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Banking on the Cloud

Banking on the Cloud. Felix Enescu felix.enescu@gartner.com. Cloud Computing — FS CIOs Plan Rapid Shift Over the Next Five Years. v. When will your organization support: (a) >50% transactions on cloud infrastructure and (b) >50% transactions on SaaS applications?. All FS CIOs.

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Banking on the Cloud

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  1. Banking on the Cloud Felix Enescu felix.enescu@gartner.com

  2. Cloud Computing — FS CIOs Plan Rapid Shift Over the Next Five Years v When will your organization support: (a) >50% transactions on cloud infrastructure and (b) >50% transactions on SaaS applications? All FS CIOs Cloud infrastructure SaaS Source: Gartner Global Survey

  3. Key Issues • What is the state of cloud computing for the BIS industry? • How can cloud computing enable long-term transformation? • What forms can cloud banking take? Note: CC lets banks automate more processes and run them more cheaply than before — CB lets banks do things they could never do before and that are unique to this industry.

  4. FS CIOs Prioritize Cloud Computing Source: Gartner CIO Survey [Green = up on previous year; red is down]

  5. Demand Is High but Supply Is Immature Major Vendor FS Cloud Maturity 0 = Embryonic 30 = Developed

  6. Expectations Time Peak of Inflated Expectations Technology Trigger Trough of Disillusionment Plateau of Productivity Slope of Enlightenment Years to mainstream adoption: Obsolete before plateau Less than 2 years 2 to 5 years 5 to 10 years More than 10 years Cloud Computing Technologies and Concepts Are Still Evolving Real-Time Infrastructure Cloud-Computing Security Concerns Platform as a Service (PaaS) "In the Cloud" Security Services Elasticity Private Cloud Computing Public Cloud Computing/the Cloud Cloud Storage Compute Infrastructure Services Cloud/Web Platforms Cloud Service Integration Cloud Computing Cloud APaaS Enterprise Portals as a Service Standard Hype Cycle adjusted for FS industry DBMS as a Cloud Service Cloud-Based Grid Computing Cloud-Enabled BPM Platforms Cloud Testing Tools and Service Dedicated Email Services Hybrid Cloud Computing Grid Computing Without Public Cloud Computers Cloud Application Development Tools Community Cloud Security as a Service Cloud Advertising Browser Client OS Virtualization SaaS Sales Force Automation Virtual Private Cloud Computing SaaS Cloud-Driven Business and IT Services Enhanced Network Delivery Cloud Management Platforms SaaS Delivery of Treasury and Trading Services IT Infrastructure Utility Cloudbursting/Overdraft Cloud Services Brokerage Cloud Parallel Processing As of September 2010 Cloud Services for FS Risk and Compliance Management This chart is a composite, derived from Gartner published Hype Cycles. The particular combination and comparison of items made here has not been reviewed by Gartner.

  7. Cloud Computing Heat Map for Investment Services For Illustration Only!

  8. Key Issues • What is the state of cloud computing for the BIS industry? • How can cloud computing enable long-term transformation? • What forms can cloud banking take? Note: CC lets banks automate more processes and run them more cheaply than before — CB lets banks do things they could never do before and that are unique to this industry.

  9. Reasons why it might be lower Regulatory problems (e.g., ban on non-regulated services being offered via CC) and other inhibitors such as… …security, reliability, and privacy …lack of industrywide standards Dynamic pricing doesn't take off Tech issues such as lack of componentization Lack of automation and power to run auctions on industrial scale Local restrictions such as Internet bandwidth Reasons why it might be higher Consumers expect to be able to negotiate prices, terms, and conditions Consumers expect to be able to configure product features Banks will need to reinvent and decompose products and services to meet customer needs Competition and disintermediation (e.g., by P2P lending) raise urgency and accelerate progress Next natural evolutionary step after price comparison sites for banking products and services How Cloud Computing Will Transform the Way We Do Business With Banks By the end of 2015, consumers will initiate at least 10% of all banking interactions indirectly via cloud services-based exchanges and portals.

  10. Cloud Computing Evolution to Follow Electricity Trajectory NYSE + VMware + EMC announcement for CC platform Trust within closed community To come: spot price vs. future price? (Banking is about here) From cottage industry, to centralized industry, and now (a little) to decentralized, feeding back into smart grid.

