Cloud Banking by Evgeniy Sen - ENG

Evgeniy Sen

Prominvestbank

Cloud banking: a grotesque fantasy or an inevitable future

2

CLOUD BANKING: A GROTESQUE FANTASY OR AN INEVITABLE FUTURE

Have you heard about cloud technologies? D’you understand

the principles of their functioning? D’you have an idea of

how the banking transactions can be carried out in a totally

virtual space as an ordinary banker sees it in practice?

To cut a long story short and without abstruse phrases, the

cloud technologies (in common referred to as “cloud”) are a

scope of computing processes executed within the

accessible virtual pool of scalable resources (data networks,

servers, storages, web-applications and services, both in conjunction or separately) and operated

through Internet enabled devices promptly delivered for or released from usage with minimum of

operational costs or requests to cloud provider. First of all, the attractiveness of cloud computing lies

in the fact that a user (e.g. a company) noticeably reduces costs for the existing IT infrastructure (CapEx

& OpEx) and enables himself to flexibly react to constant changes in own computing power thanks to

productive elasticity of cloud services. In other words, you pay as much as you use without staying

attached to limitations or excesses of your own datacenter.

Sounds trivial and no revolution ahead? Then imagine client accounts’ processing and

corporate data warehouse in cloud. IT IS THE CLOUD BANKING! Now comes the fun…

April 2015, London, UK. As a delegate, I was lucky to participate in international Cloud Banking

Europe conference dedicated to the perspectives, structure, advantages and risks of cloud tech’

implementation in banking sector.1 In particular, the delegates of major European banks (HSBC, BBVA,

Banco Sabadell, DNB, ABN AMRO, UniCredit, Norvik Bank), representatives of heavyweight IT market

players (HP, IBM, Microsoft, Oracle, Google, Fujitsu and others), members of the Big Four audit

companies (PwC, Deloitte), as well as SWIFT and, of course, state financial regulators (UK, Netherlands)

analyzed in details and through sharing ideas discussed most of the aspects of realization of cloud

banking in practical activity, the key ones among which are:

- What is the commercial profit of company’s IT migration to the cloud?

- What kind of platform will it be?

- How to ensure the data security?

- How to “fit in” the existing regulations and how to

motivate the regulator to become coefficient to

your changing business?

Such an event is rather non-trivial, taking into account that in 2015 the alike conferences are

going to take place in three more continental regions: North America, MENA and Asia. New

technologies and the growing need for extension, diversification of banking products and cutting terms

for reacting to clients’ needs dictate fashion for revolutionary decisions and courageous steps. The

topicality of cloud computing and development of digital technologies in general is justified by

objective reality in the modern financial world.

1 www.cloudbankingworldseries.com

i

$26

billion in 2015

Anticipated spending by financial-services firms on the cloud

https://en.wikipedia.org/wiki/Pool_(computer_science)


3

Large-scale digital tech integration into business is not a tribute to trends or an innovative idea of a

single project manager. Today it is an evident requirement from clients in most Western European,

North American and Asian countries:

2

2 Accenture 2014 Digital Banking Customer Survey Millennial’s & Money.

CUSTOMER ENGAGEMENT

Needs Wants Outsomes

- Enhanced Online banking; - Secure, simple device access

- Lifestyle financial customization;

- Personal banking and experiences

- Personalized products and services; - Simplified customer experience; - Predictive services and analytics; - Ease of engagement and interaction

Are constantly connected:

94% - are active users of online banking;

72% - are active users of mobile banking;

92% - are active users of social media

Have higher expectations of omnichannel distribution:

67% - feel the traditional and digital experience they receive from their bank is somewhat or not at all seamless (compared to 45% for those over 55)

Are not as tied to the traditional branch experience:

39% - would consider using a branchless digital bank (compared to just 16% for those over 55)

Want to bank on their time :

56% - are interested in having a video chat with a bank representative by accessing a link on their bank’s website, mobile or tablet application (compared to 23% for those over 55)

Embrace new entrants:

72% - would be likely to bank with non-financial services companies with which they do business (compared to 27% for those over 55)

Want help with managing their finances:

67% - are interested in their bank providing tools and services which help them create and monitor a budget (compared to 31% for those over 55)

Are in touch with their spending:

66% - follow a budget (compared to 36% for those over 55)

Expect their bank to be proactive:

58% - are interested in their bank proactively recommending products or services (compared to 46% for those over 55)

Are seeking advice through emerging channels:

22% - look for financial advice via social media (compared to 3% for those over 55)

WHAT CLIENTS THINK

Outcomes Wants Needs

- Great customer experience; - Increased digital banking

adoption; - Deeper offerings and

services; - Secure customer trust &

loyalty

- Standard products with personalization;

- Greater wallet share of customers

- Operational cost optimization;

- Secure, validated customer access

Business growth


4

Consumer demand is driving a 4th wave of technology evolution:

3

A much promising tendency is revealed as per the recent opinion poll held among representatives of

financial institutions asking them about plans regarding adoption of cloud into their businesses:

”...approximately 70% of Western enterprises will have some level of cloud adoption in the next 18 months.” 4

3 © Copyright 2015 Hewlett-Packard Development Company, L.P. 4 Data from Frost and Sullivan Enterprise Global cloud study, published Sept 2014 by Frost and Sullivan. N=1,852.

