Leveraging cloud in a competitive banking environment

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1 White paper Leveraging cloud in a competitive banking environment Technology has pervaded all walks of life and banking is no exception. Banking today has moved out of the confines of a physical building and reached the doorstep of millions of customers. Alternate channels such as ATM, phone, Internet and mobile banking are cost effective when compared to branches and serve to make banking accessible round the clock. However, competition is fierce with banks constantly striving for increased profit margins and a larger customer base.

2 Need for cloud in banking Leveraging technology to service a wide range of customers and achieve customer delight is what determines banking success. Technology, however, is a double-edged sword. On the one hand it is inevitable and on the other hand, prone to obsolescence. How do banks achieve optimal balance between enhancing IT capabilities to serve customers while minimizing spending on technology that is bound to become redundant? This leads to another compelling question Is banking the prerogative of a few big players with sound finances looking to maximize returns or can smaller banks with limited resources but with a motive to serve, hope to succeed? The one word emerging as an answer to both questions is cloud. Definition of cloud Cloud is a model and not a technology per se. It enables banks to use hardware and software via the Internet as a paid service. According to Forrester Research Global Cloud computing is expected to rise from a $40.7 billion in 2011 to $241 billion in As per the survey conducted by IDC -International Data Corporation (IDC) which involves in providing market intelligence and advisory services 326 large companies in Unites states, the United States, the United Kingdom, France and Germany has found that adoption of cloud is higher in financial services survey has revealed that 38% of participants in the survey has instilled cloud strategy for their organization. Different cloud models Public model: In this model, the provider offers pay-per-use services through the Internet to the public at large, making it a risky proposition. Private model: Here, the services are restricted to the bank alone, making it a safer bet. Since the bank needs to procure a lot of resources which can potentially be underutilized, this is a more expensive option. Hybrid model: This is a combination of both public and private models wherein the cloud is owned by the bank but managed by the provider. With this mixand-match option, banks get to pick the services which they can utilize through the public and private models depending on data sensitivity, security and cost. Public sovereign model: In this latest variant, data is contained within an agreed upon jurisdiction. This finds favour with those enterprises that require personal data to remain within the national boundaries. Before and after cloud Before Cloud: Below mentioned Services Handled which would have been handled by bank By Bank earlier would be handled by service provider. Applications Data base Server hardware Storage Software Benefits Reduction in hardware procurement Costs: Banks can store data in the providers servers and access it by logging into the network. Thus, with reduced spending on high configuration servers, banks can achieve costs savings to the tune of 60-70%. Lower software cost: With technology evolving constantly, banks have to adapt and upgrade continually and also for setting up core banking solution it needs minimum number of branches to be cost effective. However, usage of software services through the cloud will result in considerable cost saving. Low initial investment: Small banks that extend financial services to the masses are usually bereft of funds. Adopting the cloud model renders the benefits of the latest technology without having to own it. Alternative channels: Setting up of channel infrastructure is made more affordable through cloud adoption. Pay for usage: This is a unique feature of the cloud model whereby cost is calculated in accordance with the usage of a particular service. For instance, consider a bank with 200 users and 5 modules for Core Banking with varying degrees of usage. The present system compels the bank to pay for all the 200 users across all 5 modules to procure licenses, regardless of actual usage. However, the cloud affords the flexibility of paying per user per module, resulting in enormous savings for the bank. Talent management: Maintaining databases and handling servers and IT components are specialized tasks requiring trained personnel. Allocation of human resources for these jobs involves huge investment. This can be reduced by moving to the cloud model where the service provider handles the IT functions. Investment in other areas of business: The savings achieved by implementing the 2 Infosys

3 Technology has pervaded all walks of life and banking is no exception. Banking today has moved out of the confines of a physical building and reached the doorstep of millions of customers. Alternate channels such as ATM, phone, Internet and mobile banking are cost effective when compared to branches and serve to make banking accessible round the clock. However, competition is fierce with banks constantly striving for increased profit margins and a larger customer base.

4 cloud can be directed towards research and development or new, profitable business ventures. Challenges Cloud computing is not without challenges. Some of the aspects that need to be fine-tuned to ensure optimal functioning are: Disaster recovery system: Moving to the cloud creates a great deal of dependence on the service provider. Strong disaster recovery management and backup in various geographies can considerably mitigate unforeseen risks. Security systems: The cloud, especially the public model, is wide open for use by various entities, which can pose a serious threat to data security. The banks should ensure that the service provider has foolproof security systems to address and eliminate security concerns arising due to interconnection with the various networks. Clear regulation: A cloud model is, in a sense, an alliance between the cloud service providers, the bank and the bank s customers. This relationship should be well-defined with no ambiguity, as an issue between the service provider and the bank can adversely affect the customers. What are the services to look from cloud vendors? There are vendors offering Cloud Versions of banking software on Private Cloud environments. They offer application services to co-operative banks, Community banks and credit unions worldwide. These solutions aim at automation of core banking and associated banking applications. They provide various business functions like customer acquisition, product offerings like Savings Account, Checking Accounts, Trade finance, and Retail Loans in multiple currencies with real time features coupled with speed and flexibility. All this is made possible without compromising on high level of Application security, data security and regulatory compliance. Scope of cloud computing in India As per the as per the reports from financial times, cloud market in India is as big 2,000 core. The statistics published by the Working group for exploring use of Cloud Computing option for small size Urban Cooperative Banks Status of computerization as on March 31, 2012 indicates that there is enormous scope for cloud computing in India as the cost involved for implementation of core banking will cost somewhere around 25- to 30 lakhs whereas for implementation through cloud requires 10-15% as initial cost and as low as 20,000 per branch per year for the cloud services State-wise no. of banks and no. of banks under CBS (March 31, 2012) Sr. No. State No. of banks No. of banks under CBS 1 Andhra Pradesh Bihar Delhi Gujarat Karnataka Kerala Maharashtra Orissa Rajasthan Uttar Pradesh West Bengal 47 1 Sub-Total Other States Conclusion Grand Total The entire cloud model hinges on optimized resource utilization. Starting from the decision to go to the cloud, choosing service providers, opting for the right cloud models, to finally implementing it, a concerted effort is required from various stakeholders. The bank s IT team should work in tandem with the technology partners to deliberate on the best course of action and provide value-added services to ensure customer delight. References 1. Accenture.com/cloudstrategy Nitin Babu Macherla Senior Consultant, Finacle, Infosys 4 Infosys

5 About Infosys Finacle Infosys Finacle partners with banks to transform process, product and customer experience, arming them with accelerated innovation that is key to building tomorrow s bank. For more information, contact finacleweb@infosys.com Infosys Limited, Bangalore, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted, neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording or otherwise, without the prior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.