CLOUD TRANSFORMATION DETAILS IN Banking and Financial Industries

Cloud-based services are known to be driving operational efficiency and significantly decrease costs of running any business. With financial services, however, the journey to the cloud has been more complicated than for other industries due to a variety of reasons, risk management and security concerns being some of them. Nonetheless, the evolution of IT infrastructure is underway and financial services companies are aggressively exploring opportunities.

Large financial institutions around the world have turned to cloud services for a variety of purposes and found the move to be highly advantageous. One of the largest banks in Spain, Bankinter, for example, is using AWS to run credit risk simulations in 20 minutes, down from 23 hours before. For the Commonwealth Bank of Australia, the cloud has reduced the time and cost of standing up a new server from eight weeks and several thousand dollars to eight minutes and 25 cents, making the bank much more responsive to changing customer demands.

CLOUD TRANSFORMATION DETAILS
InvestLab, based in San Francisco and Hong Kong, is a financial services technology company focused on the global trading market. InvestLab uses AWS for front-end connectivity for brokerage administration, trading systems, market data, and InvestLab products. The company uses Amazon Elastic Compute Cloud (Amazon EC2) instances in the US East, US West, and Asia Pacific-Singapore regions, and employs Elastic Load Balancing and Amazon Relational Database Service (Amazon RDS) to support InvestLab cloud server instances. InvestLab realized a 40% reduction in the fixed cost of launching a software product. “AWS saved us hundreds of development hours, which put us eight to twelve weeks ahead of schedule. Now we can execute and realize a more aggressive product development strategy,” commented Tim Reynolds, VP of Information Technology at InvestLab.
Nubank, a FinTech bank based in Brazil that offers a no-fee, low-interest credit card that customers can manage with their iOS and Android devices, used AWS to build, deploy and run its credit card processing platform on which customers can track and control their purchases. By using AWS, Nubank developed its credit card processing platform in only seven months and can add features with ease.
Ohpen : A Dutch company that provides banks with a modular platform for administering retail mutual funds and savings accounts for consumers, have deployed their solution entirely on the AWS cloud. The decision allowed them to deploy new features in three months or less, compared to a year or more using traditional IT, and company leaders estimate that their institutional customers can save up to 80% in IT costs by using the Ohpen platform in the cloud.
Intuit : A leading provider of financial management software for consumers, small businesses, and accounting professionals, moved its TurboTax AnswerXchange application to AWS. As a result, Intuit was able to reduce costs by a factor of six because it no longer had to maintain idle servers for an application that was only active during tax season. After this first success, Intuit subsequently moved 33 applications, 26 services and eight enabling tools to the AWS Cloud. Over the coming years, Intuit will move the rest of its applications to AWS to speed development, innovate faster, and better solve customers’ needs.
eFront : A French software company that provides solutions for the financial industry across 21 international markets uses AWS to host a virtual private cloud for its customers. By using AWS, eFront has been reported to reduce costs and improve time to market. The company also plans to use AWS to expand its services for both internal and external clients.
Federal Home Loan Bank of Chicago : A $70-billion wholesale bank that lends money to other financial institutions to support liquidity in the real estate market. The organization began its journey to the cloud by migrating its analytics and disaster recovery solution to AWS. Today, the organization runs all of its internal production workloads on the cloud and, as a result, has lowered costs by 30%.
MEBank : Melbourne Bank, which manages $20 billion in assets and has 800 employees who support 280,000 customers around Australia, uses Amazon VPC to provision an isolated, virtual network in the AWS Asia-Pacific (Sydney) Region. Using AWS instead of an on-premises datacenter infrastructure allowed ME Bank to accelerate the provisioning of development and testing environments by up to six weeks. The company was able to reduce the cost of delivering development and test environments for new applications and services by 75%.
mCASH : Norwegian payment provider and e-money institution licensed in accordance with the EU payment services directive, relies on Google App Engine, a service of Google Cloud Platform, on the backend. mCASH plans to integrate additional Cloud Platform products as the business and platform mature.
Mambu : Banking technology startup, which helps banks, microfinance institutions, and other financial innovators deliver essential banking services to individuals and emerging enterprises around the world and powers the services behind 2.2 million end-user accounts is also using cloud services. Mambu runs all its services on AWS, from development to production. It deploys code using AWS Elastic Beanstalk, which distributes the application across more than 200 Amazon Elastic Compute Cloud (Amazon EC2) instances. The fully managed Amazon Relational Database Service (Amazon RDS) serves as Mambu’s main database, while Amazon ElastiCache synchronizes session information across servers. Using AWS services allowed Mambu to reach better availability and flexibility to power intensive growth across regions.
