Private clouds in the banking sector

Penetration

Private clouds (private cloud), in which the risk of access, plunder or change of data is minimized, are widespread in the bank environment much more widely, than public. Aite Research reports that in 2013 90% of the banks USA implementing a new banking system used services outsourcing – the specialized operators providing the banking systems (CORE BANKING SYSTEM ERP CRM) unrolled based on own closed centralized data processing centers. In fact, it is about use of opportunities of private cloud computing by banks. Service of such private cloud lays down on shoulders of provider.

Banks are one of the most advanced users of IT technologies. Such conclusion is drawn by Harvard Business Review in the ^[1]. Most of respondents characterizes itself as "early followers" (the second step after the first - "pioneers"). About 36% said that they implement new technologies "before competitors"; 68% note that they adjusted the strategy of IT development towards use of new technologies in the last three years "moderately, considerably, or completely".

Use of cloud computing, nevertheless, is in financial institutions at rather low level. Only 20% of respondents estimated use of cloud services in the company as "extensive". For comparison, the level of penetration of mobile technologies into a bank IT environment is 60%. Mobile services are widely applied in such directions as marketing, sale and customer acquisition.

At the same time in plans of heads of financial institutions – more active application of cloud computing. In 2013 the PricewaterhouseCoopers published such ^[2]: 71% of respondents from financial institutions said that will make more investments in clouds, and the previous year such plans confirmed only 18%. And 50% intended to invest in private cloud computing.

The barrier before mass use of clouds by banks is that banks work mainly with data, critical for leaks, including personal and connected with a bank secrecy. Therefore they need iron guarantees from service providers and operators regarding security and confidentiality of data. According to Harvard Business Review, 50% of the polled heads of financial services consider use of clouds "too risky". The second factor preventing full transition to clouds consists in "recomplexity" of bank IT environments. Often banks did not rationalize the systems after merges and absorption. Now they have very difficult IT systems sometimes duplicating each other. The translation of data from such systems in clouds – a difficult task.

On the other hand, one of the main advantages of private clouds which are promised by specialized providers to banking organizations consists just in an opportunity to transfer to a third party care of the contents and upgrade of big server farms (which depreciates quicker, than cars). Security policies and data protection in a private cloud are subject to rather bigger control in comparison with a public cloud therefore a private cloud - the most frequent choice for financial institutions among different cloud models.

Application of private clouds

Banks select private clouds (the cloud infrastructures unrolled in own DPCs, or the closed DPCs of specialized providers) for more important data, and public clouds for storage and processing of operational data. Among leaders in providing cloud services for banks – Amazon company. According to the research ^[3], the Netherlands bank (De Nederlandsche Bank) uses possibilities of Amazon Web Services (AWS) for deployment of websites, mobile applications and analysis systems of credit risk. The sixth in value Bank of Spain of Bankinter also executes modeling of credit risks in a cloud of Amazon. Similar possibilities of AWS are used by the London division of "The American investment company" (American investment firm).

Use of cloud computing can simplify a problem of providing more transparent and reliable information to clients for banks. According to recent poll of 263 corporate bank clients which was carried out by the gtnews portal and ^[4] company, despite high satisfaction with the relations with banks, only 45% of corporate clients are happy with quality of bank services in the area providing timely information on accounts, tracking of payment of money transfers and ^[5]. Providing such information can be a difficult task for banks, considering their difficult IT infrastructures and organizational barriers which often exclude a possibility of easy access to data. Help solve a problem cloud solutions which are capable to simplify a data stream of clients on all organization can and give the chance to banks to provide to clients those information products and services which are demanded by clients.

Among systems which banks are ready to place in private clouds: information systems of type CORE BANKING SYSTEM ERP CRM, i.e. IT solutions, crucial for existence of all banking business, whereas the least critical, for example, e-mail servers, can be taken out also in a public cloud. Therefore in spite of the fact that in the banking sector private clouds prevail, suppliers of cloud services work on creation of the highly protected public cloud solutions "ground" under bank requirements and problems. In particular, new achievements in technology enciphering allow the organization to retain control over data, even when they are on a remote server. In this case even at information leak the key to decoding will remain in hands ^[6].

Russian realities

Creation of own clouds, construction of data centers with the including cloud applicaions, but for use only the staff of this organization is widespread in Russia, as well as in the world, in the bank environment. According to the research CNews Analytics, the main costs of banks in the field of informatization are connected with creation of own data centers, data warehouses, purchase of the network and communication equipment and also development and deployment of different IT solutions. Leaders in investments into IT at the end of 2013, by estimates of TASS-Telecom, are Sberbank, VTB and "BM-Bank Russia". Totally nearly two thirds of IT budgets of banking sector in Russia are the share of them.

The large financial institutions having multifilial, geographically distributed structures are suspicious of transfer of the corporate systems to clouds and rely in the majority on own data processing centers based on which all computing powers are centralized. It allows to reduce staff costs and risks of information security.

