Cloud computing is now integral to the banking and financial services sector. According to the American Bankers Association, over 90% of financial institutions report using cloud tools for some or all of their banking operations.
But despite the proliferation of cloud computing in fintech, most banks remain reluctant to move all their assets to the cloud environment. About 10% of the institutions reject cloud computing, citing data vulnerability and lack of funds as the primary objections.
Nevertheless, banking institutions using hybrid cloud banking have reported significant improvements in several aspects of their operations. We’ll cover hybrid clouds in this article and also provide actionable insights on how banks can implement this technology.
What is a hybrid cloud model?
A hybrid cloud is a computing approach that involves running applications in different environments simultaneously. Most hybrid clouds feature a public cloud environment (like Google Cloud), a private cloud, and an on-premises data centre.In the banking sector, hybrid clouds are used to orchestrate and manage application portability to provide a unified and flexible distributed computing environment for easy scaling.
Key benefits of hybrid cloud environments for financial services institutions
Hosting your financial services in a hybrid cloud environment can help your bank in the following ways:
Enhance security
Adopting a hybrid cloud approach for your digital retail banking infrastructure will help prevent and mitigate the potential reputational and financial damage to your bank.
In June 2022, Flagstar Bank reported a significant data breach that jeopardized the safety of customer data. Over 1.5 million people were affected by this incident. Although the bank has been cautiously vague about the nature of the cyber attack, this breach has dented its reputation.
By adopting a private cloud environment for sensitive information and a public one for other records, hybrid cloud banks can reduce the risks of compromising data security.
Meet data localization regulatory requirements
Data localization regulatory requirements refer to regulations that mandate the storage, processing, and handling of data within specific geographic boundaries or jurisdictions. These regulations aim to protect sensitive data and ensure data sovereignty by requiring organizations to store data locally rather than transferring it to servers located in other countries or regions.
Data localization regulations can vary significantly from one jurisdiction to another, but they commonly apply to sectors that deal with sensitive information. For example, Saudi Arabia (KSA) has implemented data localization requirements for certain sectors, including the financial industry. The Saudi Arabian Monetary Authority (SAMA) issued the Cloud Computing Regulatory Framework, which applies to financial institutions operating in Saudi Arabia.
Under this framework, financial institutions are required to store and process customer data within Saudi Arabia.
Using hybrid clouds enables financial institutions to stay compliant when handling consumer data. As a highly regulated sector, banking has myriad regulatory requirements that every application must abide by.
But by hosting your application on industry-compliant public clouds like AWS, your hybrid cloud solution bank can store sensitive information on your private server—according to data handling and management regulations.
Implement new capabilities
Many financial institutions oversee portfolios of services that include legacy apps incapable of supporting the implementation of new components or capabilities. Since some legacy software can be difficult to modernize, you end up struggling to make improvements to the existing architecture.
But with a fintech platform that contains hybrid cloud tools, you can seamlessly migrate and modernize your legacy banking infrastructure to a private (or public) cloud environment. You can also establish a harmonious environment for your legacy system to work with cloud applications without disrupting business operations.
Maintain continuity (CI/CD)
Hybrid clouds have accelerated changes in the banking sector by ushering in the era of challenger banks and other disruptive fintech products. And this is possible thanks to continuous integration, delivery, deployment, and development.
This allows fintech teams to innovate faster and meet deadlines without interrupting the current workflow. You could also use hybrid cloud infrastructure to host, test, stage, and back up critical operations.
Improve the user experience
When your core infrastructure is scalable and always available, the user experience will improve significantly. Your applications and services will remain online with few network outages and downtimes.
Also, hybrid clouds decrease network latency when banks use them at edge servers. And most importantly, data from a bank hybrid cloud can help financial service firms understand their customers better to figure out effective ways of improving customer satisfaction.
Reduce the time to market
As mentioned earlier, continuous integration and delivery improve the speed of innovation. This all-important capability makes a difference in the highly-competitive industry because it decreases the time to market for products. In addition, you can update the product after deployment to patch errors or introduce new updates.
Reduce IT costs
When your application is in a hybrid cloud environment, the cost of IT services will reduce significantly. Think about it; reducing the time to market means fewer iterations in testing, development, and deployment. As a result, you will be able to save costs, especially when working with a time-and-material model.
Not only that, most cloud vendors employ a pay-as-you-go model—which means that you only get to pay for the used resources instead of paying massive fees for the tools you don’t need.
Break data silos
Although a hybrid cloud separates infrastructures into different storage environments, modern cloud tools have features that enable banks to unify their data and avoid the formation of siloes.
Become more scalable and flexible
Banks and financial institutions rely on hybrid clouds due to their flexibility. You can expand or shrink business operations to suit demands without experiencing network outages. This helps banks scale their operations and applications while maintaining a consistent performance and consumer satisfaction level.
Increase ROI
Hybrid clouds help banks to save more and reduce unnecessary expenses, thereby increasing overall revenue. Also, advanced analytics can help financial institutions to figure out redundancies in their operations, which they can address to improve process efficiency and productivity.
Best practices for implementing hybrid cloud for banks
Although using a hybrid cloud for banking has many advantages, implementing it in the wrong way could hurt banks and financial service providers. Let’s go through the best practices for implementing hybrid clouds.
Use trusted vendors
Banking institutions can use private clouds for application and network infrastructure if they can shoulder the security and maintenance costs. Alternatively, they could use the resources of trusted vendors to handle data-intensive banking operations.
