June 27, 1967. It was a muggy day.
A huge crowd gathered outside the Barclays Bank building in Enfield, North London, to witness the opening ceremony of the world's first automated teller machine (ATM). Despite the heat of 27°C (81°F), all the assembled officials were dressed in classic suits and ties and there was a sense that something in the world was beginning to change.
Photo Tom King/Mirrorpix/Getty Images
The appearance of the ATM was a huge technological advance for the financial sector, which was previously quite stable and not particularly pleased with innovations. But by the 1960s, the foundations of digitalization had already been laid in the banking world.
Banks have already used mainframes, which in the last decades of the 20th century turned into data centers, which allowed customers to use new ways to communicate with the bank.
In 1989, Midland Bank launched First Direct, a branch-free bank operating through call centers. Other banks and financial services, such as Smile and Egg, encouraged remote banking over the phone and over the Internet. By 2001, Bank of America reported that three million of its customers use banking services over the Internet.
But these were all smooth changes. Only recently has the situation started to accelerate — and the 2008 financial crisis was the main impetus for this. Perhaps the 2008 crash will be the real beginning of the end for banks ' own data centers.
During the economic downturn that followed the crash, banks lost the trust of the general public.
In response, they began working more closely with FinTech companies to develop new principles. Online banking and mobile banking appeared — increasingly powerful smartphones combined these two types of services, and people could work with money on the go, without visiting bank branches.
Meanwhile, FinTech companies have developed new tools, and they have begun to promise that artificial intelligence, as well as the versatility and speed of mobile networks, will significantly increase the culture of comfort and efficiency. Banks, for their part, were trying to figure out how to improve the quality of service.
Since the financial crisis, regulators have created additional barriers, increasing their workload and complicating the work process in an effort to reduce risks.
This pressure has forced banks to rethink many of their policies. They began to work closely with FinTech and began to offer more universal services faster.
Banks also analyzed their own infrastructure and doubted that their internal digital infrastructure meets the requirements.
The Op-premise data center has become more of a burden than an asset. Banks have moved their servers from their own back offices to public areas such as data centers (colocation). But the next step — moving to a cloud infrastructure running on shared machines in a centralized data center-can still seem very risky.
"If you've been following data centers in the financial industry, I would say that even 10 years ago, a financial company's transition to using colocation or cloud centers would have been considered very unlikely," said Markus Hassen, group manager at the American financial holding company Truist, speaking at the recent DCD conference.
According to Hassen, the pace of change is impressive, given the conservatism of banks and the very recent development of cloud technologies. Online applications didn't appear very long ago, and the public cloud only began to develop after Amazon seriously started developing Amazon Web Services.
"The public cloud segment didn't start until 2006, when Jeff Bezos wanted to find ways to diversify," says Hassen. "We have to give credit to big companies for how they were able to convince many CTO's and CIOs that the cloud is the best business model."
Ten years after the financial crash, there was a global crisis caused by a pandemic, which greatly accelerated the process of digitalization.
During the pandemic, those of us who had jobs that could be done from home had to spend time indoors. This led to a boom in the data center industry — but this boom was primarily reflected in spending on cloud services, not on stationary solutions.
After the pandemic, it became clear that all industries, not just banking, are moving resources to the cloud and abandoning local hosting.
In the IDC Worldwide Industry CloudPath Survey (May 2020), 57% of banks that took part in the survey said that they already work in hybrid environments, another 31% will switch to hybrid models in 12 months, and another 9% in 24 months.
Ali Moinuddin of the Uptime Institute spoke about this transition:"Over the past few years, we've seen more and more companies become much smarter about how they deploy their IT resources and what platforms they use."
"Companies often use the services of multi-cloud and multi-chain partners, as well as manage their own data center. They transformed their own infrastructure, which was planned even before the financial crisis. But after this event, many companies have restructured. Therefore, we are seeing a significant increase in the use of cloud infrastructure and, more importantly, colocation service providers."
Despite this, local IT solutions are not yet (yet) dead. There is a good reason why banks are switching to hybrid technologies — they support their stationary infrastructure along with new solutions in the cloud.
This reason is risk. It turns out that using multiple cloud providers can create difficulties.
Moinuddin explained this in more detail: "When you start distributing your infrastructure across multiple providers, you increase the likelihood of problems. And as you start to make things more complex, you actually increase the level of risk in terms of potential disruptions that can occur in important IT services that support mission-critical business products."
"There are some concerns about the risks associated with the level of concentration, when certain large service providers may place in one zone a number of financial institutions that are critical to the national economy in a particular region. Thus, if there is a shutdown, not just one bank will suffer, but several, which will have a very tangible and negative impact on the reputation of the financial services sector."
