2013-07-22 – London
Will small banks leave large banks in their shadow with cloud computing?
Cloud-based IT infrastructure is expected to become a major part of the banking industry, with analysts expecting spending by financial-services firms on the cloud to reach between £15bn and £20bn ($20bn to $30bn) in 2015. Currently, cloud-based services make up a very small proportion of the over-all IT budgets for banks, with the total IT expenditure currently estimated at between $150 and $200 billion per year. The inherent advantages of secure, hosted solutions have analysts predicting a very fast increase in the number of banks and other financial services companies using the cloud.
Vested interests and inefficient old technologies
One of the reasons for the slow take-up of cloud solutions might be explained by the sources of the advice provided to large companies. Some of the largest consultancies have major investments in old technologies, and will aim to continue profiting from their larger clients, by ensuring these clients remain users of such inefficient yet highly profitable (for the consultancies) technologies. It will be very surprising if consumers continue to remain loyal customers of costly banks, if more efficient, lower-cost banks, provide a better service at a reduced cost. Shareholders will also eventually lose patience with ineffective management teams that continue to be easily swayed by the recommendations of large consultancies to continue using costly and out-dated systems.
Small and agile consultancies
Smaller consultancies, with no vested interests to keep inefficient and over-priced legacy IT systems in place, have adapted to this new market much more effectively than the slow-moving large consultancies. Cloud-based services are cost-effective, with industry newcomers able to rent infrastructure for thousands of pounds per month rather than spending millions upfront to build their own systems. Relatively new banks that haven’t spent large amounts of money on old technologies have adopted cloud-based solutions at a much faster speed than older and larger banks.
Data security and encryption
Big banks have been reluctant to shift to these new technologies, in part because of regulatory concerns about data security and privacy, however a need to reduce spending is forcing them to consider cloud-based options. Most data-security and privacy concerns can be very easily dealt with by removing sensitive data prior to transferring this data to a hosted solution. Most enterprise-standard solutions come with full encryption functionality as standard. Some of the larger banks are setting up private clouds which have the sole use of a data centre. One Taiwanese bank, SinoPac, has cut its IT infrastructure costs by almost half by moving from a mainframe computer to a private cloud.
Daniel de Bruin, managing partner at Modelling Design Partners, said “at MDP we are already implementing cloud-based solutions for a large Australian bank, and we have teams of consultants undertaking this in both Johannesburg and London, while the client is based in Sydney. Sensitive client data is always first removed, before the large data sets are uploaded to the secure cloud”.
The clear advantages of cloud-based services mean that the majority of financial-services firms will soon be investing in the cloud.
