Cloud Computing - BFS - Collabera

Position Paper
Cloud Computing in Banking and
Financial Services
Avantika Sharma
Consultant, FS Domain Competency
Group

Introduction
For many banks and credit unions, building a technology infrastructure to meet current or
evolving business needs is easier said than done. Budget, people, and/or capacity constraints
affect the ability to establish technology capabilities necessary to run and scale operations.
“Cloud computing” is an innovative solution for improving technology capabilities by taking
advantage of business applications and computing power made available over the Internet.
Banks and credit unions have been leveraging service bureaus or outsourced core banking
platforms for decades. Cloud computing takes the same concept into the modern age with
technologies such as those offered by Salesforce.com, Google, Amazon and Microsoft. The
rapidly growing array of cloud computing options provides an opportunity for banks and credit
unions to reduce their internal technology footprint and gain access to technology built and
managed by third-party experts.
In the current economic conditions, Bankers are under intense pressure to cut costs and increase
returns. While the Cloud Computing model is still emerging, it is still an attractive proposition
because of the following:
• Capital expenditures are minimal
• Support costs are low
• Reduces Capex and Opex with better ROI
• Applications, like customer relationship management, risk management can be brought
to market relatively quickly
• Banks can focus on their core business as opposed to concerning themselves about
infrastructure scalability
• Better Disaster Recovery capability
• Banks may explore use of cloud computing initially for better performance through peak
demand periods but eventually adoption could spread to other areas
Gartner placed Cloud Computing at No 2 (Virtualization being 1) in its ranking of Top 10 Strategic
Technologies for 2009.
Although cost is a potential benefit for small companies, the biggest benefits are the built-in
elasticity and scalability, which not only reduce barriers to entry, but also enable these companies
to grow quickly. As certain IT functions are industrializing and becoming less customized, there
are more possibilities for larger organizations to benefit from cloud computing.
Gartner
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Need for Cloud in Banking and Financial Services
For financial services organizations, there are
several significant IT concerns that directly affect
bottom line. Not least of these are the excessive
infrastructure costs associated with underutilized
IT resources, high labor costs associated with
manual IT resource deployment processes and
procedures; and potential compliance and audit exposure due to human error
Forrester lists three key benefits to the cloud, starting with speed. SAAS enables businesses to
get up and running in a flash. As per the report, a financial services firm migrated its employee
portal to a cloud-based vendor and launched it in two months, while another firm has spent the
last 18 months building its employee portal in-house.
In short, the cloud is ready-made. Customers don't build; they subscribe and receive services—
including anything from Web conferencing and hosted e-mail to enterprise applications such as
CRM and HRM—immediately.
Two, businesses should ship IT tasks to cloud computing specialists, who "worry about the nuts
and bolts so that you don’t have to." This enables the IT staff to focus on more important
business processes.
Finally, instead of buying hardware, software and consultants to set up and run applications,
businesses can pay a cloud-based provider by the user by the month. Moreover, businesses pay
for only what they use and can terminate the contract.
A common use case for clouds among Financial services clients is that many investment banks
and buy-side firms such as hedge funds will have their private grid infrastructure for such
functions as Monte Carlo simulation and risk analysis hosted in a 3rd Party data center, yet will
need to add capacity on the fly at critical points in the execution of the application.
Benefits from Cloud can be accrued in following areas for Banking and Financial services:
• Enterprise content management
o Customer interaction archival and search, e-mail archiving, e-mail security and
document creation
• Back-office activities
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o Example: credit card processing
• Different types of payment processing and consolidation
• Enterprise risk management - IT frameworks for financial services
• Enterprise portals
• XTTPS - Extreme Transaction Processing Platforms.
