Why banks need to rethink their cloud strategies

The pandemic has forced banks to operate in an unprecedented time of uncertainty and underscored the need for the type of digital resiliency that the cloud provides. And while concerns around security and data privacy that kept computing on-premises still linger for a few, most have found a safe haven in the cloud and credit its multifaceted benefits.

Whether it is speed to access critical banking information or upgrading the customer service experience, cloud offers the increased flexibility and agility necessary to keep pace with customers who demand a seamless user experience. Cloud technology also enables the industry to process transactions faster, update systems without downtime, and, thanks to advances in artificial intelligence, detect and stop suspected fraud cases quickly.

According to market researcher IDC, banks’ spending on cloud computing services is forecast to grow more than 16% a year through 2024 – compared with a 4.5% annual increase in their overall IT budgets. Success in the cloud has driven financial services organisations to prioritise cloud projects.

And while the cloud dramatically increases operational efficiencies, banks must now address the risks associated with an expanding and rapidly changing technology footprint and not put all their eggs in one basket.

Financial regulators and industry oversight boards are increasingly casting a closer eye on the sector’s cloud expansion, urging the industry to use more than one cloud provider. Or, said differently, employing a multi-cloud strategy.

The United States Financial Industry Regulatory has stated that broker-dealers should be able to switch cloud providers when needed and consider the risks associated with vendor lock-in. Furthermore, the regulator said that brokerages should consider an exit strategy to mitigate against an unfavourable lock-in scenario.

Similarly, the European Banking Authority warns against risk management associated with one provider, urging its members to take concentration risk into account by avoiding a dominant service provider that is not easily substitutable.

Additionally, Deloitte, known for consulting and advisory services, named cloud governance and security one of its IT audit hot topics for 2021, saying financial companies, in particular, must assess and manage overreliance on one of the top three cloud service providers to support critical services.

Using multiple clouds can bring compelling business benefits to banks, including best-in-class capabilities, enhanced performance, reduced service disruption, and vendor diversification.

To be sure, banks need to make certain they have the aptitude for managing workloads across cloud environments. Open-source software and software containers — which house software components that work in concert across different environments — can help businesses use different clouds or switch among them. Containers and Kubernetes are very real technology enablers to update software faster and enable cloud portability.

Banks need to look for a broad set of deployment options that meet their business objectives. For example, certain workloads need to consider data residency and the ability to leverage cloud services within physical boundaries.

Critical applications might need low latency due to their transactional nature and interdependency with other applications or users.

As banks streamline more and more of their operations by adopting technology for specialised cloud services, they are able to focus on business objectives, such as automating branch services, and direct resources toward more strategic projects. Additionally, banks need to look at their strategic plan and consider whether a public, private, or hybrid solution would be best suited to achieve their goals.

Change is rarely easy, which is true for companies that need to transition to the cloud. Now, more than ever, financial services organisations need a proven, trusted partner that has experience migrating critical workloads and helping customers quickly adopt new technologies while also meeting data security and other requirements.

As the concept of building a multi-cloud strategy continues to gain a foothold within the financial services industry, companies must work with a partner that positions them to take advantage of performance opportunities while mitigating concentration risk for different infrastructure services.

Key takeaways

• Financial regulators are casting a closer eye on the sector’s cloud expansion, urging the industry to use more than one cloud provider.
• The United States Financial Industry Regulatory has stated that broker-dealers should be able to switch cloud providers.
• The regulator said that brokerages should consider an exit strategy to mitigate against an unfavourable lock-in scenario.
• European Banking Authority warns against risk management associated with one provider, by avoiding a dominant service provider.
• Deloitte named cloud governance and security one of its IT audit hot topics for 2021.
• Financial companies must manage overreliance on one of the top three cloud service providers.
• Using multiple clouds can bring compelling business benefits to banks, including best-in-class capabilities.

Banks must address risks associated with an expanding and rapidly changing technology footprint and not put all their eggs in one basket.