of financial SERVIcES

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1 cloud the NEw face of financial SERVIcES

2 a new reality after five years of crisis, Financial service companies have become used to dealing with a new operational reality. they have two over-riding strategic challenges: How to achieve dramatically better levels of operational efficiency. How to transform their levels of customer intimacy, while improving average customer value. there is broad agreement on the need to get it right both in terms of efficient operations and customer management, but there is less agreement on how to do it, except that current business as usual is no longer enough. so that could explain why many decision-makers in banking and insurance are hoping that the cloud might provide at least part of the answer. at this moment, there is little clarity about what cloud is (and equally important, what it is not), nor about how it can make a transformational difference to business performance here and now. so what does cloud really mean? and how many of the current myths are true? What does cloud really mean? Cloud-based services have three key components: as a service delivery: virtualising applications and processes to consume these as services. This means: You no longer need to find high levels of upfront capital investment to pay for IT. You do not have to provision for maximum demand and accept that much capacity will stand idle at other times. It becomes easier to try out new forms of payment and partnering, while potentially reducing in-house IT and improving both productivity and corporate agility. scalable on demand usage: which ensures that IT services are designed to flex as demand goes up or down. That means: Extra capacity will be made dynamically available as needed, with a clear correlation to user requirements. When demand is reduced, it follows that the user organisation will not be expected to pay for capacity that is no longer required. This makes more precise cost control much simpler to achieve and can provide comprehensive and granular management reporting. Pay by usage: in the Cloud, you should only pay for what you use, and that includes light and power in data centres, as well as the IT resources themselves. New commercial models will be: Transaction-based, with low fixed costs for specific actions, and variations in costing related to volume. User or time-based, with costs connected to the number of people using specific systems at specific times. An extension of shared risk, in which user and supplier organisations agree targets and additional benefits as a result of exceeding these. We believe that it is essential to focus on business outcomes and business models in order to understand what Cloud can offer to banks and insurers today. Major changes are happening in client-supplier relationships already, and traditional business models are under intense pressure as a direct result of Cloud-related strategies. Software vendors are seeing licence revenue on a downward path, as customers increasingly buy services, not products. Large outsourcers are dealing with the emergence of highly flexible multi-sourcing environments, in which many services can be bought in from external specialists without the need for a long-term fixed cost commitment. Internal IT departments are losing many of their day to day operational functions (and budgets) but are acquiring new responsibilities as brokers, business service providers and enablers in a complex supplier landscape. Cloud-driven change, in other words, is affecting many aspects of how processes are designed and managed, IT investment is handled and costs are allocated. Significant savings are being counted on the bottom line already in many parts of the industry, and in many cases, are being delivered in the same year as the initial investment. 2