1970's

1990's

2000's

9%

21%

15%

25%

13%

17%

We will not adoptcloud at any point

in the future

We have no plansto do so in the next

12-18 months

We are planning tostart using it in the

next 12 to 18months

We have an activeproject and budget

to start using it

We use it, but it isnot yet an

important part ofour business

It is now anessential part of our

business

2010's

MAINFRAME

CLIENT <-> SERVER

INTERNET & CONNECTIVITY

MOBILE, SOCIAL AND BIG DATA

MANAGED BY COMPANY MANAGED BY SERVICE PROVIDER

IT INFRASTRUCTURE

Cloud computing adoption levels

Non adoption

Essential to the

business


5

So why is the cloud banking so luring and what makes it be the future?

First, you need to understand the conception of Cloud, its types, advantages and

shortcomings, and, of course, how the cloud services facilitate financial institutions to strengthen their

presence on the market expanding the range of products and brand new opportunities for their clients.

But to understand it one must evaluate how Cloud will fit into the existing banking landscape, its

traditions and regulations. You cannot but recognize that the biggest development of recent decades

in sphere of financial services is the complete transformation and digitalization of retail

and commercial banking. The full dawn of the digital era has meant that banks should not only have

their brands visible through online adverts and pop-up windows in browsers, but on social media too

and, of course, through the provision of online banking.

Emphasis is on the digitization of products and services,

providing totally new customer experiences which allow the

customer to access various banking services anywhere on the

globe through any digital device at any time. The same level

of importance is about the need to have an open

channel of communication with customers by leveraging

native mobile solutions, which allow the bank to push key

information in real time 24x7.

Moreover, a bank must create more context-aware solutions by analyzing the typical actions

executed by their customers and patterns of use, all the while making them simpler (user friendly) and

faster. Additionally, active retail and commercial banks are embracing more and more new digital

payment systems and digital wallets, which are so trivial to the Western world.

According to a recent research from Gartner titled “Agenda Overview for Banking and

Investment Services, 2014” those trends should be segmented into the following three areas:5

5 Nuno Godinho, General Manager Software, Europe / Software CTO, Europe at GE Healthcare

i

≥$10mln.

per year

Annual investment in technologies of one in five financial institutions


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Challenges

Having learned the three biggest trend areas it is vitally important to understand the

challenges that are associated with achieving them. Some of these challenges are typical for most of

CIO’s while embracing a large transformation program like this, and we can name the challenges:

- How to capitalize this investment?

- Which technologies will allow to intensify presence of business on the market and reach?

- How will it change the business and what is my bank going to look like in the future?

- How do we leverage our traditional legacy IT infrastructure in the new age?

- How to provide my information on my activity in order to improve business agility?

- What will my transactions look like in the future?

- How will this work in relation to current regulatory compliance?

Beside the typical challenges there exist some different ones, which have emerged because

of the scales and demands of financial market. Nonetheless, nowadays the most severe competitions

take place not between traditional banking institutions of similar size or market capitalization rate, but

in fact between the new ones who has armed their businesses

with modern digital tech upgrades, and without the

“baggage” of legacy systems or having passed through several

technological transformations. Such newcomers posses

agility, mobility and privileges of new techs. They leverage IT

costs with increased reach due to new and disruptive ways of

thinking and amplified decision making. These guys will

challenge the financial giants built on basics of old classical business model, so that they tend to

succeed in this struggle for the market share. It soon will be a crucial concern for the established old-

timer banks regarding their dominating passivity in respect of integration with new cloud solutions.

Among other things, the market itself is ready to such revolutionary alterations as the financial

crisis has had a significant impact on banking sphere having formed growing needs in:

i With the introduction of mobile banking cloud demand almost doubled in 2013

Better market agility

Increased regulation

Cost reduction and financial performance

Maximal customer

focus


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And what can the Cloud offer to satisfy the above-mentioned needs? Lots of privileges, e.g.:

It is the Cloud that helps both incumbent and new players to make the best use of those

advantages since it allows an agile, scalable and cost effective way to embrace this

huge transformation affecting the banking landscape. In order to truly be able to understand this

solution better, its strengths and weaknesses, I suggest you to consider description of basic elements

of the Cloud as a technological product.

