The Cloud – what's stopping financial institutions?

The Cloud – what's stopping financial institutions?

John Cragg

CEO at MYHSM

Views 445

The Cloud – what's stopping financial institutions?

17.06.2020 12:45 pm

The majority of financial institutions have or are developing a cloud strategy, and most are already making some use of the cloud. There are a number of reasons why the cloud is an attractive alternative to running your IT in the traditional manner of owning and operating in-house data centres, including:

  • reduced costs, and costs of cloud computing continuing to decline because of competition between cloud service providers
  • nimbleness, speed to market, competitiveness, and responding to the threat of the challenger banks
  • scalability
  • avoiding the continuing cycle of equipment obsolescence and replacement
  • access to third party data and applications
  • integration with fintech partners, which is being accelerated by open banking initiatives
  • temporary additional capacity for testing

The benefits seem to be compelling. However, many systems, especially from established banks, are still running in the traditional architecture. So, what's holding them back? And what role can specialised service providers like MYHSM play in helping them move to the cloud? Let's look at the main obstacles to moving to the cloud:

Security

The most commonly cited reason for companies to stop and think about the cloud is security. And these security doubts are largely around the storage of data by third parties. In addition to fears that a third party's data storage might be breached, there is the concern of banks and their national regulators about data sovereignty – which country the data will be stored in.

Banks are right to worry about security, of course. But one of my favourite quotes is from Eve Aretaxis of ACI, who says in the 2021 Time Capsule from PYMNTS.com that: "Risk-averse banks... are warming to the fact that the big cloud providers can spend more on security in a month than any bank could spend in a decade."

And if you look specifically at a service like MYHSM's, we don't store data at rest. We handle only individual transaction data, which is securely encrypted while being sent between ourselves and the financial institution and exists only instantaneously and inside the secure envelope of a certified Payment Hardware Security Module (HSM). So, the MYHSM service can begin to deliver the benefits of the cloud to the financial institution without raising concerns of how or where data is stored.

The other major concern relating to security is loss of control over security-sensitive operations. To a certain extent, these fears can be mitigated by examining the third party’s procedures, and by using data centres (such as those operated by Equinix) which are PCI DSS approved, and service providers which are PCI PIN approved; these approvals encompass security operations.

The question of cost

Although the cloud will deliver cost benefits over time, established players with legacy IT systems will face an immediate cost hit in moving these systems to the cloud. This can be expensive, time-consuming, and require skills and tools that the company does not have. Whilst this is not a problem faced by newcomers, for established players it is a classic investment-now-versus-future-gains evaluation that they will have to make.

What businesses need is a payments systems that is architected as either a traditional on-premise applications or a cloud application. So, it can deliver cloud benefits for the Payment HSM aspects of a payments system while the system as a whole is being migrated to the cloud – or indeed, if the payments system remains in-house.

Regulatory Uncertainty

The financial world is heavily regulated, at both national and industry levels. Financial institutions cannot move systems to the cloud if there is a danger that this will not meet with the approval of their regulators.

Although the UK's Financial Conduct Authority has published guidelines for cloud adoption and argued that there is nothing to prevent banks from implementing compliant cloud services, the European Central Bank issued warnings in 2019 about the hazard of the cloud, and the Bank of England may consider testing the resilience of financial institutions to cloud threats.

This will undoubtedly delay the migration of many banking applications to the cloud.

Conclusion

Reluctance to move over to the cloud because of concerns over security are probably unfounded, but financial institutions will need to perform due diligence in the context of their own systems. On the other hand, the cost of migration of legacy systems and seeking clarity on the regulatory landscape are brakes on a rapid move to the cloud. But while all these issues are being settled, there is no reason why a point solution like MYHSM’s could not be deployed.

Latest blogs

n/a n/a

How COVID-19 Is Ushering In a New Era of Cashless Technology

  Image source: https://www.pexels.com/photo/person-shopping-online-3944405/   Cashless technology isn't a completely fresh concept. People have been using credit cards for decades, and the market for fintech services has been Read more »

Jean Shin tyntec

Using WhatsApp for 2FA is the Future of Banking

From user authentication and password resets to transaction verification, two-factor authentication (2FA) offers basic but useful protection for consumers. The 2FA process typically sends an SMS sent to the customer with a one-time password (OTP). Read more »

Amir Ghodrati App Annie

The Role of Fintech Apps in Navigating This Period of Financial Insecurity

Economic instability has been ricocheting throughout the stock market in the wake of the global coronavirus pandemic. Its effects have been felt across all industries, with winners and losers’ across different sectors. So, how has fintech Read more »

n/a n/a

How to Choose a VPN for Digital Privacy & Security

In a world where almost everything is connected, and where hackers and other malicious people are roaming the internet, it is always advisable that you take every precaution that you can to enhance your data security and privacy protections. Using a Read more »

Ben Slater Instaclustr

The Case for Adopting Open Source – Own Rather Than Rent the Foundations of Your Business

For some time open source was seen as something that only the biggest companies could use and play with. But with the modern, increasingly fast business environment, the use cases for open source are in everything and the technology is increasingly Read more »

Related Blogs

Francis Leclerc Horizon Software

Just about managing: How cloud can help boost trading profits

It’s a tough environment for trading at the moment. Margins are being squeezed across the board to the extent that some major investment banks are completely withdrawing from certain asset classes upon discovering they are not making a profit. This Read more »

Christian Damour FIME

Host Card Emulation – key technologies to secure cloud-based mobile payments

The rise of ‘tap-to-pay’ payments made using smartphones is showing no signs of slowing down. It is estimated that mobile payments will amount to $14 trillion by 2022. To keep up with this trend, banks and issuers must be proactive in offering Read more »

Jeff Axelrad Amazon Web Services (AWS)

What are the European Banking Authority Guidelines on Outsourcing and what do they mean for financial services organisations?

Financial institutions across the globe use AWS to transform the way they do business. It’s exciting to watch our customers in the financial services industry, such as Allianz, Barclays, Goldman Sachs Monzo, Tandem, and Starling Bank, innovate in Read more »

Yeming WANG Alibaba Cloud

Innovative cloud developments for the financial services industry

The financial services industry has been energised by the power of digital technologies as it looks for new ways to deliver products and services. Exciting fintech innovations are helping the sector to reinvent itself, transforming its processes and Read more »

Gareth Williams YellowDog

Reach for the Skies with Your Multi-Cloud Transformation

The huge proliferation of sensitive data, increasing technological complexities and a continually evolving regulatory landscape mean data handling is more difficult than ever in the financial world. Cloud-computing has, to some extent, provided Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel