After long years of hesitation and waiting, the last eighteen months have seen considerable movement in the German banking industry's cloud initiatives, and it is certainly no exaggeration to speak in some cases of an almost complete turnaround in the strategic assessment of the cloud. Reason enough to look at the key drivers behind this development in general and the relevance of cloud technology for banks in particular.
Cloud: opportunities outweigh risks
Just three years ago, statements such as "impossible for regulatory reasons" or "just another word for IT infrastructure outsourcing" were heard from CIOs and COOs in the German banking industry on the subject of cloud. This fundamentally dismissive view has now become outdated, although of course the regulatory requirements, in particular for relevant outsourcing, still need to be taken into account, especially in cloud projects. However, the parties involved - institutions, cloud providers and the supervisory authority - have taken considerable steps since then, so that more and more institutions now value the opportunities of cloud use more highly than the risks, which they nevertheless still manage and must also prove to the supervisory authority.
At the beginning of the serious debate about the cloud about a decade ago, there was indeed, as expressed in the above quote, the further development of IT infrastructure outsourcing, i.e. essentially the relocation of existing workloads to a standardized infrastructure environment operated by an external provider. Many houses were already flirting with the use of the first available public cloud services at that time, but were generally shying away from the regulatory hurdles as well as the then unresolved issues of data protection, security and service management. To manage the risks, "Private Infrastructure-as-a-Service" was often resorted to, which promised a higher degree of standardization and similar scalability to public cloud compared to conventional outsourcing of existing infrastructure to an operator, but in contrast ran in an environment reserved exclusively for the customer and often even located in the customer's own data centers.
The challenge of standardization
At the end of this decade, my conclusion on this approach is rather sobering. In many cases, poor governance within the institutions and at the provider interface has meant that the desired degree of standardization has not been achieved to any degree - instead, the heterogeneous, individual existing infrastructure has at least been perpetuated or made even more complex by additional requirements, including those for regulation and digitization. The order processes for additional requirements hardly differ in their lead times from those of customized individual outsourcing and have often even become worse due to cost pressure.
The benefits for business units and application development are not apparent, since the applications have mostly been relocated "as-is" and - if at all - savings have accrued exclusively in infrastructure and production, so that in many cases the business cases promised at the beginning have not been achieved. Houses that now want to pursue the same approach with Public IaaS, e.g., with AWS, Azure, or Google Cloud, will, in my view, realize shorter provisioning times for additional capacities and cushioning potential for peak loads, but otherwise face similar challenges as with Private IaaS. In short, a pure "lift & shift" approach of existing applications to the public cloud falls far short of leveraging the benefits of the public cloud economically.
Cloud strategy is more than IT infrastructure
A sensible cloud strategy therefore does not stop at the IT infrastructure, but extends the consideration to the benefits generated elsewhere within or even outside IT. Interestingly, this not only provides further savings potential, such as through cloud-native modernization of the application landscape, but also interesting levers, e.g., for shortening delivery cycles in IT ("from idea to production") and using powerful cloud-native services, especially in the context of big data and artificial intelligence (AI).
Based on these new capabilities available to the institution, innovative solutions can be developed quickly and efficiently to increase revenue and ultimately differentiate the market, so that the cloud suddenly becomes relevant for all areas of the company and not just for IT. In this context, an example is Deutsche Bank's partnership with Google Cloud, which is aimed precisely at these value levers - including new services for liquidity management for corporate customers, usage-based financing and risk management.
8 value levers for using the cloud
Specifically, the following eight value levers can be summarized for the use of cloud technologies:
Reduction in infrastructure costs,
Reduction in the risk of security breaches and system failures,
Cost reduction and future-proofing,
Increased speed and agility,
Access to innovation,
Contribution to sustainability goals,
Driver for agile transformation, and
Increased attractiveness to critical young talent.
1. reduction of infrastructure costs
The reduction in infrastructure costs is achieved by replacing the existing infrastructure with public IaaS. The savings effect here depends heavily on the volume and degree of standardization of the inventory as well as the possibility of compressing workloads and cushioning peak loads.
2. reduction of the risk of security gaps and system failures.
The relevant cloud providers offer a high level of resilience as well as security features built into their platform, which can significantly reduce the current high cost of developing and operating the corresponding inventory solutions at banks. However, the shift to the cloud changes the threat situation of the institution (although it does not become more critical overall), so that appropriate measures must be taken once.
