Why Do Banks Still Prefer to Keep Business Application Services On-Premise Rather Than on the Cloud?

WHY DO BANKS STILL PREFER TO KEEP BUSINESS APPLICATION SERVICES ON-PREMISE RATHER THAN ON THE CLOUD?

Chandramouli Sundaram, Senior Vice President Delivery – Data Engineering,

Maveric Systems Limited

In a bid to modernize businesses, banks, and financial institutions are increasingly using cloud computing. While this is true, the reality is that a larger population of IT decision-makers remain hesitant to use cloud technologies.

Cloud providers offer secure infrastructure and tools, but customers are ultimately responsible for configuring and using those resources in a manner that complies with regulatory/country-specific/industry- specific requirements. While cloud providers have made significant strides in enhancing their compliance capabilities, there may still be specific regulatory requirements that they need help to support fully. Banks should conduct thorough due diligence and work closely with their cloud providers to ensure compliance with all relevant regulations. Here are some key factors that contribute to their dilemma.

Here are some specific challenges that banks may face when using cloud computing:

• Customized Solutions: Banks frequently require highly customized solutions; in-house systems offer the flexibility to tailor technology stacks to meet these specific requirements, which is difficult to achieve on the Cloud.
• Control over data and resources: Being an in-house platform, banks can have complete control over their data and resources instead of relying on third-party servers.
• Data residency and sovereignty: Some jurisdictions require sensitive financial information and certain other types of data to be stored within the country’s borders, which can be challenging for cloud providers with global data centers.
• Maintaining industry standards: The financial services industry has highly specialized regulatory requirements like the ones for unique data encryption standards or transaction handling procedures that cloud providers do not universally support.
• Customized security protocols: Banks have specific protocols mostly tailored to their needs and compliance requirements. Adapting these protocols to a cloud environment is a complex process requiring close collaboration between the bank and the cloud provider, sometimes becoming a bottleneck. In-house solutions empower banks to implement tailored security measures and maintain complete control over their data, reducing the exposure to external vulnerabilities.
• Legacy Systems Integration: Transitioning legacy systems to the Cloud can be a monumental task fraught with complexities, especially for banks accustomed to an on-premise data In-house solutions enable banks to integrate these legacy systems seamlessly, ensuring business continuity without disrupting migrations.
• Optimizing workloads and applications: Optimizing workloads and applications for the cloud is a crucial step in maximizing the benefits of cloud computing. To leverage the complete suite of services that cloud offer, workloads require rewriting, refactoring or rearchitecting applications to be cloud-native, else the potential of the cloud can remain underutilized.

Choosing between on-premise and cloud solutions depends on an organization’s specific needs, regulatory environment, risk tolerance, and readiness. Some banks may remain on-premise, while others may adopt a hybrid or full-cloud approach. Regardless of the choice, data security, compliance, and business continuity will remain top priorities for financial institutions. As data security concerns rule the roost for banks, on- premise solutions remain the right option for most banks.

For banks that prefer staying on-prem, we support them by –

• Integrating disparate data sources, we create unified data platforms that support Analytics, AI, and ML, which are essential for banks to make data-driven decisions. By integrating their data sources, banks can get a holistic view of their customers, which can help them identify new opportunities, improve customer service, and reduce risk.
• Upgrading the existing technologies to modern platforms: Banks must stay ahead of the competition and ensure their systems are secure and reliable. By upgrading their technologies, banks can take advantage of the latest features and functionality, such as self-service reporting and Analytics.
• Building/Integrating frameworks to support on-prem cloud tech (AWS/Azure/Snowflake): This is becoming increasingly important as banks look to adopt hybrid cloud solutions. By building or integrating a framework to support on-prem cloud tech, banks can gain the flexibility and scalability of the Cloud without having to move all their data and applications to the Cloud.
• Helping banks develop and implement data governance policies and procedures is essential for maintaining data compliance and security.

Staying on-prem can impact business outcomes for banks more in terms of time than cost. On-premises infrastructure can limit this ability due to the limited software and hardware features and functionalities. Preparing for the banks of 2030 will need strategies aligned with changing consumer expectations and emerging technologies. The banking industry is moving towards the Cloud. According to a recent report by Gartner, 70% of banks will have adopted a hybrid cloud strategy by 2025. With digital natives on the rise, mobile banking, on-the-go access to services, and hyper-personalization of services, we expect to see more banks adopting newer ways of operating and marking their presence in the Cloud.