3 cloud the NEw face of financial SERVIcES A leading international insurance company moved its core systems and IT infrastructure to the Cloud over the past two years and was able to make an immediate 30% saving on its IT budget. These funds were then reinvested into profitgenerating business, and in particular, into new product development. Our experience suggests that the 30% saving figure should be seen as an average target, and certainly not at the highest end of expectations. The journey to an entirely virtualised, cloud-delivered IT environment may be long and complex, but it is possible to monetise benefits here and now, if you execute your strategy with care. Yet the myths about Cloud still inhibit some organisations from taking that vital first step, and winning those key initial benefits. Perhaps the biggest changes being driven by the rise of the Cloud are not those related to IT but to mindset and behaviour. In the multi-vendor marketplace, where you may be able to buy highly specialised services from a huge range of (often quite small and new) vendors, it is essential to have strict governance procedures in place to ensure consistency at all times. In the same way, your own people need to think and act differently in order to maximise the benefits and minimise the potential diffculties. The key point in Cloud purchasing? Remember there is no one size fits all approach here. You can mix and match different forms of Cloud delivery to build the service that suits your goals. One of the world s leading motor manufacturers, for example, uses low-cost public Cloud resources in many different countries to manage publicity and online presence, enabling review of products and features in a high quality and very cost-effective way. When it comes to customer registration and purchase, however, client data is kept in an ultra secure private Cloud environment, managed with the most rigorous security methods. The outcome? A unique blend of cost-effciency, quality user experience and absolute security. Only the Cloud offers the variety of delivery options needed to create a unique, blended service approach. myths and inhibitors There are three leading blockers to Cloud commitment, and all of them are surrounded by myths that early adopters know from experience are untrue. Cloud makes it hard to achieve compliance. Not true. You can define the rules that govern your own IT environment no matter whether services are delivered from the Cloud or from your own inhouse systems. Cloud will deliver the management information and certified reporting disciplines needed to comply with all regulatory regimes in all jurisdictions. Cloud brings inevitable security concerns, because you do not own your IT infrastructure. Not true. You continue to define your own security procedures and these will be implemented within your systems and processes with at least as much assurance as ever before. Cloud is in many cases more secure than average corporate systems. Cloud brings huge data sensitivity issues. Not true. Cloud comes in many different shapes and sizes, but you always have absolute control over your own data. That means knowing where it is physically located, together with access rules that you define and enforce. Data sensitivity is not an issue in a well-designed Cloud solution. Other myths include the objection that Cloud is just another marketing concept from the IT industry, masking a return to the old-school methods of the past: supplier-owned mainframe and client-operated terminals. Just not true. Cloud is a key driver for the emerging multi-vendor world, in which specialists of all shapes and sizes can bring innovative ideas into a dynamic and constantlychanging market. This is a completely new way of doing IT. 3

4 a new World of customer services now let s go back to those key priorities for Financial service companies and ask how cloud may be able to act both as a game-changer and a catalyst in what remains a very challenging business climate. let s consider two essential realities: 1. banks and insurers need to become much more responsive. This is a key factor in building closer customer relationships, understanding customers more deeply and achieving maximum value from each relationship. There is much discussion about how Big Data and analytics can contribute to that goal but there is less focus on the massive data and computing requirements that Big Data brings with it. The only cost-effective way to deliver these resources is through the Cloud. 2. risk calculations are changing dramatically. We are living in a throwaway world, and this applies to banks and insurers as much as to anyone else. It is no longer appropriate to make complex risk calculations about future big bets when it is becoming easier to try new ideas for real, and simply go with those that work, while closing down those that don t. In these and other cases, Cloud is the key catalyst for new ways of working and new opportunities. It is helping to drive forward new business models in the financial services market, with priority actions that include: Developing products faster, reducing the risk and cost of failure and enabling greater agility in response to market opportunity. Mobile banking and insurance, allowing customers to carry out secure transactions anywhere, anytime and on any device. Portals that make it possible for users to manage their entire portfolio of financial interests in an integrated manner. Multi-channel services and payments, enabling use of mobile devices and virtual cards for payments via contactless systems. The ability to use Apps Stores to access specific financial service options. Social media as the key to peer group review of services, leading to better informed customers and a more proactive relationship. These are actions that ambitious institutions are all likely to be carrying out right now, and they will be doing this in the context of often complex IT environments, which are not as agile as they need to be thanks to a high number of point solution, multiple instances of core processes, a lot of shadow IT and a great deal of legacy. Cloud can help in most of these areas. Fast product development: Cloudbased test environments can be set up in minutes rather than weeks or months. This has a transformational effect on all aspects of testing, making it possible to try out concepts at high speed and low cost. This leads to faster, low-risk product development, reduces the cost of failure and enables masscustomisation (and thus more accurate customer targeting). The move to the on-demand world also speeds up new market entry through use of services in a box, which makes it faster and less risky to move from traditional geographies into potential growth markets. Product and service development in the future will be much less about big bets and much more focused on fast development and testing of multiple options. mobile and multi-channel services: these are complex and real-time services that may not be easily deliverable from existing client infrastructures. A key characteristic of multi-channel services is the need to expose core processes to external users in real time, so any issues in these services will thus become immediately obvious to customers. Cloud-based virtual environments can be ring-fenced from what may be a complex and disorderly core infrastructure. Customer services will therefore remain secure and fully functional because of this separation, so it is not necessary to re-engineer the entire environment before moving into the customer self-service, multi-channel world. This could also have a positive impact on service reliability due to improved scalability. One of the problems most companies used to dread most was not a new product failing, but rather taking off too fast. That s when the challenge of scaling up to support it used to cause major concerns. In the Cloud, that should not happen. orchestration services, aggregation portals and apps stores: in the world of consumer mobility, it is becoming less and less feasible to deliver complete services from inside a single banking or insurance core platform. Services to customers increasingly need components that are closely related to mobile telephony, online security, pure retailing, downloadable apps, or require contextual data and specially designed interfaces. Once the concept of a virtualised service layer, delivered on a Cloud basis, is embraced, it becomes easier to add components from a non-financial service background to build innovative, ground-breaking services for a fast-changing market. This is evidenced by the rapid growth in the numbers of new cloud based applications providers. social media: making sense of social media as a source of deep insights about customers is one of today s hottest issues in financial services, and it relies on the use of Big Data and Business Intelligence Analytics to deliver usable information. This does not necessarily require Cloud but it becomes much easier once you move into the on-demand world, largely because Big Data requires the ability to store and analyse massive amounts of information. To keep this fully in-house will eventually become prohibitively expensive, which means that the only cost-effective way to exploit Big Data fully is as a Service, through the Cloud. New-world services cannot be built, managed and delivered on today s often over-complex and dysfunctional corporate platforms. Given the impossibility of simply rebuilding these from the ground up, the only practical way to become a fast-moving competitor in this new market is through Cloud. 4