3. cost reduction and future security
Cost reduction and future security can be improved by modernizing the application landscape. On the one hand, software-as-a-service solutions offer quasi turnkey, fully maintained and operated solutions for serving entire process groups (such as purchasing or human resources management, but also banking processes such as credit); on the other hand, powerful platform-as-a-service providers such as AWS, Azure or Google Cloud allow the rapid and cost-effective development of contemporary, cloud-native individual applications for the institute to replace the outdated and cost-intensive inventory. Extending the architectural consideration to edge computing, i.e., the targeted use of the computing power of decentralized devices for special tasks, leads to further cost reduction and enables additional interesting use cases, e.g., the analysis of suspicious transactions directly on the cell phone or the digital offer of interactive consulting services outside the branch.
4 Higher speed and agility
As already explained, additional capacities up to complete environments can be provided in the shortest possible time and in a usable form, which massively shortens IT provisioning cycles.
5. access to innovations
Agile teams assembled for innovation are immediately ready to work and can draw on a wealth of existing building blocks and tools that previously had to be developed in-house. Banking data can be securely combined in the cloud with data collected and publicly available there and used for analytics, such as anti-fraud, anti-money laundering, or cross-selling additional services.
6. contribution to sustainability goals
Cloud services can reduce an organization's IT-related CO2 emissions by up to 98% through high workload densification, proprietary technologies, and lightweight application architectures, among other things.
7. drivers for agile transformation
Cloud, microservices, Agile, and DevOps belong closely together, driving each other and causing a fundamental change in deployment and operational processes as well as collaboration with the business side. Institutions such as ING and Commerzbank were early to establish an agile way of working across the enterprise, which is strongly supported by the pervasive use of the cloud as a technology platform.
8 Increased attractiveness for critical young talent
University graduates, especially in STEM subjects, are now intimately familiar with cloud services of various kinds and also expect the usual benefits from their employer. For example, the availability of up-to-date, cloud-based workplaces is a decisive criterion for highly qualified developers when choosing their workplace.
German banking industry working on cloud strategies
In summary, it can be said that the German banking industry is currently working on cloud strategies across the board for the reasons mentioned above, or is already implementing them. Although the current geopolitical situation is again encouraging skepticism and restraint, the COVID 19 pandemic has impressively underscored the benefits of cloud services almost simultaneously and ruthlessly exposed the need for digitization not only in the banking industry but also in public administration. The question is therefore no longer "if", but "how" - among other things, the Gaia-X initiative is looking for ways to create more choices for European institutions in order to be able to implement the advantages of the cloud sustainably and with planning certainty.
Cloud: opportunities outweigh risks
Just three years ago, statements such as "impossible for regulatory reasons" or "just another word for IT infrastructure outsourcing" were heard from CIOs and COOs in the German banking industry on the subject of cloud. This fundamentally dismissive view has now become outdated, although of course the regulatory requirements, in particular for relevant outsourcing, still need to be taken into account, especially in cloud projects. However, the parties involved - institutions, cloud providers and the supervisory authority - have taken considerable steps since then, so that more and more institutions now value the opportunities of cloud use more highly than the risks, which they nevertheless still manage and must also prove to the supervisory authority.
At the beginning of the serious debate about the cloud about a decade ago, there was indeed, as expressed in the above quote, the further development of IT infrastructure outsourcing, i.e. essentially the relocation of existing workloads to a standardized infrastructure environment operated by an external provider. Many houses were already flirting with the use of the first available public cloud services at that time, but were generally shying away from the regulatory hurdles as well as the then unresolved issues of data protection, security and service management. To manage the risks, "Private Infrastructure-as-a-Service" was often resorted to, which promised a higher degree of standardization and similar scalability to public cloud compared to conventional outsourcing of existing infrastructure to an operator, but in contrast ran in an environment reserved exclusively for the customer and often even located in the customer's own data centers.
The challenge of standardization
At the end of this decade, my conclusion on this approach is rather sobering. In many cases, poor governance within the institutions and at the provider interface has meant that the desired degree of standardization has not been achieved to any degree - instead, the heterogeneous, individual existing infrastructure has at least been perpetuated or made even more complex by additional requirements, including those for regulation and digitization. The order processes for additional requirements hardly differ in their lead times from those of customized individual outsourcing and have often even become worse due to cost pressure.
The benefits for business units and application development are not apparent, since the applications have mostly been relocated "as-is" and - if at all - savings have accrued exclusively in infrastructure and production, so that in many cases the business cases promised at the beginning have not been achieved. Houses that now want to pursue the same approach with Public IaaS, e.g., with AWS, Azure, or Google Cloud, will, in my view, realize shorter provisioning times for additional capacities and cushioning potential for peak loads, but otherwise face similar challenges as with Private IaaS. In short, a pure "lift & shift" approach of existing applications to the public cloud falls far short of leveraging the benefits of the public cloud economically.
