“Technology is now [about] how our clients experience the bank, whether it’s through an app or digital service,” says Mike Dargan, group chief digital and information officer and executive board member at UBS. “As a natural consequence, tech is now an integral part of our business—it has a seat at the table and is part of our firm’s strategy.”
A cloud-based future
Underpinning the financial services sector’s transition to an “on-demand” data and services industry—where companies pay specialist providers for storage and infrastructure when the need arises—is cloud computing. These specialists are often the cloud service arms of Microsoft, Google, and Amazon. Only such tech companies, with their global networks of giant data centers, have sufficient computing capacity to meet the ever-growing demands of the finance industry.
“If you look at all the new requirements coming from central banks, governments, or even investors, financial services companies don’t have the data storage capacity to meet the needs,” says Scott Guthrie, executive vice president of the Microsoft Cloud + AI Group.
Back when banks embraced technology in the 1970s, they developed their own infrastructure, often installing servers in their data centers. The traditional system worked fine when computing demand was relatively uniform. But in periods of intense market volatility when demand for computing power spiked, banks needed to ensure that spare capacity kept growing, even though it was redundant most of the time.
“We often talk about the burstable, elastic nature of cloud,” says Dargan, referring to the idea that if a bank’s demand for computing power exceeds its normal level, its cloud partners can provide additional capacity instantaneously and only charge for the time it is used. This not only drives cost savings, but it also reduces carbon emissions because spare capacity is aggregated for the entire industry at the level of the cloud services providers, rather than maintained by each company. Reliability and uptime are also improved, because cloud providers have multiple data centers that can back up each other. Dargan says UBS achieves above 99.999%, or sixth sigma availability across its estate, partly driven by the move to cloud.
Cloud providers do not just offer storage and infrastructure, but also platforms and tools through which apps and services can be developed. Since Dargan joined UBS in 2016, its tech teams have shifted from using 50 different development tools to just one cloud-based service they launched, called UBS DevCloud. Through this open ecosystem, built on public cloud, UBS software engineers have a seamless experience to develop, test and release code within a single tool, enabling them to launch products quickly and update them often.
Cloud also allows financial services companies to match best-in-class consumer applications and develop exceptional customer-facing services. “The best-in-class consumer apps that you use every day know exactly what you click on and what you don’t click on, and exactly what their recommendation engines are doing. This means they can improve their features really quickly. Applying the same in our industry can be game-changing for our clients,” says Dargan. Such a desire to improve customer service, often amid competition from startup digital-only competitors, was one of the original drivers in financial services’ embrace of cloud computing, says Guthrie. “Financial services companies want to [provide] mobile or online, digital services to consumers was an early source of movement to the cloud.”
For an industry that pioneered the large-scale application of computing through in-house infrastructure, financial services firms’ shift to the cloud is a significant, generational change. That naturally leads to a degree of caution.