To the providers providing access to private clouds, banks, in some cases, give non-core functions. For example, internal processes, such as mail, part of internal document flow, corporate portals and communicators; or management systems for geographically distributed projects on development using which it is possible to interact with IT specialists from the periphery, thereby to save on costs for IT personnel.

Use of the international public cloud services by the Russian banks (SalesForce.com/SugarCRM, Dropbox Cloud service of file sharing) huge rarity. On the one hand, the risk of data loss for most banks appears above an economic benefit, with another – against such practice the bill which recently received force prohibiting a personal data storage of citizens of Russia abroad is directed.

The most active users of private clouds in the Russian banking sector are small and regional banks. Transfer of a part of functions on outsourcing allows small financial institutions to solve a problem when there are not enough own resources, and adequately to increase their opportunities is not present. Small banks give on outsourcing including systems RBS CORE BANKING SYSTEM, there are examples of use by the Russian banks of cloud CRM- a system. Nevertheless, the number of such projects is not considerable. According to the research CNews Analytics, in 2012-1013 the number of projects on an ABS broadcast on outsourcing by the Russian banks was about ten in a year.

Advantages of placement of IT systems of banks in a private cloud

Private cloud

• Providing requirements of the legislation of the Russian Federation and cybersecurity standards
• 152-FZ "About personal data"
• Software No. 1119 "Security requirements PD at their processing in information systems"
• The order of FSB No. 378 "About requirements for security to PD where means of cryptographic protection are used"
• Access to resources is provided as at the physical layer (access to DPC), and far off
• Technical support of cloud provider 24х7 with the guaranteed SLA level
• Support of vendors for operational interaction

Public cloud

• Geographically distributed infrastructure of public clouds does not give 100% of a guarantee of compliance to requirements of the legislation of the Russian Federation
• IT systems in a public cloud can be as in other subject of the Russian Federation, and in general abroad that creates obstacles in physical access to systems.
• Absence of SLA and support

IT infrastructure in a cloud readiness under any tasks of clients:

• Low cost value of an input, lack of cost value of an exit.
• Scaling of infrastructure without increase in number of people

Integration of clouds into infrastructure of financial institution

The place of application of clouds in the banking sector

Financiers look in clouds, but look for terrestrial solutions

The financial sector one of the first was damaged during crisis. Even despite the stated state support, not all Russian enterprises of the industry could worry heavy 2008-2009.

The main problem which arose at the financial sector in crisis - the shortage of financing, low liquidity. During crisis clients of financial credit institutions had problems with repayment of current debts, and the speech about new investments into development practically did not go. Owing to sharp decline in demand the range of the offered financial products and services – first of all, in insurance, crediting, leasing was strongly reduced. Now, as a result of crisis, many niches were free: the market was just left by many players. The companies which endured crisis begin to master these unoccupied niches again, to fill the product portfolios, to create new offers for clients. Besides, there was noticeable enlargement of business – in the market there were largest and strong players. The situation begins to be corrected gradually, financial companies have additional resources which they aim at the active development of business processes, infrastructures, development of new offers. It is really noticeable: today the speech already goes not surviving, cutting down all expenses and "keep" in the market, and about expansion, gaining new positions. As a result, interest in IT solutions which could help the companies of the financial sector with new market situation grew.

Support and ensuring functioning of business was and remains the main task of IT. Therefore it is logical that now automation of new business processes and offers which appear in the course of market "revival" becomes one of the main industry objectives of IT. In this regard the companies are already ready to consider not only support and development of the existing systems, whether it be an accounting system, the CRM system or the system of the class ERP – transition options on newer and modern are considered by software. Including, on powerful corporate systems which increase capitalization of business and promote attraction of new investments, including foreign.

The interests of foreign investors are again turned towards the Russian market, and often purchase of local players becomes the main strategy of an input. So, at the end of May, 2011 the message about readiness of one of the largest Chinese banks for acquisitions of banking institutions in Russia appeared. The foreign companies very much highly appreciate existence of corporate information systems, and those enterprises in which the systems of the class ERP are implemented, look in the opinion of foreign investors much more profitable, and it concerns all sectors of economy, and not just financial. It is known that if you want "be on sale" profitable to foreign investors, it is necessary to implement ERP, and from the vendor, known in the world market.

Therefore budgets on IT grow today, the number of tenders increases. In crisis years demand for solutions of the class ERP was rather low. If in 2008 - 2009 were only local, point automation of business functions, then now it is about large-scale implementations of full-fledged corporate systems. Here also the effect of pent-up demand has an effect – if the companies made plans for updating and upgrade of the systems in the middle of the 2000th, then with crisis these plans were postponed but only that the begun projects are frozen.

Now that moment when financial business has an opportunity to break away from rivals thanks to competitive advantages, including, due to information technologies. Financial products have rather short lifecycle therefore it is important as soon as possible, to organize its sales after an output to the market of a new product, to provide operational service and informing clients, to analyze statistics.

