# Cloudbusting – how the cloud can help keep banks agile-Magazine
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2017-06-10
Category: BANKING
Category URL: https://financedigest.com/category/banking
Meta Title: PSD2 Explained: Major Regulatory Shift in Financial Services
Meta Description: Discover how PSD2 and Open Banking are transforming the financial industry, offering more choice and ensuring customer protection in the digital age.
URL: https://financedigest.com/cloudbusting-how-the-cloud-can-help-keep-banks-agile-magazinehtml

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_**Jay Hibbin**, regional sales director – financial services EMEA,_ [_CenturyLink_](http://www.centurylink.com/business/enterprise/)

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Jay Hibbin

Originally proposed by the European Commission in 2013, for some time, the introduction of the second Payment Services Directive (PSD2) in 2018 has felt like a distant concern. Yet, since the turn of the New Year and the realisation that this major regulatory shift is less than 12 months away, we’re seeing PSD2 hitting the headlines more and more frequently – it’s become the acronym of the moment.

Under the new regulation, banks will be obligated to provide third parties such, as fintech providers other banks and merchants, with access to their customers’ accounts via open application programme interfaces (APIs). So, for example, if a consumer were to purchase an item on Amazon, the user wouldn’t [need to be redirected to Visa or PayPal to make the payment](https://www.financedigest.com/instant-payments-and-the-need-for-standardization.html "Instant payments and the need for standardization"), but rather Amazon would be able to make the payment for the user. As a result, these third parties will then be able to build financial serviceson top of the banks’ data and infrastructure and further expand their customer offerings to enhance the experience for the [end user](https://www.financedigest.com/industrial-catalytic-converters-market-competitive-growth-strategies-based-on-type-applications-end-user-and-region.html "Industrial Catalytic Converters Market Competitive Growth Strategies Based on Type, Applications, End User and Region").

In addition, account information service (AIS) providers, for example, could act as consolidators under the directive. If a customer has multiple accounts, an AIS will use an API to gather all the data on those accounts and aggregate it to offer value-added features – such as a proactive text, which could suggest that by moving their money to another account, the customer could save themselves £50 in overdraft charges. By monitoring a customer’s spending, an AIS can become more proactive and provide useful information based on the T&Cs of the various [products it has in the market](https://www.financedigest.com/dry-molasses-products-market-overview-in-depth-analysis-of-market-size-growth-industry-overview-2022-2029-2.html "Dry Molasses Products Market Overview In-depth Analysis of Market Size, Growth, Industry Overview 2022-2029").

The open banking rules,proposed by the CMA ( [Competition Markets](https://www.financedigest.com/metal-bellows-market-competitive-growth-strategies-based-on-type-applications-end-user-and-region28925.html "Metal Bellows Market Competitive Growth Strategies Based on Type, Applications, End User and Region") Authority), and the implementation, brought about by PSD2,will also require new data protection as, while it’s true that third parties will have access to a bank’s customer data, they will require the specific permission of these customers and will need to make it clear what they are offering.  This is where the General Data Protection Act (GDPR), which also comes into force in 2018, can step in. As opposed to PSD2 which [focuses on the sharing](https://www.financedigest.com/european-shares-rise-on-easing-energy-supply-worries-draghi-speech-in-focus.html "European shares rise on easing energy supply worries; Draghi speech in focus") of data, it focuses on protecting this data – however, what unites the two is that they both put the customer at the heart of their aims. If [fintechs and third parties are to access this customer](https://www.financedigest.com/how-fintech-aids-financial-inclusion-and-helps-customers-through-crises.html "How Fintech aids financial inclusion and helps customers through crises") data, they will need to be explicitly clear in what they are offering in order to gain the consent of the customer.

**Realistic concerns?**

This is a fundamental shift in the nature of banking as we know it. This change will ultimately result in much more choice for the customer – the key aim of the regulation.As consumers are presented with more choice when it comes to financial services, there is the fear amongst [banks](https://www.financedigest.com/finance-brokers-bank-on-red-flag-alert-to-help-beat-fraud.html "FINANCE BROKERS BANK ON RED FLAG ALERT TO HELP BEAT FRAUD") that the once guaranteed loyalty to one financial provider that existed will begin to dissipate.

