One size fits all
Written by Duncan Jefferies
Cloud computing is a massively hyped but hard to pin down concept. It has existed in one form or another for some time now: Software-as-a-Service, Infrastructure as a Service, business process outsourcing and third party administration all fall under the cloud umbrella. In fact, many people use cloud services without even realising it: streaming on-demand movies or music, storing files online, or even a webmail service like Hotmail or Gmail are forms of interaction with the cloud. And now financial institutions are all set to take advantage of the cloud’s cost saving, flexibility and agility benefits. Providing they can overlook those lingering security and regulatory issues, of course.
“If you look at it from a purely technology perspective, the only new thing really about what we call cloud is the separation of software and hardware, so that the software is able to continue operate independently of the hardware platform upon which it's sitting,” says Andy Burton, chairman of the Cloud Industry Forum (CIF).
Pioneering companies are already moving servers, storage, e-mail, collaboration, apps and more to the cloud. It topped Gartner's list of top ten strategies for 2011, and a recent report by ECM predicted that the EU economy could be boosted by €763bn by 2015 if cloud adoption continues at the expected pace. But what about the smaller institutions?
It’s well known that, in general, banks have never exactly been keen on handing over control of important applications to third parties, or exposing their data to online environments. Yet this is exactly what the cloud demands. Throw a potential regulatory and business continuity minefield into the mix and it's a wonder they would even consider moving their operations into the cloud. But once you understand the benefits, it becomes very clear indeed why some are willing to take the risk.
“People have woken up to the fact that this isn't a fad. It is genuine, the benefits are real and the flexibility is phenomenal,” says Burton. “Interestingly, adoption in the SME sector is as fast, if not faster, than with enterprises, who traditionally have always been the earliest adopters of technology, because they're the ones who've had the resources.”
The money saved by no longer having to purchase or maintain equipment is one of the most attractive features: with cloud, you only pay for what you need right now. Don't need a software service any more? Just cancel it and move on without having to worry about equipment wastage.
Burton is seeing smaller businesses taking advantage of this on-demand feature that the cloud offers. “What we're seeing is smaller businesses saying ‘I’ve got no capital expenditure, I don't even need the same degree of skills in-house if it's being delivered to me as a service’. Therefore, they're able to buy into it on a pro-rate basis for the size of their organisation.” And thus these SMEs, traditionally seen as the slower movers in the industry, gaining access to the latest and greatest technology at an affordable cost, enabling them in turn to compete with their larger competitors in the market. “There isn’t the barrier to access to technology that there has been in the past,” he adds.
The speed to market with new products and services is also greatly improved with cloud: simulations can be easily and cheaply run, and the necessary services acquired at minimal time or cost to the business. In larger enterprises, any unused computing capacity can also be pushed out to the cloud, allowing branches around the globe to utilise it.
“Where you’ve got areas in your global organisation that are asleep, why not use the processing power elsewhere?” asks Gary Wilson, head of financial services consulting at EMC Consulting.
Chris Baldock, managing director at intY, agrees that resources should be exploited. “Investing in technology has always been resource-prohibitive for SMEs, which has historically made them more open to the concept of, and benefits that come with, cloud computing. Without extensive internal IT resource, they have great impetus to outsource to cloud providers both for service and support.”
Smaller institutions, Baldock adds, are often more “nimble” than their larger counterparts, making the adoption of a cloud service “less of a transition” for them.
Mixing it up
One growing trend is the adoption of hybrid cloud models in the financial sector, a mix of public and private environments that allows organisations to experience the benefits of cloud with a minimal amount of risk. Mission critical, security sensitive data is retained on the private cloud, with other less-essential data and applications existing on the public one. E-mail, a CRM or HR system could all potentially be placed on the latter, for example, with any applications involving core customer data kept on the former.
“You're going to see some companies make a series of steps towards a complete private cloud, or a hybrid cloud, or a complete public cloud. Security may be the ultimate caveat on what they decide to do and how they decide to do it,” says Scott Allen, vice president of marketing at Visual Network Systems.
Until recently, larger financial organisations where the ones most likely to experiment with cloud-based services, but SMEs are now seeing the benefits for their business models as well. Cloud offers them greater scalability, as well as the chance to introduce remote working without spending a fortune on IT resources.
“Ultimately, over the course of the next five years, you’re going to see a large majority of SME financials exporting all the standard applications that they possibly can out into a public cloud offering,” says Allen.
There is no longer a need for a skilled in-house set of IT staff if software is being delivered as a service, and applications can effectively be purchased on a ‘pay-as-you-go’ basis. “They’re getting access to the latest and greatest technology at an affordable cost, which enables them to actually compete with their larger competitors in the market place. There isn’t that barrier to access to technology that there has been in the past,” says Burton.
Despite the evident benefits of moving to the cloud, security concerns have always stymied its growth in the financial sector. For SMEs in particular, data loss or a breach of regulations could have disastrous effects on their bottom line. So has this issue now been dealt with sufficiently to encourage a large-scale take-up of cloud computing?
“The jury is still out on whether the security concerns of cloud computing have been resolved,” says Allen. “We won’t know until customers actually get into the cloud and begin to use it.”
To minimise risk financial institutions will need to be very careful when selecting a vendor of cloud services. Their security practices should be heavily scrutinised, as well as how data is migrated and what will happen to it in the event of a contract being terminated. Where the data is processed and stored is of particular importance in terms of data protection. “If you’re storing data inside your business, some of that has to be encrypted. If you’re storing it in a third party, you need to know what jurisdiction it sits under, because regulatory and compliance issues then kick in,” says Mark Akass, BT's CTO at BT Global Banking and Financial Markets.
However, says intY’s Baldock, there are many benefits for smaller institutions looking to migrate to the cloud. “These include nonstop service delivery, increased scalability of service, and the opportunity to implement other practices like VPN for remote workers more easily. They can also better plan their budgets and capacity for peaks and troughs throughout the year, making the consumption of IT far more efficient, and costs more predictable.”
“One of the clear advantages of the cloud model is the scalability and flexibility it offers,” adds Robert Whiteside, regional head of Enterprise UK, Ireland & Benelux at
Google UK Limited. “The ‘pay-as-you-go’ approach allows you to easily increase your use of cloud services as your business grows, or decrease your spend if you need to temporarily scale down. This contrasts sharply with traditional software which will typically tie you into a multi-year contract and may charge cancellation fees if you need to scale down. That’s why the cloud means that you can reduce your capital expenditure dramatically through lower costs and the ability to treat the spend as predictable operating expenditure.”
Whiteside says cost savings continue to be a key driver for businesses when moving to the cloud – with many customers quoting savings of between 50 per cent and 70 per cent when they move to Google Apps, for example.
Creating a code
Outside auditors may wish to access systems and application data at some point - but will they be able to do so if certain elements of the business exist on the cloud?
The Cloud Industry Forum, a new body created to promote more trust around cloud computing, has created a code of practice to address some of these concerns.
“There’s so much diversity in the cloud, we felt that the first pillar that really had to have substance was the commercial trust aspect, and that's very much what our code of practice is all about,” says Burton.
At present, with security and regulatory issues still not adequately dealt with in the minds of many financial institutions, it's hard to see how a move to a full public cloud infrastructure could be considered. For now at least, the hybrid model seems to be the best mode of unlocking the benefits of the cloud. But then, as Akass says, “This is not yet a mature space; it’s still got a long way to go in its lifecycle.”