an unpredictable event. Banks need to have stringent SLAs in place, complete with guarantees, end-game scenarios and remedies if a provider fails to meet service levels.
3. Cloud management: achieving visibility and measuring performance are harder to do, especially if, as seems likely, large banks will source cloud services from several providers and to use them for both internal – or private – and external, or public, services. This could result in a bank having to handle multiple security systems, and the need to ensure all parts of their business can communicate with each other and where necessary with clients. I
ncreased use of various technology infrastructures and a mix of different cloud environments internally and externally mean banks will need to develop fully-fledged cloud management platforms. They will be a necessity to ensure banks can fully realise the cost savings and flexibility benefits of cloud computing.
4. Interoperability: banks will need to ensure data and applications can be moved across cloud environments from a number of providers. They should look to develop a single interface and management layer that can work across different platforms internally and externally.
5. Regulation: the rules governing the cloud vary from country to country. Many countries’ data protection laws impose constraints on where data is kept, limiting take-up. This is why the EC’s move to regulate the cloud is welcome.