Hybrid Cloud in Financial Services

August 3, 2021

“Hybrid cloud” is a term used to describe the use of both public and private cloud deployment models for specific solutions or workloads. The best examples of this right now are in financial services, where firms want to maintain control over sensitive data but also leverage public clouds (and on-premises environments) for other purposes. A hybrid approach offers the best of both worlds: control and flexibility from a private cloud, with easy access to greater compute/storage resources from public clouds.

Financial services firms are some of the most innovative technology users in today’s marketplace. They operate in highly regulated industries that often require strict adherence to compliance guidelines. In this environment, a hybrid approach to cloud is appealing.

The financial sector also has unique requirements for data storage, processing, and access. Those needs often result in a hybrid approach to cloud computing, where solutions are deployed across both private cloud environments and public clouds like Amazon Web Services (AWS), Oracle Cloud Infrastructure (OCI) and Azure.

cloud serviceHow Financial Firms Use Hybrid Cloud Computing

Financial industries use a variety of applications, and all types are increasingly being deployed across hybrid environments.

Hybrid cloud computing is becoming a strategic business trend for financial services firms that have traditionally kept control of their IT infrastructure. Several factors are driving this shift to more flexible cloud infrastructures:

  • Increased demand for new capabilities and products from customers and regulators.
  • The need to provide those new services at a time when budgets are tight.

And the rise of cloud-based software and tools that make it straightforward for companies to deploy, manage and scale systems on-demand.

Take regulation as an example. As any banker knows, financial regulations change all the time — with new rules imposed by the Federal Reserve, the Consumer Financial Protection Bureau, and other agencies. These organizations have strict requirements about how data is safeguarded and who has access to customer records. In recent years, banks also have been required to master a significant amount of very specific new information — such as credit histories for millions of consumers or detailed loan histories for hundreds of thousands of businesses.

Traditional data-warehousing technologies no longer are enough to handle this flood of new information. And in many cases, firms must store and analyze information in a format that is readable by regulators or other third parties. This can require extensive “reformatting” of existing data sets, which not only takes time but also costs money. Traditional data storage systems are designed for internal use, not for formatting and analyzing large amounts of information that must be shared externally.

Many financial services firms feel they are on the front lines of these regulatory requirements. But they also must react quickly in a competitive environment to new market demands or to changes in banking regulations that might shift product offerings or product pricing. With the right tools in place, firms can use public cloud services to address these demands.

A good example is risk-based pricing, a system that automatically adjusts prices or loan terms based on an applicant’s financial history and other factors. These systems require an extensive amount of data — for instance, average credit history by ZIP code, or average loan rates by occupation, or the amount of collateral a potential borrower has from different sources. Firms typically need to process much of this information in real time and then verify that they are meeting regulatory requirements.

Complying with regulation often requires data analysis on massively parallel systems — ideally using software designed specifically for these tasks — but most financial firms don’t want to invest in such systems. They still need regulatory compliance, but they can achieve that through a hybrid cloud model that integrates traditional on-premises IT infrastructures with public cloud tools and services.

cloud computingHow to Get Hybrid Cloud Benefits

Financial institutions need the agility of public clouds while also making sure sensitive data is protected and handled properly. Hybrid cloud computing helps firms get the benefits of both environments while avoiding the risk of data breaches or other security problems that could cause significant harm to customers and shareholders.

To be successful with hybrid solutions, it is important to understand the unique challenges financial services companies face.

This includes:

  • Data security standards that mandate that sensitive information be stored and processed in specific ways.
  • Data segregation requirements that dictate the firm must have separate storage facilities for customer data versus systems used for day-to-day operations, or data related to trading versus loan applications.
  • Performance and transaction processing requirements that determine how firms store large amounts of data. These include parameters such as how quickly a firm must be able to find a specific piece of information or the number of transactions per second that can be processed.

Hybrid cloud solutions enable financial services firms to put data where it makes sense — for instance, customer records in on-premises data centers but operational databases and other systems hosted externally. This lets firms work with the best tools and services for each application, without having to invest in new infrastructure or rewrite software. This also provides a flexible environment that lets firms continually optimize systems based on their business needs at a given time.

cloud networkThe Financial Services Sector and Hybrid Cloud

By finding the right balance between on-premises IT infrastructures and public cloud services, financial institutions can more easily comply with regulations while still delivering the best possible customer experience.

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