Banking on the Cloud Felix Enescu felix enescugartner

Banking on the Cloud Felix Enescu felix. enescu@gartner. com This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. © 2011 Gartner, Inc. and/or its affiliates. All rights reserved.

Cloud Computing — FS CIOs Plan Rapid Shift Over the Next Five Years When will your organization support: (a) >50% transactions on cloud infrastructure and (b) >50% transactions on Saa. S applications? Cloud infrastructure Saa. S Source: Gartner Global Survey v All FS CIOs

Key Issues 1. What is the state of cloud computing for the BIS industry? 2. How can cloud computing enable long-term transformation? 3. What forms can cloud banking take? Note: CC lets banks automate more processes and run them more cheaply than before — CB lets banks do things they could never do before and that are unique to this industry.

FS CIOs Prioritize Cloud Computing Strategic Technologies Cloud Virtualization Mobility IT management Business intelligence Service-oriented architecture (SOA) Enterprise applications Infrastructure Networking, voice, and data communication Web 2. 0/social media Ranking of Technologies CIOs Selected as One of Their Top-Five Priorities in 2011 2010 2009 2008 2007 1 2 2 1 3 4 5 3 8 4 9 6 6 8 5 4 1 1 2 6 7 4 3 3 7 8 10 7 7 4 9 6 10 5 - Source: Gartner CIO Survey Note: Data management and storage was ranked fifth or better over the last five years but didn't rank in 2011. [Green = up on previous year; red is down]

Demand Is High but Supply Is Immature Strategy Major Vendor FS Cloud Maturity 35 Value-added services 30 25 20 15 10 5 0 Deployment 2010 2013 Partners Risk 0 = Embryonic 30 = Developed Engagement Road map

Cloud Computing Technologies and Concepts Are Still Evolving Expectations Real-Time Infrastructure "In the Cloud" Security Services Public Cloud Computing/the Cloud/Web Platforms Cloud Computing Platform as a Service (Paa. S) Elasticity Cloud Storage Cloud Service Integration Dedicated Email Services Cloud-Computing Security Concerns Private Cloud Computing Compute Infrastructure Services Cloud APaa. S Enterprise Portals as a Service DBMS as a Cloud Service Cloud-Based Grid Computing Cloud-Enabled BPM Platforms Cloud Testing Tools and Service Grid Computing Without Public Cloud Computers Community Cloud Security as a Service Hybrid Cloud Computing Virtualization Cloud Advertising Cloud Application Development Tools Saa. S Sales Force Automation Browser Client OS Enhanced Network Delivery Virtual Private Cloud Computing Cloud-Driven Business and IT Services IT Infrastructure Utility Cloud Management Platforms Saa. S Delivery of Treasury and Trading Services Cloudbursting/Overdraft Standard Hype Cycle adjusted for FS industry Cloud Services Brokerage Cloud Parallel Processing Cloud Services for FS Risk and Compliance Management Technology Trigger Peak of Inflated Expectations As of September 2010 Trough of Disillusionment Slope of Enlightenment Plateau of Productivity Time Years to mainstream adoption: Less than 2 years 2 to 5 years 5 to 10 years More than 10 years Obsolete before plateau This chart is a composite, derived from Gartner published Hype Cycles. The particular combination and comparison of items made here has not been reviewed by Gartner.

Cloud Computing Heat Map for Investment Services "Cloud-Appropriate" Tests Area Front Office Application Maturity and Indep'ce Standz'n Core applications Trade analytics and data management Pre- and at-trade processes Sales and marketing, CRM, and analytics Middle and Back Risk management Office Clearing and settlement Post-trade processes (recons, exceptions, and corporate actions) Generic/ Data management/ Enterprise/ MIS/BI Infrastructure Remote application components/ integration Network, telco, Vo. IP, and connectivity Storage CC appropriateness: Low Medium High Overall Scalability Ubiquity Risk App'ness Pub/Pvt/Hyb Iaa. S/Saa. S Cost Advg Rev Advg Pvt S H S Pvt S H IS H S Pvt IS H S Pub I H I For Illustration Only!

Key Issues 1. What is the state of cloud computing for the BIS industry? 2. How can cloud computing enable long-term transformation? 3. What forms can cloud banking take? Note: CC lets banks automate more processes and run them more cheaply than before — CB lets banks do things they could never do before and that are unique to this industry.

How Cloud Computing Will Transform the Way We Do Business With Banks By the end of 2015, consumers will initiate at least 10% of all banking interactions indirectly via cloud services-based exchanges and portals. Reasons why it might be lower Reasons why it might be higher • Regulatory problems (e. g. , ban on non -regulated services being offered via CC) and other inhibitors such as… • Consumers expect to be able to negotiate prices, terms, and conditions • Consumers expect to be able to configure product features • Banks will need to reinvent and decompose products and services to meet customer needs • Competition and disintermediation (e. g. , by P 2 P lending) raise urgency and accelerate progress • Next natural evolutionary step after price comparison sites for banking products and services • …security, reliability, and privacy • …lack of industrywide standards • Dynamic pricing doesn't take off • Tech issues such as lack of componentization • Lack of automation and power to run auctions on industrial scale • Local restrictions such as Internet bandwidth

Cloud Computing Evolution to Follow Electricity Trajectory NYSE + VMware + EMC announcement for CC platform Trust within closed community To come: spot price vs. future price? (Banking is about here) From cottage industry, to centralized industry, and now (a little) to decentralized, feeding back into smart grid.

