Digital subsidiaries launched by major banks are more about fresh business models than experimenting with technology, says Scott Mullins, head of worldwide financial services business development at Amazon Web Services (AWS), though agile cloud-based entrants have raised the bar when it comes to customer expectations.
“You can look at OakNorth, you can look at Starling, you can look at Monzo, and look at N26 over in Germany. All of them are building on the cloud. It gives them agility to break free of quarterly release cycles. This has created a rising bar in relation to what customers expect from their banks. Some financial services firms are meeting these expectations with digital offshoots, like Santander’s OpenBank.”
OpenBank, originally launched in 1995, has been rebranded by parent Santander as Spain’s first-ever 100% digital bank. It operates online and via a mobile app and has around 1.3 million customers. The bank uses both Microsoft Azure and Amazon Web Services in a multi-cloud environment to run its production lines and its core banking system, supplied by Temenos.
For Mullins, it’s not the pressure of challengers in the market fuelling decisions by major banks to shift their operations towards the cloud. “I think that it is just a realisation that when you’re building modern businesses you have to use modern tools. If you’re going to keep pace with a challenger in the industry then you’re going to need to use the same techniques, which from a business perspective is building on the cloud.”
According to a March survey conducted by enterprise cloud provider Nutanix, financial services has a higher average penetration of hybrid cloud solutions (21%) than the global average (18.5%). Despite this, the report also reveals that financial services run more traditional data centers than other industries, with 46% of firms reporting they did so. Banks also reported a low usage of private clouds, at 19%.
“What we’ve seen over the past five years is something financial services is prone to doing – very excited and interested in a new technology that comes on the scene,” says Mullins. “This especially happens in places like capital markets, which tends to be a very fast follower.
“After that comes the dig in where firms ask, ‘okay, this is great but how do I use it?’. We’ve got organizations that have very large existing estates from a technology perspective and it takes a little bit of time before we can change those in earnest. A systemically important bank could have anywhere from 4,000 to 6,000 applications that sit in your own data centre today. You can’t just make that change overnight.
“Over the course of the next several years hybrid environments are going to be the norm, where you have on-premise and your preferred cloud provider working in tandem. I think that more and more we’re going to see organizations moving over. I think in the fullness of time you’re going to see the majority of applications in financial services running on cloud. If you go 10 years out, you will see 99% doing so. In the next five to seven years you are going to see hybrid environments. The reason for that is one of pure practicality, because it takes time and effort to move such large groups of applications to the cloud.”
A Kasperky Lab report this week found that nine out of ten cloud data breaches at enterprise firms were down to employee error. April research from Forrester found that the global market for cloud security will reach $12.7bn by 2023, up from $5.6bn in 2018.
“The questions we face most often today tend to focus around two main points,” says Mullins. “The first is, ‘how do I do this and how do I do this at scale?’ because they might not be equipped to do major migrations or operations in the cloud because they have completely different skillsets and suddenly these need to change.
“The second is, ‘how do I get there fast?’ People want to be more cost-effective, resilient and agile when it comes to rolling things out to production. It can take a whole new level and direction of thinking on the bank’s part.”