By Mark White, Senior Manager – Financial Markets and Fintech, Telehouse
Understandably banks were initially reticent to move into the cloud. Concerns around security and control of data meant many were not willing to be early adopters of cloud technology. But as the technology has matured and security concerns have been addressed, attitudes have changed, with many banks developing strategies and embarking ona migration to cloud services.
However, the finance sector is moving at pace, and the impact of Brexit and the Covid-19 pandemic, combined with the need to rapidly transform operations, has accelerated cloud migration up the agenda. Customer experience is also a key driver for change with customers increasingly needing banks to deliver services quicker and more efficiently, and importantly, to provide personalised offerings. They want services to be easy to use and always available – and cloud provides the agility banks need to deliver this.
As the finance sector races to digitally transform, banks are increasingly aware that they need the right IT infrastructure if they are to compete with more agile fintechs and techfin giants, many of which are cloud native. They know that the legacy systems they continue to rely on today are acting as a brake on wider growth and innovation. As such, the industry has reached a watershed moment where it’s time to stop debating the cloud andinstead start exploring its potential.
Taking security out of the equation
The cloud has brought numerous advantages to the financial sector across many areas, including security, service, innovation and scalability. Critically in today’s data driven age, it has huge value in enabling banks to offer more targeted and personalised experiences to customers. So banks really need to think about how they store it, move it and apply analytics to it to use it more intelligently.
Given all these benefits, it is perhaps unsurprising that cloud has been attributed with helping grow the sector’s forecasted compound annual growth rate of 23.84%.
However, banks still have major concerns around compliance and security. Banks have to comply with a raft of new legislation, typically including everything from the latest data privacy and data protection regulations, right through to open banking and anti-money laundering rules. Banks typically retain high-volumes of sensitive and personal data, particularly around payment processing. Therefore, many do have concerns around putting data in the cloud due to a lack of control and fears it could be vulnerable to a breach.
Yet, security has moved on leaps and bounds since cloud first emerged as a service delivery model. From data encryption to zero trust verification and access control, many of the risks that traditional on-premise IT infrastructures present are being mitigated through cloud computing in financial services. Providers also ensure regular software and hardware updates to further reduce cyber security risks and forbid any unauthorised access.
In fact, today many observers would argue that keeping infrastructure on-premise is more rather than less risky than keeping it in the cloud. But, for those banks that are still reluctant to migrate to the cloud, colocation, delivered by a trusted data centre provider, is a good option.
The connectivity that a colocation provider can deliver to cloud vendors within the data centre, means that banks effectively do not need to go off the data centre campus to connect to a cloud provider because they are also likely to be housed within the same campus.
So a colocation approach can take away many of the security related concerns faced by banks around building networks outside the data centre to connect into the cloud, or running applications themselves over the Internet to the cloud.
Think about the bigger picture
Another common concern about the cloud is that it can be expensive, with many banks unable to justify the investment. However, this view typically focuses on the up-front costs and ignores the long-term cost efficiencies that cloud can offer. The cost of hosting data on-premise and maintaining servers will only continue to increase considering the ever-growing volumes of data and storage requirements that banks have to wrestle with.
At the same time, unplanned downtime, which is more likely to happen with on-premise systems rather than cloud services, can bring very high costs, revenue loss and additional expenses for repairs, providing a strong argument for moving away from legacy systems. Cloud infrastructure allows banks to scale quickly and easily, and in a far more cost-effective manner than with traditional on-premise infrastructure.
Colocation enabling the move to cloud
As the industry evolves, banks’ ability to become more resilient, innovative and agile is dependent on having the right IT infrastructure. For many banks, cloud will be the ultimate answer, enabling them to respond and adapt quicker to change, improve competitiveness and accelerate innovation.
The challenge, however, is how to take advantage of scalability and flexibility benefits of cloud without compromising security or compliance. With concerns around sensitive data still paramount, adopting a full public cloud approach is likely to be unrealistic, even if new entrants may be cloud-native.
Many banks are turning to colocation as the answer; recognising that cloud adoption does not have to be an ‘all or nothing’ approach. Rather than leaping head-first into public cloud, colocation can provide a hybrid approach, enabling banks to begin to connect disparate parts of hybrid IT structures to the cloud as and when they’re ready.
Not only does colocation offer huge benefits in terms of physical security – in particular, multi-layer security provision with trained staff on call 24/7, electronic access management, access control systems and CCTV – it can also provide access the to the partners, services and low-latency connectivity banks need to build a strong foundation in the cloud.
Of course, success is ultimately about more than just technology. It is also key that banks choose the right partner, one that can provide access to an ecosystem of cloud directly from the data centre. This will enable banks to benefit from their own connected cloud exchange with fast connectivity and predictable and scalable bandwidth.
For many banks, therefore, colocation will be the way forward, providing the glue that links legacy environments and public cloud environments by enabling banks to connect with cloud providers within their chosen data centre. This is, in turn, allows them to deploy key applications in the cloud that make back-office functions cheaper to process; keep control of those elements of their infrastructure they may want to retain on-premise, while also building a flexible foundation for future growth and innovation.