In February of this year, five banks in Canada simultaneously failed, as a result of which customers could not use online and mobile banking, as well as debit cards. No explanation was given for the sudden shutdown.
Another consequence of the pandemic was the refusal to use cash.
Half a century after the first ATM appeared, we are beginning to move towards a cashless society. During the pandemic, many stores only accepted card payments to limit physical contact as much as possible, and in 2020, cash payments were reduced by 35%. After the pandemic, the situation has not yet recovered.
An unexpected effect of this was the increased dependence on online systems. Cash is something that can be carried and used at all times, regardless of whether we have access to working digital banks. Mobile bank debit cards and credit cards are all more or less dependent on online services.
In our world, when services don't work, people can be extremely vulnerable. It is important that banks protect themselves and their customers from this risk. When banks evaluate the reliability of cloud and on-premises IT infrastructures, they must take everything into account.
In such a situation, there may be a strong desire to keep the infrastructure at the local level and under your own control. Charles Hoop, a leading international IT sourcing specialist at Aon, told DCD that: "a lot of this drive is philosophical, almost religious in nature in terms of some of the stereotypes that drive this [the desire to stay on your own hardware]."
"Because everything was outsourced, and these are all third-party companies. I'm not sure there are many electrical engineers on staff who can quickly find a fault and detect a specific fault."
But Hoop believes that increased control is not enough to justify the cost of on-premises systems in comparison with cloud ones: "I think if you just calculate the cost, pay attention to the technical advantages, then there is no point in building your own data center."
Of course, building your own center from scratch would entail a lot of associated costs. But in the banking sector, we often talk not about building new data centers, but about upgrading an already functioning local center or transferring resources from it to colocation or the cloud.
This process is expensive in itself, but it can ultimately save you money in the long run if done properly.
An effective solution comes as a result of planning and a clear understanding of what data and calculations should be in the cloud, and what should remain.
With all this in mind, Ali Moinuddin argues that hybrid solutions are indeed the future.
We are seeing a steady migration of old corporate assets to public and private cloud computing, as well as to colocation. In the process of forming our assessment of financial services, about 50% of banks told us that they do not currently use public clouds. And what would you understand, these were major banks from all over the world.
"However, they are creating private clouds in colocation and their own enterprise data centers."
In January 2022, JPMorgan announced that it had built its own data centers to host private clouds. The company spent $2 billion on new data centers in 2021, despite the overall strategy of moving to the cloud. These costs have been criticized and even share prices have fallen, but the company said the investment was necessary in order to develop data centers and cloud services in new markets such as the UK.
"We've spent $ 2 billion on completely new data centers that have all the cloud technology that private data centers can offer," chief executive Officer Jamie Dimon told analysts during a phone call.
"All that's coming to these new data centers, which are now fully operational — are applications. Most of the applications and data that go there must be compatible with the cloud."
This is still part of a long-term plan to move to fully cloud-based technologies. But Moinuddin claims that: "We have seen a number of financial services companies, as they expand their scale, realize that not everything needs to be in the cloud, and they are starting to bring back some of the data and services that were outsourced."
Rocco Alonzi, senior vice president of Data Center Services and Management at Manulife, a Canadian financial services company, encountered exactly this problem.
"When we started considering moving an app that we've been using for many years to the cloud, it turned out that it wasn't compatible with the cloud and might not work properly, and then you have to ask yourself, is it worth it?"
"But hybrid technologies are definitely coming into play, and this is necessary for several reasons. Previously, when the data center was bursting at the seams, we had to build new data centers or collect things and move everything. But when you start moving your workloads to the cloud, you can save that data center and make it as efficient as possible in the sense that it will only host mission-critical applications."
While a number of banks, including Barclays and Natwest, have welcomed cloud computing with open arms and are looking to move entirely to the private cloud, overall banking seems unwilling or unable to move away from enterprise data centers altogether at this time.
Still, on-premises computing still offers solutions to protect the most significant and critical data, but the reluctance to move to a hybrid IT architecture can lead to the fact that ordinary banks will not be able to keep up with new financial technologies that introduce changes and trends in the industry, and ultimately suffer financial losses.
Although the ATM was a great advance, it had reached its peak. In many places, ATMs are being removed from the walls as people use less cash. At the same time, the data centers that supported banking services of that generation have also passed their peak, they are being built less and less, and many old ones are being closed.
But that's not the end for your own on-premises data centers. They don't die out, they just need to find a new task.
