I remember reading an article in the Wall Street Journal last year that predicted how formerly resistant big banks will be adopting the public cloud in 2017. Now I know we’re only in March, but it’s time to get a move on! (Even the regulators have given cloud a green light, so no more excuses). And an unlikely accelerant may just come in the form of blockchain. The two technologies have a lot in common, and deploying your blockchain pilot projects in the cloud lets you harness the many benefits of both at once.

Let me explain. Both cloud and blockchain have security protection baked into them and the data is fully encrypted.  Cloud’s options of private, community and public deployment models mirror blockchain’s ability to target specific members in the chain, including regulators and auditors.

Both are strongly resistant to cyber crime. Blockchain designed to remain a golden source regardless of what the cyber criminals on the internet can throw at it. Cloud providers pride themselves on the measures they have in place to create a cyber risk free zone. This includes round the clock monitoring for suspicious activities and real time response to such activities. Cloud providers know cyber defence is key and “zero trust” the byword. 

And of course, both cloud and blockchain significantly reduce costs. Blockchain, like cloud, removes the inefficiencies from its processes. Blockchain could reduce banking infrastructure costs by up to $22 billion, and as unless you’ve been living in a cave, cloud’s efficiencies around infrastructure-as-a-service are well documented.

In some of my own research and conversations, I’ve quantified that the five biggest UK banks have an average cost income ratio of 61% (some individual banks are much higher). They’re all weighed down by silos and restrictions of old legacy systems. It’s hard to be slick and efficient when you’re wading through the legacy quagmire. New challenger banks, on the other hand, have planned a much lower average cost income ratio; they are after all starting from a clean sheet of paper, of just 35% so their cost to serve is considerably less.

Whilst cloud removes old legacy systems, blockchain removes the middleman within such systems. Why then would you want to deploy your shiny new blockchain project on an old restrictive, expensive and possibly less than safe on-premise system?

Cloud also opens up the bank to immense scale as we are now seeing with Black Friday, Cyber Monday and Singles Day where on one day $17 billion in sales occurred. Imagine the supply chain finance activities needed to support that single day’s activities. The traditional legacy system was to build more capacity by buying more computers, more software and hiring more IT people. The cloud provides cyber security and pay as you go so you can scale in safety.

A second generation of banking is coming. We’re already on the cusp of it, and banks are running out of time before they become completely marginalised. As digital transformation sweeps through all aspects of the front and back office, banks must pull their heads out of the analogue sand pit. Every single bank is going to need a blockchain strategy, and every single bank is going to need a cloud strategy.  Piloting your blockchain projects in the cloud is not only a no brainer, it’s a necessity.