Destination public cloud

The global spend on public cloud services and infrastructure is expected to more than double from 2019 to 2023, according to a report by International Data Corporation (IDC).

The spend on public cloud is expected to see a five-year compound annual growth rate (CAGR) of 22.3% in this period. Specifically, banking is among the three industries that together account for more than one third of all public cloud services spending, as noted on the IDC’s July 2019 report.

This trend, which had been developing for some years, has firmly taken root, bolstered by greater confidence in the public cloud, a healthy Software-as-a-Service (SaaS) market, and the cloud emerging as the preferred environment for executing workloads.

Global public cloud revenues are estimated to grow by about 17% this year

For born-digital businesses, the cloud is the natural choice of platform, and clearly instrumental in their disruption of the traditional banking industry. As open banking brings huge opportunities to those who are agile, flexible, and can interoperate and co-create – the cloud supports all these attributes – it will accelerate adoption further.

In the case of large banks that until now were wary of migrating their workloads to the cloud, it is the availability of public cloud Platform-as-a-Service (PaaS) options, such as relational databases, data warehouses, and Container-as-a-Service (CaaS) offerings on the one hand and of private cloud offerings (in an on-premise like experience) from public cloud providers on the other, that is responsible for the shift.

What banks are putting out is also changing: as recently as 2018, the few banks that did use the cloud, migrated only their non-critical workloads; last year, they made some progress in transferring small-sized workloads pertaining to international operations or niche/new lines of business to the cloud. In 2020, banks are expected to be more positive, and move larger workloads connected to a sizeable customer base to any of the several public clouds now available in their home countries.

Growth outlook

It is estimated that global public cloud revenues will grow by about 17% this year, according to the Gartner Public Cloud Forecast 2020. The financial services industry’s spending on public cloud is likely to grow in line with the global trend, as most institutions switch to a multi-cloud environment that supports porting of workloads and seamless delivery of functions across platforms with the hope that this will resolve many of their performance, compliance and cost challenges.

Over the next two years, Infrastructure-as-a-Service (IaaS) and PaaS offerings on the public cloud will grow to account for as much as 28% of hosting and managed services workloads, up from a mere 9% percent in 2019, as reported on the “Multi-Cloud Fundamental to Financial Services’ Transformation” white paper by Ubuntu. In the last couple of years, use of containers, Docker, and container orchestration tools, such as Kubernetes, has grown sharply.

This year, containerisation of legacy applications will be imperative for migrating banking workloads to the public cloud at scale, as an increasing number of banks adopt multi-cloud architectures. Credit must be given to major public cloud providers, such as AWS, Microsoft and Google, who have successfully deployed their CaaS solutions in cloud implementations in new geographies with a complex regulatory environment. As they expanded across the globe in 2018 and 2019, they improved the equation between the public cloud industry and supervisory bodies and other watchdogs.

Since multi-cloud environments are flexible, they allow banks to execute workloads with ease and efficiency.  There is a sharp rise in the use of public cloud PaaS services especially relational databases, data warehouse, and CaaS. And this is combined with the trend of convenient private cloud options from public cloud providers that offer near on-premise experience. All these factors are driving banks in migration of workloads that they were typically reluctant to move to the public cloud. Banks had been largely moving noncritical workloads to the cloud till 2018. In 2019, we saw international operations and new lines of business driven being moved to cloud.

This was driven by the need for quick roll-outs with limited operations and customer base. 2020 will see banks exploring options to move higher workloads to the public cloud in their home countries with sizeable customer base. Above all, while banks can and should move core banking applications to the public cloud, they must also ensure the data is protected and that they are compliant with all relevant regulations, such as the General Data Protection Regulation (GDPR), Payment Card Industry Data Security Standard (PCI DSS) and more.

Post COVID-19

As the world is now witnessing the remote means of working and connecting as a new normal across industries, banking is not an exception here. Considering that more than 30% of the middle and back office staff will connect to the banking systems remotely, it becomes all the more important for banks to move their systems to cloud in a manner that access, authorisation and data security is take care of. COVID-19 will force banks to move many of their systems to the cloud that will, in turn, reap benefits such as reduced costs, improved efficiency and productivity.

More to come

Although interest in the public cloud is increasing globally, banks in the US and Europe are ahead on migrating workloads and establishing new operations out there. For example, in November 2019, IBM announced that it was launching the world’s first financial services-ready public cloud along with Bank of America, hosting applications that would serve the bank’s 66 million customers. Progressive banks are preparing for the reality of open banking by going cloud-native with their systems and solutions.

This year, we expect more banks to follow their example by migrating existing workloads to the public cloud and investing in cloud-native solutions for new and digital-only businesses. Over the next couple of years, the cloud will be front and centre in the transformation of old infrastructure and the driving force of innovation.

Rajashekara V. Maiya, vice president and global head of business consulting at Infosys Finacle

Visit https://www.edgeverve.com/finacle/ for more on outsourcing solutions.