Banking on a Cloudy Outlook

Image credit: iStockphoto/CHUNYIP WONG

We saw a series of major announcements of public cloud migrations at financial institutions in the middle of last year. HSBC signed a long-term strategic deal with AWS. National Australia Bank and Microsoft confirmed a five-year multi-cloud partnership. IBM announced BNP Paribas was to become its first IBM Cloud for Financial Services anchor customer in Europe. Meanwhile, GCP is not resting on its laurels. While HSBC previously stood as one of Google’s only major financial institution customer for cloud, GCP announced an expected 10-year contract with Deutsche Bank, along with a partnership with Goldman Sachs.

The new deals are part of the larger cloud story. Gartner released an updated forecast predicting 6.3% growth in worldwide public cloud revenue in 2020, increasing total spend to USD258bn. While cloud migrations at financial institutions and general growth in cloud usage come as no surprise, financial services have traditionally been more conservative than their industry counterparts in expanding public cloud usage as part of a hybrid model. We take a deeper look at the current dynamics within financial services that contributed to the July partnerships push.

What’s driving the change

Forced acceleration of digital transformation

For an industry that has long taken a cautious approach towards technology adoption, financial services have been impelled into uncomfortable territory in recent months. The pandemic changed attitude towards digital transformation to be one of urgent necessity.

Multi-year programs to migrate client services and banking online and to the cloud became multi-week plans. In many cases, the pace of change across financial institutions exceeded their own and clients’ expectations.

The shift to working-from-home has shown the ability of an industry that prized itself on skyscrapers to work in a distributed environment. It also forced privacy and security concerns to be addressed for collaboration and productivity software, VPN access, and video conferencing. It required a fundamental change of attitude for management teams towards digital transformation — a shift in mindset that we believe will propel cloud adoption as management carries forward lessons.

Much of the collaboration necessary to adapt financial institutions for remote operations applied to the cloud transition. It requires holistic, cross-team decision making — risk, firewall management, application, cyber security, network, identity, and access management all need to be considered.

Proof of Concept

While the recent announcements show the scale of investment and commitment to the cloud path ahead, such partnerships did not happen overnight. HSBC has been openly talking about adopting a cloud-first approach since 2017. With 39 million customers, 90,000 servers, and data centers in 21 countries, its staged approach is no surprise. Many started with areas of the bank that are compute-intensive but less exposed to personally sensitive data or regulatory changes. Building confidence and establishing cloud stability is not just an evaluation of the external cloud provider; it is an assessment of internal capabilities and the ability to manage the partnership.

Many banks spent years in the landing zone — figuring out how to layer on top of native services and the control foundation, which is particularly challenging given industry regulation. For those who signed major partnership deals in July, it is not their first rodeo. After years of initial development and testing, many were ready to commit to larger-scale production when the pandemic called for action.

Need for data flexibility

No period has brought home the need for flexibility quite like the first half of 2020. As we head into Q3 and face continued economic uncertainty, the need for nimbleness remains. Legacy infrastructure in financial institutions is built around infrequent batch processing, unable to provide real-time experiences that customers demand, whether it’s in-house engineers or the ultimate end financial consumer. The elasticity of compute that the cloud offers gives financial institutions much-needed agility to innovate and pivot business models, whether spurred by the pandemic or by competition from fintech providers. The flexible pricing structure of cloud providers offers a natural hedge – the pay-as-you-go structure allows cost to move in sync with the level of data storage needed. If activity drops, so too do the associated costs, which removes much of the burden of planning years in advance for on-premise storage.

Increase in financial services-specific solutions

Major cloud providers have begun to recognize the need to address industry-specific data concerns. Several cloud providers have attracted top talent from the industry to serve customer needs better and break down barriers that have held back public cloud adoption.

Citi veteran and former FinTech CEO for the bank, Yolande Piazza, joined GCP in June. In April, IBM named former Bank of America CTO Howard Bolville as the new head of its Cloud Business. Most importantly, we were happy to see providers take action to reflect industry concerns in solution-oriented offerings. For financial institutions, concern over cloud security remains the primary hurdle to adoption.

The year before, IBM claimed it was developing the world’s first financial services-ready public cloud, noting that it could provide “preventative and compensatory controls for financial services regulatory workloads, multi-architecture support, and proactive and automated security.” In July 2020, Google announced an additional layer of encryption to protect sensitive customer data. While GCP already encrypts data at rest and in transit, the Confidential Virtual Machines (VMs) will also encrypt data while used, indexed, queried, or trained on. While risk cannot be removed entirely, such innovations will continue to raise questions over whether financial institutions are truly in the best position to manage ongoing data threats.

Over the year, we have seen an increase in interest in cloud migrations at financial institutions and cloud-native deployments of Tamr. The migration to the cloud often acts as a trigger to revisit data quality. It opens opportunities to leave legacy, rules-based data management processes behind, reinforces the need for a scalable approach to data mastering, and requires an assessment of data classification to address data sovereignty. The ability to deploy machine learning models, improve operational efficiency and increase time-to-value of data are typically key drivers of a cloud-first mindset that align with the value proposition of Tamr.

While we will always remain flexible to the hybrid choices of our financial services customers, we expect to see continued growth in the cloud-first approach as institutions look to leverage the elasticity, security, and cost benefits of cloud computing. At Tamr, we are banking on a cloudy outlook.

The original article by Louise Baldwin, product marketing and strategy at Tamr, is here. Some of the content was updated/edited to reflect timelines.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of CDOTrends. Image credit: iStockphoto/CHUNYIP WONG