Cloud: Banks won’t benefit until they embrace Agile
As our banking clients look to expand their IT estate to the public cloud, we are finding them increasingly aware of the real benefit of doing so: rather than purely a cost play, cloud is an agility enabler of fundamental relevance to the digital agenda. However, without the adoption of Agile ways of working at the grassroots level, banks may gain nothing from cloud to help them compete in the digital age.
Not always the cheaper option
It is clear that the cost rationale for public cloud has not disappeared. Building and maintaining physical infrastructure in a secure, compliant control environment remains a significant source of IT costs. Even before considering non-financial drivers, it’s unsurprising that new challenger banks such as Starling are opting for a ‘cloud-native’ approach – doing so avoids large up-front capital expenses and allows investment to be focused on business growth. This has even been shown to apply when the ‘challenger’ is funded by an incumbent bank such as RBS.
Under steady-state conditions, however, the financial benefits become less clear-cut. Public cloud providers price their services to maintain profitability. Despite public cloud providers’ ability to arbitrage through scale, and the tendency for private infrastructure to be over-provisioned (firms we speak to commonly report server utilisation rates averaging just 15%), long-term public cloud usage still emerges as comparable in cost to owning private infrastructure – if not more so. Particularly for non-trivial workloads (20 cores+) needing 24/7 operation over long periods, it can be shown that an on-premise deployment can be built and run more cheaply than leading cloud providers.
It’s all about agility
Instead of cost efficiency, therefore, we see banks looking to another motivation for adopting public cloud: agility.
The ability to provision computing hardware near-instantly can, if employed correctly, massively empower teams within banks to generate business value. Currently, it is those aligned to IT who tend to benefit most – particularly in the innovation space, where instant access to computing power is invaluable for rapid development of new products and services. Looking forward, however, we can anticipate these capabilities being increasingly relevant to business users. Trends toward increased automation through robotics and AI will continue to shift banks’ resource profiles toward high-value activities, particularly involving data-driven analytics. Here, the access to elastic data processing capabilities through the public cloud will be massively valuable.
The agility and cost arguments are obviously linked: the ability to de-commission hardware resources whenever they are not needed can be a game-changer for IT cost management. Leveraging containerisation and similar technology, workloads can also be pivoted between public cloud providers in an agile way. This brings the promise of a highly competitive, efficient market for public cloud services, in which banks stand to benefit from using the most cost-effective resources available on a point-in-time basis.
Can banks get comfortable with agile cloud usage?
While compelling, these prospects are not without challenges – foremost being the organisation’s own ability to support agile ways of working. For banks employing public cloud services for the first time, it is common to see the provisioning of cloud resources wrapped in a traditional centralised IT procurement process, in which users must submit complex business cases describing the intended use and seek approvals from security, compliance and other functions prior to gaining access to a new resource. Whilst justifiable on risk and control grounds, such processes can become a source of friction on business activities and risk critically undermining the agility end-benefits of cloud for the organisation.
We can envisage a solution to this in the form of more Agile-oriented organisational models, in which cloud provisioning capability can be delegated – subject to appropriate controls – to DevOps capabilities embedded within cross-functional teams, who work closely with business end-users and can respond rapidly to their needs.
For emerging challenger banks, such ways of working are natively adopted from the outset; for some long-term incumbent banks, however, such an approach implies significant – likely difficult – change. Without such change, however, we can envisage banks failing to capitalize effectively on the agility advantages that public cloud offers and ultimately struggling to adapt to the digital demands of tomorrow.