5 cloud the NEw face of financial SERVIcES a new World of operational efficiency banks and insurers have a range of operational issues to deal with, ranging from capital adequacy to business continuity. imagine how much easier it would be to transform operational efficiency and meet often very challenging goals if we could answer yes to these questions: can we put a stop to core platform engineering? All large financial institutions have developed extremely complex IT and process infrastructures and to make fundamental service changes would normally require significant engineering of the existing platforms. This has become all but impossible due to the costs and likely disruption involved. By creating a virtualised layer on top of the existing core infrastructure, it is possible to move faster in creating and implementing services, while continuing to push down on costs. Location of Cloud assets is not the key issue here: virtualisation is, but it is a move to the Cloud that permits you to monetise the investment made in virtualisation. can we turn it departments from over-worked doers into effective orchestrators and brokers? Right now, CIOs have to balance out two apparently contradictory requirements: to serve the business more responsively and to cut fixed costs. Cloud can help to resolve this dichotomy. Once IT environments have been virtualised (and thus potentially can be moved to the Cloud), everything changes. At this point, IT departments can focus on support to the business, enabling many changes to existing processes to be made by users, based on business rules. This will reduce cost and risk of change while enabling greater agility in what becomes a flexible, multi-vendor landscape. IT departments will manage governance, deliver assured security and fast-track innovations. This will be transformational. can we be certain that no continuity or disaster recovery issues will trouble us in the future? For banks and insurers this is a burning issue, not just because of the potential damage caused by business continuity issues but also because their IT environments often contain a high proportion of legacy systems reaching end of life. Making provision for continuity and disaster recovery is normally a very costly matter, involving fail-over to parallel facilities and systems, which at the very least requires a high level of duplication and redundancy. It s not like that in the Cloud, where creating cloned environments is a fast and comparatively low-cost activity. Business continuity will shortly become a matter it is no longer necessary to have sleepless nights about, thanks to the Cloud. can we improve service quality while also speeding up product development? For banks and insurers, the need to avoid service failures is paramount. Recent IT-driven service outages in the UK banking market have demonstrated the costs, reputational damage and legal damage that any failure can cause. The trouble is that normal testing often fails to ensure operational quality, because processes that appear to be working well in a test environment may have incompatibilities or other hidden issues that only become obvious when transferred to a full operational environment. In the Cloud, it is simple to cut and paste a full-scale run environment and use this for testing. This will more or less guarantee that launch will be trouble-free and service quality will be safeguarded. can we drive a major improvement to capital adequacy right now? This is an area of huge interest, certainly to CFOs, because the capital position of the business is possibly their greatest single concern. Somehow, they need to fund transformation programmes within their business while building up capital reserves to unprecedented levels. The Cloud represents a decisive move away from traditional upfront capital investment (CapEx) to pay as you go (OpEx). In the future, purchasing capital assets when you could access them as a service on a utility basis will move from being normal, to mildly eccentric, to totally unacceptable. This is another area in which the Cloud is changing everything. cloud allows us to say yes to all these questions, and that is enough to address many of the most pressing operational effciency issues with quick wins delivered in year. 5

