In a previous post (and the first in a mini-series on the Cloud), Valentina Kristensen, Head of Communications at OakNorth discussed the fintech unicorn’s journey. In this second post, Valentina explores several of the IT issues holding banks back when it comes to cloud migration.
“Barclays hacking attack gang stole £1.3m, police say.” (Daily Telegraph, September 2013)
“HSBC system failure leaves thousands facing bank holiday without pay.” (The Guardian, August 2015)
“Payday banking meltdown as Lloyds, Halifax, RBS and NatWest customers are hit by online glitch that stops them accessing their accounts.” (Mail Online, April 2017)
As demonstrated by the headlines above, the fact that many banks have IT issues isn’t exactly news. It’s something that’s been going on for years and I don’t think there’s a current account holder in the UK who hasn’t at one time or another been unable to access their account online, make transfers, withdraw cash, or temporarily had their funds wiped. These issues leave the banks in question facing hefty compensation bills, fines, damage to their reputation, and often a loss of customer loyalty. With the imminent arrival of GDPR (the General Data Protection Regulation), the need to protect customers’ data and ensure cyber security is as ironclad as possible, has never been more important.
So why aren’t more banks in the cloud? For the large, incumbent banks, the answer is simple – their IT infrastructures have been built up over decades through mergers and acquisitions, and are now so complex that they’re forced to spend tens of billions of pounds a year to simply keep them running (Lodge, G., Zhang, H., and Jegher, J. (2015),‘IT Spending in Banking: A Global Perspective’, Celent, pp. 14-20). In fact, research from IBM last year revealed that 92 of the world’s top 100 banks still rely on IBM mainframes that were launched in the 60s (Financial News, “Banks face spiralling costs from 50-year-old IT”, Yolanda Bobeldijk, 12 September 2017). So, it’s no wonder these once revolutionary technologies can’t keep up with the demands of today’s customers – two thirds (63%) of whom primarily bank online.
Perhaps unsurprisingly, concerns around data security are the primary reason for many providers (73%) delaying moves to the cloud (Coles, C., Yeoh, J., Guanco, F., Mishra, E., and Luciano, S (2015). ‘Cloud Adoptions Practices & Priorities Survey Report’, Cloud Security Alliance, p. 10.V). It’s a fair point – financial services companies face constant attacks from hackers trying to steal sensitive data, but the reality is that moving their ageing servers and networks from data centres to the cloud, would solve a lot of their problems. Concern over regulatory compliance and loss of control over IT services are the next biggest worry (38%). In July 2016, the FCA published its final guidance for firms outsourcing to the cloud, so this should no longer be an issue.
In terms of the loss of control over IT services, being on the cloud would enable banks to dramatically improve the way they store and retrieve data, and make it much easier to scale up and down as needed. Knowledge and experience of both IT and business managers is what’s holding back 34%, but given the scale of providers available, this is surely something that could be outsourced initially while the internal knowledge and skills are developed. Finally, concern over business continuity and disaster recovery is an issue for 28%, but my counter argument to that is that we’ve run BCP tests and have been able to rebuild our entire core infrastructure in a new location within five hours. We could do this because we’re fully hosted on the cloud.
Banks’ archaic IT infrastructures are a “legacy” not worth preserving – migrating to the cloud would benefit them, their customers and their partners.