Why Financial Services Move to Hybrid Cloud

The financial industry is turning to public and private cloud technologies to find the right balance of flexibility, interoperability and app mobility.

By Hilarey Wojtowicz

By Hilarey Wojtowicz October 3, 2019

Digital transformation is key for financial services firms that need to stay competitive and useful for tech-savvy consumers. With numerous FinTech startups launching mobile and web applications that allow users to save, pay and invest money with the push of a button, traditional financial services are in a digital race to innovate and disrupt their own business before becoming extinct.

“Almost every financial institution is introducing new digital products and services into the market to compete,” said Kevin Lash, Head of Global Financial Services Strategy and Solutions for Nutanix. Some are even partnering with nimbler FinTech entrants to innovate faster.”

He said the quandary is how to accelerate the introduction of new FinTech apps into market while de-risking the process and preserving control, simplicity, vendor choice and margins.

“It is imperative to stay innovative and support DevOps, hybrid cloud, containers, app mobility and security-first design,” Lash said. “Technology partners are bringing their entrepreneurial approach to financial services and it’s helping IT departments modernize infrastructure, adopt hybrid cloud, protect their enterprise and be more responsive to changing business needs.”

One of the simplest, yet most critical areas for advancing technology may be the move to a hybrid cloud, according to Sahil M. Bansal, senior product marketing manager for the cloud governance products at Nutanix.

“The inherent agility and hyper-scalability of public clouds, when compared with private clouds, makes those ideal for some financial services applications,” Bansal said during a webinar hosted by American Banker and sponsored by Nutanix.

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He said a hybrid cloud solution is optimal because it provides the best of on-premises, private and public cloud capabilities.

“This allows financial service providers to benefit from the on-demand elasticity of hyper-scaler public clouds when demand spikes occur,” said Bansal. “At the same time, hybrid cloud systems allow financial services to more easily comply with regulatory and security policies, which is needed to maintain stricter controls on data that the financial services industry requires.”

Compared to relying on public cloud services, Bansal said hybrid cloud systems also provide a more secure environment for backing up data in case of a disaster event that could impact business operations such as ransomware attacks or natural events," he said.

It’s clear that financial services leaders understand the need for modernizing their IT. Already 44% of financial services plan to switch to a hybrid cloud in the near future, according to the 2018 Enterprise Cloud Index by Nutanix and VansonBourne. Of the 2,300 IT professionals surveyed, 333 were in the financial services industry, with just 29% using a private cloud and only 21% using a hybrid cloud today.

The Inevitability of the Hybrid Cloud

The financial services industry has changed more dramatically than almost any field in the past decade, and there have been many stepping stones to cloud computing.

[Related story: Banks Making Progress but Still Struggle to Go Digital]

While mainframe computing played a role in the evolution of this technology for decades, the more recent advent of virtualization was even more critical —especially for the financial services industry. Virtualization allows organizations to operate more than one system simultaneously in an isolated environment.

“The advent of web-scale virtualization facilitated the entire cloud experience in the industry,” said Bansal. “Virtualization is the big one here.”

With this in place, it was only a matter of time until a hybrid cloud platform was developed and utilized by industries to leverage the benefits of both private and public clouds from the same interface.

Still, big concerns exist. While 44% of financial services hope to make the switch within the next two years, many still worry about making the change to a hybrid cloud.

The main concerns? Runaway spending and worries over ever-increasing security breaches in public cloud, according to Bansal.

“In order to fully realize the benefits of hybrid clouds, users need to gain more control over their public cloud consumption,” said Bansal. “The ease of resource deployment in public clouds lends itself to runaway costs and blind spots when it comes to ensuring security baselines are met. If your team is consuming public cloud services without automated governance policies in place, your business is essentially sitting on a ticking time bomb. Building governance policies with global visibility along with granular enforcement can help to control cloud spend and mitigate security vulnerabilities.”

He pointed out there are also time and costs associated with moving applications from a traditional data center to a cloud environment that need to be accounted for when evaluating the cost feasibility of a hybrid cloud strategy.

“There is a high cost associated with re-architecting legacy applications that have been running in on-premises environments and pushing them to public clouds,” Bansal said. “Not every legacy application can be, or should be, re-architected for public clouds. The benefits of moving some legacy applications from on-premise to the cloud may not be enough to warrant spending time and money to re-architect them. Thus, it may be better to leave some applications where they are instead of moving them to public cloud.”

Bansal also says some people may argue that you can just lift and shift legacy applications to the cloud, but that’s not necessarily the ideal solution.

“We’ve seen customer stories where their budgets blow up if they simply lift and shift applications into the cloud and they end up moving them back on-premises,” he said. “Some legacy applications are better left in private clouds, some burstable applications are better in public clouds. Financial services tend to work with a mix of both styles of applications – hence their need for hybrid cloud architectures.”

Matching Cloud to Workload

Flexibility, interoperability, and app mobility may be the key benefits for financial services looking to switch to a hybrid cloud.

“Certain cloud environments are better suited for certain workloads,” Bansal said. “Financial services tend to be cost-conscious when making cloud purchasing decisions, and they like the flexibility of not being locked into a single cloud vendor, which could be better from a cost perspective.”

Bansal also said financial services also run apps that need to be “burstable on-demand” — meaning they can exceed a specified usage threshold for a brief period and then return to their “steady state.” For example, financial services need technology that can handle any sudden influxes that may come from changes in the market that cause a huge spike in users logging into their applications for time critical financial transactions. A hybrid cloud allows these applications to succeed in this type of business environment while maintaining higher levels of application security than a public cloud-only solution.

“Hence, a hybrid cloud environment ends up being more ideal than a single cloud solution for financial services applications,” Bansal said.

Even more so than burstability, financial services believe a hybrid cloud would better allow interoperability between cloud types. Nearly all respondents in the Enterprise Cloud Index survey (97%) believe app mobility across any cloud is a top priority.

Cloud computing is a huge component of the global IT industry, and it’s only expected to grow. Bansal said we’re living in a technological time when every aspect of daily life, including our finances, needs the right infrastructure to meet our needs. If financial services leaders fail to innovate and upgrade their technology, they risk losing customers and undermining their business.

Bansal said this is why implementing a hybrid cloud environment that allows applications and data to seamlessly benefit from both public and private clouds, without needing any retooling or re-architecting, is ideal for financial services applications.

Hilarey Wojtowicz is an experienced digital media editor with a passion for personal finance and career development. She holds a master's in journalism from the University of Missouri and a bachelor's in journalism from The College of New Jersey.

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