In a varying degree we all have heard about the Cloud, however for simplicity let’s define it as

“Internet-based computing in which huge groups of remote servers and storages are networked into a

massive virtual network, therefore allowing to receive a centralized data warehouse, online access to

computer services or resources”. In substance, the Cloud is a virtual IT infrastructure.

Commonly the Cloud is categorized by two models: deployment and service.

NEW OPPORTUNITIES

Maximum agility of business

Cloud scales up & down quickly due to current demands of the company

Cloud Services provisioned and de-provisioned in minutes not days

Regulations & Security

Rules will be adapted to demands of market and requests of banks

Data encrypted, thus protected

Cloud providers to be certified

Good customer experience stimulates

market growth

Application updates per year

4

52

120

2010 2015 2020

IT costs optimization

Before Cloud

First year afterCloud

IT expenses of an average bank (% of revenue)

5,2%

3,2%

DEPLOYMENT MODEL

Частное облако

ап

Private cloud An infrastructure operated solely for a single organization with numerous consumers (e.g. structural units), possibly as well operated by its clients or contractors. It can reside in the ownership, management and operation of either the organization or a third party (or in combination), and may be physically located both under and out of jurisdiction of the owner.

Community cloud An infrastructure operated by a community of costumers at organizations with common tasks, targets (e.g. missions, security requirements, policies, compliance with some prescriptions or needs). It can reside in co-operative (joint) ownership, management and operation of one or more member organizations of the community or a third party, and it may physically exist both under and out of jurisdiction of the owner.

Hybrid cloud A combination of several diverse cloud infrastructures (private, public, community), which keep existing as separated objects, but tied together by standardized or private data transmission technologies and applications (e.g. short-time usage of resources of public cloud structures for peak-load balancing between clouds).

Public cloud An infrastructure for free use by general public with no restrictions on the right of access to its certain resources or information. Physically located under jurisdiction of the owner —cloud service provider.


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Now that we understand the Cloud and its classification we can have a look in more detail at

its prospects and viability for financial services’ market, as well as refute some of the existing incorrect

perceptions about the cloud computing.

There is a stereotype that the Cloud is that it is unsecure and not usable for the banking and

investment sectors or any other which have strict compliance guidelines to be followed. As practical

experience indicates, this is definitely not the case, and more and more Banks and other highly

regulated sectors have been investing in the Cloud over the last few years and did not experience these

issues. It is not because they were not regulated by their national regulators but due to their judicious

and methodical approach to understanding the legal norms and the path they need to go through

leveraging the Cloud with benefits from it and avoiding its concomitant risks. Let’s mention a few

noticeable examples of triumph of the Cloud:6

- In 2010, Metro Bank outsourced their entire IT infrastructure to a third party leveraging a

Private Cloud IaaS offering;7

- Fortis Investments (member of BNP Paribas group) leverages benefits of Public Cloud SaaS

offering having deployed salesforce.com to 167 sales professionals in 31 countries;8

- Gneis Global Services, a subsidiary IT Organization of the Spanish bank Bankinter, which in

early 2013 leveraged the Public Cloud PaaS;9

6 Nuno Godinho, General Manager Software, Europe / Software CTO, Europe at GE Healthcare 7 www.computing.co.uk/ctg/news/1863530/metro-bank-outsources-entire-it-infrastructure-niu-solutions 8 www.cloudcasestudies.com/case_Fortis_Investments.html 9 www.microsoft.com/casestudies/Microsoft-Azure/Gneis-Global-Services/Global-Bank-Uses-Cloud-Solution-to-Quickly-Scale-Document-Management-Tool-and-Cut-Costs/710000004433

SERVICE MODEL

SaaS

PaaSIaaS

Software as a Service A model where a customer can leverage the provider’s application

software running in cloud environment and accessible from various client devices or through a thin client, e.g. a browser or an application’s interface.

A cloud provider is the one who operates and manages the cloud’s virtual infrastructure, incl. network, servers, operational systems, virtual storages or even individual preferences of an application (except a limited set of custom application’s configuration settings).

Infrastructure as a Service A model where the cloud environment is used for

manual managing the resources of processing, storage, networks and other fundamental computing powers. For example, a customer is able to install and launch random software, which may include operational systems, platform and application software.

A customer can operate OS’s, virtual storages and installed software, as well as to have limited control over a set of available network services (e.g. firewalls, DNS). A cloud provider operates and manages the basic physical and virtual infrastructures of the Cloud, incl. servers, types of OS’s used, storages etc.

Platform as a Service A model where a customer leverages the cloud

environment for allocation of basic software for subsequent placement of new or existing applications there (own SW or designed by a request or acquired replicated applications). Such platforms include creation tools for designing, testing and running the application software (namely database management system, middleware, environments for runtime languages) provided by the cloud provider.

