In recent years, with the increasing use of cloud services and reliance on information and communication technology (ICT) in the industry, financial services regulators have provided extensive Operational Resilience guidance, covering areas such as pandemics, cybersecurity, ICT outsourcing, and ICT third-party risks respectively. Before I describe how VMware offers our financial services customers choice to meet their regulatory compliance demands, how should we understand “Operational Resilience” in the context of the financial services industry?

Let’s explore this through examples from prominent regulatory bodies:

To summarize, Operational Resilience involves a comprehensive approach to ensuring that essential customer services (e.g. customer banking, payments, etc.) can be delivered continuously regardless of disruptions and that financial services organizations can respond and recover effectively to maintain its critical operations and business functions. Key components include the ability to identify and protect against threats, respond and adapt to disruptive events, and recover and learn from incidents to mitigate their impact on critical operations and core business lines.  

Furthermore, here are some examples of how regulators in Europe and North America are strengthening industry regulations around Operational Resilience: 

European Union

The Digital Operational Resilience Act (DORA) by the European Commission introduces extensive regulations for managing Digital Operational Resilience, aiming to mitigate risks related to ICT systems and third-party dependencies. DORA seeks to rationalize the fragmented European financial services regulatory landscape by establishing a comprehensive EU-wide framework with no overlaps or gaps. DORA entered into force in January 2023 and shall apply to all EU member states from 17 January 2025.

DORA puts detailed requirements on FS firms across five pillars:

• Risk management – firms must have a comprehensive and well-documented ICT risk management
• Incident Reporting – firms must report major ICT-related incidents 
• Digital operational resilience testing – firms’ business continuity and disaster recovery plans must deliver high levels of operational resiliency and tested regularly (at least annually)
• ICT third-party risk* – firms must manage ICT third-party risk as part of their overall risk management framework
• Information & intelligence sharing – firms are encouraged to share cyber-threat information to enhance operational resilience of the entire financial system

*Under DORA, “critical” ICT third-party providers now come under the direct supervision of EU financial services regulators.

United Kingdom

The UK’s supervisory authorities (collectively the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), along with the Bank of England)) initially released its final rules and guidelines in March 2021. Financial Services firms in the UK are expected to adhere to these requirements to ensure operational resilience by a deadline of 31 March 2025.

Key actions include:

• Identifying vital business services that could harm consumers, market integrity, firm viability, or financial system stability if disrupted.
• Setting impact tolerances for maximum allowable service disruption.
• Conducting thorough mapping, testing, and vulnerability assessments.
• Undertake lessons learned exercises to enhance response and recovery capabilities.
• Creating communication plans for service disruptions.
• Preparing self-assessment documentation.

And by 31 March 2025:

• Perform mapping and testing to stay within impact tolerances for crucial business services.
• Make necessary investments for consistent operation within impact tolerances.

North America

In October 2020, an interagency paper titled “Sound Practices to Strengthen Operational Resilience” was released by the United States Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation collectively. This interagency paper consolidates existing regulations, guidance, and common industry standards in one place to provide a comprehensive approach that banks may use to strengthen and maintain their operational resilience.

The sound practices are anchored by robust operational risk and business continuity management, informed by rigorous scenario analyses and testing, consideration of third-party risks, and planning for alternative service providers where necessary.

Additionally, the Canadian Office of the Superintendent of Financial Institutions (OSFI) has also openly discussed issuing more stringent guidance on managing IT operational risks from use and reliance on services from cloud providers and other third-party service providers. 

What impact does this risk & regulatory environment have on our Financial Services customers?

While regulators offer prudent guidance on key risks that should be considered, firms themselves are directly responsible for identifying operational risks and mitigating them through appropriate risk management and resiliency strategies, including those related to cloud service providers. The days when firms could treat compliance as a checkbox exercise and state a critical service has a “backup” are behind us. Firms need to demonstrate through regular testing they can actually sustain their operations, have further remediation plans enacted, and fully developed exit strategies in place (ahead of when you need one).

Relying on new software or a cloud service is not enough, however. For all “critical” and “important” services, firms need to make sure that they have implemented the solution, run it optimally, and can demonstrate to regulators that they have full visibility, control, and contingency in place.  And just as we see a commonality in how the various regulators define terms, financial services firms around the world should expect regulators to continue to talk amongst each other to encourage common prudential guidelines across the world. Much like GDPR, the EU’s DORA is particularly one regulation that we anticipate will have a much wider impact on the financial services industry than just within EU member states.

