The wave of fintech startups, digital challengers and tech giants presents a threat to the big banks that is unlikely to go away soon.The impact of the financial crisis, scandals in the interbank and foreign exchange markets and continued volatility in global markets has meant regulators the world over continue to scrutinize banks like never before. Cloud computing can help the banks to respond more effectively to these challenges by driving down costs, enabling innovation and creating the flexibility needed to respond to change.
Traditionally banks have been reluctant to embrace such technologies, especially on security grounds. Some of this hesitancy is practical: How does one move petabytes of data that is transactional and hence continually in use?
There are other challenges, such as the potential complexity in managing many different operations spread all over the world. Regulators are leading the way in facing up to these challenges and moving banking practices into the 21st century.
FINRA, one of the largest independent securities regulators in the United States, has now moved about 75 percent of its operations to the cloud. It estimates it will save up to $20 million annually by using Amazon Web Services instead of a physical data center infrastructure.
In the past, increasing capacity and storage cost more money - FINRA, which processes 25 billion "market events" a day had hit the limits of what was commercially available. A major benefit of its move to the cloud has been speed. Some of the more complex queries FINRA runs on its data could take several hours in extreme cases, but they are now done in a few seconds, allowing the regulator to run surveillance patterns more quickly and do more data analysis.
The sixth largest bank in Spain, Bankinter, uses the cloud to run credit risk simulations in 20 minutes, down from 23 hours before. A major American investment firm uses AWS to run credit risk simulations for its long-term debt and equity-backed securities in its London branch.
By using AWS, it can scale up vast amounts of technology infrastructure on demand and pay only for what it uses. Having such vast compute capacity available on demand is extremely important in the capital markets industry where milliseconds can mean millions in profit.
Cloud computing means banks no longer have to invest heavily in dedicated hardware, software and manpower: the Commonwealth Bank of Australia said it used to take eight weeks and several thousand dollars to stand up a new server. Now it takes eight minutes and 25 cents to do the same thing in the cloud, making the bank much more responsive to changing customer demands. It improves flexibility and scalability, enabling banks and financial institutions to transform their business processes and grow organically in new sectors and geographies without incurring huge costs for establishing a physical presence.
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