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Leveraging the cloud

By Lindsay James on January 8, 2016

Filed under Banking & Capital Markets

We speak to Sean Foley, CTO of Worldwide Financial Services at Microsoft, to dispel many of the myths surrounding the cloud and to find out about the technology’s potential to transform the way that banks operate.

Perhaps the most challenging sector in which to do business in today, the retail financial services industry has evolved phenomenally over the last few years, creating a number of hurdles that only the strongest banks will be able to clear.

“Today’s operating environment is a world apart from the pre-crisis years,” explains Sean Foley, CTO of Worldwide Financial Services at Microsoft. “Margins are tight and regulations are strict. We’re finding many banks, like RBS for example, are changing their priorities and focusing on the retail banking side of the business because regulatory requirements are proving too much of a burden. At the same time, the pressure from customers is huge. They are demanding new, innovative products and services and are not afraid to switch banks if they need to.”

Foley believes that the only way that banks will become better equipped to meet all of these challenges is by becoming more agile. And this means a move away from the legacy infrastructures which many are still contending with. “A bank CEO recently said that most banks’ technology systems are like Noah’s ark; they have two of everything,” Foley explains. “This is so true. Trying to get anything done when you have two CRM systems, five email systems, a number of ERP systems etc. is inordinately complex. Luckily, cloud technologies are presenting banks with an opportunity to rethink their technology profiles and move much more quickly in a bid to meet customer needs.”

Indeed, with the promise of huge flexibility and significant economic advantages, it’s easy to see why cloud computing is so talked about. A recent Celent report, ‘Cloud-based financial services: a banker’s guide’, puts these potential benefits into context. It outlines that, for “US$5,000 – the cost of a mid-range web server – a cloud services user could rent the same server for 18 months or 12,000 servers for a single hour.”

In addition to the economic benefits, the operational advantages are also attractive to banks. The traditional methods of deploying a new physical server can take months, whereas a new virtual server can be installed in a matter of minutes. The Celent report highlights that most traditional in-house data centres run at an average utilisation rate of 30% or less, as systems need to be sized to accommodate daily and seasonal spikes in demand. By resource pooling, however, cloud providers can offer banks unlimited, on-demand capability, which results in economics that few bank-run IT services groups could match. The cloud services model also presents clear advantages in terms of control and governance and new opportunities in terms of data management.

But despite these clear advantages, many banks are giving cloud technology a wide berth. “A number of misconceptions surrounding the cloud remain,” Foley says. “The biggest challenge is in terms of regulation and compliance. Banks are very concerned that they will not be able to put data in the public cloud in any form. There is also a myth that data needs to stay within a bank’s firewall and that it cannot go outside the boundaries of a specific country. When you speak to regulators you find that this isn’t the case. It’s saddening that many banks are making decisions about the cloud without knowing the facts.”

Foley says that cloud providers today are raising the bar in terms of security, privacy and encryption of data. “Microsoft, in particular, is absolutely committed to ensuring the highest standards of security,” he explains. “Microsoft’s security measures address access controls, access restrictions, encryption, data integrity measures, segregation of duties, background checks, attack prevention and monitoring, response programmes and disaster recovery measures. These significant safeguards help financial services organisations meet even the most stringent regulator’s security requirements.”

More banks are turning to hybrid cloud models to run their operations

What’s more, Microsoft cloud offerings enable financial services customers the ability to customise the cloud to their needs. Customers can choose between a pure cloud environment, an on-premise solution and a hybrid environment that integrates cloud services into an on-premise IT infrastructure.

“Customers can move some users to the cloud and keep others on-premise for compliance or operational reasons,” Foley says. “This hybrid model is experiencing the biggest growth in this sector. It’s unlikely that any bank will move 100% of its business to the cloud but, in five years, I believe that every bank will host a significant part of its day to day business there. We’re taking great steps to ensure that our cloud technology is integrated into the latest versions of our on-premise servers such as SQL Server so that our customers can work seamlessly between the two. It’s about enabling customers to get the right mix to ensure that their desired environment, security constraints, compliance concerns, and risk tolerance are met.”

Overall, Foley is confident that the impact of the cloud will be far-reaching for banks. “Since 2013 the number of our financial services customers leveraging the cloud has increased more than 100-fold,” he says. “I have every confidence that it will continue to grow at such a rate. It’s one of those rare disruptors that has the potential to change how we do business and how technology can play a role in our lives. It’s facilitating a very exciting future for the industry.”

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