Banking on Cloud Computing

What is clouding computing?

    Cloud computing is a new paradigm in computing. The application of cloud computing allows for infinite computing capabilities and resources (theoretically) in terms of servers, storages application and so on, which are delivered as service to customers via internet.

Cloud computing is able to provide benefits to the enterprises when it meets the demands and take advantage of business opportunities. As the first provider, IBM said, Cloud computing offers business solutions in which the organizations work with higher efficiency and productity, by the mean time saving money and enhancing the business performance. In a word, cloud computing helps the companies in cutting down the operating costs compared to tradition IT approach.

   Cloud computing has been applied to a variety of industries, including education, government, retail et al. However, surprisingly its application has not been popular until recently in the banking sector.

 Banking in the Era of Globalization

The world banking system has gone through many transformations in the last several decades. The increasing international trade, place both challenge and opportunity for banks. Not only globalization of banking raises questions about banks’ liquidity management but also asked for more severe competition and technological difficulties, such as information sharing and customs service. Information technology has become more and more a costly hurdle for multinational banks, especially those who invested in emerging markets, such as China and India, where designing customised solutions or investment in advanced banking platforms are either unfeasible, or the operation leads to too many failures, resources wasted. And the information security risk is a big problem for overseas branches in emerging market where the rule of law is problematic. 

Fortunately, the rapid emergence of cloud computing provides a solution to banks in the era of globalization. Cloud computing as the most basic of terms is able to provide a wide range of online resource and service on a pay-and-use basis so as to beome a solution. Now it is transforming the way financial institutions think about how they consume their IT resources. In a survey done by Pricewaterhouse Coopers in 2012, seventy-one percent of bank executives report that they plan to invest more in cloud computing, almost three times more than the figure in 2011, according to PWC. (Crosman, 2013) “(The cloud computing) makes stakeholders more comfortable,” PwC’s financial services technology leader, Julien Courbe says. “A lot of clients are starting to consider and invest in the offerings of many large technology companies to move apps and data to the public cloud. (Crosman, 2013) 

 In fact, cloud computing has the potential to change completely the financial services landscape in the global context. By making enterprise-level banking systems and associated technologies available in the cloud on a pay-per-use basis, now anyone people from all over the world could get access to the banking systems with sufficient low cost as long as he is connected to the internet. Beside the low cost, cloud computing is tremendously attractive to financial service who are mostly capital sensitive, as it enables a fundamental shift from capital intensive focus to a flexible operational management model. Compared to the cost and complexity of traditional Inforamtion technolgoy solution, cloud based approach is more effeciency in the speed of development, Scalability, flexibility and even the cost.

Higher Agility

    Cloud computing is able to improve bank’s working efficiency, which become more and more important for banks going overseas. Banks who equipped with cloud system could react faster to customs’ requests in the sense that not only seeking help from their internal IT staff but also are allowed to response to requests from external user/customers. The system allows for self-service so as to reduce provisioning time, and provide correct information as soon as possible. Cloud computing enables banks to configure a favorable environment for further development, which has the potential to reduce operational requirements.

Cost Reduction

    The operation of Banks highly relies on comprehensive IT infrastructures which deal with enormous amount of data every day. One of the most prominent feature or benefit of cloud computing is to enable banks to keep up with technology changes while reducing costs. Cloud computing requires to establish a frictionless and flexible ecosystem, so compelling use case for cloud computing for banks could be in the way innovative services can be provide in a short term.

Reduce Complexity and Data Security

       The complexity of multi system is a big hurdle for multinational companies, including banks who want to expand their services abroad. Clouding computing is a helpful tool in reducing the complexity of managing data and keeping it secure (Roman, 2013). Cloud using offers opportunities for companies to make choices on the sensitivity of their data. A centralized control over data storage would be provided by clouding computing, which is very different from traditional IT. By placing data on different types of cloud, like public cloud, private cloud and local storage, company is able to make a balance between the data security and the cost.

