To the cloud and beyond

If America's 2012 Federal budget goes as planned, Barrack Obama will have his head in the clouds. He is hoping to realise major cost reductions through, among other things, a shift to cloud technologies, with one report suggesting potential savings of some 30 per cent on infrastructure, shaving $20 billion off the IT spending budget.

Whether this can be done effectively, and within a manageable timescale, is a different matter, particularly as the nature of government data is often quite sensitive, and migration mistakes could prove highly damaging. Along similar lines, banks are understandably cautious when they migrate technology, tending to test and re-test rather than jumping in with both feet.

In Europe over the past couple of years, virtualisation has been steadily gaining ground, with significant take-up in the UK and the core of the continent following suit. Now, in what can be seen as a logical progression, banks are examining how to
best make use of the cloud, though they are avoiding jumping straight in with both feet at this point.

Examining is not adopting, and banks remain cautious of the cloud for a number of reasons: control, perceptions of security and compliance issues stemming from European regulation being the primary concerns.

"Because banks face a wall of regulatory pressure, I think they actually have a very tough environment to deal with," says Adrian Davis, principal research analyst for the Information Security Forum. "They have to be able to recall transactions and store those. They have to be able to show regulators that they're managing their IT risks and how their IT is performing. So for them the cloud is an attractive option, but it may be that it's only attractive for certain banking functions."

Of course there are also rules concerning the storage of data - particularly relevant to cloud strategies - with some information not allowed to leave the EU, and some having to reside within individual countries. The nature of the public cloud means that you don't really know where your data is being stored, and this is a no-go.

Even if there weren't regulation surrounding this, the nature of vast swathes of data held by banks, much like the US government, is such that they are not willing to take risks with it. "Yes there are regulations, but I think there is also the risk to a financial services company of exposing very confidential data," says Paula Skokowski, chief marketing officer at Accellion. "Whether there were regulations or not, this would have significant implications for how the company is perceived.

"I believe that because of the concerns around data and security, I don't think that financial services are going to be the leading industry in its adoption of cloud. I think other industries have fewer issues to deal with."

While banks may not be leading that adoption, at least in terms of full migration, that is not to say they won't be making use of its potential; there are already toes in the water, and some going a bit deeper, with ING in the Netherlands, for example, rolling out its own private cloud over the past year.

Nigel Goodwin, director, EMEA financial services solutions at EMC Consulting, says that he has seen significant interest among the main players in Europe, and that this is set to grow. "A lot of them use their own terminology," he says "Many think cloud terminology is hype above and beyond their already existing virtual services. However, at the same time they are moving towards more of a service delivered approach that
they deem to be pure cloud, [as offered in the public space] but doing it internally.

"I'm travelling to Romania, where there is significant adoption, Italy is starting to move ahead quite rapidly now, Germany also, and the bigger adopters like the UK are
moving forward steadily. Spain is up and coming, they're starting to engage."

Arguably, though, this isn't as much about countries as competition. While Davis says European banks tend to be a bit more closed than those in the UK, evidenced by less willingness to outsource generally, this is more of a corporate issue than one of geography.

"I think the nature of finance being worldwide now, there is a driving need to embrace these services," comments Mark Seager, VP of technology at Informatica. "Many of these are global organisations, and I think they're being forced to look at this, and the stuff that we're doing with some of our banks across Europe is getting to be fairly consistent."

Public vs. Private
How banks are actually embracing the cloud really depends on what is meant by 'the cloud'. In terms of the public cloud, the willingness does not yet seem to be there, with the exception of services like to handle aspects of customer relationship management, for example.

As for core system, however, it is still early days. "I don't see a huge move in those sorts of back office activities moving to the cloud as yet," says Seager. Rather, for banks, it is private cloud that is being given the greatest consideration, or a hybrid model which combines core private, and less business critical applications as public. For those banks that are already virtualised, this is a matter of taking things to the next level.

"Cloud adoption should be viewed as an evolution from virtualisation, not a revolution," says Aram Kananov, product marketing manager EMEA, platform and cloud, at Red Hat. "[It] allows banks to take existing virtualised workloads and move them into the cloud. [This] is service-based, scalable, shared and metered by use."