Control and management over the basic physical and virtual infrastructures of the Cloud, incl. network, servers, operational systems, virtual storages are carried out by the cloud provider, except the newly designed or installed applications and, possibly, environment’s (platform’s) configurations settings.

https://ru.wikipedia.org/wiki/%D0%9C%D0%B5%D0%B6%D1%81%D0%B5%D1%82%D0%B5%D0%B2%D0%BE%D0%B9_%D1%8D%D0%BA%D1%80%D0%B0%D0%BD

https://ru.wikipedia.org/wiki/DNS


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- Reserve Bank of Australia (original name “Commonwealth Bank of Australia”) gladly started

leveraging the Public Cloud IaaS in 2012.10

Cloud model of IT infrastructure at large banks is no more a fairy-tale but an accomplished fact (or

almost such) for a number of respected financial institutions in Europe:

11

12 13

14

10 www.assets1.csc.com/cloud/downloads/SM_ForresterCaseStudy_CBA.pdf 11 www.reuters.com/article/2014/12/01/us-ibm-abn-amro-bank-idUSKCN0JF25C20141201 12 www.bbc.com/news/business-16486796 13 www.elconfidencialdigital.com/dinero/BBVA-banqueros-Google-Amazon-clientes_0_2422557742.html 14 www.globalservices.bt.com/uk/en/casestudy/banco_sabadell

IBM has signed a 10-year, multi-billion dollar deal to provide computer infrastructureservices to ABN AMRO, one of the biggest Dutch banks, thus lending full support inimplementing a private cloud with consequent bank’s IT architecturle’s standardization andsimplification (everything from portable devices to data centre).

Through a phased optimization and transformation of IT into cloud infrastructure, ABNAMRO is aimed to improve operational efficiency of its computing resources, improvequality of services for clients and offer them new and innovative products to make themcorrespond with customers’ constantly growing demand in digital solutions.

More than 100 000 employees of Spanish BBVA enjoy Google Apps since 2013: Gmailwith Google Chat, Google Calendar, Google Docs, Google Groups, Google Sites and GoogleVideo. Corporate email has gone cloud. Documents located on common web source can beamended simultaneously from different parts of the world with no need to save theirnumerous versions. BBVA's data circulates in Cloud. Surely the bank strictly follows theregulations on storing and accessing the information to the same extent as it is done withtraditional data centres.

Meantime, BBVA tightly collaborates with Google and Amazon giants to develop therange of its virtual products sold in Cloud, and among which there are the BBVA Compassmobile banking and the BBVA Wallet.

Banco Sabadell is the fourth largest financial services group in Spain. As part of itscommitment to customer service, the group needed to unify its existing contact centreinfrastructure to more closely integrate client-facing operations across its domestic andglobal customer base. It would need to transform primarily voice-based and geographicallydisparate call centres into a single virtual multichannel service capable of managing voice,email, web chat and social networking interactions, all at once.

BT Advise Contact (the contact centre consultancy arm of BT Global Services) proposed acomprehensive BT Cloud Contact solution. This included automatic call distribution (ACD),interactive voice response (IVR), management of voice, email, and social networkingcontacts, intelligent routing, computer telephony integration (CTI), multichannel customerrelationship management (CRM), voice recording and workforce management (WFM).

http://www.teletrade.com.ua/analytics/banks/61


10

15

16

17

18

15 www.eweek.com/cloud/slideshows/financial-services-firms-bank-on-the-cloud.html 16 www.computerweekly.com/news/2240193989/European-banking-firm-UniCredit-to-introduce-cloud-in-its-datacentres 17 www.bankingtech.com/178102/citibank-signs-up-for-sap-cloud-based-corporate-to-bank-solution/ 18 www.db.com/medien/en/content/5060_5124.htm

German financial giant Allianz shall consolidate and integrate its networking architectureand global datacenters into a cloud infrastructure called Allianz Private Cloud. With theassistance of IBM, the leading insurance company plans to reduce the total number of itsactive data centres from 140 to only 6.

Banking heavyweight player UniCredit together with IBM have concluded a multi-billioncontract on creation of this financial group's cloud infrastructure on basis of IBMdatacenters.

This deal is aimed to achieve cloud transformation of UniCredit IT infrastructure at allentities of this banking group in Europe to enhance the effectiveness and agility of servicesfor the clients, as well as to better predict the market trends, optimize costs and providecustomers with modern innovative products.

Furthermore, this 10-year deal envisages creating a joint venture by its participants toprovide cloud services to other European commercial institutions.

SAP and Citi Bank came to agreement on the subject of a new cloud platform designed tosimplify the interaction between corporate customers and the biggest worldwide bankinginstitutions. SAP Financial Services Network (FSN) is a cloud solution covering suchcorporate transactions as payments, money transfers and reconciliation of funds. FSNautomatically processes payment operations of a financial institutions, collates budgetaryand analytical indicators, which in turn removes traditional paper statements, acts, reportsetc.

