Vas Kapsalis, Director of Deep Learning and HPC Solutions at Verne Global
Banks have been relatively slow to recognise the potential for new products and services offered by digital transformation and, more recently, Open Banking. Indeed, the growing popularity of challenger banks in the UK, like Monzo, N26 and Revolut, is a sure sign that banks are not innovating fast enough and that the consumer experience they offer is not where it needs to be.
At the same time, as the industry continues to play catch-up and modernise legacy IT systems, we are also witnessing the creep of “big tech” into the sector. The likes of Google, Facebook, Amazon and Apple all hold the potential to disrupt the world of finance as we know it. Apply Pay and Amazon business loans are just the tip of the iceberg.
Regulations like PSD2 (Revised Service Payment Directive) and Opening Banking are smoothing the way for the tech sector to enter the financial services industry, mandating that the traditional banks and financial service providers open up their payment infrastructure and customer data sets, for example, to disruptors. The backlash is as understandable as it is inevitable. Yet, it is these same developments that also offer a way for the incumbents, the legacy financial organisations, to disrupt and innovate themselves.
Open source and API propositions, in particular, will undoubtedly help drive innovation and accessibility around services, but a more exciting prospect is to consider how this could also result in financial institutions becoming a hub or marketplace for access to the very best of innovative fintechs. Think of something akin to AWS, but specifically for financial services. Though once touted as the primary threat to established banks, fintechs are yet to take a real, sizeable market share, leaving an opportunity for strategic collaboration. The resulting development of new services or even products could not only help build customer confidence but also entice new ones.
However, to capitalise on opportunities like this, banks must commit to data excellence. As one of the most heavily regulated and frequently scrutinized industries, they must continue to actively protect and treat financial data with the respect it deserves, never exploiting it in ways for which it was unintended. They will also need to commit to upfront investment in the right, competitive technology, separating from hyperscale cloud providers and explore other routes that are more robust and sustainable. Global banks’ digital investment continues to climb, but now is definitely the time to invest wisely – especially when it comes to cloud type and provider.
Up until now, third-party data centre offerings have been used to support certain non-core services, like HR, with hybrid cloud managing distributed and scalable computing environments. Though hyperscaler cloud platforms (like Microsoft Azure, Google Cloud Project and Amazon Web Services) are popular and easily accessible solutions for certain types of compute, given that these clouds are based on virtualised servers there are legitimate concerns over their suitability to support the type of computing workloads required by innovation practices.
This is especially the case when it comes to hosting powerful applications like high-performance computing (HPC), AI and machine learning. The cloud makes access to these types of advanced applications and supporting software, hardware – and even expert staff – immediately available like never before. Yet, issues of resilience, performance and scalability must always be front of mind. This is because these applications and resulting workloads are extremely resource and compute-intensive, requiring constant access to uninterrupted power and the ability to flex and expand in line with demand.
When we think about resilience, reliance by financial institutions on third-party data service providers, whether for cloud storage or physical connectivity, cannot go ignored either. Many of today’s financial service providers are reliant on cloud computing platforms offered by the very same tech companies that could soon be their competitors. This presents much more than a conflict of interest and it could also create vulnerabilities in the financial system.
Ultimately, to continue growing and optimising their businesses, banks and others in the sector must explore collaborating with new, innovative partners in order to embrace new technologies. And, to do this effectively, financial institutions need to look for cloud and data centre partners who can help them avail of the right technology in order to achieve their business ambitions, without any compromise of operational excellence or threat of competition.