All things considered, compliance is not such an easy task for banks, insurers, and other financial services firms.  It’s become much more than a checkbox exercise; it’s increasingly feeling like a full-contact sport!

For Financial Services, Multi-Cloud can provide a solution to the Operational Resiliency challenge!

At VMware, we’re seeing many financial services customers: 1) struggling to execute their public cloud strategies, and 2) adapting their operational models to run critical business systems seamlessly across both the data center and the public cloud. Many of their cloud migration projects have either stalled or exceeded their initial timelines.

• Correspondingly a December 2022 report on cloud adoption in Europe by the Association for Financial Markets in Europe highlights regulatory complexity as a major barrier affecting the pace of cloud adoption within the finance industry.
• With an estimated 75% of FSI firms leveraging multiple cloud providers, many financial institutions are embracing a multi-cloud strategy to mitigate operational risk. However, in pursuit of this objective, firms encounter the difficulty of navigating and managing diverse cloud approaches for each CSP, all while ensuring a resilient financial ecosystem.

VMware’s multi-cloud approach for financial services risk/regulate environments combines the use of our VMware SDDC architecture across all clouds (private, public, sovereign, and edge) with our workload migration and DR capabilities. By maintaining a common and consistent architecture, financial institutions can:

• Develop and operate diverse applications delivering an agile and scalable cloud experience across multiple cloud providers and on-premises
• Ensure continuity of operations during planned DR testing or unplanned outages/disasters
• Protect against ransomware and other cyber-threats
• Enable seamless migrations between different clouds should firms need to enact cloud provider contingency plans

However, not all workloads or financial systems can or will be migrated to the public cloud and regulators are no less concerned with how data center environments operate in the event of instability. For those environments, utilizing VMware Cloud Foundation, firms can enjoy the advantages of the same highly available and resilient SDDC architecture on-premises, enabling streamlined operations and efficient utilization of infrastructure in the data center.

Key Takeaway for Financial Services Institutions

VMware offers our financial services customers unequivocal choice in both application platform and infrastructure platform layers enabling them to strike a balance between agility and operational resilience! 

Runecast Partnership

We’re excited to be working with our partner Runecast to address the challenge financial services firms face in gaining visibility into and managing their EU DORA compliance posture in a multi-cloud world enabled by VMware. More to come on our partnership so stay tuned to VMware’s Industry Solutions blog for updates.

The post Decoding Operational Resilience: Navigating Industry Regulations in Financial Services appeared first on VMware Industry Solutions.

Amidst ever-evolving multi-cloud transformation, financial services organizations find themselves in a position that demands innovative change yet provides an overwhelming number of avenues to do so. These organizations are navigating the process of adapting their application portfolios to integrate cloud native principles in hopes of driving customer engagement, improving operational efficiencies, and boosting employee productivity.  

The wealth of cloud infrastructure choices paired with diverse business needs can easily give way to siloed decision-making among different teams, leading to a complex and inconsistent cloud infrastructure landscape involving a mix of private, public and edge clouds. In the process, organizations are missing the opportunity to holistically support existing and modern apps across environments. 

A Cloud Smart Solution: Modernize, Protect, Migrate 

Ninety-one percent of executives across all industries are looking to improve “consistency across [their] public cloud environments.”¹ In our new eBook, “Your Path to Cloud Smart,” we explore how VMware empowers financial services organizations to take advantage of a rich set of services and capabilities to build, run, manage and secure apps consistently across clouds. Specifically, we look at how VMware solutions enable banking institutions to: 

• Optimize and modernize the data center to establish a common cloud infrastructure that can run anywhere and support both traditional and modern apps on private, partner, edge and public clouds.
• Leverage a common operating model and management that is tightly integrated with the virtual infrastructure stack across any cloud.
• Bolster the protection of business apps and data by enforcing Zero Trust defense on-premises and across clouds.

By combining a common cloud infrastructure platform and operating model that can support any app across any cloud, financial services organizations can address multi-cloud complexity via a modern Cloud Smart architecture. 

To learn more, download Your Path to Cloud Smart.

1. VMware FY22 Q4 Executive Pulse.

The post How FinServ Organizations Can Jumpstart Their Multi-Cloud Journeys  appeared first on VMware Industry Solutions.