This project has been in development for already several years and successfully tested bysuch reputable institutions as Bank of America, Merrill Lynch, Deutsche Bank, Nordea, RBSand Standard Chartered Asia Pacific. Citi has come to be the first bank which concluded acommercial agreement on integration of the said platform and it actively prepares itsinfrastructure to FSN's productive usage.

Deutsche Bank and HP synchronously announced a ten-year, multibillion dollaragreement that will further modernize the Bank’s global IT environment and aims tosignificantly reduce related IT infrastructure costs. Under the terms of the agreement,which mainly covers wholesale banking IT infrastructure, HP will provide dedicated datacentre services on demand including storage, platform and hosting.

Deutsche Bank will retain activities such as IT architecture, application development andinformation security.

As part of a wider IT transformation programme, Deutsche Bank will upgrade and reducethe number of its IT applications, move them on to the HP platform and enhance its ownprocesses for providing technology support to its operations.


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You will ask: What motivates executives of such large financial institutions to make a decision

to actually put their business “in hands” of risky virtual construction guided by a third party?

NTT Communications, which (without unnecessary epithets) is the biggest networked

telecommunication company on the globe, has recently conducted a survey among CIO’s, CEO’s, COO’s

of known brands, owners of private businesses regarding their expectations about the Cloud.

Considering 100% as total number of the questioned participants, then the list of benefits of the Cloud

for business should be displayed as follows:19

Of course, the results seem not so impressive to convince you at first sight that the future of

banking is integrally attached to the cloud computing. However, they show us a strong trend, which

soon will “infect” the minds of most self-respecting managers.

Let’s have a look at the key advantages of the Cloud, whose potential will boost up the banking

segment to make its new evolutionary leap:20 21

19 www.eu.ntt.com/en/services/voice-and-video-communications/arcstar-ucaas/industry-research.html 20 www.sapient.com/content/dam/sapient/sapientglobalmarkets/pdf/thought-leadership/GM_Cloud_Computing.pdf 21 www.business.qld.gov.au/business/running/technology-for-business/cloud-computing-business/cloud-computing-benefits

0% 10% 20% 30% 40% 50% 60% 70%

Transforming business processes

Reducing IT staff requirements

Improving application availability and theirperformance

Faster deployment times

Improving ease of management

Increasing scalability of IT infrastructure

Lowering costs (CapEx & OpEx)

Faster access to new applications & functionality

Enabling 24x7 access to applications

33%

39%

44%

47%

50%

50%

56%

56%

64%

% OF RESPONDENTS THINK THAT THE CLOUD...


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Cost savings. ОpЕx. Migration of IT infrastructure to the Cloud significantly reduces

management and maintenance costs related to your systems. There is no more need to regularly

purchase and prolong post-guarantee support or first line technical maintenance for software or

hardware. You only have to pay for a ready-to-use platform, which is supported by provider, and you

only cover monthly or quarterly invoices.

СapЕx. Instead of purchasing expensive software

systems with their constantly renewed maintenance,

server clusters, disk racks, cooling systems for

datacenters etc. you only use those resources your

provider already has. Issues of licensing and technical

support will be the provider’s headache, not yours.

HR. You gain high performance of your systems with

smaller servicing staff for them. Moreover, it is possible

to cut expenses for employment of non-IT staff: Project Office, Procurement specialists or even Front

Office managers (in cases when a second stage of cloud migration is achieved, i.e. virtualization of not

only IT activities and resources, but the business in whole).

Scalability. Your IT infrastructure shall be elastic. You’ll leverage it (its computing powers, the

sizes of data warehouses, service resources etc.) through extension or shrinking just depending on the

dynamics of your business growth and its current demands. Provider is the one who will be responsible

for execution of all the upgrades and transformations needed, and you go free with your time to

concentrate on your business activity.

When cloud solutions are correctly designed

and implemented into the company’s business

structure, they facilitate it to fully meet the needs of

users and rapidly scale the existing computing

resources (CPU, RAM or IP’s), thus depriving business

users and IT specialists from engineering the systems

for peak loads.

To stay compliant with today’s regulations

around risk management processes, financial services

firms need multiple times the computing power for risk modeling than they did before the financial

crisis of 2008-09. That is why companies are turning to cloud-based grid solutions. Normally, to run

these risk simulations and calculate analytics indicators,

computing power is heavily required only at certain

times of a day, leaving resources idle for the rest of the

time. If shared computing resources could be made

available to such processes based on when they are run

and the data loaded, it could lead to 9 of 10 instances of

almost zero unutilized computing power at all.

At the same time, companies can tackle the challenges of

security and data privacy by creating a hybrid cloud

where sensitive data can reside on a private cloud and

computing power can be available on a public cloud. These private and public clouds can be combined

into a virtual private network to create a single scalable hybrid cloud.

i

77%

yes

European banks’ CIO’s surveyed:

Will my product testing cycle be reduced through the leveraging of

cloud-based applications?

