A spate of announcements recently of services being offered on the cloud to the financial sector is evidence of increasing comfort around adoption, say industry experts. Swift announced earlier this month it has teamed up with SAP to offer connectivity over the cloud, while Finastra announced it was entering into a strategic alliance with Microsoft Azure.
The moves come off the back of some 78 pages of cloud service provider guidelines from the European Banking Authority (EBA) last December, covering everything from data and system security to audit rights and chain outsourcing.
Andrew Reeves, managing director of the cloud division at software provider Temenos, says adoption has been rising for some time.
“We are seeing an acceleration in the adoption rate that has increased over the past two years,” he says. “In the past, there had been a lot of talk about cloud adoption being part of the future strategy, and we are now seeing this come to fruition.”
Banks are exploring the additional option.
“We are starting to see banks issue standard RFPs [requests for proposals] and cloud RFPs so they can make a direct comparison between the potential advantages,” says Reeves. “They are also using it to decide if they will run the cloud themselves, or use a company like Temenos as a software-as-a-service provider.
“For some it is about avoiding the initial outlay cost. Some are seeing how they can outsource these services in order to focus their resources on other areas.”
The desire to find more cost-effective options, especially for smaller banks, is driving take-up of cloud services.
Martin Häring, chief marketing officer at Finastra, says: “Having access to open APIs [application programme interfaces] and the cloud is not dependent on having modern technology infrastructure. Even legacy infrastructure can be connected and modernized through the use of Open Rest APIs accessible via a simple HTML page.”
Moving to cloud-based services brings to an end the days of needing to implement an entire product, regardless of whether or not it was all needed, explains Häring.
He adds: “This change also enables a new approach towards subscription-based pricing. It is not just one cost item for the software, the price can vary depending on which new functions are needed. This allows the platforms to be built out over time and, step by step, become smarter.”
The emergence of cloud platforms from global names such as Microsoft Azure and Amazon Web Services has certainly helped adoption. Having known companies providing services – and in the case of Microsoft, one whose products may already be running within a bank – has helped with issues around security.
Janet Lewis, vice-president, global financial services at Microsoft, says: “We’ve supported many of these banks for decades, which helps us advise them on their digital strategy. We’re at a point now where 85% of the world’s largest banks now run Azure. We have a massive growing base of projects in the cloud, and we’ve recently announced major bodies of work with UBS, Bank of America, HSBC, Met Life, TD Bank, to name a few.”
Reeves says having these companies has helped sell the benefits of cloud-based services: “The fact there are big names behind the cloud definitely lifts adoption up. It is possible to stand on the shoulders of the large providers.”
Finastra’s Häring explains the choice of Microsoft as a partner: “We want to create a platform where third parties can program applications on top of proven software that has already run for two to three decades in banks. We don’t want to run datacentres, but software stability is a key focus for us.
“After research, Microsoft stood out as the best player. Their capacity from a regulatory, privacy and security angle is more than adequate for our needs. The company has businesses based in the countries where we also do business, meaning their offering ticked all the boxes.”
Data security, which has long been a paramount concern, has also been addressed, says Reeves.
“The concerns around the control and ownership of the data stored have declined,” he says. “The view that it is a less secure option for holding information has been proven to be false. All but the largest banks would struggle to obtain the same levels of security.”
Although the cloud itself may hold the data securely, the requirements of the individual institutions have not declined, as Reeves notes.
“The security of the cloud does not remove the need for each institution to also have high standards,” he says. “It is still the responsibility of the institution to ensure they are protecting their information, even if they are using the firewall of a cloud services provider.”
The ability to test out services before they are formally adopted is also giving some degree of comfort.
Häring says: “Banks that are uncertain about the customer data security aspects of cloud platforms do not have to adopt it straight away. For example, they are able to upload non-customer related data and test functional elements in the public cloud.”
Regulatory changes have also pushed the move forwards. The requirements for banks to open up under the Second Payment Services Directive (PSD2) is another element making the cloud seem like a more attractive option.
Finastra’s Häring says: “PSD2 has forced the banks to open up to third parties and to think about how their systems are configured to facilitate this. What we’re seeing now from PSD2 is just the tip of the iceberg. It will go quickly beyond forcing banks to open up their systems and will bring a new level of innovation and open standards.”
Reeves agrees: “PSD2 is very much the catalyst for what is happening in the industry. The use of open banking, digital and the cloud have combined to create the perfect storm.”
For Lewis, the move is about claiming the competitive edge by tailoring towards a customer’s needs: “Banks have been ushered into a new battleground of integrated service, with the winners claiming the right to be a customer’s preferred digital point of entry into banking services. The customer experience differentiators will be based on insightful prediction of customer need, seamless integration, breadth of connectivity and assistive AI to support full lifecycle customer journeys.”
She adds: “More progressive financial institutions have used it as a catalyst to assess their technology investments as they size up the new challenges and opportunities presented by traditional competitors, fintech startups, and new market entrants from other sectors – who all seek to own part or all of the consumer journey.”