Could the specific and different drivers for cloud within the various sectors of the financial community ultimately lead to five phases of cloud adoption?
Before looking at the phases, lets look at the context.
The finance industry has gone though some turbulent times. There are also challenges ahead, not least the Eurozone economic issues and Middle East volatility, all of which impact the financial marketplace.
Financial organisations are one of the most regulated in business and contend with increasing levels of public scrutiny. Regulatory oversight is just one more dynamic, with expectations of constant change as the regulators themselves come to understand the technological advances and implications. The complexity is multiplied as trades move around the globe with differing requirements on reporting, settlement and risk checking.
In the end, the most competitive and successful firms in Banking and Finance will be those that can rapidly identify new opportunities and pools of liquidity, enter those markets while they are most profitable, and still maintain proper risk management and governance.
Retail banking has many of the attributes of a large enterprise. Standard business applications are used for common tasks (email, document storage etc) and must be deployed over large, distributed networks, but even these applications can be tightly governed with respect to data privacy, mandated storage requirements and functional separation requirements.
The immediate opportunity for the cloud in retail is in the ability to reduce and control costs for these non-critical applications, but acknowledging a complex overlay of security and business policy.
In short, it’s about removing cost and increasing efficiency – improving the bottom line.
On the investment side where latency is money, there is huge potential to implement revenue-impacting changes, as seen with the Hibernian Express1 transatlantic cable. This new intercontinental cable is anticipated to reduce latency by 6 milliseconds and sell for 50 times current prices.
In the data centre fabric innovations2 also generate enormous incremental revenue opportunities by reducing latency, for example within High frequency trading3 environments and as seen withing the New York Stock Exchange .
The NYSE/Euronext Story
The speed of Back Office functions are now becoming the focus, following that of the Front Office trading environments, allowing for improved risk management, Complex Event Processing4 (CEP) and a real time view of the aggregate trading position of the firm.
For this community the focus is top line growth.
These strong biases towards cost versus innovation, and the focus on risk management, leads me to think that there could be five distinct phases of cloud adoption within banks.
Five phases of cloud adoption for banks:
Deployment of cloud technologies is happening today in the form of data centre virtualization and (where latency is money), in new data centre fabrics. Examples include the NYSE EURONEXT5.
Deployment of cloud models (shared, elastic resources) as private clouds6 in the area of non-critical ICT applications for retail banking. This will provide a chance to refine security and management best-practice since it can more closely follow the example of other industries.
Investment and retail banking start to leverage agility and performance benefits of cloud for front and back office applications following the template laid down from the retail sector. The appeal of being able to rapidly deploy super-computer scale pools of compute resources to rapidly develop and implement strategies make this inevitable.
Extremely dynamic resource allocation to rapidly create specialized pods of trading infrastructure. We may see mega pools of resources supporting Tokyo Stock Exchange for a few hours, be reallocated to trading in commodities overnight, and then calculate the opening strategies for the NYSE opening bell, while still maintaining the compliance and operational risk guidelines governing each market.
We may finally see the death of the trading floor, as brokers, traders and individual investors enjoy equal access to market data and trading tools from secure mobile devices. Allowing mobile access while still ensuring fairness, audit ability and oversight to allow a ‘Trader’ to be independent of location.
Of course, this is speculation based on some observed characteristics of the industry and some technology insight. If you have a view on how banks may adopt cloud services, please share your thoughts by commenting below.
Head of Cloud and Managed Services Marketing, EMEA