• XTTPS provides the foundation technology for certain classes of cloud computing and
services as Application-Platform-as-a-Service (APaaS)
• Printing services (printing opportunities in the enterprise)
• Identity management
• Enterprise CRM
• Consumer credit reporting
• Sales force automation
• Customer support systems
• Retail banking and stock trading
• Foreign exchange
• DNS (Domain Name System) management
• Larger storage areas and back up mechanism
• Critical batch job scheduling
o Example: month/year end interest calculations
Business Drivers for Cloud:
Better Cash Flow and greater financial visibility: Cash flow follows the realization of benefits
and it offers transparency of costs. By being able to directly charge Financial Firms for resources
used by them business units have a better visibility of the financial costs of IT services. This
typically drives business units to rethink their IT demand and optimize their usage accordingly
Rapid Provisioning and elastic scaling of services: Given recession scenario Financial
Institutions can quickly scale-up or down usage in response to the changing Business needs.
This flexibility helps business to respond to changing business requirements in an efficient and
cost effective way by paying for capabilities
Randy Snook, senior MD, Securities Industry and Financial Markets Association, says: "Often
clients or regulators will call our members firms about a trade that happened several months ago.
New technologies will make this far easier. Cloud computing can allow firms to keeping vast
amounts of data online indefinitely and mobile technologies can give brokers instant access from
Value. Accelerated.

anywhere so that they can quickly answer such questions without having to pull out and search
their data archives."
Allow the Bank IT department to focus on competencies that are core to business: By
moving non-critical services on to the cloud, the IT department can shift its focus from tactical
problems such as constant software patches, platform maintenance and other computing issues,
to strategic IT projects
Environmental benefits: Further, the CSPs may transfer the services to a
Virtualized environment in a location where the energy is ‘greenest’ and leads to higher utilization
of the computing power and lower wastage from idling.
Current Deployment:
Payment Applications - Gartner had indicated it as one of the near term Cloud Opportunities<
2012
In today’s public cloud, payment provider’s, such as Amazon’s FPS, assume merchants
want to build their own specialized payments system to sell goods and services. They
even offer advanced features, such as programming aids that allow easier integration
into web sites, tokens, and shopping cart tie in, with the intention of making payment
solutions as complete as possible.
PayPal offers a defined outsourced payment solutions that can be integrated into
product and service applications by using their standard adaptive payment API’s.
Regardless of what cloud provider is in play, or what client is used, or what the
underlying organization is defined as, or what services are being sold, PayPal’s offers a
solution that simply works, and, at the same time several of the traditional pain points,
such as authenticating, managing tokens, acceptance, third party payments and
settlement are handled and contained within PayPal.
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The Society for Worldwide Interbank Financial Telecommunications (Swift) came up with "eMe", a
cloud-based project at Sibos -- Swift's annual transaction banking conference in Sept ‘09
eMe would allow banking customers to establish a digital lockbox with sensitive personal or
business information, such as credit card numbers. Instead of having to type in the information
each time a consumer or business makes a purchase, a code could be given to the digital
lockbox.
Cloud computing, the theme behind the eMe proposal, is basically a way to use the internet to
dynamically increase server or database capacity.
Escrow - Financial services firms are using cloud computing with increasing frequency hence in
order to protect the software they invest in, concept of Software Escrow comes into picture.
Software escrow is the placing of the software's source code with a trusted third party. The
supplier and customer agree that the code will be released in identified circumstances, such as
the supplier no longer being able to support the product. It allows companies to protect and insure
all the data that resides within SaaS applications, protecting against data loss.
SaaS Data Escrow is the process of keeping a copy of critical software-as-a-service (SaaS)
application data with an independent third party.
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Money Management Moves to Clouds – Banking 2.0: There are a number of applications that
manage our finances in the cloud. Few of the online banking apps where we can manage your
bank account, credit card accounts, loans, and brokerage and investment accounts are Mint,
Wesabe, Geezeo, Expensr, MoneyStrands, Xero etc.
