Beyond the server room: Why banks must embrace cloud technology

The mere mention of bank digital infrastructure evokes images of massive in-house server rooms humming with ancient COBOL-based systems and a handful of developers whispering in this half-dead programming language. At the same time, you have IT teams stretched thin juggling infrastructure maintenance and security, while doing their best to stay up to date with a digital landscape that’s evolving faster than ever before.

The dedication to keep everything on-premises persists in the name of security – the most critical concern for financial institutions. The traditional narrative suggests that in-house systems offer superior protection and efficiency.

Banks have convinced themselves of several comforting assumptions: that they are safer internally, that they maintain greater control, that they preserve ultimate flexibility, and that they can best ensure regulatory compliance. Unfortunately, these hold true only in an ideal scenario – where human and financial resources are unlimited. Reality paints a different picture.

The harsh realities of legacy infrastructure

In practice, banks face a mounting series of challenges that render the traditional approach increasingly untenable:

• Talent acquisition: The global shortage of specialized IT professionals means banks are fighting an uphill battle. Especially in cases of legacy systems – in developer circles, COBOL is always the butt of the joke and waiting on a new generation of motivated talents to take up these systems is a fruitless endeavor.
• Development velocity: Legacy systems create technological quicksand. Where modern organizations can deploy solutions in weeks, traditional banks measure technological change in years. The card management systems that once took two years to implement can now be cloud-deployed within days – a stark illustration of the opportunity cost of technological conservatism.
• Security misconceptions: Paradoxically, the very systems designed to protect customer data often compromise it. A small internal security team cannot match the continuous, multi-disciplinary expertise of dedicated cloud security professionals. Major cloud providers like AWS and Azure employ hundreds of security specialists working around the clock, equipped with global threat intelligence and advanced protective technologies.
• Operational inefficiency: Significant resources are consumed simply maintaining physical infrastructure. System administrators spend more time on repetitive maintenance tasks than on strategic technological innovation. Cloud automation tools like Ansible and Terraform can transform these low-value activities, allowing teams to focus on meaningful technological advancement.

It’s not a project to undertake alone

It’s critical to understand that modern cloud solutions for banking are not about migrating all data to a chosen cloud service provider, which would be a gargantuan technical task even for the best situated institutions.

Moreover, cloud providers lack services that are specific to, for example, the cards processing industry. Rather, it’s about strategic partnerships with experienced banking service providers that offer nuanced, secure approaches that mimic the bank’s own IT department and address every banking concern:

• Single-tenant environments ensuring data isolation
• Regional data processing with strict governance
• Comprehensive compliance frameworks
• Dedicated security teams with payment industry certifications

The partner should be highly experienced in hosting and maintaining complex multi-cloud IT solutions with long-term experience in various facets of the banking business, with an absolute dedication to service availability and transparency in operations and pricing.

What about cloud sovereignty?

The concept of cloud sovereignty remains a pivotal concern, particularly within the European banking ecosystem, and has historically been a justified cause for hesitation among financial institutions.

Banks often raise the specter of data vulnerability, questioning whether cloud adoption might expose sensitive financial information to international regulatory overreach, especially given the implications of the CLOUD and DATA Act.

Contrary to widespread misconceptions, cloud sovereignty is not about total isolation, but about maintaining precise control and transparency. Advanced cloud providers now offer comprehensive frameworks that ensure:

• Exact data residency controls that keep information within specified geographic boundaries
• Strictly enforced regional processing agreements
• Full compliance with financial regulations like PCI-DSS
• Transparent and thoroughly auditable security infrastructures

While U.S. cloud providers might trigger initial apprehension, the reality is more nuanced. Providers now implement sophisticated safeguards that effectively mitigate potential cross-border data access risks.

Still, for institutions with extreme sensitivity or specific regulatory requirements, on-premises deployments remain the only viable avenue. That being said, the list of such institutions is a short one.

Beyond the server room

To put it succinctly, the old model of isolated, internally managed systems is operationally unsustainable and threatens to undermine its very raison d’être, namely, security.

In the coming years, the challenges of in-house infrastructure will only become more pronounced, alongside exponentially growing IT costs.

Cloud technology offers a path to resilience, efficiency, and innovation. The question is no longer whether to adopt cloud technology, but how quickly and strategically an institution can make the transition.

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The insights presented in this article were originally posted on FD Magazine.