As well as in other sectors, in the financial industry for different tasks different software products are used. For increase in capitalization of the company as it was already mentioned, platforms of the world vendors, known in the market, are used. If to speak about management of finance, about management of cash flows, about planning, budgeting - full-fledged corporate systems are more preferable. Products Microsoft – Microsoft Dynamics AX and Microsoft Dynamics NAV - and systems are most popular today SAP. If it is about software intended for accomplishment of purely accounting functions – accounting and tax accounting – that preference is still given to products "1C". For interaction management with clients select industrial the CRM system today – Microsoft Dynamics CRM Oracle Siebel CRM SAP CRM. In a situation when the market promptly develops when the companies bring new products to the market and constantly there is a need for automation of new business processes, a system should be flexible, mobile and capable to adapt under change of business needs. From this point of view of the Microsoft platform perfectly approach – simpler to make necessary changes to them, new are implemented quicker business processes.

As an example we will take the sector of leasing. After crisis in this business the offer of the equipment which came back from leasing gains popularity – in crisis many clients could not pay off according to obligations, and this equipment returned to the leasing company. Now this practice became full independent process and unambiguously is in demand - in commercial transport the question of novelty of the equipment is much less important, than an opportunity to save. To bring such offer to the market, business support by information systems is necessary. To make it quickly, a system should allow to automate this process quickly. Only this way business will be able to develop according to market calls.

On the near future it is possible to predict growth of interest of the financial sector in several directions of automation. First of all, this development of offers for clients and support arising thereof business processes, i.e. relationship with the client, CRM block. Especially important implementation of CRM becomes for large financial institutions (the investment, leasing companies, insurance companies, banks) where the quality and terms of customer service are one of the most priority tasks. Now a system should "on the fly" be able to analyze the client: if it is the existing client – to select and calculate the offer which will be for it interesting, to analyze statistics which on it is already collected. If it is the new client – a system should allow to analyze quickly his indicators – the size of his company, revenue if to speak about leasing – quantity and structure of already existing park of the equipment, its cost – and on the basis of these indicators to create specific proposal which will be interesting to the client.

Now in financial institutions there is a clear understanding of the fact that circuits of the front office and a back office should be in a single system and the database that it was not necessary to pump over information from a system in a system.

The front office is "the client - focused" a part of business, set of the procedures, documents, regulations and business processes providing customer interaction from the enterprise. In terms of a system – it is functionality which the sales manager at communication with the client uses, filling of its documents, calculation of offers. The back office begins where the sales manager sends the possible transaction with the client for consideration. This providing division where there is a documentary registration of all transactions, accounting, analytics, operational preparation of carrying out transactions and to that similar work.

The companies are realized and come that creation of a uniform circuit in the long term brings notable economy on support of information systems: it quicker, more profitable, cheaper. Such approach provides better information maintenance and more operational decision making. When all information on the client is in uniform base, it is enough to employee to click pair to obtain all information and statistics on the client. If the client within an hour can obtain information and confirmation that a certain product can be provided to it on the known conditions is an advantage of bank over competitors who give confirmation within 3-7 days.

Here a real example of tangible and fast increase in business performance from implementation of Microsoft Dynamics AX: Element Leasing is the large company providing cars in leasing. At the initial stage the period of consideration of the request was several days, it was necessary to receive a volume document package from the client and to undergo a set of approvals in the company. After implementation of a single system of Microsoft Dynamics AX time of processing of the request was reduced to an hour. It was promoted by the fact that narrowly differentiated "packets" were developed for clients – that it was easier for them to satisfy with that to parameters which were determined by the lessor. But in terms of technical implementation and information support of process achievement of such result became possible only thanks to implementation of an end-to-end system. Sales points and representative offices were placed across all Russia, some sales points were directly in salons of car dealers. Thanks to system implementation need for additional sozvona, transfer of information on an approval chain was eliminated – everything was in uniform access point where responsibles could process quickly requests online.

One more example - implementation of Microsoft Dynamics CRM in large financial institution. In a project deliverable the term of issuance of credit to corporate clients was reduced from 14 (and sometimes and more) to 5 days. This indicator was reached due to automation of accurately built business process of approval of the credit, double-sided synchronization with the services participating in approval, constant control of execution of terms of process.

One more fashionable subject today - placement of information systems in clouds. Financial institutions traditionally and owing to specifics of activity are extremely conservative. Purely at the human level to convince IT specialists, "bezopasnik" and the management of the companies that it is necessary to give invaluable confidential data to cloud structures of other providers, - it is very difficult. Therefore, most likely, in the financial industry we will observe lag in application of clouds in comparison with other sectors. Clouds for financiers – a problem of tomorrow. The main task of the financial industry in IT now – end of the begun projects, development of potential of CRM solutions, BIK-solutions, which too yet not cloud.

See Also

• Cloud computing: main determinations
• Public clouds vs Private clouds
• Creation of private clouds (market of Russia)
• The main trends of the market of private clouds in Russia
• Private clouds: typical customers
• Cloud services (market of Russia)
• Market of IT services of Russia
• Private clouds in a public sector
• Cloud solutions for SMB
• How to select IT service provider?
• Service companies: western vs domestic
• Economy of cloud services
• Data security in a cloud
• World market of cloud services
• Main trends of the world market of private clouds

Notes