Banks can improve scalability and leverage existing investments with a hybrid cloud strategy

A paper about choosing a technology path to meet the demands of the modern banking customer and maintain a competitive advantage

Success in the banking industry requires the ability to derive value from large amounts of data, deliver superior and personalized customer service, and get to market quickly with innovative services — all while controlling infrastructure costs. A properly deployed hybrid cloud environment enables the agility, scalability and infrastructure services that banks need to meet the demands of the modern banking customer and maintain a competitive advantage.

Historically, companies in the financial services industry have had mountains of data to deal with, and when cloud computing emerged with the potential to offer virtually unlimited storage capacity, banks quickly jumped on the bandwagon. 

Consumable services from public cloud, such as advanced data analytics and machine learning, allow rapid insights from this data. Furthermore, the acceleration of AI developments will require specialized compute capabilities and the digitization of vast amounts of data, making it difficult for banks to keep up if they are not in the cloud.

Still, many banks remain committed to running at least some of their core systems and services on on-premises infrastructure in data centers that they own and operate themselves.

However, license fee terms may restrict the usage of analytics tools within a private cloud, thus limiting insights. In addition, compute capacity within a private cloud is generally fixed, requiring capital investments to expand. Finally, the rising level of cyber threats requires continuous investments in both technology and skilled staff.

Embracing a hybrid cloud strategy provides the opportunity for banks to gain the benefits of public cloud while still generating a return on the significant investments they have made in on-premises infrastructure and services, including legacy technology.  Another advantage of a clearly defined hybrid cloud strategy is that it can help organizations deal with the challenge of technical debt that burdens many systems in a cost-effective way. For one, aging applications with functional or capacity constraints can be selected for replacement or re-architecture in migrating them to the public cloud.

Hybrid cloud has traction in banking

Banks and financial services organizations are making large investments in cloud. Grand View Research anticipates that the global finance cloud market will reach over $100 billion by 2030, as financial organizations leverage the convenience offered by cloud solutions to modernize their processes and gain from improved data protection, among other benefits. In addition, a McKinsey survey found that 54% of financial services companies expect to shift at least half of their workloads to the public cloud over the next five years. At Amazon Web Services (AWS), the world’s largest cloud services provider, financial services companies already make up its largest and most mature vertical.

Moving an entire data center into the public cloud may be an overwhelming prospect — so today a common approach is to identify those workloads and data sets that will most benefit from public cloud services and move (or connect) only those, while leaving other workloads and data in their current location. Additionally, a bank’s private cloud lets it accommodate jurisdictional regulations that require certain types of data to remain resident within a particular country, by storing this data within the required boundaries.

Connectivity options and data movement services provided by public cloud providers allow for a hybrid cloud environment with seamless integration between private and public clouds, enabling banks to share data and applications across both. A hybrid cloud environment gives banks the flexibility to shift workloads between private and public clouds as needed, providing capacity to support short-term bursts in business demand.

A hybrid cloud environment gives banks the flexibility to shift workloads between private and public clouds as needed, providing capacity to support short-term bursts in business demand. 

Meeting hybrid cloud challenges

As hybrid cloud becomes ubiquitous in banking, hyperscalers, including AWS, along with third-party solution providers, have developed a host of new services and tools that are helping banks surmount obstacles related to cloud migrations, as well as achieve improved returns on investments.

Although adopting a hybrid cloud environment is a wise move for banks and financial services organizations, making the shift is not without its challenges. More than most other industries, financial services companies are faced with security, compliance and data privacy challenges that vary greatly across different jurisdictions. The good news is that most regulators globally have become comfortable with the public cloud. Many public cloud services have regulatory and compliance certifications as well as many security certifications. In addition, several public cloud services specifically focus on creating audit trails and reports on workloads, data and infrastructure for regulatory audits; such services include AWS Audit Manager and AWS Artifact.

Financial services companies are faced with security, compliance and data privacy challenges that vary greatly across different jurisdictions. The good news is that most regulators globally have become comfortable with the public cloud. 

Also, because fully entrenched legacy systems were not built with cloud in mind, migrating and integrating these systems with cloud-based platforms can be complex and require careful planning.  Many banks are running mainframe systems, midrange systems or other proprietary compute platforms that are not available on the public cloud. Third-party emulators and migration tools can migrate what can be considered commodity hardware to the cloud to achieve substantial infrastructure and license cost reductions. In addition, public cloud migration tools such as the AWS Database Migration Service are available that can be used to migrate data from commercial databases to open-source databases for further cost reductions.

