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Cloud banking: Slowly but steadily

- By Chetna Narayanan and Prasanna Sekar

The whole world is moving toward cloud technology, but many banks are yet to decide about owning a space on cloud though they are moving at a slow pace in this direction. Although they understand the benefits of cost efficiency and agility that cloud technology offers, banks are yet to create a mandate on what data and services can be shared and comprehend pre-conditions as some data is too sensitive, critical, or regulated to be placed on cloud.

Initially, banks had been highly conventional about the adoption of cloud technology due to the nature of business and sensitivity of the data they deal with. This is why they are validating one application at a time on cloud while still holding on to core banking software and keenly observing how cloud impacts security and infrastructure. In the last few years, Banks have witnessed the pressure   to consolidate IT costs. Most of the chief information officers (CIOs) clearly stated that cost and regulatory compliance are the top most priorities for them and they are convinced that cloud will reduce their capital expenditures.

Today, cloud vendors are trying to create service offerings that encompass compliance, flexibility, and security features like end-to-end encryption that are encouraging financial institutions to explore cloud technology. Moreover, regulators too have started to show interest in addressing legal and compliance issues in cloud migration. However, the adoption of cloud among banks varies from regional to international level in terms of cloud models. We are yet to see consistency in cloud adoption across banks.

More importantly, banks need to make smart decisions while adopting the right model for their business based on their needs / challenges. This could be software as a service (SaaS), platform as a service (PaaS), or any other model. There are various advantages of shifting to cloud like operational convenience, competitive edge, less energy consumption, and customer retention. As public cloud gains momentum, even financial institutions are exploring that as an option, though many refrained from talking about it. Global financial institutions or banks like JPMC, Capital One, and DBS have recently started using applications in Amazon Web Services (AWS). Bankinter (Spanish bank) uses the Amazon cloud to run credit risk simulations. The manner in which banks are cashing on public cloud services shows companies like Microsoft and AWS are trying to help banks with appropriate agile business models to outweigh benefits over risks.

Regulatory authorities are also gradually participating in building efficient cloud infrastructure for banks. Finance Conduct Authority (FCA) has given a green signal to use cloud computing in UK financial services by executing guidelines with regard to 'choice and control' in data storage, process and management, and enabling 'effective access'. Gramm-Leach-Bliley Act (GLBA) of US also urged financial services firms to protect the privacy of 'non-public personal information' by enacting a variety of personnel and computer security policies. This provides an opportunity for banks to utilize cloud computing. Various reports suggest increased adoption or investments in cloud in the future. The approach for banks should be gradual and not an all-at-once approach as it may lead to various challenges, mainly security issues. Once the data in a bank is compromised, it would be difficult to gain the trust of customers, which is very critical for decisions while adopting cloud computing.

The days are not far when regulators, banks, and cloud vendors will create a better cloud ecosystem for banks where security and regulatory norms will have high priority. However, all three of them have already started their journey toward secure and cost-effective banking.

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