By Simon Michie, CTO, Pulsant

Predicting the future of financial institutions is an inexact science. But in the era of open banking, 5G mobile connectivity and app-based customer experiences, banks know they must increase spending on cloud services so they can innovate on a grand scale. The growth of challenger banks, finance apps and fintech dictates a radical reappraisal of strategy and the adoption of new IT infrastructure. This more agile future is why market research company IDC estimates global cloud spending by banks will increase by more than 16% per year up to 2024, hitting $77bn annually.

It is also why 67% of executives taking part in an Accenture global survey of banks said more than half their mainframe workloads should be in the cloud within five years. Cloud migration is the immediate future, but soon banks must also embrace the next big advance in enterprise infrastructure, edge computing, moving processing power closer to the end-user or customer.

Cloud is the future

The next decade for banks and financial institutions will be one where becoming data-driven reshapes almost everything they do. As the decade evolves, they will create new models of service and hyper-personalised customer experiences using masses of data, artificial intelligence, mobile technology, and highly advanced application design.

They will use facial recognition technology for authentication and expand into crypto-currency, non-fungible tokens (NFT) or stable coin-based financial products, custody and trading solutions, prime brokerage services and blockchain-based compliance solutions.

In the meantime, they will need to transform all their processes, moving towards near-instantaneous completion of transactions, settlements and decisions on loans, credit, or insurance. More than ever, banks will have to provide the slick interfaces and ease-of-use that the challenger banks and mobile applications offer. Competitiveness in consumer and business banking will be about providing a great experience.

Dynamism and fast reactions will be essential as banks and lenders spin up new apps or websites at short notice relating to global events such as pandemics, interest rate changes or new opportunities triggered by changes in the law or regulation.

These capabilities and this new level of innovation and agility are only available from cloud and edge computing, delivering the necessary speed, latency, flexibility, and scalability.

Hybrid infrastructure with edge

Yet just as UK financial institutions move into the cloud, the Bank of England’s Prudential Regulation Authority has become interested in the resilience of public cloud providers, cautioning against the dangers of vendor lock-in and over-reliance on individual companies. UK and EU data protection and sovereignty laws also make lodging personal information with US hyperscalers problematical and potentially dangerous.

Given these constraints, it is obvious that banks must instead opt for hybrid infrastructure, combining public cloud and on-premises environments. Achieving the balance between flexibility and security so banks place application workloads where they work best or are best protected. But with the demand for distributed technologies so that remote locations can securely access artificial intelligence-based solutions and mobile applications, edge computing is a necessity.

Working in combination with 5G connectivity, edge computing removes the disadvantages of location, shifting data and workloads to regional data centres to deliver faster, low latency responses for devices, applications and end-users. This has obvious advantages for financial institutions seeking to offer highly personalised and responsive payment platforms, for example. Any solution that depends on the customer’s location as part of its decision-making needs to process data in an edge computing environment.

But the edge also has significant potential for investments and markets, with many use cases, most obviously in high-speed trading. In combination with software-defined technologies, which optimise connectivity for critical applications and use automated network monitoring to reinforce security, the edge will open a huge array of revenue possibilities for banks.

Cloud and the edge are now much simpler

With the right partnerships, the adoption of hybrid infrastructure that encompasses edge computing is now a straightforward experience for banks and financial organisations. A cloud purchasing strategy will implement a cloud adoption and transformation framework, operating on the key principles of discover, plan, implement and decommission. Banks can prioritise data and applications for deployment, whether on-premises, in private clouds, colocation data centres, public cloud providers or with the providers of national edge computing platforms.

Colocation can be highly attractive because a bank locates its own IT in a secure and efficient data centre run by specialists. The financial institution makes its own choice of cloud providers and does not need time-consuming and costly involvement in infrastructure and network connectivity. More advanced colocation and cloud providers are also compliant with stringent PCI (Payment Card Industry) data standards, enabling secure use of the full range of card payment technologies. These providers may also comply with the US’s SOC 2 requirements governing the confidentiality, integrity, and privacy of customer data.

New applications and revenues with greater freedom

The flexibility of a hybrid strategy and the advanced capabilities of edge enables banks to advance the implementation of newer, revenue-generating cloud-native applications, or integrations with cardless payment platforms. At the same time, business-critical applications that are not cloud-compatible, or that require unique levels of management and security, can remain on-premises. Banks that want to use applications or computing capabilities specific to individual vendors can do so without fear of lock-in or vendor-mandated changes in technology and operational practices.

The advent of a new generation of management tools designed for hybrid infrastructure also enables banks to keep track of their data and applications and to right-size all their deployments for maximum efficiency. Banks can spin workloads up and down in relation to demand, avoiding the dangers of over-spend without risk of being under-resourced when faced with new demand or business opportunities.

More advanced tools give full visibility and costs of all data and workloads from a single interface to provide complete control. Such tools are also fully enabled for edge computing.

Strategic thinking

All this means banks must now think very hard about their ten-year hybrid strategy, especially when they want to grasp the full potential of edge computing. The arrival of a new generation of cloud management platforms has transformed implementation and management. Banks can enjoy the best of all worlds, gaining the flexibility and innovation of the cloud and the advances in edge computing. They can keep their most sensitive data and workloads in secure locations while simultaneously developing highly advanced, hyper-personalised applications and new business models. They can maximise their agility and innovate boldly for the ensuing decade, confident they can pivot or scale whenever they need. They are fully data-driven and dynamic without sacrificing independence to cloud vendors or risking security or compliance infringements.