It’s been well documented that as the [landscape becomes](https://www.financedigest.com/smart-becomes-the-first-ssp-to-collaborate-with-white-bullet-to-safeguard-quality-in-the-digital-media-landscape.html "Smart becomes the first SSP to collaborate with White Bullet to safeguard quality in the digital media landscape") more competitive fintechs are recognising the opportunity to seize a piece of the financial pie. However, whilst some more [innovative startups](https://www.financedigest.com/the-future-of-fintech-startups-driving-innovation-and-investment.html "The Future of Fintech Startups: Driving Innovation and Investment") are hoping that this will give them the opportunity to ‘Uber’ traditional financial providers, this might not be a realistic view. Given the complexity of data protection, and the undeniable loyalty to established players when it comes to looking after our money, the [banks should instead be looking at the opportunity that PSD2 presents as a means](https://www.financedigest.com/the-bank-of-things-bot-has-arrived-but-what-does-it-mean-for-banks-2.html "The Bank of Things (BoT) Has Arrived: But What Does It Mean for Banks?") of spurring on more innovative thinking.

**A cause for change**

Although there are fears that fintechs could ‘eat the lunch’ of the big banks, however attainable or unattainable these may be, PSD2 should be forcing [banks to think about how they can provide more innovative solutions and services for their customers to compete](https://www.financedigest.com/digital-trends-for-banking-leaders-looking-to-compete-in-2022.html "Digital trends for banking leaders looking to compete in 2022") with their younger counterparts. If they are to [develop new offerings and speed up the time to market](https://www.financedigest.com/ventricular-restoration-systems-market-development-history-current-scenario-industry-insights-2030.html "Ventricular Restoration Systems Market Development History, Current Scenario & Industry Insights 2030"), banks must absolutely be looking to the cloud to achieve both of these goals.

Metro Bank is a great example of a bank that is has successfully utilised the benefits of the [cloud in order to keep a competitive edge](https://www.financedigest.com/using-cloud-based-communications-to-gain-a-competitive-edge.html "Using cloud-based communications to gain a competitive edge") and speed up their time to market with new products. Although Metro [Bank was ‘born digital’](https://www.financedigest.com/how-fs-organisations-can-enter-the-new-age-in-digital-banking.html "How FS Organisations Can Enter The New Age in Digital Banking") and had little in the way of legacy systems, this is the example that other financial institutions should look to lead from.

**The cloud as an enabler**

Like Metro Bank has done, banks need to be continuing to look to the cloud to keep agile, using its advanced orchestration and [management systems to deliver innovative](https://www.financedigest.com/the-stone-management-system-market-to-get-digitally-innovative.html "The Stone Management System Market to get digitally innovative") software to clients quickly and securely. This is where banks should be looking to migrate new [projects in an R&D or developmental phase to a cloud](https://www.financedigest.com/trend-micro-cloud-one-delivers-projected-roi-of-up-to-188.html "Trend Micro Cloud One Delivers Projected ROI of Up to 188%") environment.Similarly, anything that’s quick to develop, contains minimal viable product, or involves dev ops for products and service is key to success, are logical candidates for consideration during the first tentative [steps into a production cloud](https://www.financedigest.com/3-steps-to-combat-cloud-outages.html "3 Steps to Combat Cloud Outages") environment.

Essentially, any standalone [products that sit outside core banking legacy systems](https://www.financedigest.com/sales-growth-of-automotive-clear-vision-systems-market-is-driven-by-production-of-new-vehicle.html "Sales Growth Of Automotive Clear Vision Systems Market Is Driven By Production Of New Vehicle") (even though they may well interface with these systems) could also be potential workloads for migration to the cloud in subsequent stages. This includes innovative applications such as PSP payment solutions, for example, and any new functionality such as [mobile payments](https://www.financedigest.com/the-future-of-mobile-payments-and-e-wallets.html "The Future of Mobile Payments and E-Wallets"), omni-channel banking front-ends and websites built using standard and widely available software components. This will enable banks to operate their newest service offerings, much like their fintech counterparts, ensuring that their [innovative customer facing projects don’t get bogged down in age-old legacy systems](https://www.financedigest.com/the-digital-pathology-systems-market-to-get-digitally-innovative.html "The Digital Pathology Systems Market to get digitally innovative").

**Which cloud is the best cloud?**

However, there is by no means a “one size fits all” approach to which environment is most suitable for a move to the cloud. Multiple public and private clouds have their place. The [key is to choose the best execution venue for each application](https://www.financedigest.com/ammonium-phosphatides-market-2022-research-on-user-demand-size-applications-key-players.html "Ammonium Phosphatides Market 2022 Research on User Demand, Size, Applications, Key Players") – and operate these under a single hybrid ITmodel.