Some reliable cloud vendors include:
- Amazon Web Services (AWS)
- Microsoft Azure
- Adobe Creative Cloud
- Google Cloud Platform
- Oracle Cloud
- IBM Cloud Services
- Verizon Cloud
- VMware
- SAP
It is important to note that these cloud service providers also handle compliance for your banking infrastructure as well as advanced data analysis.
Maintain interoperability
Interoperability is the capability of different system infrastructures to work together —exchanging data and other network resources — without any friction. With the influx of varying cloud tools, maintaining interoperability with legacy systems and even modern cloud tools has become a challenge.
Here are ways to maintain interoperability for hybrid cloud banking infrastructure:
- Use open cloud standards. Although there are no universal operability standards, your cloud infrastructure should follow IEEE interoperability specifications to avoid compatibility issues.
- Use adapters as a buffer between different cloud platforms. These adapters save costs by eliminating the need for an additional data centre to merge legacy systems with modern ones.
- Modernize your legacy architecture. Although hybrid clouds can co-exist with legacy systems, it is better to modernize them to avoid issues down the line. If modernization costs are too high, you can refactor the underlying code to improve efficiency.
Pay attention to vendor lock-in when replatforming
Some cloud providers “lock in” their products, rendering them incompatible with other cloud resources. When choosing a cloud provider for re-platforming your legacy banking infrastructure, prioritize vendors that enable interoperability. This will help you migrate to a hybrid cloud without worrying about wholesale retooling and compatibility.
Effective re-platforming strategies include “Lift and Reshape”, “Move and Improve”, and the “Lift, Tinker, and Shift” application migration strategy.
Establish a strict governance model
Your digital banks should have a governance model that includes rules and policies guiding cloud services. This ensures your entire organization is on the same page regarding your business goals.
A strict cloud governance model also boosts data security by ensuring that all deployments, integrations, and tests follow the outlined internal policies. This helps teams detect and analyze risk factors before they affect your financial services.
And most importantly, banks should use access management to control who can access sensitive data; this will help them eliminate insider threats.
Embed testing into every stage
The success of every hybrid cloud hinges on constant testing, which starts during migration from on-premise architecture and continues throughout the lifecycle of the cloud environment.
Companies that offer financial services, whether digital banks or cloud wallets, must conduct tests to ensure the system and its components are working correctly.
Diversify security
Hybrid clouds are prone to cyber threats, so you should consider different forms of security protocols to protect your data from hackers. Here are some ways to secure your hybrid cloud:
- Use image-based backups to protect your copies on virtual machines.
- Encrypt data in transmission using Internet Protocol Security (IPSec).
- Isolate the most critical software.
- Secure all network endpoints by using firewalls.
- Use access controls to limit access to only authorized users
- Train your staff to spot potential vulnerabilities.
- Make the use of multi-factor authentication compulsory.
- Use a Trusted Platform Module to protect your hardware.
Combining all these features will provide air-tight security for your network infrastructure.
Monitor performance
As part of governance and testing, banks need to monitor the performance of their hybrid cloud infrastructure at all times. Here are some important things to observe when implementing a hybrid cloud in banking:
- Vulnerable endpoints
- Availability
- Cost
- Response time
- Crash frequency
- Network requests
Tools like Google Operations, Azure Monitor, and CloudWatch can help you track the performance of your private and public clouds.
Why use SDK.finance hybrid-cloud software?
Digital banks and payment services rely on our FinTech Platform, which is available through a hybrid delivery model. This platform also relies on the AWS Server infrastructure to provide top-notch resilience and security for banking operations.
The backend app can be hosted on AWS or other cloud infrastructure while our team provides maintenance services. In the same vein, your team will have control over the main databases according to cloud management regulations.
Speaking of regulations, you can manage payments, contracts, currency exchanges, and other related financial operations while maintaining acceptable KYC standards, thanks to our industry-compliant systems.
On your end, you will be able to control the platform’s UI and the admin area by downloading the ready web front-office and back-office packs from Github to customize or build yours from scratch. Our API-first approach provides a massive library of 400+ RESTful APIs for easy integration with the necessary services and providers.
To ensure that your banking infrastructure maintains air-tight security, we’ve implemented several traffic encryption methods, including role-based access limits and other encryption protocols.
Most importantly, you get to save ownership costs by reducing the amount of money spent on development and infrastructure costs. This provides an excellent opportunity for startups to decrease their expenses and accelerate their time to market.
Conclusion
Hybrid cloud is now part of the banking sector because of the flexibility and scalability it provides for companies that offer financial services. When working in a hybrid cloud environment, the advanced security infrastructure and encryption protocols will protect your data from falling into the wrong hands.
With a hybrid cloud banking solution, banks and financial institutions can handle operations, modernize their infrastructure, and maintain regulatory standards. And above all, they can integrate custom solutions with public cloud servers as well as modify the UI to ensure a smooth, stress-free customer experience.
References
- IEEE SA – IEEE 2302-2021
- Cloud portability and interoperability – IBM:n Think-blog
- Navigating the interoperability challenge in multi-cloud environments
- 5 Top Cloud Service Providers Companies in the World – DataFlair
- How to make the most of hybrid cloud for banks – N-iX
- 10 Cloud Monitoring Tools You Should Know
- What is Hybrid Cloud? | IBM