  11. Developing the Banking Cloud Business Approach Compositions/Business Processes (e.g., reconciliations) Transactional Executional Operational Tactical Strategic Activity Management Mission-Critical Apps (e.g., FX and trade pricing) Analysis& Planning ClientReporting Custody &Payments Compliance OrderExecution Matching FS Applications: CRM, compliance, etc. Accounting LiquidityMgmt. OperationalRisk Cloud Banking Allocation/Attribution Risk Analysis –MRM/CRM/PTC Counter-partInteractionIOI Reconciliation Generic: ERP, HR, payroll SaaS CRM CRM DemandPlanning Portfolio Analysis Pricing Cloud Computing Info/Integ. aaS Strategic Market Analysis APaaS Decision Support Order Execute Clear Settle Evaluate Decision Support Order Execute Clear Settle Evaluate IaaS Workflow/Life Cycle

  12. Acceleration via Cloud Service Brokerages* (CSBs) [* nothing to do with securities brokerages] CSB Exists to Provide Governance and Integration as a Service Type 1 — Cloud Service Intermediation VAR for cloud services — adds value such as usage, pricing, billing, and payment Type 2 – Cloud Service Aggregation Packaged applications from multiple suppliers over cloud with all data and processes integrated Q: Will regulators allow use of CSBs in BIS industry? Type 3 – Cloud Service Arbitrage Similar to T2 (aggregation) but without fixed suppliers (e.g., use three credit scoring agencies but only take "best" score based on criteria)

  13. Key Issues • What is the state of cloud computing for the BIS industry? • How can cloud computing enable long-term transformation? • What forms can cloud banking take? • Compete • Collaborate • Consume • Combine Note: CC lets banks automate more processes and run them more cheaply than before — CB lets banks do things they could never do before and that are unique to this industry.

  14. Consumer Negotiations via Cloud Banking (Reverse Auction) Consume/Compete Pricing Risk Supplier 3 (fraud) Supplier 1 (branding) Supplier 2 (issuing) No bid PORTAL/INTERMEDIATOR Bank C Bank B Bank A E.g., configuration for cr. card Wants Selects Offers Invalid combi. Delivers Rate Fee Limit Color Features Timing Withdraw Shift of power!

  15. Champion vs. Challenger Compete • Algorithmic Operations • People shift from executing processes and making decisions… • …to designing and refining processes that automate decisions • Two pressures… • Continually improving the champion • Regularly challenging the champion model with alternative models Develop new algo Test in parallel Daily optimization Deploy best algo

  16. Open Development Platforms, Componentization, and a New Kind of CBS Vendor Collaborate The End of Core Applications Core Applications: Component Component (>2015?) Today InterestAccrual Lending Services Micro Lending SpecialtyLoans DDA Savings Component Component PNCInsurance Deposit Services Wealth Mgmt. Commercial CreditCard Neg. Amort. Lending LoanPayoff Consumer Mortgage Customer Services HELOC WealthMgmt. Component Component Fixed Term Life andPensions CorporateBanking Component "App Store" Extension of component-based architecture Component Component

  17. A "SETI" for Online Banking Consume Or… A two-tier service for online banking: A ready-made community… …for analytics, big data, etc.

  18. Multi-tenanted Core Banking Systems Combine

  19. Action Plan for CIOs and Sourcing Managers Monday Morning • Begin to catalog the different uses of SOA, ENS, BPNs, Hubs, and CC already in progress within your BIS firm. • Identify conflicts and harmonies between the uses made of the above and your various outsourcing models. Next 90 Days • Build an inventory of your existing IT service delivery paradigm and find examples of existing models that map to CC. Use these as benchmarks from which to assess risk, build business cases, and develop vendor relationships. • Determine where you can go beyond non-core, proof-of-concept deployments of CC and what style of CC is appropriate. • Use the heat map to assess the accessibility, readiness, and adoptability of CC for your BIS firm. Next 12 Months • Design the transformative services that can leverage CC to put your BIS firm in the vanguard. Start the move to CB.

  20. Related Gartner Research • Using Industry Working Groups to Advance Cloud Adoption in Financial ServicesPeter Redshaw, David Furlonger, Juergen Weiss (G00212992) • Major Vendors' Embryonic Clouds Will Frustrate Financial Services CIOsPeter Redshaw, David Furlonger, Juergen Weiss (G00210834) • Cloud Computing for Banking and Investment ServicesPeter Redshaw, David Furlonger (G00205296) • Three Types of Cloud Brokerages Will Enhance Cloud Services Daryl C. Plummer, L. Frank Kenney (G00164265) • Real-Time Bidding Heralds Growth in Cloud Advertising Andrew Frank (G00174910)

  21. Banking on the Cloud Felix Enescu felix.enescu@gartner.com

  22. Banking on the Cloud Felix Enescu felix.enescu@gartner.com

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