Developing a successful multi-cloud strategy for banks

The cost-efficiency potential of the cloud is attracting banks and financial services companies to ditch their legacy platforms and modernise their systems with cloud technologies. This would have been unthinkable even a few years ago, but we’re seeing the beginning of a new era for the industry as traditional institutions face stiff competition from neo-banks and fintech challengers.

These challengers have put a spotlight on customer service, and the single biggest driver for banks adopting cloud technologies now is to improve their customer experience. During Covid, the number of banking customers who expected to be able to do all their banking digitally increased significantly, and that exposed the cracks in current systems to deliver the kind of service they demanded. Banks are having to think more like Uber, and less like… well, banks.

As a result, investing in cloud environments is now a strategic play for banks. Cloud offers agility, flexibility and the ability to scale in a way that simply hasn’t been possible in the past. Many of the systems we all rely on – our customer relationship management (CRM), customer service tools and enterprise resource management systems, for example - are already cloud-based. The hyperscalers (AWS, Microsoft Azure, Google Cloud Platform) have sophisticated offerings that mean banks can significantly shorten the time it takes to bring new capabilities to market. Cloud platforms all have pros and cons, and so we’re seeing banks adopt a multi-cloud strategy to take advantage of the benefits each has to offer, and to diversify risk.

A cloud strategy is often pursued with the goal of reducing costs – and yet the cost of migrating away from legacy systems can be hefty. Making the right decisions, managing multiple cloud environments effectively and ensuring they work properly together takes time, effort and the right skills.

Managing a multi-cloud strategy

There are five essential considerations for banks creating their cloud strategy:

1. Avoid provider lock-in. Banks need the freedom to adapt to marketplace changes without having to re-platform when switching providers.

1. Continually evaluate what the provider offers. As technology and the market develops, so too do the offerings of cloud providers. Check to see that you have the best fit for your needs (and ensure your IT provider does, too).
2. Consider moving between clouds as things change. There may be more efficient and cost-effective solutions on offer, so the ability to move across different clouds may create efficiencies. 
3. Start a change management programme to plan for future requirements.
4. Assess how suitable your applications are for the public cloud. Some workloads, such as batch processing, may not be suitable for the public cloud for regulatory (or even technical) reasons. Others may be better suited to private cloud. So, an essential part of developing a cloud strategy will be identifying which workloads can be moved to public cloud, and then prioritising these by business need.

Does cloud mean banks are moving away from the mainframe?

Despite the desire to move to cloud, 92 of the top 100 global banks use IBM Z as their core banking system. Mainframes run billions of transactions every day, and handle 90 percent of credit card transactions. They are still central to banking technology, and despite their high running costs, the thought of moving away from them can be overwhelming. They’re also the most secure option for some workloads. Migrating is costly and carries some risk.

So, it makes sense that most banks have not – and will not any time soon – move away completely from the mainframe in favour of the cloud. This is evolution, not revolution, and banks are making small incremental moves to the cloud, rather than overhauling systems entirely.

What role does IT have in this new cloud strategy?

There are two main models that banks choose when determining the role of IT in this new world. The more traditional IT role is that of gatekeeper – controlling who has access to the cloud and when, dealing with capacity and storage in response to demand, holding the line on budgets, and selecting which hyperscaler to use for what purpose.

The user marketplace model is different. It allows users from around the organisation to choose their own cloud option and make independent decisions about cost and suitability.

Whatever model the bank chooses, it has to consider the impact on security, the role of IT and the level of control it can assert, the costs of the system, the level of user expertise, and the complexity of the organisation’s requirements.

A cloud journey doesn’t end with migration

Once a bank’s cloud strategy is in place, the hard work begins to ensure effective governance. To avoid costs escalating out of control, you need tight controls on demand from the business (particularly if IT is not being used as a gatekeeper), and a process for regular reviews and approvals. Banks would do well to consider a FinOps model to achieve this.

On its own, the cloud is not a silver bullet for any of the challenges banks face. But as part of a clear transformation strategy, supported by the business, and robustly governed, it can be a game changer for banks seeking to modernise their systems, scale, and transform their customer experience to compete in a changing user environment.