WorldBank : The organization was reported to begin moving more to the cloud: Microsoft apps like Office 365 and SharePoint will be on Azure, most of the rest will move to AWS. One result of shifting work to the cloud is that the bank is moving from five data centers to two, and probably to one eventually. Systems for financial reporting, which have strong internal controls, will stay on-prem for longer. “The IT group has shed 10 to 15 percent of its headcount, repositioning many staff positions and cutting a lot of contractors. The run rate to manage Lotus Notes was $12 million and now it costs us $4 to $5 million with Office 365, and we went from 20 FTEs to 6. Many of our staff are here on special visas so we try to retrain and reposition,” commented Stephanie von Friedeburg, The World Bank CIO.
NAB’s Global Equity Derivatives Group (GED), which provides stock-trading solutions that manage exchange-traded securities such as stocks, funds, futures, and options, partnered with TickSmith, a Canadian software provider specializing in big data management and analysis technologies for financial data, which runs on AWS. GED is able to easily scale TickVault to consume and analyze financial data. The organization’s business analysts conduct post-trade analysis much faster than before. With AWS, data manipulation, processes that took days have been brought down to one minute. The post-trade analysis that used to take weeks is done in just a few hours with the ability to look at both current and historical data.
FIS : A global leader in financial services technology, runs US market analysis using the Google Cloud Platform. FIS’ Market Reconstruction Platform can collect, link and store data on every equity and options trade lifecycle event and then produce feedback reports within a few hours. Its high-performance system can adjust to fluctuating market activity and support complex analytics. FIS also relies on Google Cloud Dataflow to quickly process, format and validate incoming data before sending it to Google Cloud BigQuery for analysis. Cloud Dataflow provides FIS with a managed services environment that supports batch and stream data processing, which allows the FIS team to focus on data processing tasks, instead of cluster management.
Canaccord Genuity, an independent full-services financial firm, uses Google Cloud Platform to manage an information platform for professional investors and business analysts. The platform, called Quest, uses Google BigQuery to pull up and cross-reference over 9,000 companies, using a Google Sheets-based decision tree that defines more than 10,000 rules. Instead of a classical three-tiered architecture, the new Quest® system has no application server, which simplifies the design and improves performance. Google BigQuery drives the data analysis, grinding through over 100 million rows in only a few minutes, at speeds at least 100 times faster than the previous system. Quest also uses Google Cloud Storage, since a typical analysis run generates more than 200 GB of data, detailing all the cross-references, trend tables and other information comparing companies against each other and against relevant industrial sectors.
JPMorgan Chase’s Chief Operating Officer Matt Zames has been reported to say that the bank is contemplating the use of AWS for spiky workloads—say, credit card transactions that take place on Black Friday.
Temenos, a global banking software provider, has developed its new version of software on the Microsoft Azure platform, which allowed the company to offer cloud banking capabilities to companies that have traditionally used on-premises solutions. It has helped them meet strict security and compliance requirements. As a result, banks using T24 in the cloud can deploy the application in only a few months, meet security requirements, and meet close-of-business deadlines faster. Online bank Simple uses AWS to run its virtual banking platform and meet payment card industry (PCI) data security standard (DSS) compliance for its development and production environments. By using AWS, Simple automated processes that once took months to complete and instead focus on its customer service rather than managing IT infrastructure.
CardFlight, one of the leading providers of tools and technology that allow developers to build their own mPOS, chose to host its supporting IT infrastructure on AWS cloud in order to minimize the burden of PCI compliance and bring its mobile EMV payment platform to market as quickly and cost-effectively as possible. A number of AWS cloud technologies help CardFlight to streamline PCI compliance, including AWS Key Management Service (AWS KMS). To protect sensitive data stored in AWS, CardFlight uses Amazon Virtual Private Cloud (Amazon VPC). “Based on an informal analysis, I’d say that both our capex and opex costs are around 40 percent lower with AWS compared to building out infrastructure in traditional data centers,” commented Jesse Angell, Software Engineer at CardFlight. “Operating on AWS means we spend less on infrastructure. This is a great benefit as we are then able to spend more on product development, bringing more value to our customers than we could have otherwise.”
Capital One, one of the nation’s largest banks, is using AWS in hope to reduce its data center footprint from eight to three by 2018. The bank is using or experimenting with nearly every AWS service to develop, test, build, and run its most critical workloads, including its new flagship mobile-banking application. “There’s nothing we aren’t willing to put in the public cloud,” said Rob Alexander, Capital One’s Chief Information Officer. “We are now doing the vast majority of all our new development in the public cloud, and we are systematically moving our legacy applications.”

