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In the past year, the giants of the cloud computing world have been chasing down the financial industry like a demented Groucho Marx stalking Margot Dumont on an Ocean-going liner. And there is nowhere for the banks to hide

by Bill Boyle Senior Editor

Cloud vendors have been aggressively targeting the fintechs to ensure that they are compliant with the new regulation coming down the road at them. This includes the likes of the Revised Payment Service Directive (PSD2) and MFID.

PSD2 will open the fintech market to new players since it has forced the banks to open up access to third-party providers like Facebook. This will allow them to build financial services on top of their large data and specialised infrastructure foundations.

Amazon Web Services (AWS), has probably been fastest off the blocks with numerous players offering a wide variety of services. It is presently working with Singapore’s DBS bank to help them with their digitisation. The Spanish bank Bankinter is using AWS to run its credit simulations and has managed to reduce the run time of these simulations from 23 hours to 20 minutes.

The French startup eFront is selling solutions in over twenty regions for the FinTech sector. AWS has launched what it calls its Financial Services Competency Program, aiming to certify technology and consulting partners in the financial services sector. AWS is certainly one of the key players helping fintechs join up with the banks.

Newcomer OakNorth was one of the first UK banks to run its Mambu core banking systems in the cloud last year, migrating its platform to Amazon Web Services. Digital retail bank Monzo, which built its core systems using containerised software, moved its core systems to the cloud. Metro Bank migrated its core infrastructure this year into a private cloud managed by Rackspace.

Microsoft’s Azure platform has partnered with Bank of America Merrill Lynch to help it develop blockchain technology. It has also partnered with Cross River, a bank which has pitched head-on into full-blown digitisation. Temenos is offering its platform on Azure, offering cloud banking capabilities to companies that would never have used them before.

Azure is also opening up new data centres in the UK to target the financial service markets there. There is no doubt that security concerns and future regulatory legislation internationally are giving the banks cause for concern, but 2018 will see hybrid cloud adoption take off and public cloud enter the lexicon of the banks for this will grow rapidly. Since this will be after the start of PSD2 and after Instant SEPA, the trickle will grow to a flood.

Up until now regulation has held back many UK banks from using public cloud since the suppliers could not guarantee where their data centres would be located. The big four UK banks still have a major legacy problem, and the difficulty of moving their legacy systems out of their current data centres is one of the major barriers they face. Their reliance on old-fashioned legacy infrastructure, built up over decades in many cases, is still too high for them to move swiftly to the cloud.

There are benefits to security for many banks, with the hyper-scale cloud providers in the enviable position to have vast teams of security specialists – far more than the banks can ever hope to employ. There are also numerous options regarding routes to the cloud – IaaS, PaaS, SaaS and public, private, managed – all of these may be attractive to a bank depending on the banks own unique configuration.

This would also depend on the bank’s size and the regions they operate in. So what are likely initiatives? For a tier one bank, they will buy probably buy infrastructure, and they build platforms and software-as-a-service on it. Therefore Chase in the US or HSBC in the UK are likely candidates. Tier 2 banks are more likely to rent platform as a service, and some  organisations are seeing that already, they tell us, in some of the RFPs they are getting.

This almost certainly means that it is the tier 3, 4 and 5 banks which are affected and are buying software as a service, since it entails very low costs of entry. Public cloud adoption is some way off yet, but hybrid cloud is here.

This article first appeared in the IBS Journal December 2017

 

by Bill Boyle
IBS Intelligence Senior Editor
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