It’s hard to disagree that the transparency of cost, flexibility and agility offered by the cloud aren’t beneficial, but there is a high-level perception in the boardroom that the public cloud is cheaper than traditional [managed hosted systems](https://www.financedigest.com/a-report-on-global-clinical-trial-management-system-market-by-pmr.html "A Report On Global Clinical Trial Management System Market By PMR"). However, banks need to be careful to ensure they consider the workload and usage patterns of the operation– as this will all play a part in [containing the overall cost](https://www.financedigest.com/can-storage-containers-solve-the-soaring-cost-of-bricks.html "Can Storage Containers Solve the Soaring Cost of Bricks?").  By way of illustration, should a system be running 24 hours a day, 365 days a year, actually only needing to scale up on a particular time of the day, month or year, the usage [pricing model](https://www.financedigest.com/polypropylene-fibre-market-witness-a-spike-in-growth-pace-recent-improvements-in-pricing-models-fmi.html "Polypropylene Fibre Market Witness a Spike in Growth Pace Recent Improvements in Pricing Models: FMI") can mean this will ultimately cost more than expected.

Security is also a [key factor to consider](https://www.financedigest.com/helping-lenders-address-climate-risk-six-key-factors-to-consider.html " Helping lenders address climate risk: Six key factors to consider") when building a cloud strategy. Public cloud is suitable for workloads that require huge computing power, need to scale at continued pace and have the ability to switch on and off easily, but it can be harder and more costly to secure to the required standard depending on the workloads deployed than private solutions. The latter is consequently more readily used when holding highly sensitive customer [data and needing to comply with internal governance](https://www.financedigest.com/internet-data-growth-has-not-pushed-up-telcos-network-costs-dutch-government-says.html "Internet data growth has not pushed up telcos’ network costs, Dutch government says") and external regulation.

By combining the utility benefits of public cloud with flexibility and elasticity, while maintaining the privacy of a dedicated private environment, a [hybrid cloud](https://www.financedigest.com/achieving-a-smooth-transition-from-legacy-infrastructure-to-hybrid-cloud.html "Achieving a Smooth Transition from Legacy Infrastructure to Hybrid Cloud") represents a third way, which offers the best of both worlds. With this, it’ll become increasingly commonplace for [banks to require](https://www.financedigest.com/how-to-fulfil-the-digital-transformation-requirement-in-banking.html "How to fulfil the Digital Transformation Requirement in Banking") multiple cloud providers, with a strategy encompassing both public and private options. This approach can offer greater flexibility and efficiency, but it will also be a lot for the CIO to juggle. Banks that take on multiple cloud providers should seek to [reduce operational](https://www.financedigest.com/just-in-time-jit-and-lean-accounting-streamlining-operations-and-reducing-waste.html "Just-in-time (JIT) and lean accounting: streamlining operations and reducing waste") headaches by adding a managed service layer and integrated orchestration with a ‘single pane of glass’ approach to ensure the promised savings materialise, and to keep complexity to a minimum.

**Preparing for the inevitable**

It’s widely agreed that PSD2 will substantially increase the level of competition traditional [banks will face](https://www.financedigest.com/analysis-u-s-banks-face-trillion-dollar-reverse-repo-headache.html "Analysis: U.S. banks face trillion-dollar reverse repo headache") from digital alternatives, as they’ll no longer be able to rely on their vast customer data as a point of difference. If they don’t find ways of using the data to their own best advantage, they will miss out on a massive opportunity – PSD2 doesn’t only stand to benefit fintechs, but should be forcing banks to find ways of providing more [innovative products](https://www.financedigest.com/product-innovations-and-advancements-in-technology-to-boost-automotive-ignition-system-market-growth.html "Product Innovations and Advancements in Technology to Boost Automotive Ignition System Market Growth") for the customer.

By giving thought now to the types of services and data they want to move to the cloud, the type of cloud they want to move it to, and the steps they need to take to make this happen, banks can begin preparing for the inevitable and ensure they retain the agility they will require once the market widens in a [year’s time](https://www.financedigest.com/elon-musk-named-times-2021-person-of-the-year.html "Elon Musk named Time’s 2021 ‘Person of the Year’").

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“Original publication in Finance Digest Issue 1 https://www.financedigest.com/finance-digest-print-magazine/”
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