After initial trepidation, banks are now stampeding into the cloud. But what differentiates the large cloud providers? Joy Macknight talks to five global players and their customers to find out.
Jason Zander
Banks’ adoption of cloud technology has leapt forward in the past two years, encouraged by the technology’s maturity and regulators’ growing comfort with it. 'Cloud-first' has become a mantra among incumbents and challengers alike.
Deborah O'Neill, UK head of digital at Oliver Wyman, observes that banks have moved away from a “lift and shift” approach, for example, putting existing applications in a cloud environment with the aim of cutting costs, to more of a greenfield mindset. “By using cloud, banks can reimagine everything they do,” she says.
Fast and flexible
The real benefits come from the flexibility and access to state-of-the-art development tools that cloud introduces, according to Uwe Lambrette, Oliver Wyman partner and expert in cloud technology. “Cloud is not just a lower cost IT solution but a different way of operating,” he says. “It delivers a greater speed to market for new applications, features and capabilities, both for customers and for employees.”
David Gledhill, chief information officer (CIO) and head of group technology and operations at DBS, agrees. “We value the capability that a cloud strategy gives us in terms of automation, scalability, elasticity and the ability to experiment,” he says. “Additionally, public cloud provides access to a toolset at the forefront of computing on a scale that no bank could do in house.”
It is not an easy move to make, as many continue to struggle with their legacy IT estate. But the cost of not leveraging cloud may impact the future fitness of a bank, especially as challengers enter the market without the legacy burden.
“New competition is coming at the banks from every angle,” says Jason Zander, executive vice-president at Microsoft Azure. “The need to innovate has never been so urgent and we believe that cloud technology offers innate attributes and capabilities to allow banks to do that at speed and scale.”
Zhang Xiaodan, finance business chief technology officer (CTO) at Alibaba Cloud's China business unit, adds: “By moving to cloud, banks will be able to speed up their digital transformation process and achieve advantages, such as improved customer interaction and security, stronger test and learn ability, agile development and more effective financial services.”
But with many cloud providers in the market, what criteria are banks using to evaluate which one(s) to work with?
AWS: customer-led innovation
Amazon Web Services (AWS) is a leading cloud platform and Scott Mullins, AWS’s head of worldwide financial services business development, attributes its success to Amazon’s “customer-obsessed” approach, the breadth of its cloud services and the pace of its innovation. In 2017, Amazon added more than 1400 new features and functionality enhancements to the platform.
AWS has a long list of banking clients, including Barclays, Capital One and HSBC, as well as UK challengers OakNorth, Starling and Monzo. “Challenger banks are showing the art of the possible in building a new financial services company,” he says. Traditional players are also getting into the greenfield space; for example, Santander’s digital bank, Openbank, runs production workloads on AWS.
Artificial intelligence (AI) and machine learning are among its most popular services. In 2017 AWS launched Amazon SageMaker, a fully managed AWS machine learning service, which Mr Mullins says “democratises” machine learning. “Amazon SageMaker takes a lot of the heavy lifting out of machine learning so that an organisation doesn’t need a fleet of data scientists,” he says.
When DBS started the journey to cloud a few years ago, the Singapore bank chose AWS because it was one of the leading specialists, with the broadest set of features and functionality, the biggest technical team and the widest distribution of data centre locations, according to Mr Gledhill. “It was a natural place to start and we got in quite deep with it as we were learning new skills,” he adds.
With AWS, DBS has increased the speed at which it deploys product features for customers and internal testing by eight-and-a-half times, Mr Gledhill reports. “When building a culture of experimentation, failing fast and iterative learning, moving eight-and-a-half times faster is a massive advantage, especially when coupled with agile and product-led development,” he says.
In addition to moving compute workloads to AWS, DBS uses Office 365 on Microsoft Cloud. “Cloud providers launch new tools and features at an unprecedented speed. As customers, we benefit because we get to use these services in house, instead of our IT department trying to play catch up,” adds Mr Gledhill.
Microsoft: trust and security
As well as the Office 365 software suite, Microsoft has a cloud computing service, Azure, which is seeing broad adoption in financial services, according to Mr Zander. The first applications were focused in risk management, where massive compute scale is advantageous and cost effective, but he is seeing expanding adoption in core banking and transaction systems.
He believes that trust, scale and security are the reasons why banks choose Azure. “Trust is critical. Microsoft has been working with financial institutions as a trusted partner for decades and many are already leveraging our technology. Beyond that we have global scale [Azure is available in 140 countries], which provides better access to customers and employees in country,” he says.
“We also have the strongest security assets in the industry. As financial institutions get into more of the highly regulated parts of their business, security has been a critical decision factor in the adoption of Azure.”
Microsoft counts UBS, Bank of America and the UK’s new clearing bank, ClearBank, among its many customers. Danish institution Saxo Bank is also a client and in April 2018 announced aims to run its entire banking platform on Microsoft Cloud.
With a predominantly Microsoft-based architecture, Saxo Bank experiences less friction when software components talk to each other. “We don’t need to bridge disparate technologies and [this approach] provides greater flexibility for project deliveries as skillsets needed across teams are similar,” says Saxo Bank’s CIO, Ashok Kalyanswamy. “Having a predominantly Microsoft technology stack means the move to Azure was simple, with tools and processes that our engineers are used to.”
In addition, the bank has a strong relationship with Microsoft, with senior commercial sponsorship from Microsoft’s executive team. According to Mr Kalyanswamy, Microsoft specialists worked closely with Saxo engineers to work through architectural challenges. “We are working together to move the cloud technology platform forward, which is the fun and exciting part. It also means that we aren’t constrained by what is available on the platform today but can work with [Microsoft] to provide services and solutions applicable to us,” he says.
