Go Digital-Native with Hybrid, Multi-Cloud: The Way Forward for European Banks

Banks are increasingly moving away from legacy systems of operations and embracing cloud computing to improve their infrastructure and keep up with the competition

Image of clouds

The banking industry, which made a slower start towards digitalisation, has since shifted gears, gathering speed during the pandemic. In the context of their accelerated efforts to transform and modernise, banks have witnessed the extensive role played by the cloud and its significance for enterprises across industries.

Moreover, the need to match up to changing customer preferences has gained prominence as banks must lock horns with new-age cloud-native FinTech companies that are redefining the financial services landscape. With these considerations, they are re-considering their monolithic systems and concerns over regulations, security, and lack of tech know-how, and they are ready to move into the cloud with speed and confidence. European banks that are adopting the cloud are looking for greater agility and security, leaner infrastructure, and cost transparency.

Advantage Cloud

Banks can prepare to welcome a host of advantages starting with a flexible and scalable IT infrastructure founded on agile principles. This will equip them better to keep up with modern-day needs of banking and offer customers the kind of innovative, personalised offerings they expect in quick time.

At the same time, they can bid goodbye to peak-time overloading because of the dynamic scalability and elastic load-balancing capability enabled by the cloud. They can cope with peak transaction loads while maintaining consistent quality and seamlessness of what the customers experience. While banks can expect their operational costs of maintaining and managing infrastructure to go down, they can also look forward to harnessing the full power of cloud-native, exponential technologies like AI and data analytics to reduce time to market and innovate.

How to Cloud

There is a growing consensus around cloud adoption as the way forward. But how to deploy it requires strategic thinking regarding the deployment model that works better. What matters most: scale or security, public or private? Often the choice is decided by the bank’s unique needs and preferences. In fact, our recent study of cloud adoption found that 41% of the respondent banks were on private cloud while 28% used a public cloud.

Undoubtedly, both models come with advantages and limitations. For instance, the public cloud model is better at handling situations where scale, flexibility, on-demand computing, and elastic scaling are most essential for operations. However, it has issues with data residency, latency, governance etc. Moreover, the private model is better suited in environments where security, control, compliance, and personalisation override other requirements. This explains why many large and mid-sized banks have opted for private cloud. However, we are seeing a shift in their mindset as they seem more open to transitioning some of their non-core applications to the public cloud. One big disadvantage they might find here is compatibility issues with some of their legacy applications.

Cloud providers constantly improve their offerings to manage the bank’s security-related concerns. As the technology matures and banks have more advanced service capabilities, they should move even their mission-critical applications to the public cloud and exploit the many advantages available there.

Moving into the best of both worlds and more

In the same survey referred to earlier, Infosys Finacle found that 31% of respondent banks were using a bit of both cloud models – the hybrid cloud proposition. This finding suggests that banks are now more amenable to choosing a mix of the two models and housing core functionalities on the cloud. The hybrid model combines on-prem, private, and public cloud deployment while unfolding the cumulative benefits of scalability, efficiency, and technology capabilities that are future-proof. Even cloud-incompatible legacy systems will not be a pain point as they can be retained on premises until they can be re-platformed or re-factored, etc.

For banks considering this model, the critical challenge will be in understanding the configuration – the ideal mix of applications that must be on-premises, public and private clouds. The bank’s IT heads need to work this out by evaluating the use-case scenarios that best answer their needs.

Going all-out with multi-cloud

As these decisions are being considered, it also makes sense for IT heads to revisit their vendor arrangement and evaluate the value proposition of a multi-cloud strategy.

Here, the bank can do away with vendor lock-in concerns, and switch to a specific cloud service provider as per the market situation and business need seamlessly. This way, they can choose from a panel of vendors the cloud service provider who is the most qualified to deliver a particular workload and optimise their benefits while limiting the risks of evolving technologies and regulations.

Hybrid, multi-cloud – the real game-changer

We believe that banks should look beyond data storage as they invest in the cloud. Now with the hybrid, multi-cloud approach, they can benefit in a myriad of ways as it promises to bring together the combination with the most benefits for banks looking to modernise data storage and become digital natives.

However, there are complexities which banks must watch out for that could undermine the interoperability and seamlessness expected in a cloud setup. Apps are usually distributed and kept separate from associated datasets in different environments leading to challenges of data replication among vendors and a lack of standardisation. Opting for cloud-native, cloud-agnostic applications will be a good way to maintain seamless operations in the multi-cloud setup and prepare the path to future readiness.

European banks certainly want to extract the best from their cloud investments, but with regard to the public cloud, they are still held back by certain limitations. A common challenge they face in large-scale public cloud adoption is related to regulation. Hyperscalers like AWS, Google, and Microsoft must adhere strictly to Europe’s regulatory mandates on security and privacy. In response, 19 European banks have formed a European Cloud User Coalition (ECUC) to offer a competitive data storage solution. The ECUC also aims to present a unified voice for the financial services industry and establish a discussion forum to communicate with cloud services providers and regulatory bodies as the future of the cloud takes shape.

As banks go digital, helped by the cloud, they should not lose sight of their original motivations – keeping customers happy and their data secure while meeting their changing needs and preferences. This will be possible when they carefully plan their cloud adoption strategy that optimises costs and resilience and speeds up their deployment, automation, and innovation capabilities. Hybrid, multi-cloud offers a viable way forward.

About the Author: John Barber is the VP & Head of Europe at Infosys Finacle.