In a world where, as John Schlesinger, chief enterprise architect at Temenos, argues, servers are about to stop getting cheaper, the advantages of cloud computing in terms of cost and customer experience look more compelling than ever. In the banking market, however, the spread of cloud systems has been slower than elsewhere due to factors including concern about data security, uncertainty about the position regulators will take on cloud technologies and the challenge of managing migration from the in-house, legacy IT systems that currently run banks’ critical functions.
So just how hot is cloud banking right now? A quick temperature check of the financial services industry’s attitude to cloud banking in April triggered a warm response.
There are two sides to every story and never more so than when discussing with banks the shift from in-house technology to on-demand cloud-based services. So in Temenos’ recent survey Cloud-banking heat map, we asked two key questions: what are the benefits you seek from cloud services; and what, if any, are the barriers to adoption you face?
Echoing the results of a similar Ovum survey The Critical Role for Cloud in the Transformation of Retail Banks,last year, our results show that cloud is no longer just about cost reduction, as 50 per cent of respondents see cloud as a means to adopt new technology, and 34 per cent reported the ability to add new business functionality more quickly as a top benefit. This is a very encouraging sign that banks are seeing the adoption of cloud technology as a means to support the delivery of new products and services.
That is not to say that the long term cost benefits of cloud services are any less important. In fact the highest scoring benefit sought from the cloud, at 58 per cent of respondents, is to reduce overall IT costs. Not at all surprising given the profitability hit banks have taken post financial crisis, cost-savings are an obvious driver of a cloud-based IT strategy.
The top reported barriers to adopting cloud services are concerns over data security (55 per cent) and reliability and availability (47 per cent), which are common challenges for financial institutions that are used to managing and maintaining their own IT. This highlights the need for cloud providers to do more to demonstrate to the industry the robustness of their security controls and availability metrics, as paradoxically we may find that security and reliability is a benefit rather than a barrier to cloud.
Concern over regulatory compliance is another top factor against cloud banking, cited by 45 per cent of respondents. This is no surprise in such a heavily regulated sector, and there is no quick fix, but when talking to lawyers in this space, the feeling is that with a high level of due diligence on the on the banks’ part, and a transparent and collaborative approach on the cloud provider’s part, a solution could be found that meets all parties’ needs, including those of the regulator.
In response to this, we see cloud software vendors, their platform partners and industry organisations are working closely to address security concerns. Co-ordinated efforts such as the Cloud Security Alliance and its Cloud Controls Matrix have set out security principles for cloud vendors and assist prospective customers in assessing security risk at individual cloud providers. Cloud providers themselves are investing heavily in compliance and security expertise to the extent that many observers argue that a well-implemented migration to the cloud can result in higher levels of security than an in-house system, as well as access to real-time reporting mechanisms that are often superior, too.
As the industry continues to warm up to cloud banking, we will see the same issues raised and discussed again and again. And rightly so: the only way to support the banking industry in any leap in technology and faith is by addressing issues and challenges openly until all parties are convinced of its viability.
However, while clear challenges remain to more rapid adoption of cloud-based technology in banking, it is clear that change is happening. Already, analysts at Gartner predict that by 2016, more than 60 per cent of global banks will process the majority of their transactions in the cloud. Many are already moving less sensitive functions there and developing strategies to enable them to capture the benefit of cloud-based systems for their core operations.
Written by David Arnott, chief executive of Temenos