3%

no

20%

unsure


13

Data virtualization. Virtualization is not a new conception. Actually, extraction,

transformation and loading (ETL)-based business intelligence systems have been around for a while.

Data virtualization is the integration of data from multiple and disparate sources across the enterprise

or external sources for the on-demand consumption by a wide range of specialized applications in a

virtualized manner.

For example, the Dodd-Frank Act (Dodd-Frank Wall

Street Reform and Consumer Protection Act, 2010)

mandates a 360° view of risk and performance

across all asset classes and portfolios within a

company, enforces more compliance and regulatory

reporting for financial services companies, and

warrants a way to value positions and calculate

variation margins for OTC derivatives collateral

posting. This obligates companies to have a data

virtualization strategy in place, which can be used to provide a single source of reference data, such as

security master data, single view of positions and holdings, book and counterparty data, etc.22

In addition, risk and analytics calculations rely on many different types and sources of data,

including relational, semi-structured XML, dimensional and the new Big Data types. Leveraging large

volumes of data from such sources makes query performance a critical success factor. When the data

is combined with historical data from other commercial sources, it can enable those companies to

identify computing powers consumption patterns and forecast for the future accordingly. Combining

such disparate data from public and private domains is a challenge. Therefore, accessing that data from

a single virtual source would drive scores of data consolidation.

Business continuity. Effective protection of data and systems of your bank is an essential

component in planning your business continuity actions. Accidents, natural or man-made disasters,

power outages, malfunctions – those things are not a trouble in case your data circulates through the

Cloud and is stored there. If the said accidents occur you can always rapidly restore access to your data,

thus allowing you to conduct business almost continuously and minimizing downtime and loss of

productivity.

Technology Standardization. Frequently different groups of people within one company have

different approaches because of a lack of standardization in terms of technology, architecture and

services. Of course, the solutions might be similar by nature, but application environments, with

individual components and configurations, are considerably different. Standardizing these technology

and architecture approaches would reduce duplication of effort. Additionally, different units of cloud

computing infrastructure, such as virtual machine images, architecture patterns and templates, would

allow teams to create standardized environments. A cloud also enforces development lifecycle

standardization across different teams—once they start accessing it through the same interfaces.

22 www.cftc.gov/lawregulation/doddfrankact/index.htm

http://www.cftc.gov/LawRegulation/DoddFrankAct/hr4173_enrolledbill

http://www.cftc.gov/LawRegulation/DoddFrankAct/hr4173_enrolledbill


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Mobility. Majority of today’s business users want to access

the currently updated risk and analytics reports performance

attribution metrics and trading summaries while they are on the

move 24х7. Theirs minds see it essential to enjoy accessing their

emails on smart phones and tablets anywhere and anytime. Likewise,

they want similar interfaces for financial services-specific

applications. And since the Cloud enables users to access the systems

and infrastructure using a web browser or customized clients

regardless of location and time, development of such interfaces has

started taking shape. Some financial services providers have ventured

into this area by developing iPhone, Android and iPad interfaces for their account management

applications, CRM tools and data research and reporting applications.

Business efficiency. Thanks to cloud computing, the time to

market can be reduced from months to weeks or days,

depending on the specificity and level of development of a

bank. A served by a third party, modeled on demand of

bank, real-time monitored Cloud:

- eliminates time gaps usually necessary for procurement

procedures (tendering, contracting, payments), because

there is no more need to regularly purchase new software, equipment, renew the technical and vendor

support, updates for licenses etc.;

- removes delays caused by adjustment of the budget settings and their approvals;

- expedites computing power for running the existing applications when it is needed to handle

peak loads and adapt to their levels;

- eliminates the upfront capital and time investment for procuring hardware or software for

proof of concept work or rapid application designing or the IT infrastructure development in general.

The shorter is your path from an idea to a done product, the more nimble you are compared

to your competitors, and the more successful your business is.

Effective interaction. Cooperation in cloud gives your business an opportunity to

communicate and share information with greater ease

and out of traditional methods. For example, you work on

a certain project in various geographic locations, and your

colleagues or partners require rapid access to those files

you currently deal with. The Cloud helps to access the

same documents at any time and from anywhere where

the Internet is available. At the same time, you are able

to leverage the cloud model for exchange of sensitive

data with colleagues (e.g. easy and safe work with

accounting records, financial reports etc. together with

your accountants and financial analytics).

i - Today it is not the biggest fish which survives, but the fastest one.

