Financial institutions have been notoriously reluctant to embrace cloud computing. With some justification, compliance teams at many banks fear moving essential functions from server-based systems to the cloud will put sensitive information at undue risk. Yet the potential benefits of the model to the financial services industry are such that for banks to reject the cloud outright would be rash.
A "hybrid cloud" model helps financial institutions keep certain data highly confidential while enabling them to enjoy the reduced expenditure, operational efficiencies and corporate flexibility cloud computing can deliver.
Most financial institutions over the course of time have sunk major capital into enterprise systems that underpin their operations. These so-called "legacy systems" frequently employ outdated hardware and software yet persist because of the expense, difficulty and risk of transferring everyday operations and huge quantities of data to more advanced infrastructures.
Compliance teams are typically cautious about keeping data "outside" of the bank, which they perceive to be outside of their control. While banks may have already transferred some business processes and data to private clouds (clouds within company boundaries and firewalls), they typically remain averse to exploiting public clouds (where resources are provisioned via the Internet by a third party outside company boundaries and firewalls).
As well as security concerns, regulators worldwide following the financial crisis have been introducing stringent reforms to the financial services industry. With banks in the spotlight, it is understandable that compliance teams are wary of making a wrong step and wish to avoid transferring processes and data to public clouds that they fear could lead to infringements.
A hybrid cloud model overcomes many of the concerns outlined above, enabling banks to reap the benefits of cloud computing while also maintaining the security and confidentiality of their data. A hybrid cloud combines aspects of private clouds and public clouds and works by "mashing up" private and public data so financial institutions can keep certain information highly confidential while exploiting the benefits of public cloud computing.
By way of example, an organization might find it convenient to have client names and contact details on the cloud but not be willing to have account balances and transaction details exposed. A hybrid model allows some object fields to reside within an organization's firewall and only be visible to users within it. For those users, it is a seamless mash-up of cloud and internal data. Outside the firewall, only the non-sensitive fields are accessible.
The benefits that banks can realize from moving their IT systems to a cloud-based model are considerable. As cloud vendors offer their services on a pay-as-you-go basis, there is no need for up front capital expenditure on hardware and software that may become rapidly obsolete. Cloud solutions are flexible and scalable—capacity and processing power can be upgraded for peak times and likewise downsized for quieter periods. In addition, the speed of deployment is significantly increased as design, development, testing and roll-out is achieved within a single platform.
Perhaps most important is the scope the cloud offers for business change. In an industry like banking, where business processes are very industry specific, the cloud can liberate the business from IT and let business, rather than technology, drive progress.
In the highly competitive world of banking, those financial institutions that can harness business-changing technologies will come out on top. The data residency and privacy regulations that apply to the financial services sector should no longer prevent banks from moving to the cloud as the technology has now evolved to the point where solutions can be highly secure and compliant. Now is the time for financial institutions to enjoy the real value the cloud has promised for so long.
Lance Sinclair is the managing director for Radius Technologies, a UK-based cloud-focused capital markets solutions company.