A big challenge for banks is determining which workloads should be shifted to the cloud, and if the migration should be to a public or private cloud. Sometimes this decision is driven by cost considerations, such as determining if end-of-life hardware will require capital investment, or a significant license renewal expense, and other times by what are called augmentation patterns. This refers to ways banks can connect services to existing data to derive value from it, such as monitoring consumer sentiment to deliver better customer service by leveraging the analytics capabilities cloud provides.

For example, public clouds offer data lake and data warehouse services that can rapidly crawl data and produce insights in hours. Pre-training machine learning algorithms can similarly be applied to data sets rapidly to gain insights about potential fraud or client sentiment. Even data that remains within the private cloud can benefit from these analytics and machine learning services with connectors to many existing databases.

Another significant challenge for banks is dealing with culture change and ensuring that experienced people on board with the right skills. Some banks have many employees dedicated to legacy technology, but lack the in-house technical talent that has all the skills running a hybrid cloud environment requires. Many banks can solve the skills challenge by engaging with partners that have the immediate technology, industry experience and public-cloud certified skills needed to successfully implement and manage a hybrid cloud, allowing for banks time to re-skill their workforce and to build their public-cloud capability.

Why banks should adopt hybrid cloud

There are many use cases that demonstrate the need for hybrid cloud in the banking and capital markets space. In addition to having to process data locally to meet regulatory and data residency requirements, financial services companies have a strong need for low-latency applications to perform tasks such as executing trades and automating loan applications. Also, customers of banks and financial services companies demand easy multichannel access to innovative products and services.

A hybrid cloud environment addresses these use cases and many more. Here are the most compelling reasons banks need to develop a well-planned hybrid cloud strategy:

What can guide a bank to the right “should/shouldn’t” answer? Questions of risk, compliance, security, interoperability and complexity come into play. System costs and available team skills matter as well. This is an area in which the combined experience of AWS and DXC Technology can help organizations navigate key strategic decisions even before any system design or implementation takes place.

A hybrid cloud can help an organization keep workloads where they’re most effective and secure, mix the institutional knowledge of existing systems with the power of new ones, and accelerate the adoption of AI and enhanced customer service offerings.

1. Cost optimization. Enterprises are moving to the cloud to save costs. Engaging with a public cloud provider reduces large upfront capital investments and decreases infrastructure costs, including both compute/storage costs as well as license expenses. The public cloud, providing virtual compute and storage on-demand, allows dynamic scaling (up and down) with changing demand — as opposed to the fixed capacity and cost of on-premises infrastructure.

   Economies of scale mean you can release unused compute capacity immediately and grab it back only when needed. At the same time, operational costs can be significantly decreased by using fully managed services that include all system upgrades, and built-in high-availability and backup services — greatly reducing the need to configure and manage these by bank technical staff.

2. Improved scalability, agility and flexibility. A hybrid cloud environment gives banks the ability to seamlessly expand computing capacity during periods of high demand. Greater speed and capacity translate to increased efficiency for things like processing payments and credit card transactions. Greater scalability enables banks to go to market faster with new products and services.

   Agility refers to the ability to rapidly deploy or remove a new service; complex systems are offered as managed services on the public cloud and can be created or removed with a few keystrokes. Crawling historical data that has been isolated for years to rapidly produce self-service analytics can be spun up in minutes via tools such as AWS Redshift and AWS QuickSight. This flexibility comes with additional responsibility in relation to financial control shifting from up-front predicted spend for IT services to ongoing monthly optimized consumption billing (FinOps).

3. Increased access to data for innovation. Having more compute power within a hybrid cloud environment gives banks the ability to quickly access their data, experiment with it and learn how to leverage that data in innovative ways. Innovation driven by Generative AI and machine learning (ML) is compute intensive, and hybrid cloud, especially the public cloud, provides the massive compute and storage capacity required to make things like advanced analytics and machine learning more flexible and cost-effective.

   In addition, as AI evolves, specialized hardware services such as GPUs or deep learning processors will be required for specific phases of AI development. These can be expensive to implement on-premise and only required for short periods of utilization, making the public cloud approach more cost effective to meet these needs.

   For banks looking to launch major AI-driven ML initiatives, hybrid cloud provides a platform for experimentation and assessing what the costs will be before making a large investment. Hybrid cloud also provides a wider gateway for banks to access and analyze alternative data, or alt data, which is information gathered from alternative sources such as social media or satellite imagery, to learn more about customers.

4. Better customer-facing services. The success of ChatGPT and the friendly way it interacts with people has drawn the attention of banks looking to improve direct customer interaction. Hybrid cloud gives banks the ability to offer their customers robust services, such as ChatGPT-like interactions via web and mobile applications that are hosted in a public cloud while keeping sensitive customer information on premises in the private cloud.

