The complexity of migrating and adapting to the Cloud in Banking is a fact. What is worrisome is that the Cloud in Banking remains misunderstood, despite the fact that roughly two thirds of C-suite decision makers are bullish on the Cloud. In reality, a very small percentage of Banks has actually transformed their business by embracing the Cloud in Banking.
European leaders have been providing innovative regulatory frameworks for Banking. PSD2 & Open Banking are two such major regulations that are the backbone for building platform businesses in Banking and using open banking and APIs to foster new business models with network effects.
The European Banking Federation (EBF) the voice of European Banks, has recognized openly the importance of Cloud computing which emphasizes that the Cloud is not simply a better, cheaper, faster data storage & access technology.
Cloud computing is an enabler for intelligent computing and new business models. It is the way to bring successful and sustainable Iaas, Paas, Baas, Saas business models to market. It is actually the only way, to build a platform business using open banking principles.
The European Commission predicts that over the next 5 years there will be a major shift away from large data centers (storing and processing) towards computing power on smart connected devices.
With this emerging shift, the Banking sector will have to create new business models that operate within the regulatory frameworks and manage the variety of risks (traditional and new) while enabling the agility of the so-called Adaptive Bank.
Banks have the opportunity to develop new business models and use the Cloud and Cloud computing to launch these. The prediction of increased computing power towards smart connected devices, means that most Banks will run multiple cloud computing uses cases.
The EBF has taken a stakeholder approach and has invited banks (over 3,500 members), EU regulatory authorities, and cloud providers to create a harmonized approach to the way digital financial services are powered by the cloud and its capabilities.
Rik De Deyn outlines the five basic dimensions to benchmark and evaluate cloud offerings and requirements in a rather standardized way in his post `Oracle and the EBF Cloud Banking Forum collaborate to harmonize the approach to cloud adoption`
o Type of Cloud layer — from Iaas to Saas
o Type of Control Framework — from Private to Public
o Type of Regulatory Context — from a single EU country to many 3rd type of countries
o Criticality of Data — from Public to Internal Identifiable Sensitive Data
o Criticality of Function — from replaceable & non-core processes to unavoidable core processes
The EBF categorization is a practical and standardized way to approach Cloud adoption once the business case is clear (see excerpt table with details at the end of this article). The technical paper of EBF includes a spider web visual for the rankings of these factors that should be considered. The further away from the centre of the spider web, the more critical is that specific dimension in the successful cloud computing application.
I`ve picked three different examples of leveraging cloud computing in banking for different purposes to examine how to prioritize these five dimensions towards the business goal.
Most banks will become businesses of connected cloud computing use cases that have very different priorities. The Adaptive Bank will be the Ringmaster of these modules connected via another web of APIs.
📌 The case of a bank considering the Cloud & Cloud computing for the purpose of launching a new financing model for machines.
A bank wants to offer pay-per-use financing for cars, agricultural and industrial equipment. This is a model that matches loan repayments with usage and therefore offers customers better cash flow management.
The EBF spider visual that rates the importance of each of the EBF dimensions, indicates that access to the financial institution from the outside data sent from the machines, is the most critical for this IOT application.
📌 The case of a bank evaluating capabilities for its data scientists to use anonymized data and gain new insights and develop new AI capabilities internally.
In this case a public cloud solution is more suitable (whereas in the IOT case, a hybrid one was suitable). The legal context dimension is much broader and significant than in the case of financing machines.
📌 The case of a bank using Early Warning System (EWS) applications for personalized alerts about credit exposure. In other words, using Cloud computing for automated and more efficient credit risk analysis. This is a machine learning and natural language processing use case that requires processing lots of external data and information from public resources to create sentiment-based signals. Subsequently, matching these signals to clients and of course touching upon internal identifiable data.
Excerpt table from the EBF report “The use of Cloud Computing by Financial Institutions” based on the contribution of several stakeholders
I`d like to thank my client Oracle, Rik De Deyn Senior Director of Financial Services Strategy at Oracle, and Julian Schmucker Senior Policy Adviser — Digital Innovation at European Banking Federation, whose posts were the main sources of my research for this post.
 The European Banking Federation (EBF) is a trade association representing 32 national banking associations in the EU and EFTA countries. It represents over 3,500 banks and about 2 million employees. The EBF is the voice of Europe’s banking sector in all regulatory debates at the European and global level.
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