The advantages of hybrid cloud computing in financial services encompass everything from enhancing security and compliance to fostering innovation and scalability. In this blog, we cover the various approaches to cloud computing in financial services, its benefits, and best practices.
Today, cloud computing in financial services involves running apps and using storage and development services based in a data center. For instance, you may have a customer outreach system built using a customer relationship management (CRM) solution based in the cloud. Or you may have a fraud detection system housed in a cloud environment. All of the computational services behind your operations would be in a data center instead of a server or computer in your office.
Understanding Cloud Options in Financial Services
The Rise of Hybrid Cloud in Financial Services
Realizing the Benefits of Hybrid Cloud in Financial Services
Realizing the Benefits of Hybrid Cloud Computing in Financial Services
Start Exploring Hybrid Cloud Solutions
Hybrid cloud involves combining private and public cloud infrastructures. Due to financial services institutions’ security and compliance requirements and the intense demand for scalable, customer-facing systems, hybrid cloud has become one of the most compelling computing environments in the financial sector.
These and other types of cloud services are becoming increasingly crucial in the banking industry because they enable institutions to automate processes and create innovative solutions. As a result, they can innovate and serve customers better than the competition.
Understanding Cloud Options in Financial Services
Cloud computing in financial services focuses on choosing an environment that gives you the freedom to scale, innovate, and adhere to regulatory requirements — all while prioritizing the security of customer data. Many leading organizations use the cloud for financial services, but hybrid cloud computing may be one of the most effective solutions.
To better understand hybrid cloud benefits, here’s a breakdown of the most popular cloud setups.
Public Cloud
With public cloud services, you use a shared infrastructure that gives you services over the internet. In other words, many organizations may use the same public cloud. Chances are, you already use public cloud services. Google Docs, Google Drive, Microsoft 365, and Dropbox all work in a public cloud environment.
As a financial institution, you may use public cloud services such as Amazon Web Services (AWS), Microsoft Azure, or Google Cloud, to host applications, development environments, or store data.
Some public cloud services come with solutions designed to meet the needs of financial institutions and other organizations that need to work with a lot of data. For example, Google Cloud offers BigQuery, which is a data analysis solution you can use to gain insights into your customers’ behavior or financial decisions.
Private Cloud
When you use a private cloud, all its resources are dedicated solely to your organization. This way, you get more control over your system and can customize it to fit your needs. For many organizations in the financial sector, the ability to enable granular control over security is a powerful private cloud benefit.
For example, you could rent space in a local data center and set up your own servers. On these servers, you can run all of the apps your employees use in their day-to-day work. You can also set up secure data storage using zero-trust principles, multifactor authentication, and role-based access controls.
Multicloud
With a multicloud architecture, you use more than one cloud service at the same time. You can think of this as a cloud “buffet.” You may use Google Cloud for its analytical tools but AWS for its secure storage. Sometimes, a multicloud setup arises more out of necessity than strategy — simply because some people in IT prefer to use a certain cloud provider for X while others prefer a different provider for Y.
Using this buffet-esque approach has benefits and drawbacks. On the plus side, you slash the amount of time it takes for IT team members to get comfortable with the solutions they use simply because they’re already familiar with their preferred cloud environment. However, at the same time, you may end up limiting your ability to integrate disparate processes because they live in different cloud ecosystems. In some cases, integration is still feasible, but it may take more steps or technical know-how to execute.
Hybrid Cloud
When you use a hybrid cloud infrastructure, you run some services in a public cloud and others in a private cloud environment. For the financial services industry, a private cloud may be especially effective because it allows you to secure sensitive data exactly how you like — and in accordance with compliance requirements — in a private cloud. You can then use the public cloud to handle other workloads, specifically those that may not be as sensitive from a security standpoint.
Navigating the digital transformation journey is not easy for a financial institution. The strict data management standards required by PCI DSS, the Sarbanes-Oxley Act (SOX), and other regulatory bodies, as well as reams of sensitive customer information, complicate the landscape. However, using a hybrid cloud architecture may streamline the process. Let’s explore why.
