The vendor tension that’s keeping banks off cloud computing

Banks see value in mobile, social and analytics, according to recent research from IDC, but security fears and technical debt are keeping them hunkered down

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Financial institutions around the world are expected to spend roughly $500 billion on IT investment by the end of the decade, according to IDC.

The analyst firm identified “four pillars,” of IT investment in the sector, namely big data, cloud, mobile and social in a recent Webinar. The financial institutions surveyed all expressed interest in making these investments, but felt hamstrung by budgetary constraints, and in tandem, ensuring the security of their businesses. IDC found security to be the number one concern among banks (for cloud and mobile in particular).

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Karen Massey, a senior analyst for consumer banking at IDC Financial Insights, companies were asked “what security provisions would be required in order for you to consider moving more of your infrastructure and your applications into the cloud?”

The answer: banks want to see their providers share in some of the risk of doing so. “However,” she added, “overall, IT vendors have been somewhat reluctant to take equal responsibility with the institutions. IT vendors do say that that the institutions…could drop the ball with practices that are beyond the control of the vendor.”

The move towards the cloud could lie in what IDC calls “the third platform, “which takes technology beyond the mainframe, and beyond the client-server distributed computing model,” says Jerry Silva, research director of global retail banking at IDC Financial Insights. This, he says, is what will push banks to invest in the big four.

But there’s an elephant in the room, and it sits in the back-end of a bank’s infrastructure. This is especially true in Canada, in which a relatively small number of large banks reign supreme. The most important (and secure) piece of hardware these banks possess is their mainframe, which is the foundation of their critical business transactions.

IDC Financial Insights suggests that eventually, banks could be persuaded to offload some of their applications to a hybrid cloud, meaning giving up some of this control to providers. This would indeed decrease costs and security fears could be put at rest by migrating only non-critical business applications.

But convincing large financial institutions cede control of their mission-critical applications is a much tougher sell. The numbers of people qualified to maintain mainframes and mid-range servers is dwindling, and banks have their hands full coping with millions of lines of useless legacy code, which is estimated as high as 30 per cent.

It’s no wonder, then, that the investments on security and “keeping the lights on” are so great. Before banks can be persuaded to innovate further on the new front-ends of technology, they need the help of highly qualified providers that understand how to integrate them securely with the back-ends, and since costs are so high, at a price they can live with.

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