‘Cloud computing’, a phrase first used by Google's Chairman Eric Schmidt in 2006 to define the provision of remote access to technology-based capabilities over a network, is now a commonplace IT term. It is estimated that nearly 40% of the information in the digital universe will be in the cloud in some capacity by 2020, while Gartner indicates that the market has already grown 18.5% between 2012 and 2013.
While cloud services have accelerated consumer-centric applications such as social platforms, many B2B services are yet to realise the full potential of the cloud. The main barrier to uptake of cloud services in this sector is the scale and complexity of the individual enterprises. This is particularly true of the banking industry. Banking applications have to connect to multiple users, while performing specific business roles that are involved in a complex transaction, influenced by events in many different locations - using the cloud is a complex technical challenge.
How can banking institutions reap the full benefits of the cloud?
Until now, the cloud has primarily been used much like an internal intranet for banks, providing a virtual platform that allows employees to access technical or functional services. However, this is just the tip of the iceberg for the possibilities of cloud within banking institutions.
Used to its full potential, the cloud could be used as a shared platform across the whole banking industry - much like an “App Store” for banks. This would allow them to pick and choose best in class IT solutions for various services and even outsource some of their business functions to other banks, who may be able to perform these tasks more efficiently.
Key benefits of an open cloud banking model
1) Keeping up with innovation
The cloud has not only opened up opportunities for traditional finance players, but also tech-savvy newcomers, who are taking advantage of the open cloud environment to offer services that have previously only been governed by banks. Banks need to keep up with the speed and flexibility offered by these challenger companies if they are to compete.
2) Reducing the regulatory burden
Regulations are changing fast in the banking industry to adapt to this wave of new players. Relying on cloud can help banks to adhere to these new rules. For example a recent European Directive requires that banks are able to support a customer's request to make payments through any payments service.
3) Uncovering new revenue avenues
By outsourcing selected capabilities, such as payments processing to third party technology firms, or other banks, financial institutions can concentrate on what matters to their business - offering a good service and good quality products to their customers. There is also the opportunity for banks to develop new revenue opportunities. With an open banking cloud model in place, banks could look beyond traditional products to provide cloud-based solutions to customers. This could include providing alternative cash flow, foreign exchange, risk management and investment options to businesses.
In order to make this radical new business model a reality, it will be necessary to standardise the global banking industry’s IT framework. The BIAN model relies on a service-oriented architecture (SOA) that separates pre-defined services into core IT building blocks and identifies the necessary links between them. With all banking operations standardised in this way, banks would be able to use the cloud as a channel to connect participants in the marketplace, rather than a purely internal service.
For this shared model to work, certain barriers need to be set to avoid misuse. For example, a bank will not want to share a customer directory with a potential competitor.
Having pre-defined standardised business roles for each service domain would enable banks to set limits on access that would translate across the industry. In the example of the customer directory, banks could filter requests by ensuring that they are initiated from a valid source, such as the service domain that handles customer relationship management. This will add an additional, functional security level on top of the already available technical security.
Banking on cloud
The role of cloud has been largely spurred by our dependence on smart devices in developed economies, but as demand for computing services in emerging markets grows, the global significance of cloud for banks can only rise further. Offering low-entry cost and flexible, scalable solutions, effective use of cloud services in the banking industry could see banks revolutionising their business models. While tech newcomers are able to set up a cloud-based application immediately, there is some groundwork that needs to be put in place for traditional banks. Banks are currently relying on convoluted, ageing IT systems; it is important that banks work together to develop a global IT standard, if the whole industry is to innovate at the same pace as its newer counterparts.
By Hans Tesselaar, Executive Director, Banking Industry Architecture Network (BIAN)