6 new commercial models the move to purchasing services on demand is probably irreversible and represents one of the most important strategic changes the financial service industry has ever seen. yet there is one more element of change that also plays its part in making cloud a practical tool for achieving performance breakthroughs in banking and insurance, and that is commercial innovation. In the years ahead, it will become more normal for technology relationships to be managed on the basis of business outcomes or shared risk, rather than conventional SLAs. Key issues include: How to make sure that technology provision connects seamlessly with business strategy. Avoiding technology lock-in as a side-effect of moving to a new IT paradigm. Reducing upfront costs further to improve the capital position of the business. Maximising the use of low cost locations for service delivery, without increasing service risk. so how can the cloud play a part in achieving these goals? Global delivery models: virtualised environments can be rapidly moved to delivery centres around the world for long-term management, making it easier to gain access to the lower costs that offshoring offers. This also enables large financial institutions to centralise service development, delivery and support within regional or global centres, leading to transformation of cost base inside individual markets. This is a more sensitive and agile approach to what has in the past been a rigid method of managing basic processes. business-focused slas: one major change now taking place is a reevaluation of traditional SLAs to foster a stronger focus on business outcomes. The ability to flex and scale services to reflect user demand enables clearer and more accurate measurement of outcomes, often delivered to decision-makers in the form of real time dashboards. This enables more accurate contractual arrangements, based on real world results, and that can have a transformational impact. Flexible payment methods: the arrival of Cloud-based services is accelerating the move to more flexible payment options. In the world of on-demand, it is natural for costs to reflect usage, leading to a move away from traditional, licence fee payments for software, and standard maintenance costs for infrastructure. Now, users can expect to pay only for the service delivered, and pay according to demand and usage levels. The greater simplicity and transparency of costing gives IT suppliers a great incentive to explore added-value pricing options, making it affordable and practical to move to a much wider role for risk-sharing and gain share. commoditisation: finally, we are moving towards a highly commoditised financial services world, and this is especially true of general insurance. Profit margins are wafer thin in many key product areas, making it essential to find ways of reducing development and deliver costs, mass-customising in search of differentiation and using dynamic pricing to improve customer appeal. The most important benefit of virtualised Cloud-delivered services may well be the fact that commoditisation is at the heart of this concept. In a market where profit margins are sometimes measured as a fraction of one per cent of total cost, the ability to develop and deliver simple, yet targeted products and services to millions of people on a semiautomated basis is a vital benefit. It might prove to be one of the key characteristics of this new, Cloudenabled market. 6