Hedge Funds - For many hedge funds, being successful in today's economic environment
requires the ability to process large quantities of data quickly to arrive at good investment
decisions. Traditionally, a fund's ability to process this data has been limited by the amount of
computing and storage resources it could acquire. This meant funds often had to make large
upfront investments in servers, storage, networks, and facilities, with limited flexibility to handle
variable needs.
Putting trading code in the cloud also is supposed to mean delay-which, if your strategies
rely on speed, means you risk losing your edge. But some smaller hedge funds and proprietary
traders are using Amazon EC2's compute cloud to specifically power their trading algorithms,
execute their automated strategies and store the results.
The programs are connected to market data feeds which automatically submit orders to the
brokerage account when appropriate, EC2 is used for actual order submission and automatic risk
and position management, such as hedging, exiting, etc because the servers are in a more stable
environment with respect to both computer and Internet connections than their own office
computers and network can ever achieve, at a similar cost.
Customer Relationship Management - A regional financial services company based in
Oklahoma was able to roll out the new system in less than five months (which included five
weeks of training). According to them, it removes the responsibility of installing, upgrading, and
maintaining all the software from the bank. Ninety-five percent of the commercial bankers in a
particular group use this cloud-based CRM application. Cloud-based application has proven to be
easily customized; users can enter or track information in the database without having to learn
new terminology. Indeed, before it adopted the cloud model late last year, less than 60 percent of
the bank's employees were using the CRM database, now 90 percent are using it.
One of the largest financial services holding companies late last year rolled out a new employee
relationship-management application to more than 2,000 employees in 77 days. Once up on the
cloud, it had a better view of client data, giving it a better handle on which accounts were
profitable and which weren't. Armed with more information, it was able to increase its capital
markets fees by 67%, treasury fees by 29%, and wealth management referrals by 31%,
according to information provided to him by the bank.
Value. Accelerated.

Cash Management- A bank in Louisville wanted to deliver lender and cash-management support
products based on the software as a service model; they quickly leapt on the nascent cloud
concept because "it would give banks the easiest implementation and adoption" According to the
company's CEO, while interest is high, most of his clients are community banks with less than $1
billion of assets. For larger banks that have long run their applications in-house, the idea of
running applications under a service model, and sharing resources (potentially with companies in
other industries) could be a little more difficult to swallow, he says.
One of the largest banks in South Africa had a problem that any user service request, for e.g. any
new application, development environment, test environment, production environment—it was
taking a lot of time for the IT department to deliver. This was frustrating the business users and
making the bank slow to respond. Every time the bank’s IT department had to provision a new
environment, it had to take the time away from a project and go in and put a DR or additional test
environment in place and while doing that projects were suffering. Using CloudBurst the bank’s IT
department can now provision the environment overnight, the results are available in the morning,
the IT staff checks a couple of things, ensure that it’s all OK and get back onto the project work.
Risk Management – Leading European global banking and financial services firm is using an ondemand
computing service to run its risk application. It pays for the instances based on the
amount of cycles, bandwidth and storage they use, hence can offload the capacity. So if a bank,
running the risk application- essentially lots of machines doing Monte Carlo - in the cloud means
they can go down the economic curve.
One of the largest financial conglomerate uses cloud computing as a good fit for "all applications
that are load-intensive and read-intensive," such as risk management, quantitative analysis,
developing trading algorithms, and managing internal compliance - because the cloud model
utilizes resources only when and as much as its needed. (The model does not work as well for
tasks like transaction processing, where processing needs are persistent and steady.)
Cloud Delivery Model Architecture
Current Deployment of Cloud incorporates combination of providing Hardware Infrastructure,
Solution Stack as well as the Software Solution. Although cloud-based ecosystems allow for a
wide range of service delivery models, three have become most prominent –
Software as a Service (SaaS) is a model of software deployment whereby a provider hosts an
application to customers for use as a service.
Platform as a service (PaaS) is a model of providing computing platform as well as solution
stack as a service.
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Infrastructure as a Service (IaaS) is a model of providing computer infrastructure as a service.