Unlock the future of customer-centric digital banking and accelerate your IT leadership journey!

Are you a trailblazing IT leader in the financial services sector? Eager to shape the future of digital banking experiences? Look no further! Immerse yourself in an exclusive, interactive workshop where visionary IT leaders converge to share their strategies, insights, and successes.

What to Expect: 

• Gain firsthand knowledge from industry titans on customer-centric digital banking
• Explore cutting-edge trends, best practices, and lessons from digital transformation pioneers
• Dive into riveting panel discussions and interviews with top financial services leaders 
• Master practical techniques for fast-tracking new products, services, and capabilities
• Elevate your customer experiences, supercharge innovation, and drive competitive advantage
• Engage in live Q&A sessions with esteemed customer panelists and VMware experts

Meet our Guest Speakers:

• Vijay Vijayasankar, Managing Partner, Financial Services, IBM – LinkedIn
• Tim Cook: Sr. Director, Container Platforms, Fiserv – LinkedIn
• Tyler Farmer: Cloud Services Infrastructure, First Citizens Bank – LinkedIn
• Host: Steve Fusco: Global Business Solutions Strategist, VMware – LinkedIn

Don’t miss this opportunity to propel your financial services institution into the forefront of digital evolution. Register now and be part of a transformative journey toward unparalleled customer experiences and IT excellence!

Workshop Details:
Accelerate Digital, Customer-Centric Banking – A Financial Service Workshop [INDT2712LV]

• The Venetian Las Vegas
• Monday, Aug 21
• 2:00 PM – 3:30 PM PDT
• Level 3, Lido 3003

The post Join Us at Explore for a Transformational Financial Services Workshop!  appeared first on VMware Industry Solutions.

Orrin Francis

Introduction

As the financial industry becomes more reliant on technology and data, Digital Sovereignty has become increasingly important for Financial Services CEOs. It’s a topic that has many layers, ranging from industry regulation and government policy to rapidly changing geo-political conditions, to consumer data protection and business risk management. Underpinning all of this is the need for modern, innovative technology capabilities that can keep up with the fluid digital landscape. This is a lot for financial services CEOs to think about. 

In this three-part blog series, we will attempt to cover the three important digital sovereignty trends firstly discussing how geo-political events and increasing regulations are impacting sovereignty. Secondly, we’ll delve into the impact of cyber-attacks and the increasing data volumes, and finally, we’ll create an approach to leverage digital sovereignty principles. 

What is Digital Sovereignty? 

The World Economic Forum in the paper What is digital sovereignty and why is Europe so interested in it?, ¹ describes Digital Sovereignty as “…the ability to have control over your own digital destiny – the data, hardware, and software that you rely on and create.” 

Add people, process, and consumption models into the pot, and we have a recipe for cloud chaos. A simplified approach separates Digital Sovereignty into technology sovereignty, operational sovereignty, and data sovereignty. Technology sovereignty concerns are specifically where “Proprietary technology can lead to technological lock-ins and silos that threaten digital sovereignty,” ^2. Operational sovereignty is concerned with transparency into the people and process aspects of the services being consumed. Finally, data sovereignty concerns are in relation to ownership, access, traceability, and residency.  

The aforementioned concerns are increasing due to geo-political events, evolving data privacy regulation, increasing cyber-attacks, and threats to data confidentiality.  

1. Geo-political Events and Digital Sovereignty 

In 2022, there were several geo-political events that occurred including February 24^th when Russia invaded Ukraine ³ and the incremental escalation of U.S.- China strategic competition⁴, which on top of the pandemic accelerated global fragmentation. Economies are now focusing on self-reliance, reducing vulnerabilities, and decoupling supply chains. CHIPS and the Science Act ⁵ are prime examples of how countries are executing these strategies. Following this we have the political risk in emerging markets, including the North Korea conflict, EU fragmentation, and so on.  

Geo-political Events and the Financial Services Industry 

The Financial Times published a leading article titled ‘Weaponisation of finance: how the west unleashed ‘shock and awe’ on Russia’⁶ and The Economist published an article titled ‘How new sanctions could cripple Russia’s economy’ The brutal logic behind measures targeting the central bank.⁷  The economic sanctions were adopted by the G7 and followed by other countries, however, the financial sanctions adopted signaled a break from the past by involving central banks in monetary and financial warfare.⁸  

The financial sanctions are: (European Commission 2022)⁹ 

• Select Russian banks are removed from the SWIFT messaging system. Ensuring that these banks are disconnected from the international financial system will harm their ability to operate globally. 

