Banking Review

True cloud banking

The cloud banking bubble is about to burst, argues Gartner, if banks don’t take cloud computing initiatives seriously enough

BY CHARIS PALMER

Banks need to move beyond private cloud computing to cloud banking if they are to capitalise on the financial benefits and new business models offered by cloud computing, argues Gartner analyst Peter Redshaw.

Speaking to a group of banking CIOs and IT leaders at last year’s Gartner Symposium, Redshaw argued most cloud computing initiatives currently being undertaken by banks amount to little more than “cottage industries”, with few industry utilities or examples of public cloud initiatives.

“At present, there is very little uptake. It’s mostly pilots, proof of concept and it tends to be non-critical stuff,” says Redshaw.

But a Gartner survey of CIOs in the Asia Pacific region has found almost 50 per cent believe they will be doing more than half of all transactions they manage via cloud computing by 2015.

More broadly, Gartner is predicting year-on-year growth of 19 per cent for the next five years for public cloud computing, with public cloud services to grow at five times the rate of overall IT industry spending.

“So whether you’re buying it in the public market, or building it yourself, cloud should be your first approach to computing,” argues Gartner global head of research Peter Sonderguard.

So what will this look like for banks?

Redshaw says one example that could inspire further development is the New York Stock Exchange partnership with VMware, which is an infrastructure as a service platform for financial firms.

“I would expect other people to move into this space,” says Redshaw.

“Initially, you’ll be buying capacity at some sort of spot price, but why would you also not think ahead and say I want an option on a future price, I want to lock that in, because that’s going to help my budgeting cycle.”

This could ultimately lead to a secondary market for storage capacity, argues Redshaw. “Why do we not trade those kinds of things, so if I’ve got excess, I could sell all the contracts I have? That would be an interesting development.”

Reverse auctions move forward

Another example of cloud banking is reverse auctions.

“At the moment, I’m offered three cards based on prehistoric data, or I could use a price comparison site, but they’re still standard products,” says Redshaw.
“What if I could wave my money in the air and say, ‘come and get it’…allow banks to bid for my business, or not.”

Running such auctions on an industrial scale would have been economically unfeasible without the cloud, but a willingness to embrace it changes the equation.

Another example of true cloud banking would be open development platforms, where more than one vendor could access a software development kit to help build a new service.

“You could take 90_95 per cent of a vendor solution, and create your own core components to differentiate.”

And then there’s the idea of opening development up to a wider community, made up of not just vendors, but internal and external developers.

“Think how much more productive that would be and a great way to gather that crowdsourcing of innovations,” says Redshaw.
Cloud banking could also be used to completely change the business model for online banking, argues Redshaw.

“Online banking is getting more expensive to do and yet we give this stuff away for free.”

Redshaw acknowledges the majority of people will never pay for online banking, but what if you could create an “Online banking SETI” that treats online banking users as a valuable private community?

“Maybe you can mine their data in return for free online banking…maybe you can utilise idle cycles on their machine.”

What would it take for these visions to become a reality?

Firstly, Gartner says vendors need to become more sophisticated, offering solutions that are tailored specifically to the banking sector. More consistency from regulators is also required.

But ultimately, bankers needs to move away from the idea that cloud is a binary yes or no decision. It’s much more subtle than that, argues Redshaw.

“Cloud banking is going to be transformative, it’s going to enable you to do things which currently are either impossible, or if they’re technically possible, you wouldn’t actually do them in a business sense because it’s not economically feasible right now.”