IBM: A new business model lies in the cloud – Sebastian Krause
The cloud is becoming a fundamental part of the digital banking world but the benefits it can bring are constantly evolving. It is time for the industry to look beyond the physical infrastructure and the analytics to harness the real power of the cloud and unlock true innovation. As it is changing the banking business model, we speak to Sebastian Krause, vice-president of cloud Europe (far right), and Rashik Parmar, distinguished engineer, of IBM, about where the cloud could really take the finance industry.
Blessed with vast amounts of data, the banking industry is turning to cloud-based solutions to ensure that it manages it efficiently and uses it to maximum advantage. The cloud is seen as the perfect solution for the industry's data management needs, but it is a rapidly evolving space where services are not only becoming easier and cheaper to access, but also have the potential to radically change how banks do business.
Growing competitive pressure and the emergence of new players in the banking services sector mean that a rethink of the traditional business model is inevitable, but the cloud can do more to facilitate than simply lowering costs.
"Banks are struggling with their business model and profits," says Sebastian Krause, vice-president of cloud Europe at IBM. "Banking can be done without a bank now, and mobile technology brings banking services to customers in a single device. They need to focus on customer relationships as well as banking capability - their customers are open to digital technologies and don't want barriers to banking. So, banks are changing their business models to leverage digitisation."
IBM's vision for cloud computing is at the cutting edge and is aimed at helping organisations to drive change in how they operate through state-of-the-art services. Krause and his team have a vision of the future of banking that rests firmly on the cloud.
"We have a strong vision of the cloud and we span an entire portfolio out of how the cloud can deliver business value. The cloud is different now to what it was two years ago, when it was all about reducing cost and increasing efficiency through simpler and faster processes. Now, it is an enabler of business model innovation and revenue generation," he notes.
As the industry invests in cloud services, it is increasingly opting for the hybrid model - blending elements of public and on-site, private cloud infrastructure - and Krause believes that this will be the predominant model in the future. During his 16 years at IBM building enterprise software and middleware, Krause has seen the value of open architecture in creating a standardised portfolio on which added value can be built, and he sees the same approach defining IBM's approach to the cloud, the result being a flexible and agile technology architecture and service portfolio that can act as a catalyst for change.
"Some service providers focus on just one element of the cloud - public or private - but no customer can operate on just one cloud because of the number of data services they rely on. So, they need a homogenous solution - a hybrid model for enterprise. We integrate multiple sources of data based on openstacks, open architecture and open technology. It is a simplified approach for a hybrid cloud strategy," he explains.
"You can think of it like building scaffolding around a house in order to make it easier to modify the structure of the house," adds Rashik Parmar, an IBM distinguished engineer and previously president of IBM's Academy of Technology, who leads the company's team of cloud advisers.
Proven in practice
IBM has gained insight into the specific needs of the banking sector not only through a long track record of engagement with financial services clients, but also through the IBM Institute for Business Value, which leverages global industry and functional experts to pinpoint emerging trends. Predictably, this insight into the banking sector highlights the need for the industry to invest in mobile services.
"In the mobile space, banks need an ecosystem based on partnerships and we help them to connect their current systems of record to the systems of engagement using the cloud and other technologies to bridge those worlds. Some banks are born in the digital age but others have a big asset in their existing systems," says Krause.
"Banks are well endowed with data and have skills in analytics. They could create a new and magical customer experience through the cloud and analytics. 'Born in the cloud' organisations work in a different way. It is all about getting back to banking and being at the centre, rather than going behind their systems as some banks have. It is about a cultural change. We have the technology, so banks need to be open to a change in their business model," adds Parmar.
Among its recent work in the financial services space IBM can point to many examples of how the cloud is facilitating meaningful change in many different ways. For instance, IBM Global Business Services teams recently helped Nationwide Building Society create a compelling and competitive mobile banking offering.
Nationwide had recognised a competitive gap within the industry in terms of channel costs and digital reputation, so needed to capitalise on its rebuilt online banking experience and exploit its multichannel architecture. IBM re-engineered its existing internet channel to improve its mobile banking services, while reducing the cost of creating mobile channels and greatly improving customer experience.
Global banking group BBVA, which is among the market leaders in Spain and South America, faced a different set of challenges. It recognised the reputational challenges caused by negative comments on social media and wanted to manage that environment better to build on positive results. Using IBM Business Analytics solutions to monitor and respond to online feedback, it is now gaining rich insight from social media channels, allowing it to not only respond to negative feedback, but also to detect possible risks to its reputation before they arose, increase positive feedback and improve customer satisfaction. So far, it has successfully deployed IBM Social Media Analytics in Spain and is set to roll it out in other countries soon.
"For BBVA, the return on investment is unbelievable. Banks may not often think about social media data but people use that channel a lot to talk about their banks. BBVA is analysing that data to identify new product opportunities and address specific customer segments," notes Parmar.
Nuts, bolts and forward thinking
IBM provides everything for banks to make a successful journey into the cloud - from analytics solutions to the physical hardware in data centres. SoftLayer, for instance, is its high-performance cloud infrastructure that connects, integrates and automates the cloud computing capability of data centres located in different sites around the world on one platform. A SoftLayer data centre is built to guarantee security, resilience and efficiency, and is equipped to deliver the full catalogue of services to provide fast and seamless performance on a global scale.
"For banks, it is all about getting the right platform to leverage not only current technology but also technology in the future. The world is very volatile, so you need to have a three-to-five year horizon on your strategy for the cloud. We do everything from simply integrating platforms and integrating services to consultancy at the very beginning of a cloud journey, all based on banking industry best practices," Krause says.
For Krause, the technological infrastructure of cloud services is not where the challenges lie. He believes that the most important step for banks looking to leverage cloud services is to have a clear idea of what business model they want to achieve.
"From a technology perspective, the journey can be made easily, but it depends on what technologies a bank already has. A return on investment from getting into the cloud is reachable through improved customer satisfaction, lower cost, greater revenue generation and better client services. We can use our experience of hundreds of engagements with financial services clients to leverage best practices," he says.
"People can bank without a bank now. There is competitive pressure, including from other industries, so banks are becoming less conservative in their approach to new technologies. The market will be disrupted even more in the future, so to stay in business they must open up to a changed world. To take the whole organisation on that journey is a big shift and it needs not only the right strategy, but also a lot of leadership."