Banking in the Cloud – The Financial Service Industry And Their Security Concerns

Some large banks like ING are excited about Cloud technology due to a number of its advantages, such as zero up-front capital requirement, shared service delivery via the Internet, its pay-for-use environment, and its agility. There are also banks who are wary of the risks and are closely watching from the sidelines, waiting for clear answers to security and regulatory issues. The rest simply aren’t sure what Cloud computing really is.

The current problems being encountered by banks, which the cloud can allay, are high IT costs and under-utilized hardware. With cloud technology, the banks can easily scale up operations without incurring additional costs normally associated with increase of manpower or additional hardware and software. This is because the cloud supports pay-as-you-go service models, which means the user only needs to pay for what they use, instead of making a huge initial investment.

The banks’ IT departments usually have to deal with under-utilized hardware, as they tend to deploy huge in-house servers that is more than adequate for their needs. In these cases, the bank can migrate certain functions, such as treasury applications, to the cloud before moving the entire core banking services.

Cloud Technology is especially beneficial to small-scale banks, as they are not always able to make an upfront investment on core banking solutions, which further limits their competitiveness and acts as a glass ceiling of sorts. With cloud’s pay per use, the small banks won’t have to worry about investing in infrastructure that they won’t use. Additionally, they can subscribe to the cloud per branch, further minimizing the costs. In this same vein, the cloud also addresses small scale banks’ problems with getting skilled manpower for server and hardware management, as the cloud provider already takes care of those.

Things that Need to be Addressed First

While it’s true that the cloud has a lot of benefits, it first needs to address security and compliance concerns, as banking is a very important and sensitive industry with regard to the aforementioned concerns. One solution to this is the hybrid or shared IT infrastructure, which provides variable costs, flexibility, scalability, and on demand availability inherent in cloud services, while also addressing the compliance, security, and performance concerns of financial institutions.

Currently, banking applications and data are very critical for banks, and it may take time for a truly compatible cloud strategy to surface. Here are some of the things that needs to happen first:

1. Business functions that are suited to different cloud environments should be defined first and categorized based on sensitivity.
2. A comprehensive set of requirements suitable to the lines of businesses and their functions they will operate in the cloud need to be developed.
3. A secure private cloud may be used in order to provide a cloud-based low cost solution, but this means that the bank will be fully responsible for all the services and maintenance of the cloud. On the other hand, they will also have better control over security and compliance.