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The Wrong Kind of Cloud?

In my previous blog I suggested that we need to understand what was behind the Cloud promise.  It can’t simply be that whatever the question, the answer is the Cloud.  It is imperative that we consider carefully what is needed to disperse some of the fog that is descending across our industry and revisit, categorise and refine the definition of cloud computing in order to establish how and when the cloud can bring benefits to channel banking integration.

One of the most important distinctions to make is that between the ‘Public’ and ‘Private’ clouds. Public clouds are shared, often geographically distributed services that should only be used for a limited range of banking IT functions. They are often offered by the giants of the Internet, such as Amazon with its EC2 elastic cloud. These public clouds often provide enormous computing power at fractional cost, so are useful for speeding up resource heavy processes. One recent case study showed a bank that outsourced its Monte Carlo risk calculations to EC2 completing a run that had previously taken 20 hours in 20 minutes!

However, core processes, such as channel banking integration, do not lend themselves to public cloud services, and indeed would likely be rejected by most regulators.  Concerns around controls and security are just two of the issues that raise eyebrows.

Private clouds, on the other hand, can and do bring a range of benefits. A private cloud operates in a known geographical location or locations and is more likely to offer guaranteed services levels.  Take ‘supply chain transparency’, where both the service provider operating the data centres and the suppliers that work with that provider are known to the bank. In some regulatory jurisdictions (such as Luxembourg where the B2 Group has its data centres and hosts its cloud offerings), all suppliers to the cloud operator must also be financially regulated. In my experience of providing banks and corporates with cloud based services for client on-boarding and automated channel integration across multiple countries, anything other than a heavily regulated private cloud offering would be rejected by corporates, banks and regulators alike. 

Emerging markets, with less legacy infrastructure and without the facilities of richer territories, also find the benefits of cloud services tempting, with Microsoft already forecasting Africa to lead the way in financial sector use of the cloud. However, just as with their northern hemisphere counterparts, African regulators insist on mission critical functions being controlled. For example, South Africa's Protection of Personal Information (PPI) Act impacts on any organisation which processes personal information of third parties, precluding the use of the more public types of cloud service. India's CII (Confederation of Indian Industry), is more cautious, and in its latest report with PriceWaterhouse Coopers says that banks would need to institute "fundamental technological changes" to adopt new technology such as cloud computing, software as a service, social media and green IT ventures. However, consulting and Research firm Gartner predicted as far back as 2012, nearly 20% of companies worldwide would not "own" IT assets, with India based companies expected to represent 20% of the leading cloud aggregators globally. Corporates may well lead the way in some markets.  

The suitability of software to run in a cloud environment is also critical. Applications must be built for ease of maintenance and remote deployment otherwise maintenance will be higher than it would for an on-site application and wipe out the cost benefits of using the cloud.  Whilst some software lends itself to remote installation, other software does not.

Banks and corporate treasurers looking to benefit from cost reductions and simplicity of processing are not, therefore, faced with the question...

“Should I use the cloud?”

Rather, the question to ask is...

“What sort of cloud service should I use, for which of my business processes, supported by which particular software components, and in which particular territories and markets?”

Cloud computing is certainly here to stay and on the increase, but the level of uptake and benefits gained by banks and corporates for critical functions such as channel banking remains to be seen, and will depend on informed choices to overcome very sensible misgivings regarding what can be viewed as both a leap forward in cost reduction and operational efficiency and a leap backwards, if left uncontrolled, in security and service levels.  

On a final note, as with any IT project or investment involving a Cloud solution, asking questions and interrogating any proposed Cloud based solution before jumping in with both feet is essential.  There is a host of information and sources available, however there is nothing that can replace discussing ideas and plans with an organisation that has already proven itself with Cloud based offerings that existing customers will happily endorse.  We embrace Cloud technology and given the very technically savvy people in our business and across our industry, there is no doubt in my mind that there is much more we can gain from exploiting the opportunities it presents as long as we err on the side of balancing expectations with reality.



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