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Steve Browell, chief technology officer at Intrinsic Technology says that many of the regulatory requirements imposed on banks make cloud services much more challenging.
“Even at the very practical level of just trying work with a cloud services provider to ascertain their level of compliance with a bank’s requirements. Cloud businesses are often built around minimal interactions with customers, and high levels of automation on provisioning.”
The primary concerns of the banking industry relate to privacy of customer data, and public cloud services are generally based around a shared infrastructure model. “This makes private cloud a more appropriate model for many banking services.,” he says.
The bank developer says that another issue is the amount of revenue and resources that are tied up in this legacy stuff makes changing infrastructure very difficult.
“If it is a smaller bank it is probably easier to change, in a big bank to carry out such a change would cost so much money and would take so such resources and potentially if it goes wrong, lose the bank money,” she says.
This is a view echoed by Daniel Melo, senior director at Fair Isaac Advisors.
“There is a reluctance to abandon legacy systems due to sunk costs and the fact that often these legacy systems are quite embedded with other systems and processes, making them costly to replace,” he says. “One of the areas we tend to see more movement to cloud-based solutions would be more point solutions to a specific need that do not involve a rip and replace of legacy systems.”
Tried and tested
The bank developer said that banks are often reluctant to move to new systems without proof of the thing actually working. “If it's not a tried and tested solution that you know someone has used and works really well, would a bank necessarily want to risk using the cloud and it not working,” she says.
Anthony Duffy, director of retail banking at Fujitsu UK & Ireland says that many European banks are well-established and have systems in place that can be relied upon to deliver key goals and strategies. “Such banks might argue that there is less immediate need for change,” he says.
However, Calum McLeod, vice president of EMEA at Lieberman Software challenges that assumption and points out that the legacy of outages and leakages, suffered by several banks over the past few years, including one just this weekend, does not add credence to the argument that cloud presents more risks.
“Morale in IT in the banking centre is low,” he says. “Outsourcing has robbed many organisations of the brightest and best in IT, and the reduction of budgets over the past few years has made it difficult for the banks to be innovative.”
With many reasons for banks not to move into the cloud, what could push it kicking and screaming into a cloudy future?
Browell says that there are no absolute prohibitions on the use of cloud services within banking as long as local regulatory requirements are met.
The reduction of budgets over the past few years has made it difficult for the banks to be innovative
“The outcome is likely to be driven by the long-term financial impact of cloud services. If banks think there are significant savings to be realised even when they add in the cost of compliance, then it will become an attractive proposition,” he says.
Perhaps with the conservative nature of banks, it will only be time that pushes banks into cloud or at least that what Duffy believes.
“The passage of time will be an important factor in banks becoming more comfortable with cloud adoption,” he says. He adds that as more banks adopt the cloud, prove that it works and demonstrate the benefits that can be derived, confidence in the cloud will be built throughout the industry.
“As regulation catches up with the technology, and regulators become comfortable with the concept, again we expect more banks to express interest in adopting it. Such developments will prove that cloud will be around for the long haul,” he says.