A huge crowd gathered outside the Barclays Bank building in Enfield, North London, to witness the opening ceremony of the world's first automated teller machine (ATM). Despite the heat of 27°C (81°F), all the assembled officials were dressed in classic suits and ties and there was a sense that something in the world was beginning to change.
Photo Tom King/Mirrorpix/Getty Images
The appearance of the ATM was a huge technological advance for the financial sector, which was previously quite stable and not particularly pleased with innovations. But by the 1960s, the foundations of digitalization had already been laid in the banking world.
Banks have already used mainframes, which in the last decades of the 20th century turned into data centers, which allowed customers to use new ways to communicate with the bank.
In 1989, Midland Bank launched First Direct, a branch-free bank operating through call centers. Other banks and financial services, such as Smile and Egg, encouraged remote banking over the phone and over the Internet. By 2001, Bank of America reported that three million of its customers use banking services over the Internet.
When did the banks change
But these were all smooth changes. Only recently has the situation started to accelerate — and the 2008 financial crisis was the main impetus for this. Perhaps the 2008 crash will be the real beginning of the end for banks ' own data centers.
During the economic downturn that followed the crash, banks lost the trust of the general public.
In response, they began working more closely with FinTech companies to develop new principles. Online banking and mobile banking appeared — increasingly powerful smartphones combined these two types of services, and people could work with money on the go, without visiting bank branches.
Meanwhile, FinTech companies have developed new tools, and they have begun to promise that artificial intelligence, as well as the versatility and speed of mobile networks, will significantly increase the culture of comfort and efficiency. Banks, for their part, were trying to figure out how to improve the quality of service.
Since the financial crisis, regulators have created additional barriers, increasing their workload and complicating the work process in an effort to reduce risks.
This pressure has forced banks to rethink many of their policies. They began to work closely with FinTech and began to offer more universal services faster.
Getting to know the cloud
Banks also analyzed their own infrastructure and doubted that their internal digital infrastructure meets the requirements.
The Op-premise data center has become more of a burden than an asset. Banks have moved their servers from their own back offices to public areas such as data centers (colocation). But the next step — moving to a cloud infrastructure running on shared machines in a centralized data center-can still seem very risky.
"If you've been following data centers in the financial industry, I would say that even 10 years ago, a financial company's transition to using colocation or cloud centers would have been considered very unlikely," said Markus Hassen, group manager at the American financial holding company Truist, speaking at the recent DCD conference.
According to Hassen, the pace of change is impressive, given the conservatism of banks and the very recent development of cloud technologies. Online applications didn't appear very long ago, and the public cloud only began to develop after Amazon seriously started developing Amazon Web Services.
"The public cloud segment didn't start until 2006, when Jeff Bezos wanted to find ways to diversify," says Hassen. "We have to give credit to big companies for how they were able to convince many CTO's and CIOs that the cloud is the best business model."
Digitalization
Ten years after the financial crash, there was a global crisis caused by a pandemic, which greatly accelerated the process of digitalization.
During the pandemic, those of us who had jobs that could be done from home had to spend time indoors. This led to a boom in the data center industry — but this boom was primarily reflected in spending on cloud services, not on stationary solutions.
After the pandemic, it became clear that all industries, not just banking, are moving resources to the cloud and abandoning local hosting.
In the IDC Worldwide Industry CloudPath Survey (May 2020), 57% of banks that took part in the survey said that they already work in hybrid environments, another 31% will switch to hybrid models in 12 months, and another 9% in 24 months.
Ali Moinuddin of the Uptime Institute spoke about this transition:"Over the past few years, we've seen more and more companies become much smarter about how they deploy their IT resources and what platforms they use."
"Companies often use the services of multi-cloud and multi-chain partners, as well as manage their own data center. They transformed their own infrastructure, which was planned even before the financial crisis. But after this event, many companies have restructured. Therefore, we are seeing a significant increase in the use of cloud infrastructure and, more importantly, colocation service providers."
Hybrid technologies are the future
Despite this, local IT solutions are not yet (yet) dead. There is a good reason why banks are switching to hybrid technologies — they support their stationary infrastructure along with new solutions in the cloud.
This reason is risk. It turns out that using multiple cloud providers can create difficulties.
Moinuddin explained this in more detail: "When you start distributing your infrastructure across multiple providers, you increase the likelihood of problems. And as you start to make things more complex, you actually increase the level of risk in terms of potential disruptions that can occur in important IT services that support mission-critical business products."
"There are some concerns about the risks associated with the level of concentration, when certain large service providers may place in one zone a number of financial institutions that are critical to the national economy in a particular region. Thus, if there is a shutdown, not just one bank will suffer, but several, which will have a very tangible and negative impact on the reputation of the financial services sector."
