A cloudy outlook
Banks have so far been wary of adopting remote cloud-computing services, often because of security concerns. However, cloud operators are posing a threat to existing companies across a spectrum of businesses, and banks cannot afford to ignore the public cloud for long. Writer Phil Jones
Twenty per cent of companies will acquire a 'significant' proportion of their IT resources via the much-talked-of 'cloud computing' delivery model by 2012, according to the IT analyst firm Gartner. Within another three years, today's $36bn market for cloud-based services will be worth a staggering $160bn, predicts Gartner. Undoubtedly, the cloud is already the next big thing in the world of IT: but will it be the next big thing in banking?
There are certainly good reasons for banks to embrace cloud technologies - where IT services are outsourced to a supplier that provides them remotely on demand - and many banks are already starting to do so.
A number of top-tier banks, for instance, have already deployed virtual-machine software in the colossal data centres that house their servers. Virtualisation, as this is known, is a software infrastructure technology that severs the traditional dependence between specific hardware and software resources. It makes it possible to transform a data centre full of hundreds of servers into a single dynamic pool of hardware resources that can be shared across the organisation's applications according to their needs at any time.
Maximising resources
Virtualisation is a fundamentally different way of managing IT resources, making it far easier for IT staff to maximise their resource utilisation and to configure, provision, manage and decommission applications.
Deployed within individual data centres in this way, virtualisation is enabling early adopters such as Deutsche Bank and South Africa's Standard Bank to create private internal clouds from their existing IT infrastructure. In doing so, they are already realising significant operational cost and performance benefits, while enjoying the reassurance of knowing that corporate data and application assets are still safely contained behind a corporate firewall.
For the time being, this seems to be as far as many banks are willing to go with cloud deployment.
A survey of IT executives from top-tier banks, conducted earlier this year by professional services firm Accenture, found that 83% of respondents consider setting up private clouds their first priority and, although the market for public cloud services is growing quickly, banks are neither leading the demand for these services nor pushing ahead aggressively by launching cloud services of their own.
According to Tim Walker, head of the retail banking technology group at Deloitte, banks remain reluctant to move towards the public cloud "due to a perceived loss of control and data-security issues".
From private to public
But banks cannot afford to ignore the public cloud for long. Public cloud service operators are already threatening to disrupt established value chains across a broad spectrum of businesses, including financial services. Cloud operators can do this by combining the agility created by virtualisation with the portability of high-bandwidth networking and a commitment to developing systems using standards-based components.
Public cloud services support an on-demand, pay-as-you-go delivery model that allows customers to scale up or scale down the resources they consume and only pay for what they use. Public clouds ought to be a compelling proposition in this post-recessionary period, when banks are striving to achieve tighter control of costs without compromising their ability to respond to emerging business opportunities.
First, though, banks need to be sure that the services they acquire from the cloud are as well defined and accountable as those they acquire from conventional sources. Ideally, they should be able to choose between different public cloud services without needing to build new interfaces for each new supplier.
Both of these issues will need to be addressed by the creation of technical-interface and service-level standards. This will take time, but the work has begun, and banking IT chiefs are playing a key role.
Last year, for instance, ING Financial Services' head of IT strategy, Alan Boehme, joined the board of the Cloud Security Alliance (CSA). More recently, Sean Kelley, chief information officer of the asset-management division and platform services group at Deutsche Bank, has emerged as the chairman of the Enterprise Cloud Leadership Council (ECLC).
Security Standards
The CSA has already done much to unite the IT security community around a common set of best practices that will help to make public clouds secure. However, it is the work of the ECLC that may have the greatest influence on how quickly enterprise customers expose their most critical IT services to the public cloud.
Set up by the TM Forum, an international association of cloud infrastructure and service providers, the ECLC aims to create standard service and interface definitions that will encourage the growth of a market in which private and public cloud services can interact with each other seamlessly.
"The best markets are always based on establishing a good understanding between suppliers and consumers, where service providers properly understand what their customers' needs are and how they want to meet them," says Mr Kelley. By working with the members of the TM Forum, he says, "Deutsche Bank [can] participate in removing the risks associated with cloud services through industry standards".
Ultimately, Mr Kelley expects the ECLC initiative to help produce "an efficient global computing market similar to the energy market that we have today". That vision may still be some way off, but it is a clear hope for many banking technologists that the future will be a cloudy one.
