Building on belief
Heading to the Cloud: A strategy
for banks and financial institutions
Abstract
Cloud computing is rapidly transforming businesses across several dimensions,
resulting in as-a-service options and innovative business models. With a few
exceptions, the banking and financial services industry has been relatively slow in
cloud adoption. As a corollary, incumbent financial institutions have lagged behind in
acquiring and monetizing new capabilities and embracing innovative business models.
Slow cloud adoption in the BFS industry can be attributed to the complex application
landscape, legacy systems, cybersecurity challenges, and regulatory compulsions.
Having said that, the strategic and operational benefits of cloud technologies are now
driving banks to explore adoption, albeit cautiously. Though the extent of adoption
and maturity vary by segment and individual organizational priorities, many banks are
leaning toward a hybrid and multi-cloud strategy. This white paper discusses existing
cloud models and presents two systematic approaches – a workload-based approach
and a capability-based approach – for financial institutions.
Cloud models: The power of the
right combination
The banking and financial services industry is seeing a sudden spurt in cloud initiatives. Strategic
cloud benefits such as new business models, business and operational agility, reduction of the
total cost of ownership (TCO), and product innovation coupled with tactical benefits such as
operational efficiency, scalability, technical debt management, and business continuity planning
(BCP) and disaster recovery (DR) are driving adoption. However, the industry has embraced a
gradual and measured approach to cloud adoption. The extent, maturity, and adoption models
vary by size, segment, geography, line of business, and overall business strategy. The overall
transformation encompasses a hybrid mix of some or all the different models (see Figure 1).
While some models have the ability to coexist with other models (capability-based migration with
a software-as-a-service or SaaS-first approach), others (cloud-right or cloud-only) do not, which
means that financial institutions must define the right mix before embarking on implementation.
Selective Adoption Enterprise Adop�on
Workload-based Capability-based
Cloud first SaaS first Consumer
Data on cloud Cards
Development/ Cloud right lending
test first …..
Cloud Analytics
only Data first
last Risk
RoI-based Payment
Paradigm Model Description
Cloud first New development including both old and new workloads
Cloud right Best fit for requirements – right service model and right deployment
Selective Adoption Return on investment (RoI)-based Enterprise-wide
- cloud foundation but RoI-driven movement
(aggressive or measured) Cloud only New business establishment
Data last Data subsets on public cloud but major part of data on-premise
Development/test first Development/test environment (x86 based) to flatten the cost bubble
Enterprise Adoption Workload-based Workload patterns like OLTP, OLAP, portal, COTS, analytics, transactions analytics
(systematic approach) Capability-based IT and business strategy alignment to build, transform, consume functional capabilities
Figure 1: Cloud Adoption Models
A systematic approach to cloud
adoption in financial services
Once cloud adoption becomes mainstream in the banking and financial services industry, we
expect two broad approaches – workload-based approach and capability-based approach – to
emerge and dominate. IT or technology compulsions will drive the former, while both business
and IT priorities will drive the latter approach. For banks and financial institutions, we envisage
the long-term infrastructure landscape to evolve into a strategic, hybrid, and/or multi-cloud
environment, with the ability to accommodate varied workloads, align with enterprise-wide
business processes and applications, and support futuristic, ecosystem banking models. To
achieve this, banks and financial institutions will need to consider a blend of both approaches.
Workload-based approach
Primarily driven by IT organization and strategy, enterprise architecture, and technology lifecycle
management, the objectives of a workload-based approach revolve around cost optimization,
technology debt reduction, faster deployment, and operational agility.
Start
Assess cloud adoption needs Technology refresh planning
and considerations
Assess cloud adoption needs and considerations
Finalize hybrid - Enterprise technology Assess workloads across applications Target state
infrastructure platform Business and IT strategy architecture for technology debt, usage, TCO, technology
Finalize hybrid- speed to market and risk landscape
infrastructure platform
Identify the right platform and Hybrid infrastructure,
development, upgrade Aligned with
strategy and policies target state
and deployment models No
Functional and Alignment
Technical Only Functional
Yes
PaaS or IaaS Public cloud Assess for technology Decommission
hosted upgrade or replacement old workloads
PaaS IaaS
No
Establish / leverage
platform native features Develop / transform and Develop / transform Plan for technical/ functional No Replace with Yes Procure and
in development/ opt for portable and hoston data center upgrade, rationalization integrate
transformation cloud hosting or private cloud SaaS or BPaaS?
and modernization
End
Target state architecture, technology, and policies Workload assessment for applica�on pla�orming Cloud migra�on and transforma�on
Figure 2: Workload-based Approach
The workload-based approach includes the following activities (see Figure 2):
Target state architecture, technology, and policies
• Establish enterprise technology architecture (ETA) and define cloud platform strategy.
• Stipulate policies for information security, privacy, and data management.
• Lay down guidelines for choosing the right deployment and service models.
Workload assessment for application platforming
• Build a business case for technology refresh or cloud adoption at the portfolio or
enterprise level.
• Assess workloads for alignment with the ETA, cloud strategy, and transformation objectives.
