The Value of the Cloud in Financial Services

By Elena Mesropyan for LTP

Cloud-based services are known to be driving operational efficiency and significantly decrease costs of running any business. With financial services, however, the journey to the cloud has been more complicated than for other industries due to a variety of reasons, risk management and security concerns being some of them. Nonetheless, the evolution of IT infrastructure is underway and financial services companies are aggressively exploring opportunities.

Large financial institutions around the world have turned to cloud services for a variety of purposes and found the move to be highly advantageous. One of the largest banks in Spain, Bankinter, for example, is using AWS to run credit risk simulations in 20 minutes, down from 23 hours before. For the Commonwealth Bank of Australia, the cloud has reduced the time and cost of standing up a new server from eight weeks and several thousand dollars to eight minutes and 25 cents, making the bank much more responsive to changing customer demands.

A range of examples that we will be exploring further demonstrate the value of cloud services for the financial services industry. The division of purposes is not always possible because of the complex benefits achieved by migrating the infrastructure to the cloud, such as flexible and efficient utilization of infrastructure investments, faster deployment of physical and virtual resources, higher application service levels, less administrative overhead, lower infrastructure, energy, and facility costs and increased security.

Don Duet, Global Head of the Technology Division at Goldman Sachs, has recently discussed the evolution of the firm’s digital strategy and its use of cloud infrastructure and technologies, saying, “As macro forces like open-source software and cloud architectures have created more opportunity to innovate at a higher pace and lower cost, we’ve seen a general movement in the industry toward digital frameworks and digital business models.”

The cloud has been part of Goldman Sachs infrastructure for years now and Duet explains the beginning of the journey with the goal to be more responsive to meeting business demands and drive down the cost of ownership.

“We realized that we had to have foundational agility in our infrastructure to deliver computing and solutions to our businesses in different parts of the world, create new software products and services for our customers, and otherwise succeed in different parts of the business,” he added.

The situation is relatable to all international financial institutions. The scale at which they operate requires new standards of agility, efficiency and security. As a result, cloud became one of the most important and discussed topics in the industry, leading to evolution of companies from traditional IT infrastructure to completely cloud-based solutions.

• Development time and cost reduction

eFront, a French software company that provides solutions for the financial industry across 21 international markets uses AWS to host a virtual private cloud for its customers. By using AWS, eFront has been reported to reduce costs and improve time to market. The company also plans to use AWS to expand its services for both internal and external clients.

Cost reduction has been achieved by another AWS client, the Federal Home Loan Bank of Chicago, a $70-billion wholesale bank that lends money to other financial institutions to support liquidity in the real estate market. The organization began its journey to the cloud by migrating its analytics and disaster recovery solution to AWS. Today, the organization runs all of its internal production workloads on the cloud and, as a result, has lowered costs by 30%.

Melbourne-headquartered ME Bank, which manages $20 billion in assets and has 800 employees who support 280,000 customers around Australia, uses Amazon VPC to provision an isolated, virtual network in the AWS Asia-Pacific (Sydney) Region. Using AWS instead of an on-premises datacenter infrastructure allowed ME Bank toaccelerate the provisioning of development and testing environments by up to six weeks. The company was able to reduce the cost of delivering development and test environments for new applications and services by 75%.

InvestLab, based in San Francisco and Hong Kong, is a financial services technology company focused on the global trading market. InvestLab uses AWS for front-end connectivity for brokerage administration, trading systems, market data, and InvestLab products. The company uses Amazon Elastic Compute Cloud (Amazon EC2) instances in the US East, US West, and Asia Pacific-Singapore regions, and employs Elastic Load Balancing and Amazon Relational Database Service (Amazon RDS) to support InvestLab cloud server instances.

InvestLab realized a 40% reduction in the fixed cost of launching a software product. “AWS saved us hundreds of development hours, which put us eight to twelve weeks ahead of schedule. Now we can execute and realize a more aggressive product development strategy,” commented Tim Reynolds, VP of Information Technology at InvestLab.

