Financial industry cloud model gains momentum

IBM's financial industry cloud

In the case of the IBM cloud for financial services, IBM ensures that software providers certified to run on their financial services cloud have met any local regulations required for the industry, said Jerry Silva, vice president at IDC Financial Insights. IBM also offers security services to offload some of the work institutions must perform as part of cloud-based software acquisitions from a third party, he said.

Jerry Silva

"This is a part of due diligence that the institution would otherwise have to do on its own before approving an external software provider,'' Silva said.

IBM began offering its financial services cloud three or four years ago with Bank of America as its first client, said Prakash Pattni, managing director of digital transformation, IBM Cloud for Financial Services.

"Instead of financial organizations spending their time building all the security [components], we said, 'Why don't we … build an industry cloud that meets those regulations and security requirements,''' Pattni said. That way, organizations can focus on innovation.

IBM's financial services industry cloud has two layers, starting with the foundational layer, which includes built-in security and automated compliance tasks. The company has experts who continually look at local regulations and build in controls to meet those, Pattni said. The second layer is built around data protection, using what IBM calls confidential computing, which offers a high level of encryption, he said.

De-risking the cloud

IBM's main goal in building the vertical-specific cloud was to de-risk -- to lessen the risk of -- using the multi-cloud ecosystem for financial service firm clients that need the highest levels of security, privacy and resiliency. The company heard frequently about financial services organizations using third parties and ending up with "a massive supply chain of providers and bad actors leveraging vulnerabilities in these smaller providers. We wanted to de-risk that ecosystem for their industry," Pattni said.

IBM also recognized that the financial services industry is moving to a hybrid cloud model, with organizations using a blend of on-premises infrastructure and external providers, "so we wanted to make our solution as open as possible with security and safety,'' Pattni said. "A lot of our solutions can be run on other [cloud] providers and in [a customer's] own data center.

Prakash Pattni

The partner ecosystem

IBM Cloud for Financial Services is working with more than 100 partners that help clients in the financial services industry accelerate their cloud adoption and digital transformation initiatives. These partners have been vetted by IBM and help clients build apps and solutions to use on that foundational layer, Pattni said.

For example, a retail bank that must do customer identity checks can use a provider that is a payment or identity specialist to automate the process in the cloud rather than the bank checking customers itself, Pattni said. Combining those foundational and data protection layers provides better speed to market and saves a customer's internal developers from having to reinvent the wheel.

Before IBM adds a particular provider into its partner network, the company assesses the provider and puts it through testing to ensure the provider has the proper levels of safety, encryption and security controls, Pattni said. This testing can prove to a regulator that the provider meets certain standards.

The advantage for a customer, such as Bank of America, is that if it runs an app on IBM's financial services cloud, IBM has already done the work to customize and create the industry cloud.

Additionally, when customers deploy apps with different cloud providers, customers can monitor them through one pane of glass. "We're building open solutions for the hybrid world. Even if it's running in your own data center, you can monitor all those different pieces across all those different environments from the solutions we've built," Pattni said.

IBM did this by using capabilities including Red Hat's OpenShift Kubernetes container platform designed for an open hybrid cloud strategy, he said.

Some MSPs use the financial services cloud to build an application to solve a client's specific problem, Pattni added.

Financial services clouds will have some positive impact on institutions that may be wavering about whether to adopt a cloud now or wait until [they have] the internal resources necessary to adopt cloud-based workloads.

The future of industry-specific clouds

Industry-specific clouds ease cloud adoption, particularly in regulated industries, by reducing the regulatory barriers impeding the IT landscape and application modernization, Pattni said. In contrast, users of general-purpose clouds need to customize them to meet the needs of their industry.

Enterprises adopt hybrid, multi-cloud approaches which create different challenges around how to integrate all the services needed to manage operations, he noted. The goal is to speed time to value while reducing the time and cost of meeting compliance.

Financial services clouds can reduce supply chain risks and decrease compliance costs for fintechs and partners by inherently adhering to the same security and control requirements.

"Ultimately, banks can access a far broader array of relevant and compelling new financial technologies faster and easier than before," Pattni said.

Silva believes "financial services clouds will have some positive impact on institutions that may be wavering about whether to adopt a cloud now or wait until [they have] the internal resources necessary to adopt cloud-based workloads."

Overall, adoption has been rising quickly in financial services, with less than 10% of institutions not already running or planning on running on the cloud within 24 months, Silva said.

"If anything, I think the cloud services providers who establish a financial services-specific cloud may have a competitive advantage against those that don't,'' Silva said, but added that it is still too early to say that for certain. "There are other characteristics, such as deep expertise in AI-based analytics, that may prove more compelling than a financial services-specific cloud, based on the specific needs of any individual institution."