• Identify replacement options for functional rationalization or architectural modernization if the
business case and funding permits.
Cloud migration and transformation
• Consider a SaaS, business process-as-a-service (BPaaS) or a fintech platform if it promises to be
faster or more cost-effective.
• Select technologies that align with the cloud strategy.
• Choose the right cloud service and deployment model.
• Consider workload retirement and decommissioning.
The workload-based approach ensures a systematic progression toward cloud adoption.
However, this approach is centered on cost efficiency and speed-to-market. The concept of
moving workloads to a different, albeit modern and agile, platform but without delivering new
business capabilities could weaken the business case.
Capability-based approach
Given ecosystems are quickly emerging as the cornerstone of future growth across sectors,
including banking and financial services, organizations that do not prepare for this disruption risk
value erosion.1 We envisage future financial institutions to embrace innovative ecosystem models
and evolve into future-ready banks delivering purpose-driven banking, with a focus on driving
sustainable growth. To realize this vision, banks will need to build cloud-based, digital capabilities
that underpin collaborative ecosystems. And here’s where the capability-based approach comes
in – both business and IT strategies drive this approach, which means the focus is also on
acquiring new future-ready capabilities.
The capability-based approach includes the following activities (see Figure 3):
Ecosystem blueprint
• Define an ecosystem strategy that aligns with the business strategy.
• Create a target state capability blueprint, IT strategy, and enterprise technology
architecture (ETA).
Capability segmentation
• Assess strategic alignment of business and IT capabilities with reimagined ecosystem
business models
• Develop and refresh policies and capabilities across areas like information security, privacy, data
management, and so on.
• Create guidelines for choosing the right cloud deployment and service models.
• Identify new integration needs and build a comprehensive ecosystem fabric.
Implementation roadmap
• Consider SaaS, BPaaS, or a fintech option for non-differentiated and consumable capabilities.
• Plan for technology refresh and standardization.
• Assess and plan for functional rationalization or architectural modernization needs for the
retained workloads.
• Choose the right cloud and deployment model before proceeding with deployment.
• Decommission retired workloads.
[1] American Banker, Ecosystems: The Cornerstone of Future Banking, October 2020, Accessed December 2020,
https://www.americanbanker.com/whitepaper/ecosystems-the-cornerstone-of-future-banking
Start
Assess cloud adoption needs Create target state Business and ecosystem strategy
and considerations capability blueprint
Hybrid infrastructure Finalize hybrid IT strategy and enterprise
strategy and policies technology architecture Assess capabilities
infrastructure platform
Target state
blueprint Differentiated?
Identify right
development and
deployment models
Plan for
rationalization,
enrichment,
PaaS or Public modernization, and Assess for fitment and criticality
Establish/ IaaS cloud? new capabilities
leverage considering reuse,
platform native agility, and
features in monetization
development/
transformation
and deployment Develop/transform Develop/transform
and opt for and host on data center BPaaS/ SaaS/ Procure and integrate
portable cloud hosting or private cloud fintech first?
End
Ecosystem blueprint Capability segmentation Implementation roadmap
Figure 3: Capability-based Approach
Laying a hybrid cloud foundation
for ecosystem banking models of
the future
In our view, the future banking model will evolve into a cross-industry ecosystem with customer
journeys going beyond banking value spaces. Products and services will be bundled along with
those of other partners in the ecosystem. Application programming interface (API) frameworks
will be leveraged to integrate into the ecosystem and exchange capabilities and data on
marketplace platforms.
Since financial institutions operate with a complicated mix of legacy systems, commercial
off-the-shelf (COTS) products, bespoke applications, and cloud-native applications, there is no
one-size-fits-all approach to cloud adoption. Given that the long-term cloud environment will
need to be an ecosystem-ready landscape, banks must build on the short-term hybrid
infrastructure through transformation programs and multi-cloud strategies to address the
divergent needs of enterprise workloads and ecosystem business models and capabilities. We
envisage the target cloud model in the financial services industry to be a hybrid model – a
short-term, workload-based strategy to accommodate varied workloads and align with processes
and applications and a long-term capability-based approach to build new, future-ready
capabilities (see Figure 3).
[2] TCS, Living and Wellbeing Post COVID-19: Opportunities for Financial Services, July 2020, Accessed November 2020,
https://www.tcs.com/living-wellbeing-banks-insurers
Conven�onal Channels Digital Channels Next-gen Channels
API Gateway Edge Gateway
Ecosystem integra�ons
Ecosystem fabric
Layered 1 Engagement layer
4
cyber
security Integra�on fabric 4
controls
Hybrid Process, Data fabric
cloud automa�on
governance and tools 6 Adap�ve core Digital core 5
1
Key
management Shared services/u�li�es
Golden Core Shared core** SaaS BPaaS
7 6 6 1 3 3 3
2 Data center Private cloud Public cloud Financial cloud ** Hyper converged Appliance Mainframe
** Likely to evolve in the longer term – more than three years
1 Core pla�orms 4 Ecosystem fabric 6 Tooling and automa�on
2 Digital infrastructure fabric 5 Data fabric 7 Governance
3 Service models
Figure 4: Proposed IT Landscape for Future Ecosystem Business Models
Figure 4 depicts the target IT landscape and the orchestration of capabilities or a group of
capabilities required for future ecosystem banking models. Successful transition to the target
state will, however, require traditional banks and financial institutions to consider certain aspects
and implications.
