By Dain Ehring with K.J. Yee
Less than 10 years ago, cloud computing was seen as experimental. Today, it’s viewed by banks as essential to survival in a new era of increased regulation, public scrutiny, fluctuating transaction volume, and operational austerity.
Unlike many internally developed systems, or the patchwork of point solutions that make up the majority of bank technical infrastructures today, cloud computing encompassing Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS) systems is gaining significant ground due to its inherent flexibility, agility, rapid extensibility, and relatively low capital expenditure requirements. Recent trends suggest that not only will the cloud replace most support and administrative functions such as office desktop applications (Google Apps), and accounting functions (OpenAir), in the next decade, but that core infrastructure and systems such as datacenters and loan origination systems will also live primarily in the cloud.
On the demand side, recent research from Gartner, TowerGroup, and Forrester – all big information providers and consultants to the financial services industry – suggest that interest in SaaS, PaaS, and IaaS is growing, with demand expected to more than double over the next two years. The market for PaaS solutions alone is expected to reach $15 billion in volume over the next eight years.
On the supply side, industry technology giants from SAP, Siebel, and Microsoft, and Oracle, to the more obvious platform virtualization providers such as NetApp, VMWare, and Force.com are making significant investments in cloud solution development specifically designed for the financial services industry.
Also, investor and public sentiment have turned against the traditional closed bank systems. The government and individual citizens call for a level of transparency, accountability, and environmental consciousness only achieved by creating open and relatively small footprint systems.
Growing momentum into the cloud often comes great trepidation, primarily surrounding privacy and security issues in handling customer data.
But hesitation becomes a sense of empowerment when bank management and compliance officers discover that virtualized solutions, when implemented with best practice controls and procedures, actually provide as much, if not more security, than that used by the bank’s own internal systems.
A centrally managed SaaS system can provide an unprecedented ability for a bank to quickly identify problem areas and track activity by individual role. When coupled with improved ROI and more efficient operations experienced through proper SaaS adoption, the business case for cloud migration becomes quite compelling. Industry innovators have not only embraced the cloud, but have become proponents, urging their brethren to join them in moving the adoption of these technologies – this new business paradigm – going forward.
The costs of
not embracing the cloud
But what of those late adopter institutions that are adopting a wait and see attitude towards the cloud? What exactly are the costs of not embracing the cloud?
First, let’s look at the absolute cost of maintaining outdated or end of life systems. The task of supporting, upgrading, and handling integrations within legacy systems – some more than a decade old – becomes increasingly complex as more processes within the bank become automated, and third party providers themselves move to a more agile model. Moreover, central banking systems are often inadequately documented, leading to a diminishing understanding of how to operate, much less fix, the system as a new generation of employees enters the workplace. Eventually, something breaks down and causes a business disruption and an urgent situation – a rip and replace of great magnitude. In such cases, the creation of a parallel PaaS would ease the transition, enabling the institution to properly design, build, integrate, and support a new system with minimal business disruption.
Second, significant adverse business repercussions occur from not moving operations to the Web. Over time, the technological, business, and government process leaders will raise the bar for the rest of the banking industry. Those that cannot meet the new requirements will have survived today’s economic turmoil, only to become obsolete in later years as their operational costs increase and the industry as a whole becomes more efficient. As we saw with the advent of the internet and Web 2.0 systems such as Facebook and Twitter, news and information must be updated continuously, or the source or system loses relevancy for its users. Similarly, in the cloud, the product lifespan is measured not in quarterly updates, but is dependent on the need for continuous monitoring and the integration of changes as the need – internally or externally-driven – arises.
The cloud model not only offers a cost-cutting benefit, but also a way to reengineer organizational processes to maximize efficiency, enabling the bank to respond to opportunities and challenges alike.
With the dozens of enthusiastic vendors, consultants, partners, and integrators honing their cloud knowledge and library of solutions, the excuse of a lack of resources does not hold. The real question is, can any bank operating on a larger scale – with multiple products, divisions, branches and distributed operations – afford not to move to the cloud?
Dain Ehring is CEO of Dorado Corporation, a leading provider of mission-critical SaaS consumer lending solutions and PaaS transaction infrastructure. K.J. Yee serves as Dorado’s senior communications director.