Digital Transformation - Governance

How to lead a digital transformation

Many CIOs are making sweeping organizational changes, adding key roles, reskilling employees, setting up innovation labs and experimenting with emerging technologies to meet strategic mandates issued by their CEOs and boards.

While necessary, these steps won’t work without buy-in. IT leaders must align themselves with any executive with enough clout to negotiate the changes required and get the requisite buy-in from the board of directors as well as the rest of the business, MIT Sloan’s Westerman says. Such partners could be the chief digital officer or chief marketing officer. CIOs and their partners must then loop in product managers and other functional heads to build digital services intended to boost customer engagement.

“You need technology on one axis while the other axis has to include the ability to envision and continuously drive change,” Westerman says. “Put those two together and you get [companies that are] digital masters. If you only have one you're going to be off diagonal.” Westerman, who wrote a book on the subject, Leading Digital: Turning Technology into Business Transformation, says that digital masters are 26 percent more profitable than their industry competitors. 

Of course, not every CIO is collaborating with Gartner or has the benefit of courting MIT academics for advice. So how do you know if what you’re doing constitutes a digital transformation? The key lies in the other “D” word.

Ask yourself whether what you're doing is disruptive to your business and to your industry. If you can say yes with a straight face, you may well be conducting a legitimate digital transformation.

Digital transformation misconceptions

A lot of people believe the term digital transformation is interchangeable with technology. It does, of course, include technology, but with emerging digital capabilities affecting all areas of the business, it’s important to remember that the transformation is just as much about leadership as it is about the technology itself, says Janice Miller, director of leadership programs and product management at Harvard Business Publishing Corporate Learning.

But perhaps the biggest misconception of all is that digital transformations are “done” when they reach a certain stage. Digital transformation is a journey; completion of one stage is often a stop-gap or bridge to the next leg. As emerging technologies and market forces heap new disruption upon the enterprise, the company must adapt to survive.

Why digital transformations falter

Digital transformations are lagging or even failing for several reasons, according to research from Digital McKinsey, Wipro Digital and other consultancies. The main culprits? Lack of agreement on what digital transformation means; little to no senior executive buy-in; diffuse focus, with too much emphasis on back-end execution; lack of budget; talent deficit; and, of course, unwillingness to change.

A July report from Capgemini Digital Transformation Institute and MIT Sloan School of Management says transformations are falling prey to poor leadership, disconnects between IT and the business, lagging employee engagement and substandard operations, among other reasons.

