The use of cloud computing has been gaining some serious momentum in Financial Services in recent years. With an increased focus on cost efficiency, continuing to deliver against a very aggressive technical roadmap has become the norm in our current financial environment. Revenues are now growing based on the ability to implement new technology, as well as provide cutting-edge solutions. Although cloud computing has been around for over a decade, its success can now begin to be measured thanks to its adoption by large financial institutions. As a result, its use will rapidly evolve and start to shift the landscape in which it operates. To get a better understanding of the concept, let’s start from the beginning.
In 2006, Amazon formally established the Elastic Compute Cloud, effectively offering virtual computers from which users could run their own applications. Being able to provide these virtual machines provided opportunities to reach high-capacity networking in locations where clients didn’t have an expansive footprint. This was one of the early drivers for adopting cloud computing across the technology world.
While technology giants such as Amazon, Google, Microsoft and IBM (to name just a few) were focusing on the beginning of the new cloud technology, the Financial Services industry was experiencing an extremely bullish environment where revenues and profits were at all-time highs. As a result, Global Markets technology teams needed to quickly deliver software to address the needs of both the clients and the banks. The technology teams had their own grand plans with strategic visions and large-scale initiatives, but as the profit of a deal was the main priority, these short-term projects were staffed and approved immediately without any thought for the long-term IT strategic vision. This type of short-term view led to:
This practice was considered Business-As-Usual, until 2008.
The financial crisis not only had a lasting impact on the global economy, but also served as a catalyst in the industry to change the way banks operate. The introduction of large-scale regulations around capital restrictions followed by Dodd-Frank and stress-testing was just the beginning. There also needed to be a change in how technology was used to cope with these changes. More specifically, there needed to be a shift in the perception of technology away from it being simply back-office support, to that of a more strategic business partner.
With the financial crisis came large drops in revenue and an increased focus on reducing costs and establishing controls. With its high overhead costs and a pre-crisis short-term view, technology became an obvious area of focus. This is the point when cloud computing began to firmly take shape as an area for investment.
Global Financial Services organisations have historically faced challenges due to the high demands and expectations of their customers. Traditionally, a customer’s personal relationship with their banker kept them from shifting their business to competitors. However, because the market had shrunk so drastically, customers could no longer solely rely upon this relationship.
Adapting to these new customer attitudes required a monumental change in the way banks managed their infrastructure and cloud computing was well-placed to become a key component of this change. However, compliance added an extra burden to this shift. Some particular areas of concern were:
As cloud-based technologies developed, three distinct versions came into being. Firstly, the private cloud, an on-premises version of the cloud managed by the firm’s IT team; secondly, the public cloud, which is hosted by a private third-party; and thirdly, the hybrid cloud, which is mix of the private and public clouds.
Due to concerns raised mostly by regulators, most financial institutions determined that creating a private cloud within their internal environment (that sits inside the company’s firewall along with their existing infrastructure) would be the best option initially. This way, the majority of the early concerns about the cloud could be mitigated, and costs could be flat as it was managed by the existing IT teams.
Private cloud infrastructure started early, with the adoption of Remote Desktop Services and then Virtual Machines and VDI. The reduction of costs associated with moving from traditional desktops to this model created a more simplified working environment with the allowance for flexibility. Another knock-on benefit of having a flexible work environment, was that resources did not need to be based in high-cost locations. Enabling remote working, reduced employee costs and created real-estate efficiency through hot-desk locations. This use of the private cloud migrated into the software development environment. When developers were creating applications, approvals to begin work were given promptly if the software was going to be on cloud-based infrastructure.
However, all this rapid growth and demand on the private internal cloud caused a massive strain on the internal IT infrastructure teams: data centre space was reaching its limits, procurement time for cloud-based hardware was taking the same time to deliver as traditional hardware, and IT teams were at maximum capacity to help support this new and evolving model.
Seeing as banks were not getting all the benefits they had hoped from the private cloud, the public cloud started to look like a more exciting offering. It had the benefit of using the same infrastructure, but over the public internet, which was available to anyone that was willing to pay a fee. The primary benefits of the public cloud were that the need to manage, maintain, and procure hardware shifted from the banks to the cloud-service providers. Additionally, the ability of the banks to scale-up quickly without having to buy, install and configure new servers significantly reduced costs, but also provided a faster time-to-market. Having a variable or ‘pay-per-use’ model allows for increased flexibility in spend, as compared to the normal fixed-price model, which allows teams that are budget conscious to be able to scale for what they are using. While the private clouds were growing, the public cloud was taking significant strides to help improve the banks’ infrastructure, whilst addressing the concerns posed by the regulators.
Finally, as the need for cloud computing has increased, regardless of whether public or private, firms have started looking into the feasibility of a hybrid cloud model. This enables both the private and public clouds to be used together by shifting workloads from one to the other. A combined offering that keeps information safe and secure, but also has the ability to expand and use burst capability where necessary, the hybrid cloud has become an extremely attractive option.
Whichever cloud service you decide to use, the key is to ensure the software is scalable, secure, resilient and compliant. As with any transition or new development, sufficient research and preparation needs to be carried out to ensure you have the right service to achieve your desired goal. Brickendon’s cloud experts are well placed to help with this. Contact us to find out more.
