How Cloud Solutions are Transforming Banking

03 Jun How Cloud Solutions are Transforming Banking

Posted at 11:05h in BUSINESS TRENDS by

Banking institutions have the same IT challenges as in any other industry. These include infrastructure scalability requirements, the need for application modernisation and a pressure to use data to build better customer experiences. At the same time, Banks also face some of the most stringent security and compliance standards of any industry. Cloud technology can be a powerful tool for meeting these demands simultaneously.

The sector’s most transformative digital solution is cloud computing:

  • Cloud is proving to be a superior option to boost capacity to handle data, and is now providing an unrivalled level of agility, security and scalability to banks. 
  • For use cases such as data analytics, batch processing and data storage, banks can access the cloud as and when required, which means they can utilise resources more flexibly and efficiently. 
  • Cloud computing is also enabling financial institutions to achieve considerable gains in efficiencies and reduction in costs, as the technology requires banks to pay for only the services that they use. Ultimately, this means that for testing new applications, it is much more cost-effective to do so in the cloud than on existing IT infrastructure.

There are 3 key drivers for adoption of public cloud-based services by banks:

1

Agile innovation. Accessing the cloud can increase banks’ ability to innovate by enhancing agility, efficiency and productivity. It can also help banks to reallocate resources away from the administration of IT infrastructure, and towards innovation and faster delivery of products and services to markets.

2

Risk mitigation. Cloud can help lower risks associated with traditional technology, such as capacity, redundancy and resiliency issues. The ability of cloud computing to scale, can equip banks with more control over security concerns.

3

Cost benefits. Cost savings of public cloud solutions are significant, especially given the reduction in initial capital-expenditure requirements for traditional IT infrastructure. During periods of peak customer demand, the cloud can allow banks to manage computing capacity more efficiently. When the cloud is adopted for risk mitigation and innovation purposes, cost benefits arise from the resultant improvements in business efficiency.

From a regulatory perspective, moreover, the scalability of the cloud means that banks can scan potentially 1000’s of transactions per second, that dramatically improves the industry’s ability to combat financial crime, such as fraud and money laundering.

Although the rate of cloud adoption within the banking sector still has much room for growth, it is clear that some banks are already moving heavily into this new technology.

This Point of View, provides a deep dive into how both The Commonwealth Bank in Australia and Genghis Capital, a leading investment bank in Kenya, have leveraged cloud technology to achieve transformation in the interest of improved customer satisfaction and innovation. 

The Commonwealth Bank leads cloud transformation to achieve high customer satisfaction

As a founding member of TM Forum’s Enterprise Cloud Leadership Council, The Commonwealth Bank of Australia has pioneered the use of cloud services for IT infrastructure supporting customer services.

The Commonwealth Bank claims to have benefited substantially from its cloud migration effort, moving from the bottom quartile to number one in customer satisfaction among small and large companies in Australia. In addition, it has reduced 23 data centres down to only two, with a corresponding massive decrease in IT infrastructure costs. 

The Commonwealth Bank of Australia (CBA) is a multinational bank with operations also in New Zealand, Fiji, Asia, the U.S., and the U.K. It provides a variety of financial services including retail, business and institutional banking, funds management, pension and retirement management, insurance, and investment and brokerage services. 

Founded under Australia’s Commonwealth Bank Act in 1911, the company commenced operations in 1912 and was at that time empowered to conduct both savings and general banking business. Today, it has grown to more than 800,000 shareholders and 52,000 employees in the Commonwealth Bank Group.

The bank’s cloud transformation project began in 2009. It has both benefited from, as well as contributed to, TM Forum’s Frameworks and Best Practices. As a founding member of the Forum’s Enterprise Cloud Leadership Council, CBA has also played an important role in demonstrating the value that cloud computing brings to an organisation. The bank considers cloud computing to be a major strategic asset.

SUPPORTING CUSTOMER SERVICES THROUGH SOCIAL APPLICATIONS:

CBA is increasingly focused on customer service and engagement. Its customers use online social networks as well as online banking. To support them, it has revitalised all front-line customer interfaces through extensive IT transformation, especially for online, mobile and social services.

It has automated back-end core capabilities and consolidated data centres. This increased automation means the bank can sustain an increased rate of change while maintaining greater reliability. As a result, CBA has moved from the bottom quartile in customer satisfaction to ranking number one of the big four Australian banks.