The Rise of Hybrid Cloud Computing in Financial Services
In many ways, a hybrid cloud infrastructure is ideal for the financial services sector. It’s flexible, inexpensive and enables modernization, all without sacrificing security and compliance.
Flexibility and Scalability to Meet Changing Demands
With a hybrid cloud setup, you don’t have to make a firm commitment to using your architecture in a specific way for many years. You can adjust which processes you run in each environment as needed. Thanks to your public cloud infrastructure, you also have the freedom to scale.
Suppose, for example, you work for a bank and you have to open a new branch. Instead of building out a complex in-house infrastructure, you can add new users to your cloud-based apps.
Cost-Effectiveness
Purchasing and maintaining extensive on-premise servers and related components can push any budget beyond its limits. However, with a hybrid cloud environment, you can establish a relatively barebones on-premise infrastructure and use that as your private cloud. Then, you can host services — those that would otherwise require deep investments in hardware — in your public cloud.
Even though this may come with a monthly cost, in the long run, you could save when it comes to:
- Upgrading your components (your cloud provider takes care of that)
- Acquiring and installing new security systems
- Maintaining your infrastructure, which your cloud service also handles
- Scaling up or down, which your cloud service also takes care of
Compliance and Data Sovereignty
By using a hybrid cloud setup, you can have your cake and eat it, too, when it comes to meeting compliance and data security requirements. By keeping your most sensitive data and operations in a private cloud, you can exercise detailed control of its security.
On the other hand, some of the less sensitive operations can live in your public cloud.
For instance, PCI DSS requires the use of strong encryption protocols to protect data while in transit and at rest, as well as protecting the encryption keys used to access it. In a public cloud, there’s a chance the cloud provider may have to manage your encryption keys. This could introduce compliance challenges. You can avoid this by using your private cloud environment to encrypt, store, and manage sensitive data, as well as the keys used to access it.
Modernization of Legacy Systems While Maintaining Critical On-Premise Infrastructure
You may have legacy systems that need modernization, but you don’t want to completely do away with your on-premise infrastructure. If that’s the case, you can modernize your legacy apps by transitioning them to a public cloud ecosystem. At the same time, however, you can still maintain your on-premise setup.
For instance, if your organization uses IBM i apps, you could transition them to the cloud using a low-code development solution. After the modernization initiative is finished, your legacy apps will still be available on-premise.
Even though hybrid cloud offers many advantages, financial institutions still need to be security-aware. Here are some security issues and best practices for navigating them.
Hybrid Cloud Security in Banking
Your cloud environment is susceptible to data breaches and insider threats, especially if access controls aren’t properly designed and used. There’s also the danger of your cloud provider misconfiguring security systems, resulting in vulnerabilities.
In some cases, using a hybrid cloud setup can expose your IT to targeted attacks. For example, it’s common for a financial institution to use a hybrid cloud environment to give their dev team access to cloud-based containerized development tools. These tools provide the team with faster and far more versatile development options. However, as a recent study by security firm Kaspersky revealed, this can also backfire.
Kaspersky interviewed security and C-level leaders in the Asia-Pacific region, and 89 percent of those who used containers had experienced cybersecurity issues. Twenty-nine percent of these reported malware as the underlying problem. Containerized development often uses libraries of dev tools. Unfortunately, some of these may contain malware or other vulnerabilities that your dev team may inadvertently introduce to your environment.
Of course, vulnerabilities in development environments comprise only a portion of cybersecurity issues, and there are many more. But by using a hybrid cloud architecture, you can gain more control over your security and dramatically improve your security posture.
How Hybrid Cloud Enhances Security
You can segment your data and set up access controls if you use a hybrid cloud environment. The most sensitive data can go into your private cloud, and you can use the strictest access controls to protect it from unauthorized users.
A hybrid environment also allows you to use your public cloud for improved disaster recovery and business continuity. You can establish parallel or redundant systems that you can spin up whenever needed.
