Cloud paves way for digital transformation

When Deutsche Bank announced its development partnership with Google Cloud in December 2020, chief technology, data and innovation officer Bernd Leukert described it as “a new chapter” for the bank. The US tech giant was a “strategic partner” that would accelerate the Deutsche’s technology transformation, enable it to use data more intelligently and provide a flexible and safe environment to quickly deliver new products and services.

Gil Perez, chief innovation officer at Deutsche Bank, explains that in a heavily regulated industry such as banking, it was important to go with a single provider rather than adopt a multi-provider, or hybrid, approach to cloud computing. “There were many times people asked why we didn’t split up the work to minimise risk,” he says. “But the complexity of the controls and security layers that have to be put in place in order to certify just one cloud is huge.”

Digital transformation requires a move to the cloud, adds Mr Perez, and the bank aims to create a regulatory-approved global cloud infrastructure with an additional layer of controls and capabilities to ensure compliance across more than 60 regulatory jurisdictions. “Once we have done this, we will have a valuable asset that we will open up to other companies in the ecosystem, increasing our collaboration with fintechs and other parties,” he says.

To expand customer reach, Deutsche Bank plans to list its Google Cloud products on Google Cloud Marketplace, to drive broader adoption of the bank’s new cloud-native services and solutions.

Several use cases for the partnership are being explored, including improvements to the bank’s Autobahn platform for corporate and institutional clients, with the aim of creating more personalised recommendations and experiences. New lending products to support pay-per-use models as an alternative to purchasing assets outright are also being examined.

Driving value

Research by consultancy Accenture has identified an “uptick” in the cloud strategy among chief financial officers (CFOs), says Ambrose Shannon, CFO practice lead at Accenture UK. “There’s also been a change in attitude towards cloud, with banks moving beyond a cost and efficiency agenda and now identifying the computing power and agility of the cloud to provide new insights and value. Cloud is no longer just about cost savings; it is changing how finance supports the business and how business better serves its constituents.”

The greater computing power that the cloud provides is enabling treasuries to run simulations of more sophisticated scenarios and stress tests. Financial organisations are moving cloud use cases into analytics, adds Mr Shannon.

Rob Enslin, president, cloud sales at Google Cloud, says there has been a change in attitude among financial institutions: “Financial services institutions (FSIs) initially were looking to migrate to the cloud to streamline processes, cut costs and to optimise infrastructure spend. However, increasingly FSIs want to go well beyond shifting existing applications to the cloud and digitally transform their businesses.”

The “democratisation” of data and analytics and the abundance of devices and systems have transformed information access and delivery. As a result, there is a continuously increasing amount of data that traditional infrastructures were not designed to support, he says. “C-suite leaders are now seeking ways to gain a competitive edge by applying application programming interfaces (APIs), machine learning and artificial intelligence against their data to innovate and create new services and lines of business. This is why the cloud has become a platform for innovation. By moving to the cloud, traditional banks can easily work with fintechs, or build their own innovative applications, and break down silos that used to exist when dealing with sensitive financial data.”

Pandemic acceleration

Inevitably, the Covid pandemic has influenced financial institutions’ cloud strategies. Mr Shannon says the pandemic “shook the business community”, and the organisations that were more advanced in cloud technology performed better in the 12 months during the lockdowns. “These organisations were able to move much faster to home working and, more importantly, financial officers were able to provide real-time updates back to the group,” he says.

Trevor Belstead, chief information officer, wholesale banking and post-trade at financial services consultancy Delta Capita, says the pandemic accelerated cloud adoption plans in several different ways. “Buy-side firms are looking at more software-as-a-service (Saas) and managed service-based solutions to accelerate their adoption of cloud to ensure they continue to operate in such a unique environment,” he says. These firms need to focus more on the competitive factors that will help them to increase quality and reduce costs. “However, the big question is: do these firms have the capability to accelerate cloud adoption while at the same time addressing expansive and intrusive regulations?” he adds.

Mike Tae, chief transformation officer at global financial solutions firm Broadridge, says cloud adoption within buy-side firms is part of a broader trend across financial services and was already increasing before the pandemic. “The pandemic accelerated this trend as firms had to move to a world of remote access. Firms using cloud-based services were better prepared to handle the demands of operational resiliency and business continuity. Those that were not [cloud-enabled] were forced to rapidly migrate to the cloud,” he adds. Financial institutions had to create remote environments, such as call centres in the cloud or remote image-based desktop environments for their workforces.

Resiliency of services has been a key driver of cloud adoption for many firms impacted by the pandemic, says Mr Tae. By providing small and mid-sized firms the ability to build out an affordable, resilient infrastructure supporting the highest levels of business continuity (something that only the largest firms with scale could accomplish before), cloud infrastructure providers have levelled the playing field.

The rise of APIs

Another effect of the pandemic has been an acceleration towards API-driven services, which has allowed financial institutions to assemble and integrate best-of-breed services. In risk management, for example, asset managers are using Saas-based risk services that support newer risk models that can be integrated into existing systems using APIs. “The cloud is a key enabler of this trend, particularly as it relates to data and accessibility. Aggregating data from across disparate systems into a cloud data warehouse enables rapid deployment of new cloud-based API-driven services,” says Mr Tae.

As cloud computing has become cheaper and the technology and accessibility have improved, treasuries have had access to more timely and accurate data, says Leonardo Orlando, an executive in Accenture’s finance and risk practice. “This has improved activities like intraday liquidity management and anti-money laundering. Cloud is also enabling treasuries to do more automated hedging based on algorithms.”

Moreover, he adds, cloud computing is enabling greater transparency and information collaboration in treasury. For example, in settlement, all participants can use open-source technology in the same ecosystem to exchange information and optimise overall settlement transactions.

The trend towards ‘hyper-converged’ infrastructure is bringing with it a transition towards a private cloud that can deploy workloads and applications, like a public cloud but on a smaller scale, says Mr Tae. Cloud-native applications can be deployed both on the public and private cloud with the ability to move workloads and applications easily across, depending on business and regulatory needs.

However, he believes the cloud of the future will not be about infrastructure but the ability to leverage a range of services on demand that would allow firms to assemble new services quickly. “The cloud of the future will be all digital, data-driven, and API-enabled.”

Cloud strategy

Another area in its early stages but “something to watch”, says Mr Tae, is ‘confidential computing’. This addresses data security, which has been one of the key barriers for firms migrating critical applications to the cloud. “Confidential computing allows processing to occur on encrypted data with the guarantee that this data is not visible to any application or code outside of that specific environment. This will provide companies with increased confidence that their data in the cloud is protected and confidential and will push them in the direction of migrating application workloads with critical and sensitive data to the public cloud.”

Deutsche Bank’s decision to opt for a single cloud provider has raised some eyebrows, as Mr Perez suggests. Mr Tae believes a multi-cloud approach allows access to best-of-breed services. “For instance, Google might have the best natural language processing service, while Oracle might have the best database service. One would also just access specific business functions on the cloud, such as a risk service on AWS or a market data service on Google from specific Saas providers,” he says.

Dr Andreas Bohn, partner in consultancy McKinsey’s Frankfurt office, believes there will be more efforts to move larger parts of banks to a cloud – not only data, risk and analytics, but also client front ends. He believes there will be more attempts for partnerships related to data analytics. “It is foreseeable that cloud providers will develop from IT and system providers to infrastructure providers, such as telephone companies. There is also a good chance that they will be regulated more in the future,” he says.