  • At the start of the transformation project, IT infrastructure costs represented 50 % of total capital expenditure (CapEx) annually, and the rate of change was in the order of 1,200 items per month. 
  • As a result of this project, CBA has reduced its CapEx for infrastructure from 50 % to 26 % and now supports only two data centres, with 74 % of that amount dedicated to customer service and value.
  • Additionally, the number of Severity 1 issues has dropped from 70 to fewer than seven per year, while it is now able to support more than 3,000 production changes per month, primarily representing new services and enhancements.

An ‘Industrial Revolution in IT’

For CBA, this transformation represents nothing less than what Jon Waldron, General Manager of IT Engineering, calls an ‘Industrial Revolution in IT’. This means that IT can now deliver repeatable, standardised processes, economies of scale and automation. Its focus is on repeating the industrialisation process for the development of cloud computing services such that infrastructure is thoroughly standardised and thereby becomes relatively transparent. In this way, services are moved closer to the customer and become more useful and transformative.

To take advantage of and further enhance this transformation by bringing it into the cloud, the bank divided its IT-as-a-Service (ITaaS) Strategic Plan into three phases, which it calls ‘horizons’.

FIRST HORIZON - established the foundation for change and was completed in 2012, achieved the following goals:

  • restructured existing contracts to consume and pay for base (ITaaS) and to embed them into existing CBA offerings, creating more value for customers as well as greater income from its operations;
  • established a private cloud infrastructure for selected applications, ensuring they are properly managed, secure, governed and policy-controlled;
  • piloted a public cloud for ITaaS for non-critical applications, thereby decreasing costs by taking advantage of more competitive pricing structures; and
  • established core processes and tools for a service integrator operating model to increase the amount and value of the bank’s products and services.

SECOND HORIZON – major strategic transformation was accomplished, completed at the end of its fiscal year 2013 (June), and achieved these additional goals:

  • accelerated the standardisation of its application portfolio for cloud dissemination, increasing portability while lowering overall expenses;
  • expanded private cloud infrastructure to core process and production use to further realise the benefits of internal control, management and governance, while benefiting from the flexibility afforded by cloud-based services;
  • extended the public cloud to offer ITaaS and Platform as a Service (PaaS), providing further expansion of its target market and increasing the use of its 86 platforms; and
  • optimised core processes and overall resources. 

THIRD AND FINAL HORIZON - completed at the end of fiscal year 2015, expected to achieve the following goals:

  • achieve a dynamic, hybrid cloud that provides ITaaS across all domains – this will include integration of both the public and the private cloud architectures and will provide workload portability across a set of defined suppliers; and
  • expand the use of the public cloud to provide both PaaS, as offerings mature in the market, and Software as a Service (SaaS) for selected applications.

In addition to the specific economies and savings CBA has realised as part of this transformation, moving to an ‘X-as-a-Service’ (XaaS) architecture provides the following benefits:

  • Competition among vendors assures lower pricing, thereby reducing costs;
  • Shifting applications to a cloud model reduces operating expenditure;
  • The XaaS model for storage can cut storage costs by 40 % or more;
  • The time required to deliver infrastructure can be reduced to minutes;
  • Risk can be offloaded by purchasing specific services only when needed;
  • Suppliers are moving to true, unit-priced, pay-as-you-go models, further lowering expenses; and
  • Savings can easily reach into tens of millions of Australian dollars.

The five main challenges:

1. Security and compliance: maintain at all times the security of data.  Banks need to demand stringent safety measures from suppliers and ensure new applications meet the latest and most rigorous security standards. Service Level Agreements (SLAs) are a must.

2. Reliability: ensure that applications and data are always available in the event of a natural disaster or an unpredictable event. Banks need to have stringent SLAs in place, complete with guarantees, end-game scenarios and remedies if a provider fails to meet service levels.

3. Cloud management: achieving visibility and measuring performance are harder to do, especially if large banks will source cloud services from several providers and to use them for both internal – or private – and external, or public, services. This could result in a bank having to handle multiple security systems, and the need to ensure all parts of their business can communicate with each other and where necessary with clients.  Increased use of various technology infrastructures and a mix of different cloud environments internally and externally mean banks will need to develop fully-fledged cloud management platforms. There will be a necessity to ensure banks can fully realise the cost savings and flexibility benefits of cloud computing.

