Taking a hybrid approach — using both cloud and colocation service providers — will help retail banks grow, develop new processes and offer hyper-personalised services to customers.
Customer expectations have long been a key driver of innovation in banking. While digitalisation is not new, demands for online banking and digital services have only accelerated as a result of the Covid-19 pandemic, triggering a notable gear shift.
Many banks have been forced to shut physical operations as customers now expect seamless, secure, consistent and personalised digital experiences. Others have had to rapidly rethink operations and technology to keep up with customers’ increasing digital skills and future-proof their business. However, this is no mean feat for the majority of banks.
The problem is that retail banks have historically been slow to respond to change, weighed down by pressures to meet increasingly stringent regulatory compliance. Most recognise the need and have the appetite to change, but reliance on legacy systems continues to make it tough to make meaningful progress. However, with digital-native players threatening to cement their competitive advantage, retail banks cannot afford to stand still. They need the agility to adapt systems and services, which means overcoming technology barriers and reshaping infrastructures once and for all.
Competitive advantage
Retail banks are under growing pressures to increase bandwidth to deliver the connected, personalised experiences that today’s consumers crave. They need to simplify their business and operating models to enhance customer service and structurally reduce cost, while also extending their global reach. At the same time, they need the ability to unlock and analyse data, not just to increase agility, but to inform strategy, launch new services quicker and aid decision-making.
Having watertight IT infrastructure is crucial to competing in this changing environment. In particular, one that facilitates connectivity between the cloud and internet service providers, enabling banks to ingest and process data quickly, and get an edge on the competition. But with data on user identities and spending habits being sensitive and often siloed, it is difficult for many to balance compliance and security requirements against the need to improve the speed of data collection and analysis.
This might be the reason why banks have historically steered away from cloud technology, fearing it is not secure enough to meet strict industry regulations. But a cloud-only approach is not necessarily the answer.
Hybrid approach
Rather than diving head-first into the cloud, deploying a combination of cloud and colocation facilities, which are data centres where businesses can rent server space and networking equipment, can enable banks to flex and scale operations while maintaining high levels of security. Traditional on-premise infrastructure can pose greater risks and exposure to sophisticated cyber-attacks. Cloud security has moved leaps and bounds in recent years, with cloud providers now implementing zero-trust verification, data encryption and access controls. And risks can be mitigated further by connecting through colocation data centres with high physical security and Payment Card Industry Data Security Standard accreditations.
Not only is the security of banks’ infrastructure important as they grow and expand their services, but the ability to scale in line with changing customer and data demands is vital. Banks face many limitations with legacy architecture, one of which is the high costs of expanding or replacing old systems. To achieve scalability and respond rapidly to technological advancements, banks should consider outsourcing IT infrastructure to colocation service providers that will enable them to scale space, connectivity and bandwidth at pace.
Banks that create a flexible and scalable IT infrastructure will be able to rapidly adapt to fluctuating market conditions
Banks that create a flexible and scalable IT infrastructure will be able to rapidly adapt to fluctuating market conditions. Modern hybrid infrastructures also facilitate the adoption of new technology, such as artificial intelligence (AI) and machine learning, which can be used to enhance operations such as credit granting and fraud control. At the same time, colocation centres can better support the variable computing requirements, data processing needs and real-time analysis that closed-loop AI applications require, helping banks achieve greater resilience and operational efficiencies.
Leveraging critical connections
As digital transformation accelerates, the ability to securely access connected ecosystems will be critical for retail banks looking to extend network reach, reduce latency and enable innovation. And building the right infrastructure to enable private connections to leading cloud providers, like Amazon Web Services and Microsoft Azure, is key.
Enabling data to be housed and processed close to London’s financial district is also an advantage, enabling banks to deliver faster results from real-time big data analysis, improving online service availability and speed of transactions. The right data centre will also enable fruitful collaborations with service providers and regulators to future-proof a strong, resilient and secure financial services ecosystem.
Future-proofing the business
In a world where responsiveness is everything, banks can no longer afford not to be agile. With open banking and central bank digital currencies on the horizon, retail banks need scalable and flexible systems that will allow them to grow, develop new processes and offer hyper-personalised services to customers. By building a hybrid IT approach consisting of a mix of cloud and colocation facilities, banks can improve data governance and overcome market challenges, ensuring business continuity and agility for years to come.
Offering the best of both worlds can provide a path to secure innovation, supporting the critical connections that the future of banking necessitates. And for retail banks, having the right infrastructure partner, one that can provide the security, resilience and low-latency connectivity required to continue to improve IT maturity and business agility, will be critical for retaining a competitive advantage and long-term success.
Mark White is senior manager for financial markets and fintech at Telehouse, a colocation data centre provider.
