Future IT for future-proof banking

3 November 2010


By David King,
chief technology officer,
Logica

The information-centric nature of financial services could see it become one of the largest adopters of cloud services. But there are still many factors institutions need to consider, such as which services to move to the cloud, the benefits of the different types of cloud and how they fit into the wider future IT strategy. David King, chief technology officer (CTO) at Logica, examines the opportunities going forward and how institutions can take advantage of these new technologies.

Starting the future IT journey

Financial institutions across the globe are increasingly keen to use cloud services to drive down capital expenditure, reduce time to market for new products, achieve economies of scale and rationalise their IT infrastructure. Highlighting this trend, recent IDC Financial Insights research found that more than two-thirds of firms in financial services have the cloud in their technology roadmap.

Concerns over security and reliability have now been demoted from showstopper to hurdle that can be overcome with the right partner, and banks are now realising that information is often more at risk in their own environments. Nonetheless, with a culture of keeping its data close to its chest, in banking many firms first want to define their overall future IT vision before fully committing to the cloud.

As banks’ data centres draw close to full capacity, many will be closely considering how cloud computing fits into the wider future IT picture. This involves gaining an understanding of the architecture needed to support the business, whether this is built, acquired or rented.

Getting the right cloud mix

Banks are gradually moving to an era of renting IT, instead of simply making it or buying it. The cloud offers a set of solutions from software to business processes, delivered as a flexible pay-per-use service. But there are a number of different types of cloud and deployment models – all of which will serve different requirements.

The public cloud represents services that are provided across the internet – online banking portals are a classic example. However, for many banking functions, the public cloud is simply too high risk.

The private cloud, on the other hand, sits on the bank’s internal network. The added control and security offered by the private cloud is likely to appeal to banks looking for a more cost-effective way to access their core applications, such as payments or market data.

The community cloud is where cloud infrastructure is shared and supports a community that has a mutual interest such as increasing collaboration. CLS is a good example of such a shared service in banking that could well be accessed through a community cloud in the future. It is most likely that banks will eventually move to a hybrid cloud environment, which mixes and combines the private, public and community cloud approaches, to attain the right elements that meet each institution’s specific needs.

Over the next few years, the industry will start to see more banking functions move to the cloud – not only to drive down costs but to overcome capacity issues and avoid a data centre rebuild. However, it needs to be the right solution for the individual organisation. First movers are likely to be the functions banks deem as commodities rather than mission-critical or competitive differentiators. But virtualising the business is not without its complexities – tough questions about what should move to the cloud as well as when and how to integrate services with existing systems will need to be answered.

Banking on the cloud

The cloud is fast proving itself to be much more than just a passing fad in financial services. Not only does it unlock capital, but it is improving the way banks work with their stakeholders by making it easier to share, connect and take advantage of technological innovation.

We have already seen several examples of the novel benefits that can be reaped from an effective cloud implementation. One banking and insurance organisation is now using a cloud-based enterprise social network to collaborate in a secure, simple and cost effective way, significantly improving its overall productivity. Another leading financial services organisation has effectively rolled out a new HR strategy and associated tools by using existing in-house systems and Software-as-a-Service for greater flexibility, scalability and a faster launch.

These represent just small stepping stones in future IT, but they are paving the way for more banking services to move to the cloud when the market – and the institution in question – is ready. We may even one day see ‘bank in a box’ offerings, which package a set of solutions specific to this industry and deliver them as a service. Some critical banking functions may never move offsite, though they will need to be integrated with the cloud-based technologies to form a unified service.

Conclusion

Future IT and the cloud can seem complicated, particularly with so many services available and many more still to come. However, as one of the most IT-savvy industries, banks are well positioned to turn this to their advantage. In fact, they will likely pioneer the use of private cloud technology by virtualising their own data centres.

The transformational possibilities of the cloud in financial services are immense. It can potentially make M&A activity more appealing because it means less upheaval in terms of infrastructure integration. Global software implementations will also become more commonplace with cloud services, as this makes the roll-out quicker and easier than an in-house install.

Where implemented effectively and as part of a wider future IT strategy, the cloud will help institutions deliver tangible benefits in terms of reducing costs, responding quickly to changing market conditions, speeding up time to market, and, ultimately, enriching the customer experience.

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