The banking systems legacy
Financial technology systems, like the banks they serve, have been built over decades through a long series of mergers and acquisitions. Already operating across a complex set of siloed departments and systems (core banking, payments, trading, etc) each merger or acquisition has resulting in further systems being bolted on to create ever greater and more complex IT systems connected by a maze of spaghetti. Most large banks are now creaking at the seams, with more budget devoted to supporting legacy systems than to innovation. Many banks have core banking systems as much as 40 years old, but these systems are so critical to their operation and so heavily integrated into other systems that they have become near impossible to replace. Doing so has been likened to trying to change the engine on a jet airplane mid-flight.
This does not mean that there is no new banking technology available, or that new entrant banks aren’t basing their operations on the latest technology. Often making significant use of cloud technologies, challenger banks typically see their IT operations as a major source of competitive advantage. At the same time most of the older retail banks are experimenting with newer technology in some of their peripheral operations, but at their heart in their core systems they are still stuck with what they have – at least for now.
Banking in the 21st century:
Technology within the financial sector has changed considerably over the last decade. Information technology systems post the dotcom boom (those who survived) evolved into systems that were intertwined with nearly all of the other IT Services utilised within each respective organisation. This came with challenges and benefits post the outsource/offshore trend that amassed much confusion to everyone working inside the finance industry, as well as for the regulators.
Virtualisation was still in its infancy with complex infrastructures that were, and still in the majority, replicated in its entirety to a separate location for contingency purposes. Automation of technology was cumbersome and Application Service Providers (ASP) were rife, wrestling with coding for crude web presences coupled with the continued efforts for centralisation of IT Infrastructure made more difficult by the recent outsourcing trend.
What followed towards the end of the decade were phases of cost cutting and consolidation, that were inevitable post 2008 and the financial crisis. It was at this stage of technical evolution within the Finance sector that cloud technologies were truly realised. Starting with the easiest of services to untangle, outsourcing had started again but this time with an educated experienced head on the shoulders of the incumbent IT departments.
Today the Financial Market Place is a very different landscape and cloud technologies are common amongst regulated and non-regulated industries. You may have heard the phrase “Omnichannel Approach” on numerous occasions and if you haven’t, you will. In this age of digital transformation all business sectors are being affected, not just Finance. It is extremely important to have a consistent approach across all aspects of technology and business.
To put this into context, the below statistics will speak for themselves:
69% of customers already use the Internet to buy financial products – PWC
Mobile banking usage will exceed 1.75 Billion by 2019 representing 32% of the global adult population – Juniper research
Nearly 50% of the world’s banks will disappear through the cracks opened by the digital disruption of the industry – BBVA Chairman and CEO Francisco Gonzalez
72% of millennials would be likely to bank with non-financial services companies with which they do business (like Google, Amazon), compared to 27% for those over 55 – Accenture
The digital transformation is upon us and every industry needs to change!
With the emergence of cloud technologies the world has never seen the constant change state of technology where we are today. Just as other industries have changed over the past 5 years and, if you are old enough to remember the Amazon and Borders struggle where Borders never saw the end coming by the new industry book seller chomping at their heels. The same can be said for many other industries where diversification and strategy go a miss.
However we do have the benefit of hindsight and this, armed with the knowledge and understanding of more data analysis ever available in our history, the Finance sectors can not only stay in the game but ahead of the curve. There are 3 main focus points to ensure you stay ahead of the curve:
1. Be customer focused and achieve excellent customer service. We are living in the “ME” generation and such should accommodate the demanding needs of the youth of today, across whatever medium that is convenient to them. “The majority of Millennials would rather lose their sense of smell than their technology” – Newscred
2. Make the IT Strategy shift to accommodate point 1. The need to change your roadmap of service delivery is essential. Do not think for one minute that the majority of your clients will even pick up the phone to you if they are unhappy, they will not and simply move to one of your competitors. “2/3 of contactless payments since October have been through Apple Pay” – Tim Cook, CEO Apple
3. Data is the new currency in this digital age. Banks have amassed huge amounts of data from their clients, use it. “The vast majority of data never gets used… Only 0.5 percent of all data is ever analysed” – MIT Technology Review
So, this leads onto some predictions for Financial Institutions and technology. We have compiled a “TOP 5” list of emerging trends that we believe will be seen over the next 5 years.
1. Analytics Evolved
Big Data is not a new concept and Financial institutions have been using Big Data in one form or another via trading systems for years. Employ a Data Strategy to cultivate the unstructured information you have already. There are many providers, cultivators and providers of the technology and toolset that can be used. You may of heard of IBM Watson, the artificial intelligence computer that back in 2011 made the headlines by beating former “human” winners of the quiz show Jeopardy? This technology is now mainstream and available at a fraction of the cost of developing anywhere near the same results – cloud based!
2. App Delivery
Application delivery of your products and services is key when your clients have used smart devices from the age of 12 years old. Technically speaking we are in a constant change of major IT Infrastructure, however you should be embracing this change as it will also drive down your cost of ownership. Open source technology, once shunned within regulated industries, is now a major driving force within any industry that requires enterprise IT. OpenStack has emerged onto the scene and has many benefits to your organisation for the orchestration and management of resources. There is also a new way of thinking based around container technology (Docker) which in essence share a single operating system (and binaries) for application delivery without the vast amounts of virtual machines that would normally be required. This technology is in its infancy but is definitely one to watch for the near future.
