When I reviewed the banking and financial services industry's use of the cloud in 2015 (The top cloud providers for financial services), 61% of the financial services survey respondents said that cloud was only a "formative" strategy in their business and IT plans.
Four years later, the tides have shifted as many financial services companies leverage the cloud to keep pace with a rapidly moving market. So, where exactly are banks investing in cloud?
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Financial institutions continue to express reluctance over outsourcing their core banking and most of their mission-critical systems to the cloud -- especially to the public cloud, where there have been damaging and highly publicized security breaches.
Part of the concern relates to financial institutions' fiduciary responsibilities to their customers. If financial and/or other highly sensitive data gets compromised, customers (and financial institutions) face major liabilities resulting from identity theft, fraud, and other malicious acts.
However, that doesn't mean that financial services companies aren't investing in public cloud solutions. Significant financial services engagement with public clouds has occurred in areas which promote collaboration among employees and departments, and which help financial services companies reduce the costs of their internal IT spend.
The most popular public cloud offerings for financial institutions include cloud-resident office suites such as Microsoft Office 365, customer relationship management systems (CRM), market research systems, and HR systems.
All of the above systems are ancillary to the core systems of banking, which processes banking transactions and manages customer accounts.
When it comes to mission-critical systems like bank transaction processing, account management, or overall bank portfolio management, financial services companies might still choose cloud. But if they do, it is usually in the form of an industry cloud provider that has a thorough understanding of the processes, security, and sensitivities of finance.
Smaller financial institutions such as community banks and credit unions are most likely opt for an industry cloud banking solution, which can handle all of their core banking -- if the provider has expertise in the financial industry and its regulations. In this case, the motivation is cost savings.
In this cloud-based banking model, it is not uncommon for smaller banks and/or credit unions to sign on with a large processor that has an internal core banking system, which can be used in a multi-tenant industry cloud. The provider of the system is often a larger financial institution looking for cost relief from its own internal IT costs and has recognized that it can easily obtain subscription money from smaller institutions that want to use its existing systems and resources in a secure cloud.
In this multi-tenant shared banking model, each financial institution has its own separate area of processing and storing data -- but the cost of overall processing, data storage, telecommunications, and support are shared.
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Non-core industry cloud applications
Although large financial institutions prefer to retain direct internal control over their own core processing, there are new ancillary banking products and services that consumers want. It isn't cost effective for financial services companies to develop and deploy these products and services on their own -- and in many cases, they lack the internal expertise to do so.
When time-to-market for new products and services also become issues, both large and smaller financial institutions often opt for cloud-based solutions run by third-party providers.
Popular additions to core financial product offerings that financial institutions often opt to outsource to the cloud include:
- Financial planning and wealth management
- Credit card processing
- Credit scoring
- Brokerage services
- Overall financial portfolio risk analysis tools for the institutions themselves
The systems banks want to keep
Pure and simple, the systems financial institutions prefer to keep under their own roofs are their mission-critical core banking systems. In general, this is true for any financial services company with more than $500 million in assets.
Key selective criteria for the cloud
When it comes to both core and ancillary systems, financial institutions prefer to go with cloud providers with well-established financial and IT reputations that can be trusted with demanding levels of governance and security. They will also favour providers offering cost-effective services that 'fill the gaps' in corporate internal infrastructures and product/service offerings.
Among the cloud-based solutions that meet these criteria are:
- Visa and MasterCard for card processing
- Experien and TransUnion for credit checks
- Fiserv and Jack Henry & Associates for cloud-based core banking services (a good fit for community banks and credit unions)
- IBM and First National Technology Solutions for infrastructure as a service (IaaS)
- JD Power for financial market research and analytics
- Oracle HCM (Human Capital Management) and SAP/SuccessFactors for HR
- Salesforce for sales and customer relationship management (CRM)
- Amazon Web Services (AWS) and Microsoft Azure with Moody's Analytics, which are also being used by some large banks to run portfolio risk simulations.
Financial institutions will continue to take a measured approach toward cloud adoption. There have been too many recent data breaches that have scared consumers and make financial institutions wary.
On the other hand, financial services companies exist in a rapidly changing industry that is seeing new non-financial players enter the market. This forces companies to bring new products and services to market faster so they can retain their customers.
By leveraging the power of the cloud, financial institutions can keep pace with a rapidly moving market. They can also expand their IT infrastructures as needed to support any new offerings. A trusted cloud provider offers this elasticity in infrastructure as well as in cost.
For all of these reasons, financial services companies are opting for a hybrid IT infrastructure that incorporates elements of public cloud, industry cloud, and internal IT to optimize resources in support of their business.
- Hybrid cloud: A cheat sheet (TechRepublic)
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- Top cloud providers 2019: AWS, Microsoft, Azure, Google Cloud; IBM makes hybrid move; Salesforce dominates SaaS (ZDNet)
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- Microsoft Office vs Google Docs Suite vs LibreOffice (Download.com)
- Cloud computing: More must-read coverage (TechRepublic on Flipboard)