HSBC innovation boss urges cloud rethink by financial services firms

childe

Barry Chlide

The financial services market has always been one of the slower to adopt cloud services, with security, compliance and governance coming to the fore as the mostly commonly cited barriers.

That said, there might be signs that things might be changing with Gartner suggesting that by 2016, poor return on equity will drive more than 60% of banks worldwide to process the majority of their transactions in the cloud.

Meanwhile Techmarketview’s Peter Roe argues:

Pressure to act to solve legacy issues, reduce costs and meet the ever-growing demands of end customers is expected to result an acceleration of the use of Cloud Services in this important sector throughout 2014. The sector is a special case with respect to Cloud Services with the presence of large complex legacy systems, intrusive regulation and extended partner ecosystems. Currently the Cloud Services business in the sector is dominated by IaaS, either in private clouds or increasingly in public clouds as sector companies cope with growth in mobile channels and begin to explore the opportunities in Big Data.

The move to a greater use of cloud will be difficult and will take some time. Customers will want to know that their vendors can provide good strategic advice, take responsibility for security, data integrity and reliability and deliver to exceptionally high standards. Companies that can take over the role of strategic advisor in this move to cloud will be in the strongest position in terms of securing long-term relationships and good margins.

There are signs on the buy side of financial institutions beginning to specify what they need to see from the sell side in order to make what has up until now been something of a ‘leap of faith’ for banks and the like.

Go to jail, do not pass go

The risk aspect remains high in mind however, argues Barry Childe, head of research and innovation at HSBC, who suggests that CIOs are wary of being jailed for cloud security breaches that are not their responsibility, largely due to lack of understanding on the part of financial regulators:

“Right now a financial services IT professional is at risk if he outsources a service elsewhere and a leak happens. There is a risk that he would potentially go to prison.

“There’s no get out of jail free card because he used a third party. We need a code of conduct of due diligence. We need a standard to allow financial services firms to work with third parties. That’s something we as an industry need to drive and move the regulator towards.”

This means the buy side in the financial services sector being proactive and calling for change, not waiting for it to happen:

“We need to lead [the regulators] to the water so they can drink. We’ve got a role to play as much as they have. Most definitely we need some new standards around security and standards of hosting and data centres.

“We need some kind of rule that allows us to take those banking licences and those controls to a third party that’s appreciated and recognised by a regulator.”

Childe also suggests that different parts of the banking industry will have different concerns and needs:

“From an investment banking perspective, it’s actually been a bit of a perfect storm to get us where we are. Our priorities and the things we focus on are not necessarily the same as the rest of the industry.

“We are in a situation where we started to understand where the opportunities are fully formed. We certainly see a lot of noise in terms of what people can offer. We see a lot of information and services coming out, particularly in the IaaS space and PaaS space. That’s maturing.

“We are now starting to understand what a number of skills are required to deliver these services. That in itself is a sign of maturity of the cloud generation.”

Little uptake

That said, Childe sees little sign of uptake as yet:

“Really, is it happening? Is cloud adoption where we want it to be? Are firms like HSBC and other financial services firms getting the best out of cloud? Frankly we’re not.

“Ultimately, cloud allows us to do things that we’ve always talked about doing. It’s the glue that enables a whole set of technologies to come together and allows us to offer services globally on demand. So why isn’t it the dominant model in our IT landscape? Wherever you look, it’s still in its infancy inside most large firms.”

hsbc1aChilde has his own views on why this is the case, arguing that vendors are too intent still on selling technology and not solutions to organizational needs.

“When I sit down and ask the CIO for funding, the first question asked is what business problem am I solving? We have to get creative. I need vendors to help me with that. At the moment we have to put that puzzle together ourselves. There are situations where we don’t do as good a job as [vendors] could.”

IT teams also need to be more creative, Childe urges:

“IT is driving what we do by a whole range of interesting technologies that are offering efficiencies across the whole estate.

“We have to manage costs. We have to move with our competitors in terms of our IT costs and the value we give to the business.

“But I’m not seeing any game changing going on here. I like innovation personally. There has to be some of that.”

Changed engagement

There’s also a need to change the engagement model with the buy side, he adds:

“All the strategic stuff and the things that service the whole of the bank are generally decided by the CIO and the IT organization.

“But for cloud, particularly for SaaS and PaaS services, the guy you need to get through to is the business manager. And we’re not getting in front of them. Particularly for the evangelists who are sitting saying ‘cloud’s the way to go’,it’s particularly hard because the relationship of the business is outside.

“There is a change in the engagement model. Ultimately I think there needs to be a shift to selling as core business applications rather than as infrastructure. We could get a lot more out of it. When was the last time one of the infrastructure firms sat down with the business head and said ‘what do you need us to engineer?’.

“You need to sell SaaS and PaaS systems to the people who will ultimately see the benefits from those systems. If you did that, heads of businesses would have more understanding of what’s required and cloud solutions would take off.”

Overall Childe sees cloud as the obvious road ahead for the banking industry, stating:

“Cloud syncing wins out every time over enterprise thinking.

“My behavior’s changed. This is my 33rd year in financial services IT. Ultimately it’s quite a major thing for me to change my mindset. But cloud has put me there. I see the value of this and pay as you go style services. The economies of that will not be matched going forward.

“The strategic value of cloud is understood and we as an organization have taken a strategic decision about that. But it will take time. It doesn’t happen overnight.”

Verdict

It’s inevitably taken time, but there are signs that the financial services market is opening up to the cloud.

We’ve been here before of course with outsourcing and offshoring and many of the concerns are the same.

That makes the idea of unified industry sector approaches seem all the more logical.

Getting a pan-industry position established that can be taken to regulators is a sensible idea.

But who’s going to get the process started?

 

Stuart Lauchlan

Stuart Lauchlan

Stuart Lauchlan has been tracking and commenting on the enterprise IT market for 23 years during which time he's managed to amuse, inform and irritate buy and sell side participants in equal and appropriate measure. Lauchlan also helps companies understand the needs of technology readers.
Stuart Lauchlan

@whostu

Tech journalism - the accident from which I've never recovered

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  • garyturner says:

    There’s some good news for Barry Childe and HSBC, since they opened up a direct bank feed to Xero in 2009 around 15,000 HBSC UK customers now enjoy automated banking feeds directly into their cloud accounting software.
    So, while HBSC might struggle to see traction inside it’s IT services strategy, they’re happily enabling cloud services outside the internal stack in a very meaningful way.

    We’ve now engaged with all the UK’s biggest banks and while they all see attraction in opening up cloud based services for customers, they all appear hide-bound the internal risk teams and competing priorities for the limited resources they do have to build out cloud data services.
    We’d strongly support and put our weight behind an industry wide initiative that saw a common standard emerge. 

    Gary Turner
    Managing Director, Xero
    @garyturner