Chris Hoedt, ABN AMRO Bank

https://www.linkedin.com/profile/view?id=5500650&authType=OPENLINK&authToken=F6mv&locale=en_US&srchid=1652782341430590173834&srchindex=1&srchtotal=3&trk=vsrp_people_res_name&trkInfo=VSRPsearchId%3A1652782341430590173834%2CVSRPtargetId%3A5500650%2CVSRPcmpt%3Aprimary%2CVSRPnm%3A


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Flexible methods of work. Employees who work in cloud environment are more agile and

productive in their work. For example, they have the ability to access data from home, on holidays, or

via the commute to and from work (providing you have an Internet connection). If they need access to

their data while they are off-site, they can connect to their virtual office, quickly and easily.

Access to updates. Access to automatic updates for your IT requirements may be included in

your service fee. Depending on policies and services of your cloud computing service provider, your

systems will be regularly updated as per the algorithm you require. Beside the ordinary regular updates

of software, you become able to purchase upgrades for your applications, as well as for provider’s

server equipment servicing your IT infrastructure.

Experts identify seven key elements of the Cloud’s value for business:

Now let’s return to frequently discussed misconceptions about the Cloud. In addition to

security concerns (they will be a subject of deeper assessment in my following report), there exists

another cliché. It tells us that the cloud architecture is inapplicable to small business because of a too

serious risk to lose while venturing all corporate funds available and without a solid cash "cushion" for

backup in case of failed "experiments" with cloud computing.

In reality, cloud technologies constitute a serious threat for the heavyweight established

players which are accustomed to traditional business model and tightly attached to their much

cherished datacenters. Why? It’s so because the Cloud grants significant edge to the new and smaller

organizations who are not burdened with expensive, massive and energy-extensive data centers and

their supportive infrastructures. Such players will quickly enter the market and, by leveraging the

Cloud, dynamically involving new customers and creating a critical mass of them, which will surely

become a direct threat to the liquidity of "old-timers" in such an unequal struggle with dexterous

“novices”.

Economic elements: - pay-per-use; - pay-per-upgrade; - no more CapEx

Architectural elements: Simple abstract environment for research and development.

Strategic elements: Focus on core business activities. All the rest is care of provider.


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Those institutions using the benefits of Cloud are

not only unbound by their legacy systems, so

hulking and capricious in servicing, but they can

also within hours (in some cases even in minutes)

scale their IT infrastructure to satisfy quickly

changing business needs. Moreover, it is the

Cloud, which creates a smoothly running virtual

environment for them where the companies may

offer their clients newer and more innovative

products. As you can notice it is a true menace

for traditional banking institutions, and

consequently it comes to be not only undesirable

to ignore the opportunities from the cloud tech, but in the short run it’s gonna be deadly.

From a viability perspectives of cloud tech in

financial services’ sphere it is important to understand that

even Public Cloud (the least functionally limited one) is not

as unsecure as most people think. And that is cause of

multi-billion investments in datacenters made by vendors

today, like the $8.6 billion investment Microsoft made in

2011 for Cloud R&D (Research and Development) and

continues to extend financing.23 Cannot but mention the $1.2 billion investment made by IBM

Corporation into its HW&SW infrastructure to increase the functionality of their own solutions

distributed through the company’s public cloud. These numbers demonstrate us how much it is at stake

for the world’s IT giants in regard of cloud computing, as right now Amazon, Microsoft, IBM, VMware

and Oracle invest shocking amounts in forming an extensive network of accredited datacenters, while

maximally adopting them to demands and wishes of every institution, enterprise, businessman in any

industry throughout the majority of countries.

Amazon Web Services (AWS) is a perfect example of the impact of large investments in cloud

solutions, Amazon’s cloud computing business, has revolutionized the way software is created and how

technology startups are formed. After its launch in 2006 and thanks to generous money “injections” by

2015 AWS has reached the level of business liquidity of $5 billion growing roughly 50% a year, and thus

it became the largest public cloud in the world pushing aside the guys from Rackspace, Microsoft,

Google and other world-renowned IT leaders to the backyards:24

23 www.gigaom.com/2011/04/08/microsoft-plans-8-6b-in-cloud-rd-but-where-should-it-go/ 24 www.qz.com/388105/amazon-is-about-to-reveal-one-of-its-biggest-secrets-the-size-of-its-cloud-business/

i

$430

billion in 2014

Worldwide overall IT spend in financial services globally:

≥$500

billion in 2020

8%

6%

3%

3%

30%

50%

Global market share of services in Public Cloud

Rackspace

Microsoft

Verizon

IBM

Others

AmazonOthers


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Meanwhile, cloud viability is not only related to the security and compliance of the datacenter

(where the solutions will be running), but as well about the type of data which is stored in them, and

this is a typical concern on public cloud. In order to eliminate concerns one must understand the

compliances and the difference of approach for “Data at Rest”, “Data in Use” and “Data in Motion”,

and also the Data Sovereignty, since those are the criteria which are going to definite if it is usable for

banking or not.25

In other words, any type of Cloud is actually viable for the financial sector as long as those

three stages of the data lifecycle are taken care of. If we now consider that each compliance has

different restrictions to each data stage we will see that our horizons get much wider than we think.