Higher Adaptation

    The fast adaptation and response to emerging market opportunity is vitally important in internationalization of banks. The good thing of clouding computing in facilitating adaptation is that, the flexibility of cloud computing leave financial institution, including banks, enjoys shorter product development cycles, which means a faster response to the market demand on the side of customers. Cloud requires less infrastructure investments so as to save some initial set-up time. It also allows company to develop and launch new product without a large capital investment. Cloud computing also enables banks to place less important services to the cloud, for example, software patches, maintenance, and other computing issues. By doing that companies are able to put more attention on the business of financial services, rather than Information technology.

Challenge and Risks in Applying Cloud Computing

      One important feature of financial institutions is that they are operating in a highly competitive and regulated market. Thus all the services of banks are affected not only by business considerations but the compliance requirements as well. Traditionally, new products have to be evaluated, tailed and managed inside the organization, which means security control and other parts related to the operations have to be managed internally. However, cloud based solutions offer a chance to pull most of functional, technology and operational aspects of the business to the outside of the enterprise.

Following  aspects are a summary of challenges and risks that relate to Cloud solutions with a particular concern on financial institutions.

1. The most important concern of financial institutions is legal aspects, especially legal regulations related to data security, visibility, accountability, information management etc.
2. Security control of data, and the overall management of the information technology platforms.
3. Feasibility and reliability of bank operation system that provides high quality service to support peak business requirements.
4. Pain of Integration into the enterprise which is overtly complex, global, diverse and heterogeneous consisting of significant custom built applications within the portfolio.
5. Complexity of Governance, Audit & Compliance associated with service models as compared with the relatively easy model of Buy / License and use that is prevalent today.
6. Commoditization and reduced ability to Customize, Extend and Differentiate with the external services provided.
7. Dilution of Operating Control within the enterprise that can lead to business, regulatory and reputational impact if service provision is hampered.
8. Not convinced of the benefits of the solutions especially in large financial institutions, who have developed an efficient business and technology operations, including lean Data Centers, shared service models, standardized platforms and embedded innovation investments; perception that cloud would provide more of scale economics than service innovation.

How to apply Cloud computing in Banking

The diagram above shows an overall picture of supply and demand side of clouding computing in financial institutions, and how data can be managed and processed. 

The first step is to build up IT architectures and industry-wide data standards according to componentized value chain. Detail information about customers held by one bank should be consistent with the format used in other banks so as to be it to be processed simply and accurately in the transactions and information sharing. So that clouding computing is able to enhance the operational facility for delivery channel to deliver business logic and operational logic.

Secondly, financial institutions have to secure critical data and business logic in all layer of cloud environment scenario. All data in different types of banking like retail, corporate bank and investment bank are critical to bank as well as customers. So the cloud should ensure that the supply side must deliver security primitives to all banking in the cloud environment.

Thirdly, at demand side, financial institutions should standardize and analyze the business logic according to Government regulations. The behalf of demand side cloud environment’s supply side must fulfill its need.

Demand and Supply Scenario in Banking (Thakur et al, 2014)

In the supply side there are guidelines to be followed which are provided by the government authority for the entire Bank in the cloud. In the context, cloud computing service providers including clouding service providing Company, banks and government authority give the input to supply side. By applying all of the above to demand and supply environment of cloud, all the data can be managed and processed to full-fill all the requirements of banks as well as other financial institutions.

Reference

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Forbes, 2014. Some Banks Are Heading To The Cloud -- More Are Planning To the Cloud. http://www.forbes.com/sites/tomgroenfeldt/2014/06/26/some-banks-are-heading-to-the-cloud-more-are-planning-to/2/

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TATA consultancy, 2013 Cloud Computing Strategic considerations for Banking & Financial Services Institutions. Available from http://www.tcs.com/SiteCollectionDocuments/White%20Papers/Bfs_whitepaper_Cloud-Computing-Strategic-Considerations-for-Banking-and-Financial-Institutions-03_2010.pdf

Yogendra, V Sai Raghu, 2013. Strategies for Cloud Computing Adoption for the Indian Banking Industry. MBA thesis. Avaialable from http://www.idrbt.ac.in/PDFs/PT%20Reports/2013/V%20SAI%20RAGHU%20YOGENDRA_Strategies%20for%20cloud%20computing-%20adoption%20for%20Indian%20banking%20industry_2013.pdf