Cloud Infrastructure: How the Cloud Changed and Improved Banks

Interview in Financial News & Views on Savings and Retail Banking (September 2023) from WSBI-ESBG.

Danith Valles is the Head of Architecture at CECA, the oldest Spanish member of WSBI-ESBG. Ms. Valles is the Chair of the Banking and Technology Network (BTN) of WSBI-ESBG and an active member of the High-Level Group (HLG) on Digitization and Innovation. Ms. Valles has many years of experience as an IT professional in the banking and financial services industries. WSBI-ESBG is honored to have her among our members, advocating together for innovation in retail banking and savings banks. Ms. Danith is a true cloud enthusiast and in the following lines will inform us about this innovative topic for the banking industry.

Could you briefly explain what the cloud is and what makes it innovative for banks?

The cloud is a disruptive technology that will change the operational model of banks. The cloud has provided IT resources as services, both software and infrastructure, over the Internet with pay-as-you-go pricing instead of purchasing, owning, and maintaining physical data centers and servers. Organizations of all kinds, sizes, and industries include that banks can use the cloud for a wide variety of use cases, such as data backup, disaster recovery, email, virtual desktops, software development and testing, big data analytics, and customer-facing web applications. The cloud is innovative for banks because it changes how banks operate and work, as new architectures are needed, including data, applications, security, and infrastructure. Additionally, the regulator’s risk requirements in the cloud must be expanded.

What are the benefits for banks of adopting a cloud system?

The cloud offers a variety of benefits to banking. For example, it increases the scalability, elasticity, and reliability of both infrastructure and software, reduces technical debt by allowing less coupling with the mainframe, improves operational cost efficiency, reduces CO2 emissions (sustainability), and enhances agility and the easy incorporation of innovative technologies such as artificial intelligence (AI) in banking processes. Furthermore, banks are using the cloud to enhance real-time fraud detection and prevention, payment platforms, retail customer onboarding, server virtualization, etc.

You are the Chair of the Banking and Technology Network of WSBI-ESBG (BTN). Could you please tell us a little more about the work in this Network?

It is an honor for me to lead the BTN. We are sharing innovative topics, experiences, and knowledge through events related to issues of interest to members. The topics are selected based on feedback from the members. We are adding practical insights and experiences to the network with suppliers or collaboration from partners who can add value by sharing experiences and use cases with members of the community. Additionally, we have on-site events to bridge and build relationships among members of the community.

What are the main challenges for banks when implementing a cloud system, considering the implications of the DORA Regulation?

The main challenges faced by banks when launching a cloud system can be summarized as follows:

• Interoperability, meaning existing applications may require adjustments or refactoring to interact with a cloud environment. A new operational model is needed.
• Data security and integrity risks. Cloud migrations can lead to data loss or corruption and may also open doors to attackers.
• Cloud expertise. Traditional IT teams may not be familiar with cloud environments. Professional reskilling and training in new skills and competencies are necessary.
• Cultural change, moving towards a digital culture and management that may seem resistant to change.
• Reimagining our business model by creating new value propositions and revenue models, i.e., rethinking processes.

The main challenge of both DORA and the cloud is related to operational model risk, e.g., rules for establishing and conducting supervision of critical external service providers when providing services to financial entities.

Does the cloud system play a role in digital onboarding and customer relationships?

Yes, the digital onboarding process can be provided by the cloud with technologies such as identity and verification (ID&V system) integrated with a fraud detection and prevention solution, both in real time. This will facilitate customer participation where the customer can perform onboarding with similar services, such as in an office, but in a matter of minutes and from anywhere in the world.

If you think about DORA and its implications, how do you envision banking infrastructure in 5 years?

In 5 years, most banks will have migrated a large part of their infrastructure to the cloud. This means the operational model will change. DORA, in practice, will help banks gain more control over their resilience through established rules and conduct across all processes of the operational model.