Hybrid Cloud And The Edge Will Revolutionise Banks In The Next 10 Years

Whatever the short-term economic conditions, we can be certain of two things in the financial sphere. The first is the current heavy trend toward cloud migration in banking will continue and the second is that financial organisations will soon have to make significant investments in edge computing.

These important developments in IT infrastructure will significantly shape the fortunes of financial institutions over the next decade.

Investment in cloud infrastructure must increase because banks will need to create new products, services and experiences to meet expectations from consumers and commercial customers. Intense fintech activity, either by partners or competitors, is also pushing banks into the cloud as the necessity increases for infrastructure that generates greater organisational flexibility. Market research company IDC estimates that to meet new demands and provide new services, banks’ global cloud spending will rise by more than 16% each year up to 2024, hitting $77 billion annually.

Soon, however., banks’ attention will be on the edge, moving processing power closer to the end-user or customer. We have entered the new age of open banking, app-based financial management and the steady expansion of 5G mobile connectivity. The banking world, like almost every other field of business, will become data-driven. Financial organisations will use the edge to create new models of service and hyper-personalised experiences using big data and artificial intelligence (AI) in combination with 5G and highly advanced application design.

The edge will enable banks to easily expand into products based on crypto-currency, non-fungible tokens (NFTs) or stable coins. Custody and trading solutions, prime brokerage services and blockchain-based compliance solutions will be part of this evolution. 

Organisations will transform all their processes, enabling near-instantaneous completion of transactions, settlements and decisions on loans, credit, or insurance. And to compete with global app-based lenders and service providers, banks will have to provide the slick interfaces and ease of use that increasing numbers of consumers take for granted. Competitiveness in consumer and business banking will be about providing a great experience. The dynamism and fast reactions that are essential for these key developments are only available from cloud and edge computing, delivering the necessary speed, low latency, flexibility, and scalability.

Hybrid infrastructure with edge

Yet just as UK financial institutions move into the cloud, the Bank of England’s Prudential Regulation Authority warns against the dangers of vendor lock-in and reliance on individual providers. Data sovereignty laws also continue to make relationships with US hyperscalers potentially dangerous.

Given these constraints, it is obvious we will see banks adopt hybrid infrastructure, combining public cloud and on-premise data centres. This will strike the balance between flexibility and security, so banks locate data workloads where they work best or are best protected. Edge computing will grow in tandem as financial organisations deploy artificial intelligence-based solutions and sophisticated mobile applications.

Using 5G mobile connectivity rolled out by the telecoms companies, edge computing removes the disadvantages of location, shifting data and workloads to regional data centres to deliver faster, low latency responses for end-users. This has clear benefits for financial institutions seeking to offer highly personalised and responsive payment platforms, for example. Any solution depending on location as part of its decision-making needs to process data in an edge computing environment.

Aside from consumer and commercial applications, the edge also has significant potential for investments and markets, delivering high-speed trading capacity anywhere in the country.

Accelerating adoption

The adoption of hybrid cloud infrastructure that includes edge computing will accelerate over the decade, thanks to the creation of nationwide edge computing platforms and the development of effective implementation methodologies. Banks can prioritise data and applications for deployment, whether on-premise, in private clouds, colocation data centres, public cloud or with the providers of national edge platforms.

Colocation can be highly attractive because a bank locates its own IT in a secure and efficient data centre run by specialists. The more advanced colocation and cloud providers are compliant with PCI (Payment Card Industry) data standards, enabling secure use of the full range of card payment technologies. Some providers may also comply with the US’s SOC 2 requirements governing customer data.

New applications and revenues with greater freedom

This is all about flexibility and making advanced, revenue-generating AI applications available almost anywhere. At the same time, business-critical applications that are not cloud-compatible remain on-premise. Banks gain the remarkable computing and data management capabilities of individual public cloud vendors without fear of lock-in or being constrained by providers’ operational practices.

New-generation management tools designed for hybrid infrastructure enable financial organisations to monitor all their data and applications and to optimise all their deployments in the cloud and at the edge. Banks can generate workloads to meet peaks in demand, avoiding excessive expenditure without the risk of missing new business opportunities.

Hybrid cloud and edge computing are inexorably part of the future of banking, given the arrival of these new cloud management platforms. The next ten years should see the most forward-looking financial institutions gain the flexibility and innovation of the cloud and the devolved power of edge computing. Maintaining sensitive data and workloads in secure locations, these organisations will develop highly advanced, hyper-personalised applications and new business models throughout the decade, confident they can flex, re-evolve or scale whenever need be. They will become fully data-driven and dynamic, realising the vast potential of hybrid infrastructure and edge computing

About the author: Simon Michie is CTO at Pulsant.

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