   Banks can also take advantage of a hybrid cloud environment to gain insights into customer preferences and behavior, then apply predictive analytics to achieve hyper-personalization. For example, a bank can leverage hybrid cloud to analyze customer data and develop a predictive model to forecast when customers are going to make an early withdrawal from a CD, which would help inform decisions around business factors such as risk assessment and customer relationship management.

   Some cloud providers offer AI-enabled call center services — AWS Connect, for example — that improve client contact and information access across many communication channels including mobile, web, voice, text and chat. These systems allow customers to pose natural language questions and retrieve information from existing systems, including those within a private cloud. In addition, they offer real-time sentiment analysis and escalated routing to the correct operator.

5. Enhanced security and compliance. Hybrid cloud gives banks the flexibility and compute power needed in areas such as cybersecurity, fraud detection and regulatory compliance. The public cloud is arguably at least as secure as an on-premises data center, if not more so. Public cloud providers offer a range of security services, including perimeter protection services —AWS Firewall Manager is one example — as well as threat detection and threat management services.

   Many public cloud-based security services can be extended to the private cloud as well, or they can be integrated with on-premises security applications. In addition, some services allow for a centralized collection of security data across all applications, including third-party, private-cloud installation and public-cloud security services. This means organizations can create a single repository for all security data for improved threat detection and response.

Making hybrid cloud work

Even as the potential benefits of hybrid cloud are evident, some banks are finding that moving to a hybrid cloud does not deliver the ROI improvements they were looking for. One reason for that is a failure to fully understand the guardrails and policies required to maximize the benefits of a hybrid cloud.

Some banks find that moving to a hybrid cloud does not deliver the ROI improvements they were looking for. One reason for that is a failure to fully understand the guardrails and policies required to maximize the benefits of a hybrid cloud

Too often, companies will initially provision a database and a few servers to use in an experiment, for example, then not deprovision it. Fortunately, there are guardrails that can be put in place to automatically deprovision resources that have been placed in sandbox environments. Guardrails can also be established to make sure a certain budget is not being exceeded or expensive services are not being provisioned, or to limit who can provision resources.

Setting the right strategy and putting the right guardrails and policies in place takes the collective efforts of the bank and a cloud provider, augmented by the expertise and skills delivered by service providers such as DXC Technology. A key advantage of public cloud is the ability to implement guardrails and policies as code quickly and easily. DXC can help banks define and implement policy-as-code to provide the ability to provision and deprovision cloud services, comply with regulations, and conduct cloud resource health checks for observability and audit reporting.  

AWS is the world’s most comprehensive and broadly adopted public cloud and has delivered cloud services to millions of customers running a wide variety of use cases, with a leading position among cloud providers, according to Gartner. With a global infrastructure that spans 99 Availability Zones within 31 geographic regions across six continents, the AWS Cloud delivers the data residency points needed by banks across the globe. AWS provides a broad array of cloud-native tools for optimizing the hybrid could journey, many designed specifically for the financial services industry, along with seamless access to third-party solutions that are available in the AWS Marketplace.

AWS and DXC can work together to help banks and financial services companies develop a well-crafted hybrid cloud strategy and implement a successful hybrid cloud environment. With more than 250 million customer deposit accounts managed globally, DXC has unmatched experience in the banking and capital markets industry.

DXC governs more than 2,000 AWS accounts supported by DXC professionals who hold more than 5,000 active AWS certifications. DXC also partners with AWS on mainframe modernization services, which deliver a set of tools for planning, migrating and running mainframe applications on AWS. 

DXC has over 10,000 AWS accredited professionals with qualifications in dozens of disciplines in a variety of AWS competencies and service validations. For example, DXC is an AWS Financial Services Competency partner.  Additionally, DXC and AWS Migration Services can help enterprises in identifying blocks of repeatable applications and business intelligence workloads, such as reports where migration at scale can be achieved through a factory approach that reduces costs and enforces standardization.

DXC can help banks manage and control their hybrid cloud environment automating many aspects of service management by utilizing DXC Platform X™ that ensures the same operating model is supported on-premise and in public cloud. DXC Platform X™ is a data-driven intelligent automation platform that enables customers to accelerate their journey to resilient, self-healing IT across their entire IT estate. The platform empowers IT teams to detect and resolve issues quickly, and automatically predict and prevent future problems. Systems achieve a state of “silent operations,” putting IT operations from top of mind to out of mind, saving time and money and enabling IT to focus on what’s most important: the business.

In summary,successfully adopting a hybrid cloud is essential for achieving success in the banking and capital markets industry. Banks are leveraging hybrid cloud to achieve greater agility and scalability, and provide superior support for low-latency applications, while reducing costs and gaining access to new technology services. Organizations seeking the best path to a hybrid cloud need to leverage the technology, global reach and resources of a leading cloud provider, combined with the expertise, skills and experience of a trusted services provider like DXC.

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