Developing the Banking Cloud Business Approach g tin Info/Integ. aa. S Executional Clo ud C om pu Activity Management Transactional Saa. S APaa. S Operational Iaa. S Tactical Compositions/Business Processes (e. g. , reconciliations) Strategic Analysis & Planning Mission-Critical Apps Compliance ing nk Ba ud Clo payroll Custody & Payments Strategic Market Analysis FS Applications: CRM, compliance, etc. Generic: Matching Liquidity Accounting Mgmt. Allocation/ Operational Risk Analysis – Attribution Risk Counter-MRM/CRM/PTC Reconciliation part Demand Interaction Portfolio Planning Pricing CRM IOI Analysis CRM (e. g. , FX and trade pricing) ERP, HR, Order Execution Client Reporting Decision n Support Order Execute Execut e Clear Workflow/Life Cycle Settle Evaluate

Acceleration via Cloud Service Brokerages* (CSBs) [* nothing to do with securities brokerages] CSB Exists to Provide Governance and Integration as a Service Type 1 — Cloud Service Intermediation VAR for cloud services — adds value such as usage, pricing, billing, and payment Type 2 – Cloud Service Aggregation Packaged applications from multiple suppliers over cloud with all data and processes integrated Type 3 – Cloud Service Arbitrage Similar to T 2 (aggregation) but without fixed suppliers (e. g. , use three credit scoring agencies but only take "best" score based on criteria) Q: Will regulators allow use of CSBs in BIS industry?

Key Issues 1. What is the state of cloud computing for the BIS industry? 2. How can cloud computing enable long-term transformation? 3. What forms can cloud banking take? 1. Compete 2. Collaborate 3. Consume 4. Combine Note: CC lets banks automate more processes and run them more cheaply than before — CB lets banks do things they could never do before and that are unique to this industry.

Consumer Negotiations via Cloud Banking (Reverse Auction) Supplier 1 Supplier 2 Supplier 3 (branding) (issuing) (fraud) Pricing Risk Bank A E. g. , configuration for cr. card Rate Fee Limit Color Consume/Compete Bank C Bank B PORTAL/INTERMEDIATOR W a n t s Features Timing Shift of power! O f f e r s S e l e c t s D e l i v e r s No bid Invalid combi. Withdraw

Compete Champion vs. Challenger Algorithmic Operations • People shift from executing processes and making decisions… • …to designing and refining processes that automate decisions Two pressures… 1. Continually improving the champion 2. Regularly challenging the champion model with alternative models Develop new algo Test in parallel Daily optimization Deploy best algo

Open Development Platforms, Componentization, Collaborate and a New Kind of CBS Vendor Core Component Applications: Component Today The End of Core Applications (>2015? ) Interest Accrual Component Savings P NC Insurance Specialty Loans Loan Payoff Commercial Component Con sumer Wealth Mgmt. Component DDA Credit Card M or tgage Component W ealt h Mg mt. HE LO C Lif e and P e n si o n s Component Fixed Term C o rp o ra t e Banking Component Deposit Services Customer Services Neg. Amort. Lending Services Micro Lending "App Store" Extension of component-based architecture

Consume A "SETI" for Online Banking Or… A two-tier service for online banking: A ready-made community… …for analytics, big data, etc.

Combine Multi-tenanted Core Banking Systems

Action Plan for CIOs and Sourcing Managers Monday Morning - Begin to catalog the different uses of SOA, ENS, BPNs, Hubs, and CC already in progress within your BIS firm. - Identify conflicts and harmonies between the uses made of the above and your various outsourcing models. Next 90 Days - Build an inventory of your existing IT service delivery paradigm and find examples of existing models that map to CC. Use these as benchmarks from which to assess risk, build business cases, and develop vendor relationships. - Determine where you can go beyond non-core, proof-of-concept deployments of CC and what style of CC is appropriate. - Use the heat map to assess the accessibility, readiness, and adoptability of CC for your BIS firm. Next 12 Months - Design the transformative services that can leverage CC to put your BIS firm in the vanguard. Start the move to CB.

Related Gartner Research è Using Industry Working Groups to Advance Cloud Adoption in Financial Services Peter Redshaw, David Furlonger, Juergen Weiss (G 00212992) è Major Vendors' Embryonic Clouds Will Frustrate Financial Services CIOs Peter Redshaw, David Furlonger, Juergen Weiss (G 00210834) è Cloud Computing for Banking and Investment Services Peter Redshaw, David Furlonger (G 00205296) è Three Types of Cloud Brokerages Will Enhance Cloud Services Daryl C. Plummer, L. Frank Kenney (G 00164265) è Real-Time Bidding Heralds Growth in Cloud Advertising Andrew Frank (G 00174910)

Banking on the Cloud Felix Enescu felix. enescu@gartner. com This presentation, including any supporting materials, is owned by Gartner, Inc. and/or its affiliates and is for the sole use of the intended Gartner audience or other authorized recipients. This presentation may contain information that is confidential, proprietary or otherwise legally protected, and it may not be further copied, distributed or publicly displayed without the express written permission of Gartner, Inc. or its affiliates. © 2011 Gartner, Inc. and/or its affiliates. All rights reserved.