Regarding the Data Sovereignty aspect (a

concept stating that the information processed and

stored in binary digital form is an object for

regulation by the legislation of the country of its

actual allocation) at the Cloud World Forum 2014

John Finch, CIO of the Bank of England advised that

the banking institutions should think twice about

migrating to the Cloud.26 When analyzing his

arguments, one must agree that this is

not about an “all or nothing” approach and that

there are different types of cloud which one can

leverage and choose the best to fit. Perhaps this

means that the best approach is to consider a hybrid

cloud, in which we leverage public cloud for processing data (which means Data in Use and Data in

Motion) and exploit private cloud for Data at Rest. Even in that case we still need to clearly determine

which of the data at rest is really under those constraints, since most of it might not be, therefore

allowing the financial companies to benefit from advantages of cloud technologies in spite of selected

service or deployment models of the Cloud by safe encrypting and anonymizing the data.

25 Nuno Godinho, General Manager Software, Europe / Software CTO, Europe at GE Healthcare 26 www.businesscloudnews.com/2014/06/18/bank-of-england-cio-think-twice-about-cost-security-data-sovereignty-in-the-cloud/

DATA AT REST

Inactive data stored physically in databases, data warehouses, spreadsheets, archives, tapes,

off-site back-ups etc.

DATA IN USE

Active data under constant change stored physically in

databases, data warehouses, spreadsheets etc.

DATA IN MOTION

Data which is traversing throughout a network or temporarily residing in

computer memory to be read or updated.


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In order for financial institutions to succeed in effective leveraging the Cloud in business and

to achieve the top economic outcome they need to make these few strategic steps, namely:

Summarizing all the above-mentioned, it comes evident that cloud technologies in banking,

as well as in financial services in general, are neither a myth nor a “soap bubble”. They and their

benefits are real. It is only a matter of understanding of different types of Cloud, its structure and the

ways of its efficient realization. Surely, your concerns about data security and sovereignty are

reasonable while these factors play a crucial role for stability of your business. However, they should

not become a strong reason give up the boons of cloud computing, as consequences in nearest

perspective might result in loss of income or business at all. And that is so because the Cloud brings

not only new opportunities, but it is also a great threat to those rejecting it while new players, who

mind modern trends and technological instruments, will be more agile, mobile and aggressive on the

market. This fact aligned with the current industry trends of digital banking, bank operations innovation

and payment reinvention where threat from the likes of Bitcoin creates a big concern for traditional

banks, thereby heavily motivating them to move to the Cloud.

I am sure you’ll give me a smile and mentally answer: There is a sense in it! But we are in

Ukraine. Here and now it is not realizable.

I will not argue with you, you are right. We live in a country, where technologies are delayed

for almost 20 years, where the general infrastructure is like a limp dog, where the banks tend to survive

and are more concerned about their profits at this moment than about the mid-term perspectives and

their IT services’ virtualization. It is the country where the regulator not only avoids assisting financial

institutions in adaptation on new technologies and raising quality of services for clients, but issues

contradictory regulations. It is where the top managers, just like ordinary customers, are not mentally

ready to accept cloud tech and its obvious benefits.

But time does not stand still, as well as the progress.

Technologies can be updated and integrate into

business following a strong will, wish, investments and

involvement of a world-known vendor. No offers in

domestic market? Create demand, and IT giants like

HP, Microsoft, IBM or Google will come themselves

knocking on your door proposing ready-made cloud

solutions.

Design a strategy of cloud migration for business

Minimize the risks concerning the data security and sovereignty

Make emphasis on hybrid cloud as the first stage

Actively lobby interests by cooperating with the regulator

i

≥60%

by 2016

Amount of banks worldwide which will process the majority of their transactions in the Cloud (by Gartner).


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D’you think it is impossible to motivate the National Bank to customize the Ukrainian

legislation making it more auspicious and adjutant in migration to the Cloud? Create an ideological

community of banks, which will vigorously lobby for the necessary ideas and their legitimization. It has

been done in such a way for many decades in US, where the state is actually ruled by large corporations

dictating their rules, and not on the contrary.

Still numerous aspects and hardships remain in promoting cloud banking in our country. And

YES, within the next few years we most likely won’t find a 100% cloudy IT infrastructure at a Ukrainian

bank. Nonetheless, the Cloud is an impending inevitability for financial services all around the world.

Thus the first “pioneers” here in Ukraine who try their luck through mastering the cloud concept and

transforming their businesses in accordance with the Cloud’s canons, they will acquire not only all

previously mentioned advantages over their competitors, but also the best offerings from cloud service

providers and well-known vendors. The latters are patiently watching for their moment to enter the

vacant Ukrainian market.

Cloud Banking by Evgeniy Sen - ENG

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