Classification of functions
An audit of the existing infrastructure to identify the functions, applications, and processes that
can be migrated will typically result in three categories:
• Core functions that will need to be retained in data centers or a private cloud
• Non-core functions that can be migrated to public clouds
• Functions that will need a hybrid approach
Instead of hosting non-core capabilities on a public cloud, banks and financial institutions could
also consume them from third parties through as-a-service platforms, utilities, fintech services,
and marketplaces.
Digital infrastructure fabric
Financial institutions must build a digital infrastructure layer comprising a mix of private cloud,
public cloud, and data center platforms such as hyper-converged platforms, appliances, and
mainframe systems to enable a dynamically optimized data center. Care should be taken to
incorporate the right digital components as this fabric is the core of the future IT landscape and
key to delivering business value.
Producer-consumer paradigm (service model)
With cloud models gaining traction, financial institutions’ producer-consumer models will see a
shift. A collage comprising as-a-service models — BPaaS models for processes like loan servicing
and collections and SaaS models for non-differentiated functions like customer relationship
management and marketing – and API-backed models for capabilities owned and hosted within
the data center may well become the norm.
Ecosystem fabric
An integration fabric is critical to accommodating diverse and complex integration requirements
and enabling the exchange of data, services, and transactions among different stakeholders in the
ecosystem. The integration layer will help enable a single, dynamic, and scalable architecture that
integrates applications, data, services, and processes to deliver a flexible, seamless, and secure
distributed ecosystem. Such a fit-for-purpose ecosystem fabric that integrates capabilities from
ecosystem players will be a key component of the architecture of future-ready banks and
financial institutions. Establishing a robust ecosystem fabric is critical to realizing the benefits –
new revenue streams through white-labeling and monetization of functionalities and services,
product innovation, and personalized customer service – of ecosystem play.
Data fabric
A unified data integration and management platform that takes care of all requirements right
from data gathering to consuming insights along with robust governance must be part of the
architecture. The platform should have the capability to distribute data management workloads
across the hybrid cloud environment and meet the data insights needs of the bank as well as the
ecosystem partners.
Tooling and automation
Banks and financial institutions will need to review operating guidelines for business and IT as
well as controls across security and procurement in the context of hybrid cloud migration and
ecosystem models. Existing tools and workspaces will need to be assessed and upgraded or
modified as needed.
Governance
Effective hybrid cloud governance policies spanning planning, monitoring, enforcement, and
accountability will need to be established. This will help ensure implementation in compliance
with laid down policies and procedures with adequate controls.
Act now or be left behind
Migrating to a hybrid cloud or multi-cloud environment is a complex exercise in banks and
financial institutions, with benefits accruing over a multi-year horizon. Contextual knowledge of
the existing systems, the operational environment, product and service portfolios, as well as
organizational culture and practices, is critical for hassle-free transformation. Effective execution,
transition management, and seamless migration to a cloud-based, future-proof architecture will
require broader capabilities. Banks and financial institutions may have to consider forging the
right partnerships for the expertise required for this complex transformation journey.
About the Authors
Dhanasekar Purushotham
Dhanasekar Purushotham is a cloud architect in the Technology Advisory
Group of TCS’ Banking, Financial Services, and Insurance (BFSI) business unit.
He has around 22 years of experience across cloud architecture design,
greenfield implementations, and application migration and reengineering for
global banks and insurers. A certified AWS solutions architect, Dhana holds a
Bachelor’s degree in Electronics and Communications Engineering from the
Government College of Technology, Coimbatore, India.
Amit Sinha
Amit Sinha is a consulting partner in the Technology Advisory Group of TCS’
Banking, Financial Services, and Insurance (BFSI) business unit. As a senior
cloud consultant, Amit helps TCS clients realize their cloud transformation
objectives. He has over 22 years of experience in designing cloud computing,
digital transformation, and customer experience management solutions.
Amit holds a Bachelor’s degree in Mechanical Engineering from the National
Institute of Technology, Jamshedpur, India.
Asim Kar
Asim Kar heads the Cloud Technology Group in the Technology Advisory
Group of TCS’ Banking, Financial Services, and Insurance (BFSI) business unit.
As an enterprise architect, Asim helps TCS clients achieve their cloud as well
as technology transformation objectives. He has over 24 years of experience
in delivering cloud computing, technology transformation, and large-scale
technology migration and business application reengineering projects. Asim
holds a Master’s degree and a Ph.D. degree in Civil Engineering from IIT
Madras, India.
Contact
For more information on TCS' Banking, Financial Services, and Insurance (BFSI) unit visit
https://www.tcs.com/banking-financial-services or https://www.tcs.com/insurance
Email: [email protected]
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