When it comes to matters of the cloud, many transaction bankers talk the talk. But walking the walk appears to be another matter.
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| Chris Skinner, chair of the Financial Services Club |
According to Chris Skinner, chair of the Financial Services Club, a networking group for European financial services executives, the term cloud has been greatly overused – and as a result is often misunderstood. “People are confused by cloud,” he says. “When we talk about cloud we tend to think about Google, Amazon, maybe Salesforce.com. But if you look at what cloud covers, it’s everything to do with infrastructure from software, platforms, networking, hardware – you name it.” Despite the prevalence of the terminology, in core transaction banking “cloud is still a little bit under-utilized,” says Skinner. “There are some industry offers which are cloud based, where transaction banks are offering services to counterparties and clients that are cloud based, but the idea of a transaction bank actually using a third-party cloud provider for their service, I haven’t seen yet.”
Tim Tyler, global product manager, commercial e-banking at Misys, adds: “Cloud computing for transaction banking is currently in a nascent form. With banking adhering to possibly wider oversight and regulatory requirements than other industries, the practical considerations that go in parallel with the amorphous form that is cloud computing have stalled the adoption of the cloud principle: where exactly is your data being held, for example.”
That said, some interesting developments are beginning to emerge in this area. One such is the launch of the Currency Cloud last year. Offering "cross-border payments as a service", the Currency Cloud allows a range of clients, including financial institutions and corporations, to make international payments, or to offer international payments to clients.
Meanwhile, corporations are able to access treasury management system technology via the cloud. Kyriba, for example, offers a range of treasury management solutions using a software-as-a-service (SaaS) model.
Other types of vendor are heading into the cloud, including some that deliver transaction banking technology for financial institutions. “Companies such as Misys are looking to deliver their transaction banking solutions within the cloud, but more appropriately as SaaS,” says Tyler. “Placing the entire front-to-back solution in the cloud will allow smaller banks to compete for transaction banking business: they will be able to invest in delivering their service and not worry about the teams of people required to support the technology infrastructure.”
Another development of note is SAP’s Financial Services Network (FSN), a private-cloud-based platform connecting banks and their corporate clients. Launched at Sibos last year, the initiative is being supported by Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, Citi, Deutsche Bank, Nordea, RBS and Standard Chartered. Once established, the network has the potential to lead to the development of cash-management solutions as a cloud-based service.
“For a long time we’ve been able to allow clients to run a host-to-host integration of our payments and reporting services,” says George Evers, head of product management and development at RBS. “In essence, that gives our clients the ability to use their own ERP [enterprise resource planning] system to generate and create instructions, and then to pass those down as a bulk set of instructions for us to execute on without the need for clients to log on to a separate bank system.
“What we have been doing with SAP in the FSN is integrating those services with SAP’s cloud offering, which give access to our payments capability as well as the security and integrity that clients need from those services. From a client’s perspective, that takes out the process of integrating their ERP system with their bank’s service providers.”
Evers points out that from this starting point it might be possible to bring other data sets into the common area, such as e-invoicing and supply-chain capabilities – thereby eliminating the fragmentation that is common in the treasurer’s technology infrastructure.
“I see cloud as enormously important from the banks’ point of view to first of all simplify the infrastructure and lower costs,” says Jens-Peter Jensen, head of banking architecture and technology at SAP. “We don’t have a transformation programme running in global transaction banking where the topic of cloud does not come up.”
Obstacles
Despite these developments, security continues to be a substantial sticking point. “A key concern with our transaction services clients is that there is often a trade-off between convenience, security and integrity,” says Evers. “Yes, cloud feels like a more convenient and cost-efficient way for companies to manage their services – but users don’t own it and control it in quite the same way, so what happens if something goes wrong? These are things that will need to be overcome for cloud truly to take off within transaction services.”
Nevertheless, the trend towards cloud looks set to continue – and as this type of technology matures, additional longer-term opportunities might begin to emerge in the context of transaction banking. Information held in disparate systems might be brought together in a single place, allowing banks and clients to access additional efficiencies.
As Evers concludes: “The ability that cloud offers to work through a combination of big data sets with unlimited processing capability is a really exciting opportunity for us and our clients, which will allow us to drive out fresh insights and make better decisions alongside the provision of core transaction services.”