4. Interoperability: banks will need to ensure data and applications can be moved across cloud environments from a number of providers. They should look to develop a single interface and management layer that can work across different platforms internally and externally.

5. Regulation: the rules governing the cloud vary from country to country. Many countries’ data protection laws impose constraints on where data is kept, limiting uptake. 

Kenyan Investment Bank migrates 100% to the cloud in one day

When Genghis Capital, a leading investment bank in Kenya, took the decision to modernise its technology organisation, it opted to think out of the box. Part of a strategic new direction, the bank wanted to explore the digital and productivity freedom the cloud could offer and move away from archaic systems that were proving to be a stumbling block to innovation.

Their Infrastructure had come to its end of life, which was a huge challenge for the business, but at the same time provided a unique opportunity.

CHALLENGES

  • + 11 servers that were starting to cause disruptive full system reboots. 
  • Not to mention that the cooling and electricity costs of running them 24 hours a day were just spiralling. 
  • Backups were also becoming a problem to keep track of, as was the ability to do fail overs. This was leading to downtime and service disruption. 
  • As the organisation deals with sensitive financial data, its environment was made up of a host of ring-fenced servers that would look after independent services. As an example, separate servers would house its investment products, unit trust products, active directory and file storage, financial systems, HR, client data and even its print services. The enormity and costs of replacing the servers in this environment alone was simply not cost effective.
  • Besides the servers, the PABX system couldn’t deliver on collaborative tech like video conferencing and call recording. 
  • Downtime was not just a business challenge, but was severely impeding customer service – a simple internet disruption or unplanned reboot would stop all access to data. Power issues, a common problem in Africa, would impede the air conditioners in the environment and using generators to keep the lights and power on was costly.

OPPORTUNITY

  • The team began to investigate different options in terms of their business efficiency and how they could assist technical staff, who were really running hard to “keep the lights on”. 
  • The options facing the company were to replace the old infrastructure or scale up operations 100% into the cloud, where it could then co-locate across different geographies.
  • After extensive investigations, the decision was reached that the cloud would be the most cost-effective solution for the business. The company shortlisted 10 cloud providers and finally decided that specialist cloud services company Node Africa, would be the best fit.

SOLUTION

  • The decision to partner with Node Africa, was due to the company’s infrastructure being built on the VMware platform. As the bank itself uses VMware it felt that the migration to the cloud, due to consistency of platform, would be seamless.
  • The team developed a business continuity plan to achieve the move with no disruption to customers, as well as, identified the appropriate mitigation plans to use in the event that the change was not successful. 
  • They had to include that it would be a private cloud and not a shared cloud, as well as how they would mirror the servers four times on the primary cloud location to meet and exceed regulatory required uptime and availability, as well as an off-site backup site. Namely, a disaster recovery site at a secondary cloud location for data recovery, in the event that the four mirrored servers fail at the primary cloud site.
  • The solution had to be deployed over a weekend and achieve a 99.999% uptime of the system, office phone lines and user extensions. The SLA with Node Africa was also part of the requirement, as was the TCO benefit to the business, the sustainability of the solution and the privacy between vendor, customer and partner. Only when this was reviewed and the NSE provided their approval, with the provision that if it failed,then they would have reverted back to the old system.
  • The bank’s voice applications are now 100% in the cloud, they no longer have a physical PABX, the voice infrastructure and backups have moved to the cloud. Staff have moved from regular desktops to virtual desktops (now using HP Google Chromebooks), with full integration of Google Apps, Microsoft Office, Active Directory and virtualised day-to-day user applications.
  • Current VMware Private Cloud Stack includes the full SDDC (software-defined data centre) of vSAN, NSX, vSphere and vCenter running the core platform, as well as vRealize Operations for management visibility. 
  • The bank also deployed Horizon for its VDI environment, and its Chromebooks boast single sign on with full access to Google Apps. Furthermore, the company is making use of the VMware Pivotal Container Service (PKS) for containerised application development.

The Genghis Capital deployment at the Node Africa site is 100% ringfenced, all hardware that is dedicated to the bank is completely separate from all of its other systems. They are the first bank in Kenya to move all operations to the cloud.