Digital Transformation - Trends, Roles

Fearful of being outflanked by more nimble competitors, companies are innovating at a faster pace than ever. To avoid disruption, companies are experimenting with new digital services and capabilities to augment existing offerings or to slide into adjacent markets.

Consider the soaring interest in virtual assistants, particularly chatbots. Pulling across business and technology domains, chatbots leverage natural language processing to establish a new digital pathway directly between the customer and the business. Behind the scenes, powerful analytics serve up recommendations via the chatbot. Banks, industrial manufacturers, retailers and just about every other type of business are implementing these digital tools. 

There is a veritable digital ocean of complimentary possibilities, including applications of IoT, blockchain and quantum computing. The falling costs of compute, storage and bandwidth have also facilitated the rise of social, analytics, and artificial intelligence technologies. These tools, paired with design thinking, agile development and DevOps, are at the center of many digital transformations. IDC estimates spending on digital transformation will exceed $2 trillion in 2019, with 40 percent of all technology spending will be for digital transformation technologies.

Essential digital transformation roles

Savvy CIOs acknowledge that even with the latest and greatest technologies and agile processes that digital transformations fall down without the right staff to conduct them. Hiring enough software engineers, cloud computing specialists and product managers remain tall tasks.

But at a time when transformations lean increasingly on digital tools influenced by machine learning and artificial intelligence, IT departments supporting business-wide transformations require UX designers, digital trainers, writers, conversational brand strategists, forensic analysts, ethics compliance managers and digital and workplace technology managers.

Digital Transformation Strategy

Successful digital transformations do not begin with technology. Instead, they focus on overhauling the organization with a customer-focused goal in mind. As such, there is no singular playbook. But a common theme among digital journeys is that talent is what drives them, says CarMax CIO Shamim Mohammad, who in transforming the used-car retailer organized product teams that included a product manager, a lead developer/engineer and a user experience specialist. These teams took a customer-centric view in building new products.

Other organizations have adopted a holistic collaboration model. Pitney Bowes, for example, formed a tech strategy team and global innovation roundtables to foster greater collaboration. “All teams were sharing practices to test continuous integration and continuous delivery so all apps moving to the cloud were benefiting,’’ says James Fairweather, the company’s CTO of commerce services.

These companies also adopted a startup mentality, were unapologetic about change, and secured buy-in from senior management.

Digital transformation examples

While several enterprises are in the midst of digital transformations, some stand out, either for scope and scale or the industries they target. Nissan, for example, is in the midst of sweeping change under new CIO Tony Thomas.

Quick wins for Nissan include a move to Office 365 and mobile-enabling the workforce, though Thomas acknowledges that he must do more to help the company compete in a sector where autonomous driving is the chief disruption bar none.

Connex Credit Union CIO Dennis Klemenz has split IT into three key units: core processing, which facilitates financial transactions; infrastructure, which includes a migration to a private cloud leveraging hyperconverged infrastructure, in which storage is included in the compute nodes; and analytics and innovation. Klemenz has also rolled out interactive teller machines, which drive-up customers use to conduct their financial transactions from a touchscreen.

Digital transformation vs. optimization

Here's the dirty little secret: What many CIOs describe as a digital transformation actually isn't. Mobile apps, AI-based chatbots, analytics and other digital services are often used to augment existing services.

"In a nutshell, we reserve digital business transformation for companies pursuing net new revenue streams, products and services and business models," says Gartner analyst Hung LeHong, whose job includes assessing whether companies are conducting a "digital business transformation" or a "digital business optimization."

Digital business transformations can include the creation of new digital business units or digital acquisitions. Sometimes the new business models lead to ventures in adjacent markets or new industries.

General Electric, with its "digital twin" initiative to sell locomotive engines and jet turbines as a software service, is orchestrating a digital business transformation, LeHong says. Bold as GE's digital strategy is, it’s what a company does because it fears disruption or because it intends to disrupt its industry.