7 cloud the NEw face of financial SERVIcES Cloud comes in different forms, each Hybrid Cloud: A composition of two cloud Infrastructure as a Service with their own characteristics. The key or more clouds (private, community (IaaS): The capability provided to the is to blend all the options to provide or public) that remain unique entities consumer is to provision processing, precisely the service you most need. It s but are bound together by storage, networks and other an approach that most banks and standardised or proprietary fundamental computing resources insurers are finding more and more technology that enables data and where the consumer is able to deploy familiar, as it is the principle that lies application portability. and run arbitrary software, which can behind product mass-customisation. cloud Software as a Service (SaaS): include operating systems and Reuse of standard components to This uses the service provider s applications. provide very different outcomes. Key applications running on a cloud Cloud options include: infrastructure. The applications are Public Cloud: Available to the general accessible from various client devices public/large industry; it is off premise, through a thin client interface such as a owned by the organisation selling Web browser (e.g. Web-based ). cloud services. Cloud Platform as a Service (PaaS): Private Cloud: Operated solely for an The capability provided to the organisation; it may be managed by consumer is to deploy onto the cloud the organisation or a third party, and infrastructure consumer-created or may exist on premises or off acquired applications created using premises. programming languages and tools supported by the provider. 7

8 making the cloud work for you Cloud is a strategic concept but you need to build momentum for adoption through quick wins that can be achieved at high speed, and ideally in the first year. Cloud involves a move away from long-term capital investment, and even from long-term strategic sourcing, and prioritises buying and consuming IT as a series of scalable services, on demand. It is right to be ambitious and to aim for largescale financial savings in the very short-term, with a 30% cut from IT budgets being entirely realistic. Getting started in the world of Cloud is now simpler than ever and CSC, through its BizCloud strategy, has developed a step-by-step approach to adoption, designed to overcome the key barriers and support Cloud strategy with clear and practical business drivers. These include: Clear ROI, building a solid business case and measurements for adoption. Flexible pricing from day one, aligning levels of investment to real business needs. Proven strategies for addressing the barriers to adoption. Rapid implementation and low cost, with a targeted 10 week period to be up and running and costs that are kept under the strictest control. However you start, the key principles will always be these: Virtualisation of infrastructure, applications and processes is both a requirement and also a catalyst for moving to an on-demand consumption of IT resources as services. Once virtualisation has taken place, the options for delivery are broad and varied, including on-site Cloud, private Cloud specific to the individual client but held at an off-site location, or use of very low cost, high resilience public Clouds, where appropriate. Moving to a scalable, on-demand strategy for IT opens up new possibilities for rapid service creation, reducing the cost of failure and making it easier to mass-customise for large numbers of customers. Cloud should drive a transformation to cost base, moving from CapEx to OpEx and freeing capital for reinvestment in the business. The technology requirements and issues related to a large-scale move to the Cloud are significant and must be dealt with in a systematic way, but the business advantages to banks and insurers of embracing Cloud are overwhelming. The movement is happening now, and we expect it to pick up speed in the next few years, helping to create a very different financial services marketplace in the future. 8

9 About CSC The mission of CSC is to be a global leader in providing technology enabled business solutions and services. With the broadest range of capabilities, CSC offers clients the solutions they need to manage complexity, focus on core businesses, collaborate with partners and clients, and improve operations. CSC makes a special point of understanding its clients and provides experts with real-world experience to work with them. CSC is vendor-independent, delivering solutions that best meet each client s unique requirements. For more than 50 years, clients in industries and governments worldwide have trusted CSC with their business process and information systems outsourcing, systems integration and consulting needs. The company trades on the New York Stock Exchange under the symbol CSC. To find out more about our experience in your industry or discuss a particular need, FSinfo@csc.com THE AMERICAS EUROPE, AUSTRALIA, ASIA 2100 East Grand Avenue MIDDLE EAST, AFRICA NEW ZEALAND 139 Cecil Street El Segundo, Royal Pavilion 26 Talavera Road #08-00 Cecil House California Wellesley Road, Aldershot Macquarie Park Singapore United States Hampshire GU11 1PZ NSW 2113, Republic of Singapore United Kingdom Australia, (0) (0) Copyright 2012 CSC. All rights reserved.