Is Cloud computing a disrupter in financial services?

By David Zeller, RBI

Like electricity from the socket, cloud services are almost immediately available without having to order, install and maintain technical infrastructure within a company. Cloud providers guarantee immediate access and unlimited resources. This results in an incredible gain in speed and is therefore especially important for innovations. But could it be a disrupter in financial services? David Zeller, Cloud Guild Lead at Raiffeisen Bank International, shares his answer.

David Zeller

What is cloud computing?

Sometimes it feels that everything in IT is referred to as “Cloud”. A definition that is used quite often says: “Cloud computing is the delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet”. It describes quite well what the cloud is all about: almost immediate access to IT Services without the need of building the infrastructure yourself.

 

There are different models how cloud services can be consumed:

  • Software as a Service”: An application that is offered by the cloud provider, e.g. Outlook or Zoom. The end users consume it directly.
  • Platform as a Service”: A platform component like a database provided by the cloud provider. Developers are using it to build applications on top.
  • Infrastructure as a Service”: A virtual machine provided by the cloud provider – similar to traditional datacenters.

So, when should one use what kind of cloud service? There is no right or wrong, it is rather a matter of already existing infrastructure and the goals a company has defined. In RBI we decided to utilize SaaS for standard applications and processes mainly. In the innovation area we want to develop and use the productivity of PaaS. Existing applications that we do not modernize now are kept running on IaaS.

This trend towards cloud is also observable in the financial industry. It is not just about collaboration software like Office 365 that is delivered via the cloud. More and more core finance functions like core banking solutions or risk computation are offered “as a Service”.

Why is “Software as a Service” that successful?

More and more software vendors are shifting their products towards cloud or build new products only for cloud usage. Software that was previously installed on Desktop PCs and Servers is now offered via browser directly over the Internet without the need of buying infrastructure, licenses, installing equipment, upgrading software, …

Why are those companies so successful? Just to name a few reasons:

1) “Always up to date”: Whenever a new capability is introduced in the software, the vendor receives immediate feedback over the usage – and therefore can adjust and improve it quickly. Traditional software suffers in that area, there is always an amount of time between the development of a feature and the customer being able to use it.

2) “Try and buy”: People want to try the software and see how it works, they want to use it without having to wait for weeks until everything is installed. The time of endless tender processes and prototype installations is over.

3) “Pay as you go”: Most of the products are charged based on usage, e.g. the number of users or transactions. No upfront investment is needed which means that the uncertainty, if the product really fulfills the needs, is of minor consequence. Depending on the demand, the associated costs adjust.

Is cloud computing a disrupter? Also, in financial services?

It is always hard to say if a technology is a real disruptor. Cloud Computing has certain characteristics that indicate that it is a disruptive technology. Most importantly, it democratizes access to computing power, storage and networking services and in general to modern IT technology without the need of an upfront investment. A credit card is all you need upfront. Running a website that is used by 100 people today and might be used by 100,000 people in 6 months is an easy and natural development in the cloud. Seeing the growth rates of the big cloud providers like Amazon or Microsoft (with 40 per cent and more per year) is also an indicator that we have not reached the peak of this innovation.

Does cloud disrupt the financial service industry? At least it supports disruption. Many of the new players in financial services (direct banks, FinTechs) run their business on top of cloud because it allows them to build fast and grow with the demand. Cloud is an enabler to compete with established players, who invested in huge IT infrastructure.

Are cloud platforms like AWS and Azure just about cost?

The simple answer to that question is NO. It CAN be about cost. Especially if the cloud economics can be utilized for workloads that have changing demands e.g. a service that is needed only once per night, at the end of the month or in case of expected or unexpected peak usage like we have seen during the Corona crisis.

But cloud services offer much more:

  • “All about data”: In the data area cloud offers access to nearly unlimited storage capacity and the newest technologies like Machine Learning and Artificial Intelligence.
  • “Try fast fail fast”: Cloud is the optimal toolset for software engineers. They can try and experiment with technology; build innovative solutions without having to wait for infrastructure or software.
  • “Focus on core competency”: Prebuilt capabilities that are operated by the cloud provider like databases or web hosting infrastructure, help to focus on the real innovation part and therefore pushes productivity.

Trust in financial institutions

From a bank’s point of view, the cloud offers great opportunities to improve existing services and develop new ones that we deliver to our customers, partners and employees.

Trust is one of the most important attributes of a financial institution. To gain trust one must ensure security and compliance of the bank. Learn more about those topics in my colleague’s blog post “Cloud and Security: The bank is always responsible for the security of customer’s data” (by Peter Gerdenitsch).

David Zeller is Cloud Guild Lead at Raiffeisen Bank International. David is also lector for Cloud Computing at the University of Applied Sciences in St. Pölten, Austria. You can reach him via LinkedIn.

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