GE is among the 10 percent of companies Gartner has surveyed that is actually doing this form of transformation. The other 90 percent are conducting various forms of "digital business optimization." This entails using digital tools to "supercharge" productivity, bolster generation of existing revenue streams and boost customer experience.

For example, Shake Shack this year launched a mobile app that enables mobile ordering, ostensibly to reduce customer wait times. ServiceMaster has tapped a mobile platform to improve the way it connects contractors with customers. UPS partnered with startup Latch on an IoT-enabled smart delivery service that allows drivers to drop off packages in multi-family apartments in New York City. By themselves, these tools are not transformative.

LeHong says part of his job is to meet with CIOs and the business executives ultimately responsible for driving the strategy, such as a CEO, COO or CFO. Getting IT and business leaders together helps the companies "double click" on whether they are transforming or optimizing their businesses. Once they answer that question, they can appropriately tailor and set their expectations.

What is Digital Transformation?

At a high level, digital transformation represents a radical rethinking of how an enterprise uses technology to radically change performance, says George Westerman, principal research scientist with the MIT Sloan Initiative on the Digital Economy.

Digital transformation, which Westerman says must start with the CEO, requires cross-departmental collaboration in pairing business-focused philosophies with rapid application development models.

Such sweeping changes typically include the pursuit of new business models and, by extension, new revenue streams, often driven by changes in customer expectations around products and services. "Customer expectations are far exceeding what you can really do," says Westerman. “That means a fundamental rethinking about what we do with technology in organizations."

Catalysts for digital transformations may also include disruption from incumbents and startups. Witness Amazon.com’s steady encroachment on the turfs of virtually retailer and, more recently, its shipping partners such as UPS and FedEx.

Another way to look at digital business transformation? Using data and analytics to re-engineer commercial business processes and capture new value creation, says Bill Schmarzo, CTO of digital technology firm Hitachi Vantara. “If it can’t drive economic value, why do it?” Successful companies construct customer journey maps to identify sources of and inhibitors to value creation, Schmarzo says.

Contactless Cards in US

U.S. may be next to see a surge of contactless credit cards, following other major markets around the world. In many locales similar to the U.S., consumers tap to pay for about 20% of all in-store transactions using Near Field Communication-equipped cards, far surpassing the number of mobile payment users.

But it’s unclear whether enough U.S. consumers are interested in contactless payments.

U.S. issuers previously shied away from contactless cards for several reasons, including the relatively low number of NFC-enabled merchants and the cost of overhauling card portfolios just a few years after the painful 2015 EMV liability shift. 

But recent moves by key merchants and issuers could spark a change, depending on how consumers respond. 

IT Mega Projects in Banking - Best Practice

10 Lessons learned

1. Establish a robust project leadership.
2. Do only start an IT Mega Project once the bank can stand double the planned budget.
3. Build a conservative business case.
4. Prepare yourself that your program will not deliver on all objectives.
5. Make yourself familiar with your IT Landscape of your project.
6. Understand what problems do you want to solve with your mega project.
7. Take your time – not PPT, but make use of a test environment of your target IT Landscape.
8. First build some prototypes to learn about your core challenges.
9. Make yourself fit for the target landscape
10. Deconstruct your IT Mega Project in several smaller delivery units, that each create value, build on each other and help to achieve the common objectives.

8 Failures to be avoided

1. Do not repeat know failures
2. Set unrealistic objectives
3. Set political objectives
4. Provide not appropriate time for testing
5. Assign inexperience program management
6. Overestimation of one‘s own capabilities
7.  Too much optimism 
8. Believe you are unique

Core Banking Transformation Status around the world

Just wanted to share the interesting statistics which I came across on Core Banking Transformation. I wanted to record that. This is the status as of now (2018).

IT Landscape of typical Retail Bank

Making Four BIG Banks in the US