Cloud strategy is more than IT infrastructure
A sensible cloud strategy therefore does not stop at the IT infrastructure, but extends the consideration to the benefits generated elsewhere within or even outside IT. Interestingly, this not only provides further savings potential, such as through cloud-native modernization of the application landscape, but also interesting levers, e.g., for shortening delivery cycles in IT ("from idea to production") and using powerful cloud-native services, especially in the context of big data and artificial intelligence (AI).
Based on these new capabilities available to the institution, innovative solutions can be developed quickly and efficiently to increase revenue and ultimately differentiate the market, so that the cloud suddenly becomes relevant for all areas of the company and not just for IT. In this context, an example is Deutsche Bank's partnership with Google Cloud, which is aimed precisely at these value levers - including new services for liquidity management for corporate customers, usage-based financing and risk management.
8 value levers for using the cloud
Specifically, the following eight value levers can be summarized for the use of cloud technologies:
Reduction in infrastructure costs,
Reduction in the risk of security breaches and system failures,
Cost reduction and future-proofing,
Increased speed and agility,
Access to innovation,
Contribution to sustainability goals,
Driver for agile transformation, and
Increased attractiveness to critical young talent.
1. reduction of infrastructure costs
The reduction in infrastructure costs is achieved by replacing the existing infrastructure with public IaaS. The savings effect here depends heavily on the volume and degree of standardization of the inventory as well as the possibility of compressing workloads and cushioning peak loads.
2. reduction of the risk of security gaps and system failures.
The relevant cloud providers offer a high level of resilience as well as security features built into their platform, which can significantly reduce the current high cost of developing and operating the corresponding inventory solutions at banks. However, the shift to the cloud changes the threat situation of the institution (although it does not become more critical overall), so that appropriate measures must be taken once.
3. cost reduction and future security
Cost reduction and future security can be improved by modernizing the application landscape. On the one hand, software-as-a-service solutions offer quasi turnkey, fully maintained and operated solutions for serving entire process groups (such as purchasing or human resources management, but also banking processes such as credit); on the other hand, powerful platform-as-a-service providers such as AWS, Azure or Google Cloud allow the rapid and cost-effective development of contemporary, cloud-native individual applications for the institute to replace the outdated and cost-intensive inventory. Extending the architectural consideration to edge computing, i.e., the targeted use of the computing power of decentralized devices for special tasks, leads to further cost reduction and enables additional interesting use cases, e.g., the analysis of suspicious transactions directly on the cell phone or the digital offer of interactive consulting services outside the branch.
4 Higher speed and agility
As already explained, additional capacities up to complete environments can be provided in the shortest possible time and in a usable form, which massively shortens IT provisioning cycles.
5. access to innovations
Agile teams assembled for innovation are immediately ready to work and can draw on a wealth of existing building blocks and tools that previously had to be developed in-house. Banking data can be securely combined in the cloud with data collected and publicly available there and used for analytics, such as anti-fraud, anti-money laundering, or cross-selling additional services.
6. contribution to sustainability goals
Cloud services can reduce an organization's IT-related CO2 emissions by up to 98% through high workload densification, proprietary technologies, and lightweight application architectures, among other things.
7. drivers for agile transformation
Cloud, microservices, Agile, and DevOps belong closely together, driving each other and causing a fundamental change in deployment and operational processes as well as collaboration with the business side. Institutions such as ING and Commerzbank were early to establish an agile way of working across the enterprise, which is strongly supported by the pervasive use of the cloud as a technology platform.
8 Increased attractiveness for critical young talent
University graduates, especially in STEM subjects, are now intimately familiar with cloud services of various kinds and also expect the usual benefits from their employer. For example, the availability of up-to-date, cloud-based workplaces is a decisive criterion for highly qualified developers when choosing their workplace.
German banking industry working on cloud strategies
In summary, it can be said that the German banking industry is currently working on cloud strategies across the board for the reasons mentioned above, or is already implementing them. Although the current geopolitical situation is again encouraging skepticism and restraint, the COVID 19 pandemic has impressively underscored the benefits of cloud services almost simultaneously and ruthlessly exposed the need for digitization not only in the banking industry but also in public administration. The question is therefore no longer "if", but "how" - among other things, the Gaia-X initiative is looking for ways to create more choices for European institutions in order to be able to implement the advantages of the cloud sustainably and with planning certainty.