By Senthil Kumar, Vice President, Oracle Financial Services
Cloud computing is expected to be one of the fastest growing technology areas in the coming years with business applications likely becoming the biggest market for cloud-services spending. But the financial services industry is still in the early stages of cloud adoption. A recent study by The Cloud Security alliance revealed that 61 percent of financial institutions surveyed are developing a cloud strategy within their organization. The most common strategies will use a mix of private, public or hybrid cloud environments.
While the advantages of the cloud are clear (cost savings, usage-based billing, business continuity and agility), there are still perceived and real risks with financial services moving some of their applications and operations to the cloud including data confidentiality, security, regulatory compliance, interoperability of standards, and quality of services.
This paradox is not new but the pressures to cut costs and improve profitability are making the cloud more appealing to banks and financial services organizations – the ability to reduce capital expenditures on technology infrastructure being the most promising. In addition to improving the bottom line by reducing IT expenses, the cloud presents a valuable opportunity to level the playing field and build a competitive advantage in a sector barraged by an influx of non-traditional players such as fintech companies that are less strained by regulations and large organizational processes.
There are several different cloud adoption models available to financial institutions and there is no one-size-fits-all. The goal is to decouple workloads from the operating systems, storage and layers underneath the banking applications. By doing this, IT departments can deploy applications in the cloud using the best approach for their business.
Due to the sensitivity of their data, some banks have started their cloud journey with a private cloud or managed cloud services. This gives them greater control over the management and security of their infrastructure and data.
Proof is in the Pudding
For example, a subsidiary of a large bank in the United Kingdom is leveraging the cloud for its core banking system. The bank has its core platform hosted and managed in an Oracle data center, giving this newly established ‘challenger bank’ the ability to be up and running in a matter of months and servicing customers the way they want to be serviced – outside of the branch, in near real time, and on many different device.
The bank has not only benefited from the cloud by dramatically saving on IT costs, it has also improved its customer experience with the ability to deliver new digital offerings faster than its parent entity. The bank has also determined that the environment can meet its security and specific regional regulatory compliance mandates.
But not all clouds look the same and managed cloud services is one of many options available to the banking sector and because each institution is unique, its cloud strategy should be as well.
Here are other cloud options available:
Cloud Service Models
- Software-as-a-Service (SaaS) SaaS cloud applications are housed in a data center managed by the application vendor and the application is accessed via a web browser by all users. These types of applications tend to be more focused on different areas of the banking business such as customer relationship management, human resources and ERP.
- Platform-as-a-Service (PaaS) A cloud service provider offers a complete platform for application, interface, and database development, storage, and testing. This allows businesses to streamline the development, maintenance and support of custom applications, lowering IT costs and minimizing the need for hardware, software, and hosting environments.
- Infrastructure-as-a-Service (IaaS) Rather than purchasing servers, software, data center space or network equipment, this cloud model allows businesses to buy those resources as a fully outsourced service.
- Managed Cloud Services (MCS) A managed cloud service is where an application is hosted in a vendor’s data center or in the financial institutions data center. More common applications in this scenario include a core banking system or critical infrastructure running the bank.
Cloud Deployment Models
There are three ways service providers most commonly deploy clouds:
- Private clouds. The cloud infrastructure is operated solely for a specific company. It may be managed by the company or a third party and may exist on or off the premises. This is the most secure of all cloud options.
- Public clouds. The cloud infrastructure is made available to the general public or a large industry group and is owned by an organization that sells cloud services.
- Hybrid clouds. The cloud infrastructure is composed of two or more clouds (private or public) that remain unique entities but are linked in order to provide services.
Right now we are seeing an uptick in a hybrid approach where there is a mix of private and public, giving the bank peace of mind that sensitive data is in a private cloud while other applications and processes that are less sensitive can be placed in a public cloud.
The intense competition in the financial industry is forcing banks and other financial institutions not only create as much value as they can from all of their activities and offerings, but find ways to cut costs and increase profits. So as we continue to see security concerns addressed by cloud providers and the cloud proves its value, we expect to continue seeing adoption rise.