A hybrid environment also improves your ability to see and monitor your processes. Public cloud providers can give you access to monitoring tools that show how and when data moves or is accessed. For your private cloud, you can set up your own visibility and monitoring system, surfacing the most critical data exactly how you want.
Best Practices for Hybrid Cloud Security in Financial Services
These best practices can help you significantly reduce your risk of a breach. You need to:
- Implement strong encryption tools and key management systems. Store keys in secure areas that only those with necessary access privileges can enter.
- Use a zero-trust security model. This involves presuming that every person, app, or network that connects with your system is a threat. Until they prove otherwise, such as through a multifactor authentication system, they can’t gain access.
- Conduct regular security assessments and audits. Your security needs change as new threats emerge and the kinds of data you store evolve. By assessing your security needs and auditing the protections you have in place, you make it easier to continually adjust.
Now that you have a strong understanding of the benefits of hybrid cloud and its security considerations, it’s time to explore some real-world applications for implementation.
Realizing the Benefits of Hybrid Cloud Computing in Financial Services
To illustrate the benefits of hybrid cloud, imagine you decide to launch a new loan product. It’s enticing and innovative, but you’re sure customers will have questions. You host your website in a public cloud. Your site also has a chatbot feature. The chatbot provides three types of responses: one based on pre-designed question-and-answer flows, an AI-powered GPT model, and live chat with human representatives.
A few days after you start advertising your new loan product, your chatbot starts blowing up. But that’s not a problem. Automatically scaling cloud services easily manages the spike in automated conversations. And you’re able to add new reps to your live chat system by quickly provisioning new instances through your cloud service provider.
At the same time, you decide to restrict some of your core banking applications to a private cloud environment because it gives you more control over uptime and security. For instance, you may want to run a payment processing system and a loan management solution on a private cloud. Therefore, you set up a server room in your bank and install the necessary applications on private servers.
You can give employees access to your private cloud via a VPN if you have a distributed workforce. You can also position firewalls between the computers of those in your bank and your private cloud, which could give you additional hybrid cloud security.
However, a private cloud may not be enough, especially when it comes to certain customer-facing processes and data analytics. For example, you may choose to host a mobile banking app and a customer-facing chatbot in a public cloud environment, such as AWS. You may also want to use Amazon Redshift to store data and set up data lakes for analytical purposes.
Key Advantages for Financial Institutions
As the above example illustrates, a hybrid cloud gives you:
- Improved customer experiences via faster innovation. You can adjust the capabilities of your chatbot in response to more demand for AI-powered interactions. For instance, you could change your OpenAI subscription and pay less for the data involved in the bot’s processes.
- Enhanced data analysis and AI capabilities. Using a cloud data solution, you gain access to analytics tools that come with your services. You can also integrate your data with an AI directly within your environment.
- Increased operational efficiency and agility. By running some processes in a private cloud and others in a public cloud, you have more freedom to adjust where you operate your workloads. This can result in cost savings and efficiency improvements, especially when it comes to processing speeds.
Tips for Getting Started with Hybrid Cloud
You can do a few things on a high level to start preparing for a shift to a hybrid cloud environment:
- Assess your current infrastructure and identify suitable workloads. Many organizations choose to diversify their storage options by mixing private and public cloud storage systems, for instance.
- Develop a migration strategy. Your strategy may have to be scaffolded and rolled out over time, but it’s important to design a comprehensive one that includes all applicable digital assets. This will be especially useful as you choose a public cloud provider.
- Train your staff and develop a change management strategy. Doing this far in advance will make your staff feel more comfortable with the shift.
Start Exploring Hybrid Cloud Solutions
Using a hybrid cloud infrastructure in the financial services sector gives you a scalable, versatile system. It also paves the way for tighter control over your data security and compliance measures.
A well-planned approach to hybrid adoption is important because it makes it easier to decide which processes should live in your public cloud and which should run in your private solution. By planning ahead, you can also start designing the ideal data security infrastructure and build your hybrid cloud. Now is the perfect time to explore hybrid cloud solutions for your institution.
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