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Hybrid Cloud in Banking: Is Combining a Public Cloud and Own Data Center Worthwhile?

Today, cloud computing is a crucial component of the banking and financial services industry. The American Bankers Association estimates that more than 90% of financial institutions use cloud solutions for some or all of their banking activities.

However, despite the widespread use of cloud computing in fintech, most banks are still hesitant to transfer all of their assets to the cloud. 10% of the institutions reject cloud computing, primarily due to financial constraints and data insecurity.

Still, banking institutions utilising hybrid cloud banking have reported considerable advancements in a number of areas of their business. Let’s discuss hybrid clouds and how banks might use this technology for their benefit.

Typically, hybrid clouds are used in the banking industry to coordinate and control application portability in order to offer a consistent and flexible distributed computing environment for simple scaling.

How hybrid cloud infrastructures benefit financial services organizations

Banking institutions can leverage hosting their app in a hybrid cloud environment in the following ways:

Boost security

Adopting a hybrid cloud strategy for digital retail banking infrastructure will assist in preventing and minimizing the potential harm to the bank's reputation and finances.

Financial institutions can lower the risks of compromising data by using a private cloud environment for sensitive information and a public one for other records.

Meet the regulatory standards for data management

Financial companies can handle customer data legally by using hybrid clouds. Banking is a highly regulated industry, and every application must adhere to a variety of regulatory criteria.

However, a hybrid cloud solution bank can store sensitive data on its own private server in accordance with data handling and management standards by hosting an application on commercially acceptable public clouds like AWS.

Implement fresh approaches

Many financial organizations manage service portfolios that include outdated applications unable to enable the addition of new capabilities or components. They may end up finding it challenging to make changes to the current architecture since some legacy software can be too difficult to upgrade.

However, it is possible to transfer and update your traditional banking infrastructure to a cloud environment, a part of a fintech platform that operates hybrid cloud solutions.

(CI/CD) Maintain continuity

By bringing about the era of challenger banks and other disruptive fintech products, hybrid clouds have expedited developments in the banking industry. And continuous integration, delivery, deployment, and development make this possible.

This enables fintech teams to develop more quickly and achieve deadlines without delaying the ongoing process. Hybrid cloud architecture could also be used to host, test, stage, and back up important processes.

Enhance user experience

The user experience will be considerably enhanced when the core infrastructure is flexible and always available. Few network disruptions and downtimes will affect the applications and services as they continue to run.

When banks deploy hybrid clouds at edge servers, network latency is also reduced. Most importantly, information from a bank hybrid cloud can aid financial services companies in better understanding their clients and developing strategies for raising client happiness.

Accelerate time to market

Continuous integration and delivery, as was already established, increase the rate of innovation. Because it shortens the time it takes for products to reach the market, this crucial capacity matters in the fiercely competitive business. Additionally, you can upgrade the product following deployment to fix issues or add new features.

Reduce IT costs 

The IT costs will drop dramatically for applications in a hybrid cloud environment. Consider the fact that a shorter time to market implies fewer testing, development, and deployment iterations. As a result, you can reduce expenses, particularly when using a time-and-materials approach.

Additionally, the majority of cloud vendors use a pay-as-you-go billing approach, which allows you to only pay for the resources you actually use rather than paying exorbitant rates for unnecessary capabilities.

Separate data silos

Despite the fact that a hybrid cloud divides infrastructures into many storage environments, new cloud solutions contain features that let banks consolidate their data and prevent silo formation.

Increase scalability and flexibility

Due to their versatility, banks and other financial organizations can rely on hybrid clouds. Without encountering network interruptions, they can adjust the operations to meet the growing demand. This enables banks to expand their business while maintaining a high standard of performance and client satisfaction.

Boost ROI 

Hybrid clouds help banks to reduce unnecessary expenses, which boosts total revenue. Furthermore, by identifying operational redundancies, financial institutions can increase the productivity and efficiency of their processes.

Best practices for hybrid cloud implementation in banking

Although there are many benefits to using a hybrid cloud for banking, implementing it incorrectly could harm banks and financial service providers. Let's look over the ideal methods for putting hybrid clouds into practice, some of which we at SDK.finance are employing for our recent development - hybrid cloud fintech platform.

Use reliable vendors

Banking institutions can employ private clouds for application and network infrastructure if they can afford the security and maintenance costs. As an alternative, they might manage data-intensive financial activities using the resources of reliable vendors, like Amazon Web Services (AWS), Microsoft Azure, Google Cloud, SAP, etc.

Maintain interoperability

Maintaining interoperability with historical systems and even modern cloud tools has become difficult due to the proliferation of different cloud technologies. The following strategies can be used to keep the hybrid cloud banking infrastructure interoperable:

  • Implement open cloud standards.
    Your cloud infrastructure should adhere to IEEE interoperability criteria even though there are no universal operability standards to prevent incompatibilities.
  • Use adapters as a barrier between several cloud systems.
    These adapters save costs by eliminating the need for an additional data center to merge legacy systems with modern ones. 
  • Modernize the architecture you have now.
    Legacy systems can coexist with hybrid clouds, although it is preferable to upgrade them to improve efficiency.

Keep vendor lock-in in mind when re-platforming

Some cloud service providers "lock in" their products, making them incompatible with other cloud assets. Prioritize vendors who support interoperability when picking a cloud provider for re-platforming your traditional banking infrastructure. This will enable you to transition to a hybrid cloud without having to worry about extensive toolset changes and compatibility.

Establish a rigid system of governance

A digital banking governance strategy should contain guidelines for cloud services. This makes sure that a corporation as a whole is aware of their corporate objectives.
A strong cloud governance approach also improves data security by making sure that all deployments, integrations, and tests adhere to the defined internal regulations. Teams can then identify and assess risk indicators before they have an impact on the financial services.
In order to completely remove insider risks, banks should adopt access management to restrict who has access to sensitive information.

Include testing at each level

Every hybrid cloud's success depends on ongoing testing, which begins with the transition from on-premise architecture and goes on for the duration of the cloud environment's existence.
Companies that provide financial services, such as virtual banks or cloud wallets, must test their systems to make sure all of the parts are operating properly.

Track performance
Banks must continuously check the efficiency of their hybrid cloud infrastructure as part of governance and testing. When deploying a hybrid cloud in banking, keep the following in mind:

  • Exposed endpoints
  • Accessibility 
  • Price 
  • Response period
  • Crash frequency 
  • Network requests 

Monitoring the performance of both private and public clouds is available with the aid of tools like Google Operations, Azure Monitor, or CloudWatch.

Conclusion

Because it offers financial services providers the flexibility and scalability they need, the hybrid cloud is now a component of the banking industry. Working in a hybrid cloud environment can keep your data safe from unauthorized access thanks to the sophisticated security infrastructure and encryption mechanisms.

Banks and other financial institutions may manage operations, update their infrastructure, and uphold regulatory standards with a hybrid cloud banking solution. Above all, they may adjust the UI and connect customized solutions with public cloud servers to ensure a smooth, stress-free customer experience.

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Alex Malyshev

Alex Malyshev

CEO

SDK.finance

Member since

12 Feb 2020

Location

Vilnius

Blog posts

3

This post is from a series of posts in the group:

Cloud Banking out of the Box

Cloud and Open banking platforms, business model and operational approach tests.


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