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What Banks Must Know for Successful Cloud Migration

In difficult times, the resilience of the banking sector is good for the entire economy. With better technological processes – enabled by cloud – they will be more responsive and less likely caught off guard.

In order to keep up with new competition, financial institutions know they need to embrace digital services and offerings. The UK-based digital-only bank Revolut just launched its popular app and debit cards in the U.S. on March 24 – underscoring the need for change.

Why businesses need to transition toward the cloud is well-trodden territory. How they can complete this transition effectively is a different question, and much more relevant as we enter the 2020s.

Though most companies no longer carry the burden of cloud-skeptical management, they still have not reaped the benefits anticipated from cloud migration. The problem is that these firms are blindly lifting and shifting their existing software and platforms onto the cloud without exploiting the intrinsic value of the cloud, and delivering on the implications of this new technology.

Yes, the cloud is a method of hosting through a network of servers and storing data in a distributed fashion, rather than locally, but just as importantly, it’s a mindset. It’s not enough to transfer yesterday’s solutions onto today’s storage bucket. Once companies understand the philosophy behind the cloud, they can become competitors for the future.

Max Kirby, director of the cloud solutions practice at Publicis Sapient in New York, described the cloud as “abstraction” in the truest sense. In computer science, abstraction is the process of extracting the form of any single system and creating a platform that is capable of running every possible kind of that system. By focusing on the essential rather than changeable, abstraction can create something that works in virtually every particular situation.

“This is challenging for people right now because it’s a different way of thinking,” Kirby explained. “There’s a better way now to code everything using cloud technology that just wasn’t present in the past.”

Most companies have software and platforms created under particular circumstances for particular technologies at a particular moment in time. Over the years, these solutions may have been updated or merged with other technologies. Often, entangled legacy technologies which were exhaustingly cobbled together – outmoded to varying degrees – result in redundant codes and messy processes. Offloading this mess to the cloud may save space on local computers and servers, but will fail to deliver on the new technology’s promise.

“If it ain't broke, don't fix it” is not a sufficient mentality for the challenge before us.

“That mindset doesn’t take advantage of the abstraction that’s possible in the cloud so your systems can become modular and flexible and very easy to change as you go, nor does it embrace the services offered by hyperscale cloud providers to accelerate change” Kirby said.

Author

Michael Walsh

“This is challenging for people right now because it’s a different way of thinking. There’s a better way now to code everything using cloud technology that just wasn’t present in the past.”
Max Kirby, Director of Digital Identity

A need to change the mindset

Abhishek Bhattacharya, group vice president of technology, financial services international at Publicis Sapient in London, said larger, older banks have archaic engineering processes and committee-based approval processes that slow them considerably.

“It takes them easily a year to a year-and-a-half to launch something. Whereas the new guys launch in days – not even weeks, ready to erode their market share” Bhattacharya said.

Legacy banks were willing to pay for cloud because they thought it would bring them that level of agility – launching new products quickly and refining as needed.

“What started to happen is these guys are replicating their exact earlier processes into cloud,” Bhattacharya said. “Instead of enabling everyone, they have taken a centralizing approach because this is what they used to do.”

Banks that used to have centrally established IT infrastructure teams have set up large central teams to manually execute cloud requests. This takes far too much time and creates bottlenecks. Instead, they could have a small central team that enforces automated guardrails and empower other staff to make changes within previously approved parameters which can be built into their cloud platform and managed remotely.

“That would really lead to agility because each team could do their stuff but that’s not how they’re doing it,” Bhattacharya said. “They’re just replicating the same operating model in the cloud. Hence, migration is only solving small parts of the problem.”

Speed matters

Companies may be reluctant to leave behind the infrastructure for sleeker, more efficient systems. But if they don’t, the competition will race ahead. No one can determine the pace of technological change. But it is not as simple as setting a goal to put your workloads on the cloud.

Kirby said the time it takes for someone to produce superb work with any given technology decreases as that platform advances. For example, virtually everyone in the U.S. has a smartphone with a camera that surpasses the most expensive digital cameras available to consumers at the turn of the Millennium. Similarly, modern media services stream higher-quality movies than top-of-the-line DVD players from that same time. It would save significant time and resources to adopt newer technologies rather than tinker with outdated ones.

“Enterprise clients are in a tricky spot because they already have all of their rockets built. They’re the old adage of trying to rebuild while it’s flying,” Kirby said. “You are going to be left behind but that’s not because you’re doing anything wrong. You might be doing great for 2010, but someone else to your left or right is going to take advantage of cloud or machine learning or serverless computing to hurdle the challenges that took you a decade, in a year.”

In the world of finance, options traders know this intrinsically thanks to the concept of theta: the rate of decline for an option as time passes.

Role of technology in change

A major problem for the banking sector is that it might not be immediately clear just how profoundly emerging technologies affect them. For instance, a mobile device manufacturer understands that it will fall behind if they do not have the most recent cameras.

However, a bank may not quite understand why it will fall behind without updating procedures. To put it simply: every company must become a tech company to be successful. Tech cannot be siloed to IT.

Kirby described the transition toward the cloud as a paradigm shift similar to the advent of electricity. He said the cloud is like the electrical grid and any business can plug into it for computing power that’s easily expanded – paying only for what they need. It’s the standardization of computing power. Technologies like kubernetes, microservices and APIs are essentially the virtual components of standardized parts like insulated wiring and soldering kits. It’s widely understood among technologists that we’re in the midst of the Fourth Industrial Revolution.

“If you look at the Third Industrial Revolution, it didn’t matter whether you were in farming, manufacturing, transportation or anything else, whatever you were in changed. If you didn’t adapt and adopt electric motors, it’s not that you fell behind, it's that others leapt ahead,” Kirby said.

“As technology goes further, your acceleration and velocity matter a lot more than your position. The electric motor will speed everything up. If you’re going even slightly faster and everyone gets a speed boost, then you win. But if you’re going even slightly slower and everyone speeds up, you fall behind faster and faster over time.”

“As technology goes further, your acceleration and velocity matter a lot more than your position.”
Max Kirby

Bhattacharya thinks cloud-migration should be a way to bring good practices into an organization – not just for security and policy but also DevOps and engineering.

“If you do the same build and release that you used to do earlier, what’s the point?” Bhattacharya said. “That lift and shift approach can work if you do something different. They’re doing nothing different.”

In difficult times, the resilience of the banking sector is good for the entire economy. With better technological processes – enabled by cloud – they will be more responsive and less likely caught off guard. Right now, app banks and other digital disruptors might seem a nuisance for these legacy banks, but they could be a lesson.

According to Kirby, if these legacy banks were to appreciate what these challengers are doing, they would see there’s a better way of serving the customer, making money and providing value-using technology. Then they will understand how to make cloud migration work, for everybody to win.

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