As their booming share prices testify, technology companies have been brimming over with new business during the coronavirus pandemic. For banks, there has been a special tech awakening: to the merits of cloud computing. After years of foot-dragging, many have been abandoning their cautious approach to cloud-based services and signing up with gusto to outsource
As their booming share prices testify, technology companies have been brimming over with new business during the coronavirus pandemic.
For banks, there has been a special tech awakening: to the merits of cloud computing. After years of foot-dragging, many have been abandoning their cautious approach to cloud-based services and signing up with gusto to outsource their storage of data and other activities that demand high-intensity computing power.
In the past few days alone, Amazon Web Services struck a big new deal with HSBC while Google announced partnerships with Goldman Sachs and Deutsche Bank.
Why now? Some of the reasons are obvious. As banks come under pressure from the financial costs of lockdown — a decline in economic activity, an explosion of loan losses — they are seizing any opportunity to cut costs. Cloud services tend to be priced in ways that mean you pay for what you use, rather than committing to billions of dollars of investment upfront.
But the enthusiasm for cloud computing is not just about scrimping. Banks have been among the most enthusiastic adopters of cloud-based software and video conferencing services to facilitate working from home. Just as the pandemic hit, Microsoft completed the rollout of its Teams video service to 100,000 staff across Santander’s global banking operations, building on a cloud contract struck with the Spanish bank last year.
The pandemic is also accelerating the trend towards digital banking. Dutch group ING said this month it would close a quarter of its branches. Cloud providers are increasingly casting themselves as “digitisation partners” for the banks.
Pre-pandemic, the banking sector was more reluctant than most to move to the cloud. A Bank of England report on digital finance last year — authored by Huw van Steenis, an adviser to former governor Mark Carney — estimated that only a quarter of the activities of the largest global banks were cloud-based.
That tally is far lower than in other sectors, though McKinsey has forecast that between 40 and 90 per cent of banks’ workloads globally could move to the cloud in a decade. Bankers believe coronavirus will accelerate that shift dramatically. An executive at one big cloud provider says: “So far it’s been high-compute intensity areas, such as risk management modelling, that have moved on to the cloud. Personally sensitive data and trading data have not moved. But we’re starting to see that change.”
Banks’ historic reluctance stems in part from their nervousness about security and privacy. But it also reflects longstanding regulatory concerns about the robustness of cloud-based services and concentration risk in the sector.
Thirty of the world’s biggest banks, deemed systemically important, are subject to regulatory capital surcharges in the name of safety. If 90 per cent of bank data moves to the cloud,…