Google: open source
Google Cloud has two main offerings: G Suite, which is a collaboration and productivity suite; and Google Cloud Platform (GCP), including storage, compute and developer tools. “Wrapped around that is the security layer: identity access tools to keep data secure and ensure only the right people see it,” says Adrian Poole, head of financial services, GCP.
He identifies five areas where he feels GCP differentiates itself. First, agility and time to value. Second, GCP’s ability to manage large data sets, which powers its AI and machine learning tools. Third, G Suite can help to break down departmental silos, particularly helpful for digital and cultural transformations in large institutions. Fourth, continuous innovation based on client and partner feedback.
The fifth differentiator, says Mr Poole, is Google’s support for open-source technology. “We made TensorFlow [a machine-learning framework] available to the community on the GitHub repository so that others can run it on AWS, Azure or on premise. This provides clients with choice,” he says. “Our proposition is that clients can run these applications on other clouds, but they will be more performant, secure and economical on GCP.”
Mr Poole names several customers, including HSBC, which in July 2018 decided that Google should be its first choice for AI and machine-learning workloads; Scotiabank, which moved many of its applications to GCP in a modernisation drive; and Revolut, which moved most of its operations to GCP in 2017 but also uses AWS for some applications.
One of the reasons Revolut chose GCP was its geographically diverse data centre locations, which fits the fintech’s expansion plans. As Vlad Yatsenko, founder and CTO at Revolut, says: “We don’t have to find a provider in new markets in the next year or two – Google is there already.”
Revolut was already using G Suite for its internal operations, such as e-mail, and Mr Yatsenko is a fan of Google’s open-source stack. While Google provides customer support through service-level agreements, Revolut does not overly depend on them because “we are a tech company first”, he says. “We enjoy digging deep, rather than outsourcing technical problems.” He adds that the technology is easy to use, so Revolut does not need high levels of support.
IBM: enterprise strength
Banks choose IBM as a cloud provider because of its enterprise experience, high security level and AI platform Watson, according to IBM’s cloud architect, Jerry Denman. Additionally, IBM excels at managing a hybrid (on premise and cloud) environment – a forte that will become even stronger with the announced Red Hat acquisition.
“Our leading tool, Multicloud Manager, allows organisations to manage their Kubernetes container clusters [an abstraction layer for applications], regardless of whether they are in the IBM cloud, another cloud or on premise. Every one of the clusters has its own rules-based access control list, so it enforces separation of duties across hundreds of clusters,” he says.
IBM has also teamed up with VMware, which Mr Denman believes is one of IBM’s best offerings, especially for a hybrid environment. “Most banks have VMware, with hundreds of thousands of virtual machines [VMs], which make them perfect candidates to migrate the VMs to cloud infrastructure,” he says.
Mr Denman lists numerous customers, including Westpac, which was looking to decommission multiple legacy data centres inherited through mergers. In February 2019, Santander signed a five-year deal with IBM to accelerate its transformation to a modern IT architecture based on a hybrid, multi-cloud environment.
BNP Paribas is another long-standing client and in January extended its agreement with IBM to further deploy its cloud strategy. “BNP Paribas will use the cloud to improve new services and technologies, time to market, flexibility, cost control and capacities on demand,” says Bernard Gavgani, global CIO at the French bank.
Alibaba: eastern power
Alibaba Cloud’s strong presence in Asia is a differentiator, says Mr Zhang, as well as its stable, secure, easy-to-maintain products and strong disaster recovery capabilities. “These features can help banks with demanding transaction needs,” says Mr Zhang. “Our big data analysis capabilities can also offer clients insights for product development and service upgrades. With strong AI capabilities, banks can also utilise our automatic speech recognition, chatbot and text-to-speech function to improve the “customer's overall experience”.
Although he declined to disclose customer names, Mr Zhang says that Alibaba Cloud is working with major banks, securities companies and internet finance companies. “Some of our clients run their entire operations on Alibaba Cloud, and we help other customers develop distributed service platforms, mobile applications, risk management platforms, AI call centres and big data platforms,” he says. Two financial services customers listed on the company’s website are Imperium Financial Group and Zheshang Securities.
Vendor lock-in concerns?
As illustrated, many banks are using more than one cloud provider. Is this due to a fear of vendor lock-in? For Saxo’s Mr Kalyanswamy, being purely on Microsoft does pose a challenge. “What is your exit strategy?’ is not an easy question to have to answer, but one that we are solving,” he says. “For instance, we use containers and other architectural patterns to abstract cloud services from business logic. These techniques will make it possible to move to another cloud provider if needed.
“However, abstraction layers do introduce more complexity. Hence, we strike a balance between using native cloud services and using abstraction patterns based on criticality of the applications and services we are using. This is a bit of a challenge because we want to be efficient, use cloud-native application programming interfaces and services, but at the same time we don’t want to be completely locked in to a single provider,” he says, adding that using open-source technology is a way to address the issue.
Like Google, Alibaba, Amazon, IBM and Microsoft are committed to open-source technology. Mr Zander, for one, expects that banks will want to have multiple solutions in future. “Many customers tell us that they want to work with us as their preferred cloud provider. On the other hand, we fully expect they will want to leverage the broader playing field. From that perspective, we are a big supporter of open-source protocols,” he says.
AWS’s Mr Mullins adds: “Most organisations pick one cloud provider at the start and develop their skills with that one, and then introduce a second one later if they need to. But right now, they are focused on building that muscle memory and gaining the competence they need to move forward quickly.”
While DBS does not have a multi-cloud strategy today, Mr Gledhill envisions a future in which different cloud providers develop exceptional strengths in specific areas, for example, data analytics. “At that point, if you want to use the best-of-best services, it makes sense to use the cloud provider with heightened capabilities in that space,” he says.
