Financial Services Clouds (an interview)

I was recently asked to interview Likhit Wagle, General Manager, Global Banking Industry, IBM, regarding their new IBM Cloud for Financial Services™ offering. The discussion was interesting so sharing it here for posterity.

Chris Skinner: Cloud is something we’ve been discussing for over a decade. Why has it taken so long for banks to embrace it?

Likhit Wagle, General Manager, Global Banking Industry, IBM: There are two main reasons as to why the vast majority of banks were not sitting in the Cloud, with probably the most important reason being regulation. A lot of the banks have found it difficult to satisfy themselves that the public Cloud providers in particular are going to be able to meet those particular regulations. Even those banks that have tried to get onto public Cloud have found that they’ve not made a lot of progress.

How have you seen the lockdown and working from home movement affect banks globally?

The way in which the banks have responded has been very interesting. There are some banks who are at a very advanced stage in terms of their digitalisation, their transformation, and I think they have gone into this particular crisis in an extremely robust way. I think what they’re doing is making themselves ready to be able to come out of this crisis, to be able to grab market share and a lot more new business. On the other hand though, you’ve got a number of banks who now realise that they’ve got to accelerate the speed in which they’re going to digitalise their businesses.

IBM has announced a major new Cloud for financial services platform approach, so can you explain a bit about what that is and tell me how that’s come about?

The genesis of this was actually through Bank of America. Using a business that IBM acquired about 3 years ago called Promontory, which is probably the world’s leading regulatory consulting organisation, we took advantage of that expertise and put together a series of controls. Those controls not only meet Bank of America’s policy requirements, but they also meet the regulatory requirements that have been put into place by the regulators within the US.

There’s lots of other Cloud providers out there. What makes IBM different?

It very much comes down to the security and the regulatory framework. If you look at the security, the regulatory framework and in fact the data privacy, the compliance of that with the policies of the banking industry within the US and also the compliance of that of the requirements of the regulators - and in fact we’ve been working now with regulators not only in the US but we’re working with various regulators in Europe as well and some of them in the other parts of the world – the compliance with those regulatory requirements is something that the IBM public Cloud for Financial Services is the only Cloud out there that has that level of compliance. So, if you’re looking at any of the competing products, competing Cloud offerings, the only workloads that you would be able to move to those competing offerings are ones which are not subject to regulations. In other words, the sensitive workloads, the more mission critical workloads, are not capable of being moved to those other public Cloud Financial Services.

People get confused in Cloud about public, private, hybrid, so how do you see public, private, hybrid Cloud in banking?

Our point of view very strongly is that the future is going to be in hybrid Cloud as opposed to everything on public or everything within private. Certainly a lot of the work that we have done, and we’ve now got a significant amount of quantitative data that suggests that the level of benefit that an organisation would actually get from adopting a hybrid Cloud strategy – so in other words, a combination of having a public Cloud but also having a private Cloud which is both on premise as well as off premise – having that sort of hybrid strategy results in benefits that are two and a half times what they would be if you were going after a strategy which was predominantly private Cloud. If we look at what the banks have been able to put onto public Cloud, it has actually remained extremely small. Before we came out with the IBM Cloud for Financial Services, what the banks were starting to resign themselves to was that they would essentially have to have a private Cloud strategy. If you look at the benefits, therefore, between that and something which is much more hybrid, the level of benefits are much higher.

I’m the guy running the technology stack for a major bank and I decided to go with IBM’s Cloud for Financial Services, and I’m trying to convince my Chief Executive to buy into the strategy. That individual knows nothing about IBM, they have no idea what Cloud is, or private public Cloud. How do I explain in simple terms to this person that this is a good thing to do?

What we are finding really fascinating at the moment is that a lot of the pressure to do these transformations and migrate to Cloud is actually coming from the top of the house as opposed to necessarily being driven by the technology organisations. A number of banking CEOs are looking at other businesses. I think particularly for CEOs and CFOs, making the argument as to why that flexibility is valuable is quite easy. It’s also very easy to describe the importance of going through something which is a fixed cost to being a variable cost, which is in essence what I’m saying. I think the IT organisation really need to spend a lot of time with the CEO and probably also the Chief Risk Officer, Chief Security Officer in the bank, in order to convince them that the bank is not taking a level of risk that will not be acceptable to them if they were to move onto the public Cloud.

I think everybody in this crisis has realised that they’ve got to ‘do digital’ and I always say ‘do digital transformation’ has nothing to do with technology. Where do you think we’ll be in a few years’ time?

We’re going to see a completely different style of convergence going forward. That’s what I think the platform companies have started to achieve. That is what a bank that’s going to be truly successful in the future is going to have to respond to. On the same side, therefore, you’re going to see banking businesses that are much more platforms; these are going to be platforms that are going to be sitting on Cloud infrastructure, and a large number of them will be on public infrastructure which is why the security and the data privacy aspects of that are so critical. They will be architected in a way that enables them to seamlessly connect with a wider ecosystem, an ecosystem that you need to change quite rapidly. If we just stay FinTechs, there are new FinTechs coming on board every day, you need to think about whether you want to bring them on board with what you’re trying to provide. I think it’s going to be those platforms which are enabling ecosystems that are satisfying a much broader need for the customer.

It’s about changing humans. It’s about the employee change, the customer change, the management change, the business operations change, the business model change, the leadership change, and so many things…