Organizations in the financial services sector are confronting challenges on multiple fronts as they compete to protect and expand their business while staying profitable.
A difficult economic climate and regulatory landscape are impeding efforts to pursue product innovation, build financial resiliency, and retain and attract customers. Governments everywhere are imposing more stringent reporting and risk management rules resulting in heightened concerns over identity and customer data security.
Investors and customers demand more for their loyalty and protecting market share has become tougher especially in the face of competition from aggressive new players and traditional foes. Despite intense pressure to be flexible and dynamic, innovation through traditional IT delivery models remains limited as institutions seek to justify their technology spend.
In such a volatile environment the advent of mature cloud computing is emerging as a transformational game changer for the global banking sector. Financial institutions best able to quickly adopt a cloud solution will have that added advantage in driving business agility and service innovation – while at the same time preserving precious capital.
Choosing the right cloud model
Market surveys indicate that most businesses are now starting to embrace the shift towards cloud technologies and services. These trends suggest that cloud-based solutions are becoming a key requirement for any financial institution hoping to build and sustain a competitive advantage.
Before pursuing a cloud-based journey, banks and other financial organizations must first decide on a cloud type and delivery model to meet their functional, service, security and regulatory requirements. There are four main options:
- Public cloud owned by an organization offering services to the public and industry
- Community cloud specific to a sector and shared by several organizations
- Private cloud operated solely for an organization either independently or by a third party
- Hybrid cloud in which an organization manages some resources in-house and has others provided externally through public or community cloud
Focus on hybrid
Hybrid is the optimum solution for financial institutions given their specific security and data issues, evolving regulatory environment, unique application and infrastructure requirements, and an overriding need for standardization, automation and virtualization.
The underlying adaptability of a hybrid delivery approach means banks can choose an ideal mix of cloud-based solutions and refresh or change it whenever necessary. Flexible, scalable and highly automated solutions can be achieved by combining traditional in-house and outsourced services with consumption-based models that require no capital investment.
An early focus for most financial services will be the development of private cloud with non-core services such as email, collaboration tools and CRM consumed externally. However, as technology matures and risk models change, organizations can start consuming selected core banking services to meet compliance standards. At the same time, the focus on maintaining and updating the fundamental nuts and bolts of legacy IT can be eased.
Whichever cloud path is chosen, financial institutions must implement a hybrid delivery model that governs provisions and operates critical activities across the following areas:
- Channel services – Support for first-touch customer encounters via ATM, branch, call center, mail, mobile, online, telephone, video, etc. By moving towards a single architecture that supports all channels, banks can deliver a consistent customer experience across all channels
- Business services – This includes both noncore and core banking services such as corporate and retail banking, wealth, treasury and risk management, compliance and trading
- Platforms – A broad technology array which covers application hosting environments, middleware technology, development frameworks and tools, as well as standards applied to specific business services
- IT infrastructure – Servers, storage and networking, both inside and outside the institution’s data center
Six steps to a cloud environment
With such a large choice of cloud-oriented solutions available, financial services firms need to evaluate and select the best delivery model based on value, competencies and risk. That requires a stepped approach.
Build an infrastructure service cloud, starting with a proof-of-concept that takes a comprehensive analysis of market offerings and internal needs. The model should evaluate total cost of ownership including a strong focus on operations and governance with risk, security and compliance officers involved from the outset.
Move the infrastructure cloud into scaled production and create a chargeback model for each line of business which matches the allocation of infrastructure capital. To evangelize the offerings and changes made, a service catalog should be used across the business.
Evaluate which applications, including those from database or data entry, transaction processing, online and packaged applications, will benefit from migration to the infrastructure cloud.
Assess security, privacy and control priorities. Public cloud may suit applications where security is not a major issue, whereas private cloud may be a logical choice for higher levels of security. More sensitive financial services applications can be retained in their existing environment, or a utility services or traditional managed hosting solution considered.
Explore potential services that can be accessed from the infrastructure cloud. Those categorized as software as a service should be a particular focus, especially with the range of new offerings targeted at financial services firms coming to market.
Investigate new business services and markets to take full advantage of the agility and cost benefits of cloud.
A winning solution
Hybrid cloud is a potential game-breaker for financial services companies beset by global economic and regulatory uncertainty, new competitive pressures and increasing customer expectations.
With the right cloud delivery model banks can break off the shackles of legacy IT and create ongoing value for their business strategies. The transition will deliver agility while lowering costs to accelerate speed to market for new services, cut capital and operating expenses, and fortify risk and security management.
The outcome is a more nimble, competitive and dynamic business capable of meeting the expectations of investors, regulators and customers.