In February of this year, five banks in Canada simultaneously failed, as a result of which customers could not use online and mobile banking, as well as debit cards. No explanation was given for the sudden shutdown.
Life without cash?
Another consequence of the pandemic was the refusal to use cash.
Half a century after the first ATM appeared, we are beginning to move towards a cashless society. During the pandemic, many stores only accepted card payments to limit physical contact as much as possible, and in 2020, cash payments were reduced by 35%. After the pandemic, the situation has not yet recovered.
An unexpected effect of this was the increased dependence on online systems. Cash is something that can be carried and used at all times, regardless of whether we have access to working digital banks. Mobile bank debit cards and credit cards are all more or less dependent on online services.
In our world, when services don't work, people can be extremely vulnerable. It is important that banks protect themselves and their customers from this risk. When banks evaluate the reliability of cloud and on-premises IT infrastructures, they must take everything into account.
In such a situation, there may be a strong desire to keep the infrastructure at the local level and under your own control. Charles Hoop, a leading international IT sourcing specialist at Aon, told DCD that: "a lot of this drive is philosophical, almost religious in nature in terms of some of the stereotypes that drive this [the desire to stay on your own hardware]."
"Because everything was outsourced, and these are all third-party companies. I'm not sure there are many electrical engineers on staff who can quickly find a fault and detect a specific fault."
But Hoop believes that increased control is not enough to justify the cost of on-premises systems in comparison with cloud ones: "I think if you just calculate the cost, pay attention to the technical advantages, then there is no point in building your own data center."
Real cost of local placement
Of course, building your own center from scratch would entail a lot of associated costs. But in the banking sector, we often talk not about building new data centers, but about upgrading an already functioning local center or transferring resources from it to colocation or the cloud.
This process is expensive in itself, but it can ultimately save you money in the long run if done properly.
An effective solution comes as a result of planning and a clear understanding of what data and calculations should be in the cloud, and what should remain.
With all this in mind, Ali Moinuddin argues that hybrid solutions are indeed the future.
We are seeing a steady migration of old corporate assets to public and private cloud computing, as well as to colocation. In the process of forming our assessment of financial services, about 50% of banks told us that they do not currently use public clouds. And what would you understand, these were major banks from all over the world.
"However, they are creating private clouds in colocation and their own enterprise data centers."
In January 2022, JPMorgan announced that it had built its own data centers to host private clouds. The company spent $2 billion on new data centers in 2021, despite the overall strategy of moving to the cloud. These costs have been criticized and even share prices have fallen, but the company said the investment was necessary in order to develop data centers and cloud services in new markets such as the UK.
"We've spent $ 2 billion on completely new data centers that have all the cloud technology that private data centers can offer," chief executive Officer Jamie Dimon told analysts during a phone call.
"All that's coming to these new data centers, which are now fully operational — are applications. Most of the applications and data that go there must be compatible with the cloud."
This is still part of a long-term plan to move to fully cloud-based technologies. But Moinuddin claims that: "We have seen a number of financial services companies, as they expand their scale, realize that not everything needs to be in the cloud, and they are starting to bring back some of the data and services that were outsourced."
Some apps are not optimized for running in the cloud
Rocco Alonzi, senior vice president of Data Center Services and Management at Manulife, a Canadian financial services company, encountered exactly this problem.
"When we started considering moving an app that we've been using for many years to the cloud, it turned out that it wasn't compatible with the cloud and might not work properly, and then you have to ask yourself, is it worth it?"
"But hybrid technologies are definitely coming into play, and this is necessary for several reasons. Previously, when the data center was bursting at the seams, we had to build new data centers or collect things and move everything. But when you start moving your workloads to the cloud, you can save that data center and make it as efficient as possible in the sense that it will only host mission-critical applications."
While a number of banks, including Barclays and Natwest, have welcomed cloud computing with open arms and are looking to move entirely to the private cloud, overall banking seems unwilling or unable to move away from enterprise data centers altogether at this time.
Still, on-premises computing still offers solutions to protect the most significant and critical data, but the reluctance to move to a hybrid IT architecture can lead to the fact that ordinary banks will not be able to keep up with new financial technologies that introduce changes and trends in the industry, and ultimately suffer financial losses.
All technologies have their own life cycle
Although the ATM was a great advance, it had reached its peak. In many places, ATMs are being removed from the walls as people use less cash. At the same time, the data centers that supported banking services of that generation have also passed their peak, they are being built less and less, and many old ones are being closed.
But that's not the end for your own on-premises data centers. They don't die out, they just need to find a new task.
