Julian Schmücker is the European Banking Federation expert on cloud computing and organiser of the federation’s Cloud Banking Forum – a policy hub for European banks, cloud service providers and EU observers. Ahead of his appearance at Tech Week Frankfurt 2019, Julian breaks down the best practices for banking in the cloud
European banks fully understand the importance of cloud and are keen to take advantage of this promising technology’s innovative potential. They are looking at cloud closely and are aware of the effects that technological advancement can have on the future of IT, the emergence of an ecosystem and the overall evolution of the sector.
Banks are chiefly aware of the cloud’s potential for improved processing power. Instead of pre-purchasing capacity at the maximum expected computing need, the on-demand usage of cloud allows banks to ‘burst into cloud’ instead, a speed increase that makes IT results available to banks faster. At this year’s EBF European Banking Summit a British internationally operating financial institution revealed how it cuts down processing time for liquidity reporting from 48 hours to about 3 hours using the cloud.
In addition to making existing applications cloud-ready, banks can breed entirely new cloud-based applications, using innovative development partners. In this scenario, European banks tend to follow a strategic approach before making such applications operational. A proof-of-concept from the cooperating partners is just one phase in a step-by-step process for the introduction of a new solution.
Cloud adoption does not stand on its own but combines the computing power and data storage possibilities with – for example – AI solutions for data analysis or the Internet of things (IoT). Information can be processed faster, which helps to tailor services to customers.
Think of a credit-related data-driven pay-per-use loan, such as an investment loan for machines in hardware production. The repayment of such a loan could cost less than a traditional linear repayment, once machines’ production count is considered for repayment calculation, via IoT data sharing. If the machine is used less than planned, the repayment of a loan would cost less than that of a traditional linear repayment loan and vice versa. In such a scenario, the cloud could enable timely and secure data transfers. While this use case may not reflect widely-used cloud applications, it reflects the possibilities available.
Further, with AI and machine learning, cloud technology can enable real-time information collection and analysis. Consider an information warning system for credit risk analysts that uses an AI service to collect publicly available information, and external data from commercial information providers, and then store it on the cloud. With AI-based language processing and translation, machine-learning algorithms could then extract warnings according to the end-user’s preferences.
Regulation
Numbers show a slow rise in cloud adoption among European enterprises, including in financial services. According to Eurostat, 26 percent of enterprises were using cloud computing in December 2018. Despite a sizable increase compared to 2014 (19 percent), the numbers do not mirror the rise in sophistication of cloud itself over the same period. In part, this difference is linked to the complexity of cloud migration under existing regulation, especially in the financial sector.
The current EU rules require banks to consider a large number of conditions before moving their business to the cloud. These rules are mainly targeted at preserving financial stability. An example are the rules implemented by national supervisors to oversee the outsourcing to cloud service providers, following 2019 guidelines and earlier recommendations by the European Banking Authority (EBA).