Nubank, a FinTech bank based in Brazil that offers a no-fee, low-interest credit card that customers can manage with their iOS and Android devices, used AWS to build, deploy and run its credit card processing platform on which customers can track and control their purchases. By using AWS, Nubank developed its credit card processing platform in only seven months and can add features with ease.

Ohpen, a Dutch company that provides banks with a modular platform for administering retail mutual funds and savings accounts for consumers, have deployed their solution entirely on the AWS cloud. The decision allowed them to deploy new features in three months or less, compared to a year or more using traditional IT, and company leaders estimate that their institutional customers can save up to 80% in IT costs by using the Ohpen platform in the cloud.

Intuit, a leading provider of financial management software for consumers, small businesses, and accounting professionals, moved its TurboTax AnswerXchange application to AWS. As a result, Intuit was able to reduce costs by a factor of six because it no longer had to maintain idle servers for an application that was only active during tax season. After this first success, Intuit subsequently moved 33 applications, 26 services and eight enabling tools to the AWS Cloud. Over the coming years, Intuit will move the rest of its applications to AWS to speed development, innovate faster, and better solve customers’ needs.

• Operational and data processing efficiency

NAB’s Global Equity Derivatives Group (GED), which provides stock-trading solutions that manage exchange-traded securities such as stocks, funds, futures, and options, partnered with TickSmith, a Canadian software provider specializing in big data management and analysis technologies for financial data, which runs on AWS.

GED is able to easily scale TickVault to consume and analyze financial data. The organization’s business analysts conduct post-trade analysis much faster than before. With AWS, data manipulation, processes that took days have been brought down to one minute. The post-trade analysis that used to take weeks is done in just a few hours with the ability to look at both current and historical data.

FIS, a global leader in financial services technology, runs US market analysis using the Google Cloud Platform. FIS’ Market Reconstruction Platform can collect, link and store data on every equity and options trade lifecycle event and then produce feedback reports within a few hours. Its high-performance system can adjust to fluctuating market activity and support complex analytics.

FIS also relies on Google Cloud Dataflow to quickly process, format and validate incoming data before sending it toGoogle Cloud BigQuery for analysis. Cloud Dataflow provides FIS with a managed services environment that supports batch and stream data processing, which allows the FIS team to focus on data processing tasks, instead of cluster management.

Canaccord Genuity, an independent full-services financial firm, uses Google Cloud Platform to manage an information platform for professional investors and business analysts. The platform, called Quest, uses Google BigQuery to pull up and cross-reference over 9,000 companies, using a Google Sheets-based decision tree that defines more than 10,000 rules. Instead of a classical three-tiered architecture, the new Quest® system has no application server, which simplifies the design and improves performance. Google BigQuery drives the data analysis, grinding through over 100 million rows in only a few minutes, at speeds at least 100 times faster than the previous system.

Quest also uses Google Cloud Storage, since a typical analysis run generates more than 200 GB of data, detailing all the cross-references, trend tables and other information comparing companies against each other and against relevant industrial sectors.

JPMorgan Chase’s Chief Operating Officer Matt Zames has been reported to say that the bank is contemplating the use of AWS for spiky workloads—say, credit card transactions that take place on Black Friday.

• Compliance

Temenos, a global banking software provider, has developed its new version of software on the Microsoft Azure platform, which allowed the company to offer cloud banking capabilities to companies that have traditionally used on-premises solutions. It has helped them meet strict security and compliance requirements. As a result, banks using T24 in the cloud can deploy the application in only a few months, meet security requirements, and meet close-of-business deadlines faster.

Online bank Simple uses AWS to run its virtual banking platform and meet payment card industry (PCI) data security standard (DSS) compliance for its development and production environments. By using AWS, Simple automated processes that once took months to complete and instead focus on its customer service rather than managing IT infrastructure.

