gartner the impact of cloud computing on vendors in banking

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  • 7/31/2019 Gartner the Impact of Cloud Computing on Vendors in Banking

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    Gartner: The Impact of Cloud Computing on Vendors in Banking

    Kristine Pfeiler, research director at Gartnerwww.gartner.com

    Despite well-publicised concerns regarding security, compliance and data integration issues,banking institutions have begun embracing cloud computing across the services spectrum.While banks seeking agility, faster time to solution and lower, more-flexible cost structures inIT delivery are consuming cloud services 51 per cent of North American banks have someform of adoption of software as a service (SaaS) they remain sceptical about security andare reluctant to put core areas of functionality and information in the cloud, significantlylimiting the market potential of cloud computing. In the midterm (2012 through 2014), dataintegration and compliance issues are likely addressable by cloud providers; however,

    security concerns will likely not be overcome in the near term or midterm for solution areasthat process information classified as restricted or viewed by banks as proprietary.

    Banks are adopting cloud services, with SaaS being the most-widely deployed form, mainly inperipheral, non-core solution areas, such as collaboration, customer relationshipmanagement (CRM) and HR, but exceptions do exist. Adoption varies by banking segment,with more small-tier and large-tier banks adopting SaaS than banks in the mid-tier segment.

    Driven by the need for agility, speed to solution and lower, more-flexible cost structures,banks plan to increase their spending on cloud services. There is a growing interest andadoption in the cloud as an infrastructure utility. Most examples to date are in private cloudservices in large-tier banks.

    Data integration challenges, security issues, and compliance concerns are still preventingbanks from adopting cloud services across a broader span of business areas. The cloud

    cannot be a "black box" from an audit perspective.

    Gartner provides the following recommendations to organisations: Examine how your offering fits in the banking solution landscape with regard to size of

    institution and solution area. Craft specific messages for line of business (LOB) buyers for everything beyond

    infrastructure at large-tier banks. Develop a product strategy, either through the customer's own product development

    system or through partnerships with other complementary providers that handle dataintegration challenges such as large volumes and integration real time.

    Structure offering to fulfil security requirements based on how financial servicesinstitutions (FSIs) would classify the information processed in your offering. Providersthat process confidential or restricted data should consider private cloud models.

    Address all compliance and audit requirements on their product offering, such asphysical data storage, access to data, encryption and so on, stemming fromregulatory acts. In the US, for example, this could include Statements or AuditingStandards No. 70 (SAS 70), the Gramm-Leach Bliley Act (GBLA) and the Sarbanes-Oxley Act to compete broadly in cloud computing for financial services.

    Industry Drivers of Cloud AdoptionIn the current economic environment, banks are trying to manage recovery as well as look togrow the customer base and handle a host of new and changed regulations. For manyinstitutions, absorbing acquisitions is also a top focus of management. All these factors leadbanks to consider cloud computing as an alternative delivery model to meet these challenges.Cost, speed to solution and agility are driving financial services firms to explore, evaluate andadopt cloud computing.

    The first and most-widely cited driver is cost. There are two facets to the cost driver. The firstaspect is overall cost reduction, which can be gained through avoidance of infrastructure cost

    as seen in SaaS models, quicker development cycles through platform as a service (PaaS)and increasing utilisation of infrastructure components, thus reducing total infrastructureneeds overall, as is the case with infrastructure as a service (IaaS). The second aspect is

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    enabling banks to increase control over the IT infrastructure with regard to fixed versusvariable costs, and operating expense versus capital expenditure. The ability to change the ITinfrastructure economics gives banks more flexibility and control over costs to react to what isbecoming an increasingly volatile economic condition.

    IT organisations within banks have always had to meet high expectations of delivery times;sometimes with mixed success. With technology innovation becoming more of an enabler of

    new banking products and channel innovations as well as increased regulatory changesexpected, a bank's ability to quickly adapt to the changing landscape or become a marketinnovator by leveraging technology is a distinct competitive advantage. Cloud computing canoffer faster initial implementations by eliminating the need for lengthy hardware acquisitioncycles or capital investment project reviews.

    Banks are also looking to the agility that cloud computing offers across the cloud servicesspectrum, but specifically, when looking at IaaS. Large-tier banks and "megabanks" haveextremely large sets of data and very high transaction volumes in solution areas that are load-intensive and read-intensive, such as risk management, trading algorithms, pricing,quantitative analysis and payments processing. Megabanks are adopting or consideringprivate cloud (internal to bank) IaaS for the ability to reduce overall infrastructure cost throughconsolidation of servers, data centres and higher utilisation of their server footprint.

    Industry Inhibitors to Cloud Deployment

    Despite the advantages, the majority of banks are reluctant to move mission-criticalapplications to cloud computing over concerns and challenges related to security, complianceand data integration. Security breaches can result in fraud, data thefts and other losses, butmost important to a bank is the reputation risk. Cloud computing can also be perceived ascomplicating compliance with a loss of control of the IT infrastructure. Furthermore, dataintegration challenges can eat away at the cloud cost advantage. All three challenges willneed to be adequately addressed by the cloud providers if the market is to move beyondperipheral solutions. It is important to note that these fears and concerns, while notcompletely absent, are not hindering adoption of private cloud, in which cloud technology isdeployed internally to the bank, specifically private cloud as an IaaS.