Helena Quinn, commercial director at FundLab, agrees that virtualisation is indeed one part of the equation. Moving on then, this needs to be made redundant and distributed, as one rack in a datacentre does not a cloud make. "To be a proper cloud solution, you need to have it replicated between datacentres so it will be resilient: it has to be redundant both in hardware and the services it is providing. With a private cloud, you have those servers dedicated to you, but if you want more RAM, for example, you just push a couple of buttons and those resources are available to you."

Indeed, that scalability is arguably the most compelling element of the cloud, with banks able to tailor the amount of services they require on a demand basis. As demand peaks, buy more cloud; and when that demand drops off, get rid of it. As services like mobile banking become more mainstream, this need for scalability will only increase.

For EMC Consulting's head of financial services, Gary Wilson, cloud is about gaining a service. "For me the cloud concept is about being able to get IT as a service, whether it's a public service where I can go and buy it from Amazon or Google, or something like Salesforce, or whether it's a platform as a service I might have internally within my organisation. Either way it's really moving IT to a service that business calls on when they need it."

In terms of those services, Informatica's Seager says that the majority of virtualisation banks have embarked on has been very much infrastructure oriented and IT led, and as they move further into the cloud there will be much more focus on end-user benefit. "So I think the types of applications that you see will be much more end-user business orientated, as self service applications."

Again, for banks this will, for the foreseeable future, involve a combination of private and public cloud, and that move into the cloud for most will be a gradual process. As FundLab's Quinn points out, "As particular servers reach end of life, we transition those services into the cloud. Or we build the environment in the cloud for disaster recovery reasons, and ultimately they lose their internal infrastructure, and it is a road mapped strategic change that happens over time. So it's a state of attrition, or generally email is the first toe in the water that most clients use, or backup, or archiving. And as confidence goes up, more services are used."

"The hybrid scenario is a reflection that there is no magic wand, no one size fits all," says Nigel Pink, VP & GM UK and Ireland at Ipanema. "These are complex businesses and you're moving business critical applications to a domain which arguably has some potential risk in it."

And that risk is a concern, not helped by high-profile cloud mistakes which could potentially shake confidence in adoption. In 2009 some owners of Microsoft's Sidekick device found all of their data wiped after a server crash, while in March this
year some Google Mail users were denied access following a server upgrade. While these perhaps did not represent the loss of high level business critical data, it is still a potential cause of apprehension.

"If that [Google] outage, for example, stopped a retail bank doing its business, than that is something that wouldn't be appropriate," says Pink. "So we need to be very clear about what makes sense and what doesn't. There are risks in anything we do, and we need to mitigate those, to control those risks, and one of the key things is governing those applications and their performance over whatever medium is used."
Despite any perceived problems, Pink says that the movement towards cloud is very clear, as "The financial drivers behind this are absolutely compelling".

Indeed, the Centre for Economics and Business Research (CEBR), with EMC Consulting, recently published their 2011 Cloud Dividend report, which focused on major European economies. It estimated that €763 billion could be generated by 2015 through the expected adoption of cloud computing. Distribution, retail and hotels accounted for the largest share of economic benefits in France, Italy, Spain and the UK, to the tune of some €233 billion, while in Germany the banking, financial & business services sectors were strongest, with IT capital expenditure savings alone of €18.1 billion. These are figures that cannot be ignored.

"The technology is continuously advancing," says the Information Security Forum's Davis. "All the various technologies that make up the cloud are starting to become truly enterprise grade now, so I think we're going to see take-up increase. We'll see the business benefits of it become better, in terms of cost and utility. And I also think we'll see the security get better, because the providers will have to demonstrate security at a certain level if they want to play."

This means that for banks, as it should be for Mr Obama, it's steady as she goes. The business case for cloud adoption cannot be ignored, and as trust increases, so too will the level of migration. And as Davis points out, it's a matter of knowing what the risks are and going in with eyes open; that's when the benefits will follow.

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