Cloud Deployment Models
Private Cloud - Intentionally limits access to its resources to service consumers that belong to
the same organization that owns the cloud. In other words, the infrastructure that is managed and
operated for one organization only, primarily to maintain a consistent level of control over
security, privacy, and governance.
Community Cloud – This deployment model typically refers to special-purpose cloud computing
environments shared and managed by a number of related organizations participating in a
common domain or vertical market.
Public cloud – Represents a cloud environment that is openly accessible. It generally provides
an IT infrastructure in a third-party physical data center that can be utilized to deliver services
without having to be concerned with the underlying technical complexities.
Hybrid Cloud – It is composition of two or more clouds
Key Challenges:
Lack of transparency and compliance: Bank’s audit requirements may stipulate that it retains IT
infrastructure so as to demonstrate effective control on access and overall information security.
As with any innovation, cloud computing also requires a fundamental shift in an organization’s
risk management and therefore audit requirements. In order to satisfy these audit requirements,
businesses may request that the Cloud services agreement should take into consideration of
future independent audit and legal or compliance requirements.
Data ownership and Intellectual Property (IP): Secrecy of Data is very crucial to the survivor of
any Financial Institution and Leakage of data and IP is one of the most significant risks a Bank
faces. In a cloud as data/ IP is stored outside company boundaries, there is an increased risk that
data may be used for purposes not originally specified including data search
Implications of data privacy regulations and laws: In a cloud data may be transferred and
stored across different international locations. Various Governments, especially those in the
European Union (EU), have privacy regulations that prohibit transmission of some types of
personal data outside the EU. Additionally, the legal jurisdiction of the data is often defined by the
Jurisdiction of the hosting country, which may have legal implications.
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Investigation of inappropriate or illegal activity may become Uneconomical: In the Cloud
environment, a single set of customer data may be spread across an ever-changing set of hosts
and data centres. As with auditing, the Cloud provider should be responsible for maintaining
meaningful logging and monitoring and the Cloud agreement should provide the capability to
perform investigations for suspected illegal/ unauthorized activities.
Limited speed and availability: Access to Internet/ WAN is critical to avail Cloud services. The
key factor that a Bank must assess and specify to a CSP is the network latency and uptime. It is
important to agree acceptable latency and availability with the CSP.
Risks around the business continuity and disaster recovery: The quality of organization’s
connection could become the ‘single-point-of-failure’ in Cloud computing. The distributed nature
of the data also means that data restoration in a disaster recovery situation will need to be wellplanned
and tested.
Bandwidth and other service costs: Although bandwidth costs have reduced significantly in the
recent years, it can still be high for large applications or data-intensive Cloud services. It is
important to consider costs while moving to, as well as operating in the Cloud environment.
Limited guarantee on service levels: Overall Cloud service levels will be influenced by network
connection. Cloud services, the service levels and dispute resolution process will need to be
clearly defined in both the Cloud service agreement and network service agreement.
Complex licensing/ charging models: Licensing/ charging models for Cloud Computing include
single license, multiple users/shared license, temporary or fixed period use, pay-per-use and by
subscription. A Bank requires a strong understanding of business’s IT usage profile and
implementation of an appropriate licensing/ charging model accordingly.
Limited ability to customize and upgrade: For Cloud-based software and services, many major
cloud providers release industry standard Application Programming Interfaces (API). The APIs
allow the business to access the Cloud’s service through standard interfaces with predefined
functionalities. This limits the level of customization that can be done and can lead to a change in
the end- user experience.
Vendor lock in: Once you host your Services with a particular ‘Cloud’ provider and if you are not
careful enough, there is always a chance of lock in.
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Gartner research indicates Security and Control are the most prominent issues and to resolve this
we need to establish trust and openness. Some of the Cloud vendors have realized that point and
the action from their side is that they are taking security team from the financial organizations
itself.
