Jun 12, 2017

Cloud as a Competitive Advantage in Banking

Steven O'Hanlon, CEO, Numerix

Cloud computing offers many benefits for banks, and not just from a data, analytics, computational and cost control point of view, but to also help develop and solidify reputational and competitive standings. So as the head of a fintech company and thus a major proponent of innovative technologies that bring tangible business value to our clients, I had grown a bit frustrated at how financial institutions had continually shied away from cloud services. This was primarily due to perceived security risk and doubts about the practicality of cloud usage. But as cloud technologies have evolved and a better understanding of their benefits grows, the cloud conversation is changing at many banks, and we are now seeing cloud adoption receiving more widespread acceptance.

I think cloud banking may get a significant boost this year as J.P. Morgan Chase & Co., the largest bank in the U.S. by market capitalization, went live in March on the public cloud with two applications used for wholesale trading. A recent Wall Street Journal article discusses how J.P. Morgan made the move “to take advantage of the bursting capability of cloud computing to handle high-volume, complex computations.” And the article suggests that bank intends to move a third application, one for risk modeling, to the cloud as well. In my view, the serious extent to which an institution such as J.P. Morgan is embracing a public cloud environment is a clear verification that cloud computing should be accepted as a key element of a bank’s technology operations.

There are some banks, however, that remain hesitant to adopting the cloud, and much of the hesitation is because of perceived data security and privacy risks. To me, J.P. Morgan’s landmark move to the public cloud, however, is a clear signal that security and privacy fears can be overcome.

Part of this is breaking the mindset that there is only “one” cloud.

Several viable cloud options are available. For example, banks can mitigate their privacy concerns and maintain data sovereignty through a private cloud. My key message, though, is that cloud computing has many forms—public, private, and hybrid—and its various delivery methods can empower banks to meet the new information, data aggregation, calculation, processing and risk management requirements in an agile and flexible environment, while at the same time reducing IT expenses over time.

One approach that I think will see a lot of interest is a hybrid approach, which is a mix of a private and a public cloud. Sensitive data and critical processes can go on the private cloud, while other applications can go on the public cloud, with interconnectedness between the two. The hybrid approach also offers greater economies of scale. That’s why I like to call the cloud the affordable pendulum of power computing—it can swing from private to public and not break the bank (pun intended).

In my experience from within Numerix and through working with our banking clients, I have seen just how transformative cloud adoption can be to financial services institutions. Not only has the cloud brought with it a host of new capabilities, it delivers near immediate ROI through performance enhancements and cost efficiencies. What I enjoy most is witnessing those “aha” moments when the detractors no longer outweigh the benefits of the cloud and clients make the choice to realize the competitive advantages cloud computing provides—and the advantage of partnering with fintech to ensure that all that compute power is fully enabled.

Looking Forward

For those banks that want to not just survive, but thrive, now is the time to start thinking seriously about adopting the cloud, whether in the public, private, or hybrid environment. When that decision is made, that’s when fintech steps in to help ensure best execution.

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