Once a taboo, cloud computing is now mainstream in banking
Getting to the complex of Microsoft datacentres in west Dublin, which collectively house more than 100,000 servers, can be complicated. The site can't be accessed using public transport, only via designated Microsoft buses. And once at the site, there are airport-style document checks, x-ray scans and metal detection controls.
For sure, the physical security measures far exceed what most banks have in place to protect their datacentres. And the same is true of online security. Last year, Microsoft spent more than $1bn on securing its software and infrastructure services.
The fact is that the big datacentre providers are in a position to manage security better than individual banks. They must conform to independent data and infrastructure security standards, such as ISO 27001 and SSAE 16, which ensure rigorous processes that protect against insider fraud (which still accounts for over 70 per cent of bank fraud). But, more importantly, they can leverage massive scale economies to spend more on fighting cybercrime than all but the very biggest banks could ever muster.
This is gradually being appreciated by the banking community. We have been canvassing banks' opinions about cloud every year since 2009 and we see a steady reduction in the number of bankers citing data security as a barrier to cloud adoption. (There was a blip in 2014 after the Edward Snowden affair, but firms such as Microsoft have reacted to this by setting up local datacentre partnerships, which put them out of reach of the NSA).
Financial regulators are also warming to greater cloud adoption – for a number of reasons. In the UK, for example, the FCA believes that greater use of cloud technology, by lowering upfront IT costs (which typically account for two-thirds of a start-up's initial costs), will promote competition and choice in the UK market. For others, like the Dutch government, the cloud operators have made concessions, such as around audit rights, which have left them feeling more comfortable about widespread usage. And so perceived regulation-regulated barriers to adoption are also receding.
Add to this the compelling economic arguments for cloud usage – which by allowing customers to share IT infrastructure significantly reduce operating costs for all (by as much as 50 per cent, as some estimates put it, compared with the equivalent cost on premise) – and it is not surprising that more banks are putting their applications in the cloud.
Solving the issue of financial exclusion
Temenos and Microsoft have been working together for several years to use technology to tackle the problem of financial exclusion; work that has been featured as part of a recent Microsoft advertising campaign.
It remains the case today that more than 40 per cent of the world's adult population has no access to banking. This matters because a well-functioning banking system is critical for sustainable economic growth and wealth creation.
And the issue is predominantly a supply-side one. People want financial services, but financial institutions aren't able to offer them across the right channels and at the right price point to meet that demand.
So Temenos and Microsoft have been using cloud technology – or, more accurately, modern software running in the cloud – to fix this supply-side difficulty. By automating processes, eliminating errors and so on, modern banking software enables financial firms to lower IT costs and extract economies of scale from technology as they grow. The cloud takes this to the next level, allowing such applications to scale infinitely and with low overheads.
Our progress has been exponential. It took Temenos 20 years to bring banking to 10m people. But, with the help of the cloud, it took us just two years to bring banking to the next 10m. And this trend looks set to continue.
Today, at the Temenos Community Forum in Barcelona, we announced that the Philippine Federation of Credit Cooperatives (PFCCO) and the country's National Confederation of Cooperatives (NATCCO), which jointly represent 6.5m customers, have signed up for a Temenos solution running in the Microsoft cloud to bring modern mobile payments to their members.
But it is not just in the world of microfinance that we are seeing traction.
As worries about data security and regulatory scrutiny diminish, the strategic case for cloud computing comes to the fore. Against a backdrop of low profitability, rising customer interactions, new and nimble competitors and rapid technological change, it is critical that banks adopt an IT platform that is low cost, scalable and allows them to shift IT spending to where it is really needed – innovation (which accounts for only a quarter of spend today). This is what cloud does.
As Hemmingway once remarked about the road to bankruptcy, it happened "gradually, then suddenly". We think the same will be said of cloud adoption.
Over the coming weeks, we will be announcing deals with regulated financial institutions from all over the world. We will be showing that, at last, cloud has gone mainstream in banking.