3. Industry Clouds
There is much debate around Public/Private and Hybrid clouds. Rarely you do hear any talk around industry clouds and the massive benefits that they bring. Imagine a cloud based system that is designed for the financial industry, has the IT Governance applied to the infrastructure that meets regulators requirements, data sovereignty laws, is resilient and meets all of the check points set out by your governing body. Bringing cost synergies of shared implementations of bespoke and expensive vendor infrastructure that is secure. A cloud for your industry, designed by your industry specialists (with the regulators input) that allows you to reduce your expensive staff base of unique skills to manage and secure the technical environment. As well as allowing you access to previously unavailable products and services that would have required a large capex, we’re looking at this as a possibility within the next 5 years.
4. Fintech Involvement
Financial institutions have always been trusted with clients money. We see another potential trend that has started to emerge, financial institutions offering IT Services to accommodate the new currency, data. This would make sense to investigate this business model, just as other industries (tech) have done so offering financial services. We also see financial institutions being more involved, from a Venture Capitalist prospective investing in hi-growth tech startups. This too also makes sense to assist and guide these new breed tech firms, courting them at an early stage of development.
5. DRaaS – Disaster Recovery as a Service
With the emergence of cloud technologies and providers also comes the reliance of governance from said providers. Disaster Recovery is mandatory for regulated financial firms and this will get ore important when outsourcing to cloud providers. Specialist Disaster Recovery/Business Continuity providers will be emerging into the marketplace with the knowledge and understanding of not just your technology but also your business. This service is of course available today, however with the added security vulnerabilities that go hand in hand with cloud provisioning, specialist providers will undoubtedly emerge.
As keen cloud watchers at Compare the Cloud, we monitor the level of comment and debate on cloud in every technology and industry segment. While the use of cloud in the financial services sector is increasing all the time, there is still relatively limited comment and debate on cloud within banking. In the table below we highlight some of those that have been most outspoken on this topic in the last few months.
Index
Name
About
Twitter
Opinion / Reason for appearance
1
Huw Jenkins
Founder of the Money Cloud
Successfully raised a first round of funding through London VC Fig
2
Michael Reh
Senior VP and global head of Finacle at Infosys
@reh_michael
Commenting on news that Infosys Finacle banking software now available on Microsoft Azure cloud
3
Amit Dua
Regional head for advanced markets and global accounts at Finacle
@its_amit_dua
Commenting on news that Infosys Finacle banking software now available on Microsoft Azure cloud
4
Simon Bain
SearchYourCloud CEO
@sibain
Commenting on encryptions keys in article “7 Common Misconceptions About Security Threats In Cloud Computing”
5
Dominic Hirsch
MD at Retail Banking Research in London
Speaking about how a typical ATM lasts 8 to 12 years, so the transition to the cloud will be gradual
6
Michael Engel
Director of the software product line for banking at Wincor
@michaelengel
His company has doubled the number of ATMs it has connected to the cloud in the last 18 months, to about 100,000.
7
James Chang
Managing partner of financial service consulting at PwC China
Said the rapid growth of Chinese billionaires was mainly caused by the booming Internet and mobile Internet industries, and the rise of the country’s capital markets.
8
Sam Ramji
Cloud Foundry Foundation CEO
@sramji
Commented on technology excellence and innovation as a way to stay ahead in the highly competitive financial services market as JP Morgan Chase joined Cloud Foundry
9
Q2 Holdings
Q2 Holdings, Inc. a leading provider of cloud-based virtual banking solutions
Announced the signing of First Republic Bank, a leading private bank and wealth management company headquartered in San Francisco.
10
Thomas Phelps
CIO and Chief Corporate Strategist at Laserfich
Laserfich is giving access to cloud-based independent digital signature
11
Nat Kausik
CEO, Bitglass
Said as the financial sector continues to adopt new technologies like cloud and mobile, it will undoubtedly experience security and compliance growing pains
12
Larry Sanderson
Senior VP of CSI Managed Services, a business unit of Computer Services Inc. (CSI)
Has seen high demand for managed services among banks ranging from $100 million to $1 billion in assets.
13
Interoute Communications Limited
Interoute, owner and operator of Europe's largest cloud services platform
@Interoute
Deal with Orwell, a pan-European financial services group, to host its new online current account service ipagoo. Available in France, the United Kingdom, Spain and Italy ipagoo is designed for all customers wishing to carry out transactions abroad.
14
Edmund Ingham
Financial technology journalist
Reporting on financial technology news
15
Michael Chaney
Chairman of the National Australia Bank Limited NAB
Commenting that the bank’s improving performance
16
Michelle Jones
Financial technology journalist
@michellej
Reporting on financial technology news
17
Dennis Bonilla
University of Phoenix Executive Dean of the College of Information Systems and Technology
Financial services and health care, which are the two largest consumers of cloud computing, are also the most heavily regulated relative to privacy concerns, thus demand robust security infrastructures
18
Tom Groenfeldt
Financial technology journalist
@Tomgroenfeldt
Reporting on financial technology news
19
Laurent Dedenis
President of International Sales at Acumatica
@laurentJDedenis
The cloud and mobile workforce processing may seem like something new and exciting to wrap your head around, but they've actually been around for a while...
20
Olga Kharif
Financial technology journalist
@olgakharif
Reporting on financial technology news
For future events about Cloud Banking and FinTech please visit: http://cloudfsworldseries.com/
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