CardFlight, one of the leading providers of tools and technology that allow developers to build their own mPOS, chose to host its supporting IT infrastructure on AWS cloud in order to minimize the burden of PCI compliance and bring its mobile EMV payment platform to market as quickly and cost-effectively as possible. A number of AWS cloud technologies help CardFlight to streamline PCI compliance, including AWS Key Management Service (AWS KMS). To protect sensitive data stored in AWS, CardFlight uses Amazon Virtual Private Cloud (Amazon VPC).

“Based on an informal analysis, I’d say that both our capex and opex costs are around 40 percent lower with AWS compared to building out infrastructure in traditional data centers,” commented Jesse Angell, Software Engineer at CardFlight. “Operating on AWS means we spend less on infrastructure. This is a great benefit as we are then able to spend more on product development, bringing more value to our customers than we could have otherwise.”

• Reduction of infrastructural scale and associated costs

Capital One, one of the nation’s largest banks, is using AWS in hope to reduce its data center footprint from eight to three by 2018. The bank is using or experimenting with nearly every AWS service to develop, test, build, and run its most critical workloads, including its new flagship mobile-banking application.

“There’s nothing we aren’t willing to put in the public cloud,” said Rob Alexander, Capital One’s Chief Information Officer. “We are now doing the vast majority of all our new development in the public cloud, and we are systematically moving our legacy applications.”

For information, reduction of proprietary data centers is a critical element of migration to the cloud as building one and maintaining it blows a big hole in a budget of any heavily IT-invested company.

• Agility, flexibility, scalability & cross-regional operations

Agility has lured The World Bank into the cloud. At the end of October, the organization was reported to begin moving more to the cloud: Microsoft apps like Office 365 and SharePoint will be on Azure, most of the rest will move to AWS. One result of shifting work to the cloud is that the bank is moving from five data centers to two, and probably to one eventually. Systems for financial reporting, which have strong internal controls, will stay on-prem for longer.

“The IT group has shed 10 to 15 percent of its headcount, repositioning many staff positions and cutting a lot of contractors. The run rate to manage Lotus Notes was $12 million and now it costs us $4 to $5 million with Office 365, and we went from 20 FTEs to 6. Many of our staff are here on special visas so we try to retrain and reposition,”commented Stephanie von Friedeburg, The World Bank CIO.

Banking technology startup Mambu, which helps banks, microfinance institutions, and other financial innovators deliver essential banking services to individuals and emerging enterprises around the world and powers the services behind 2.2 million end-user accounts is also using cloud services. Mambu runs all its services on AWS, from development to production. It deploys code using AWS Elastic Beanstalk, which distributes the application across more than 200 Amazon Elastic Compute Cloud (Amazon EC2) instances. The fully managed Amazon Relational Database Service (Amazon RDS) serves as Mambu’s main database, while Amazon ElastiCache synchronizes session information across servers. Using AWS services allowed Mambu to reach better availability and flexibility to power intensive growth across regions.

mCASH, Norwegian payment provider and e-money institution licensed in accordance with the EU payment services directive, relies on Google App Engine, a service of Google Cloud Platform, on the backend. mCASH plans to integrate additional Cloud Platform products as the business and platform mature.

Conclusion

Cloud-based solutions are by no means news. Financial institutions like Goldman Sachs have known of the advantages of the cloud and have been using it for some time now. The difference is probably in the scale of adoption and in the parts of the traditional infrastructure that are being gradually replaced. Financial institutions and financial technology startups nowadays are either partially or fully migrate to cloud-based back-end at a high pace, which represents an evolution of core IT infrastructure of a modern enterprise.

As James Tromans, Global Head of risk and data at Citi FXLM Technology, fairly notes, “Financial institutions have invested heavily in data centers and networking over the past two decades, but there is a growing number of reasons why those assets are no longer differentiators, with exceptions such as low-latency, high-performance computing.”

“There are clearly some monetized workloads that, if we’re honest with ourselves, sometimes are not adding much value. We’re looking for ways to streamline and to make them cheaper to run easier, and that’s where Google Cloud Platform and other third parties come in,” he added.

First appeared at LTP