Summary
Regardless of the benefits, cloud computing is still being met with resistance from the financial
industry. With apprehensions about security breaches, increased standards (MA 201 CMR 17)
and overall performance, firms tend to discount the cloud model. Given the sensitivity of data in
financial firms, it is understandable that confidence in a virtual system may falter. However, thirdparty
hosts are trying to be well equipped to meet the standards in:
• Data protection measures;
• Firewalls;
• Security checkpoints; and
• Passwords.
Road Ahead:
According to Information Week Financial Services Cloud Computing survey a vast majority of
capital markets firms that are using cloud computing employ it in areas of general services, such
as general business applications (28 percent); data center space (24 percent); and storage,
archiving and disaster recovery (21 percent). Meanwhile, 41 percent of respondents currently are
evaluating adopting the cloud for application testing.
Fewer firms are using the cloud for financial services-specific applications. Results were equally
split (17 percent) between back-office operations applications, middle-office applications and
client reporting. Most respondents (43 percent), however, said they had no intention of using the
cloud for trading applications or price modeling/valuation
For capital markets firms planning to use cloud technology in the next 24 months, most
respondents (57 percent) said they intend to use a SaaS delivery model, in particular for CRM
and ERP. Forty-eight percent indicated plans to tap infrastructure-as-a-service offerings that
provide raw CPU time and storage resources
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Source- Wall Street & technology
Over the past year, Collabera has gained significant experience in building and deploying
applications from the ground up, migrating existing applications to the cloud or building a hybrid
cloud applications that leverages the best of cloud and enterprise’s infrastructure.
Collabera has published viewpoint documents that compare cloud vendors on various parameters
segregated based on the cloud delivery model. Collabera has also created two technology
demonstrators,
• CollaberaSpace: Collabera leveraged Microsoft Azure to build CollaberaSpace
to overcome the typical challenges encountered in a global delivery model. All
stakeholders in a project can access and use the various social application
features in CollaberaSpace like blogs, forums, knowledge base, chat, geolocation
services to address the day to day operational aspects in any client
engagement.
• Collabera mBanking: Collabera mBanking is a service that allows users to do
banking transactions on their windows mobile phone without making a call,
using the internet facility. With Microsoft Azure and .Net Services, Collabera
built a solution that caters to all the business needs of the Customer, one
channel of access is from browser clients communicating with the online
banking application and the other with the handheld mobile device
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communicating with the banking services. This application won an award in
Cloud app contest conducted by Microsoft.
In the current market scenario that is primarily based on cost economics coupled with demands
for scalable, flexible and efficient systems that can support varied workloads, cloud computing is
a prime candidate that slots well and can achieve all these and more.
Cloud technology has started maturing from its initial experimentation days to being accepted as
a key business enabler for organizations fueling increased demands from businesses, which in
turn means that IT needs to be agile and flexible to meet ever changing business expectations
and that requires a broad based and integrated capability – not just in skills, but across
capabilities, types of engagements and service delivery models.
Collabera is geared to meet this very need of customers and offers a broad portfolio of cloud
services to meet your end-to-end needs. Starting with strategic IT advisory services to services
across the application space and infrastructure space, Collabera has the capability and
experience to be your cloud partner. We are geared to service you irrespective of where and how
you need the service delivered as we are perhaps, one of the very few companies that can
provide you IT advisory services, meet your staffing needs and at the same time support your
managed services requirement.
Reference:
1. http://www.cloudbzz.com/what-is-cloud-computing/
2. en.wikipedia.org/wiki/Cloud_computing
3. http://www.wikinvest.com/concept/Cloud_Computing
4. http://www.finextra.com/fullstory.asp?id=20291
5. Technology Paradigms for the Banking Industry- Cloud Computing – KPMG
6. Clearing the Air Cloud Computing By Farhad Javidi
7. Google News
8. Google Apps
9. Salesforce.comForce.com
Value. Accelerated.

www.collabera.com
Value.
solutionsinfo@collabera.com
Accelerated.