• Impose restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions. 
• Act against the people and entities who facilitate the war in Ukraine and the harmful activities of the Russian government. Specifically, we commit to taking measures to limit the sale of citizenship so-called golden passports—that let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems. 

The U.S. and China strategic competition is driving global fragmentation, countries are boosting self-reliance, reducing vulnerabilities, and divorcing their tech sectors. Currently considering controls on other technologies like ‘Quantum Computing’ and Artificial Intelligence, as well as a method to review investments in China. Additionally, the U.S. has legislated the CHIPS and Science Act aimed at boosting competitiveness in critical technologies.  

The speed and impact of these events are accelerating and expanding due to globalisation and interconnectedness making digital sovereignty increasingly important. Financial services CEOs are revisiting their digital resilience strategies in view of the growing importance of digital sovereignty. 

• Key Takeaway: The Financial Services Industry should expect policymakers to prioritise the self-reliance and stability of the financial ecosystem within their nation. Digital resilience strategies, therefore, should prioritise ensuring no lock-in and evaluate the feasibility of backout/exit plans. 

2. Evolving Data regulations 

The factors discussed in the previous section are contributing to a substantial increase in the number of regulations, not limited to personal data, but extending to finance data like banking, credit reporting, financial, payment, tax, insurance, and accounting data. 

“The number of data-localization measures in force around the world has more than doubled in four years. In 2017, 35 countries implemented 67 such barriers. Now, 62 countries have imposed 144 restrictions—and dozens more are under consideration.”¹⁰. 

This rapid increase in regulations has the potential to significantly impact the cost base of financial services institutions that do not have a robust data strategy. Financial Services CEOs need to consider the growing cost of regulatory compliance and the increasing penalties for breaching these regulations in the country and region.  

Data Regulations and the Financial Services Industry

As countries and jurisdictions continue to do business, there will be a growing need for data to flow easily to support all aspects of the business. One such key data transfer in the financial sector is cross-border payments. While the Financial Services Industry continues to strive toward digital transformation, data, and compliance are central to the growth and stability of national financial ecosystems. Most of the justifications and subsequent regulations stem from the prime objective of the regulators needing to protect the financial ecosystem and the public.  

The diverging paths taken by different countries and jurisdictions are making cooperation and interoperability harder. The data regulations being passed and adopted are being applied to data based on type (Korea – financial services, China – industry verticals, Philippines – banking, and Australia – medical data) and classification (government-based protected, secret, and top-secret, Financial Services – highly protected, customer and personal, confidential, NIST – low impact, moderate impact, and high impact). On the other hand, policymakers are being accused of harbouring secret agendas of protectionism, national security, greater control over the internet, or some combination of these.¹¹  

Future policies must be agile and risk and outcome-based, as domestic regulators and international cooperation will never keep pace with the rate of innovation. New technologies may also achieve better outcomes and compliance than sanctions-based models.¹². 

CEOs in general and Financial Services CEOs do not have the luxury of certainty and will be required to make decisions based upon the constantly changing world of geopolitics and rapidly evolving regulatory landscape. The recent increase in generative AI and its regulation¹³ and the recent failure of Silicon Valley Bank and Signature Bank¹⁴ could lead to these factors having a far greater impact on the financial services businesses than previously envisioned.   

• Key Takeaway: The Financial Services Industry should expect data regulations to evolve at a faster pace, as national and international regulators get to grips with innovation and new technology. Digital Resilience strategies, therefore, should prioritise flexibility with all data decisions. The ability to adhere to regulatory requirements with minimal impact on operations and reporting, and reducing the expensive impact of noncompliance will be key. 

Coming soon. Part 2. Digital Sovereignty: Why Financial Services CEOs must act now? 

References

1. What is digital sovereignty and why is Europe so interested in it?, March 2021 

2. Development Co-operation Report 2021: Shaping a Just Digital Transformation – Ch 26  

3. February 24, 2022, Russia-Ukraine – CNN 

4. US-China strategic competition unchecked is headed for disaster 7^th Nov 2022 (East Asia Forum) 

5. Whitehouse Fact Sheet: CHIPS and Science Act – Aug 09, 2022, & H.R.4346 – Chips and Science Act Bill PL no:117-167 

6. Weaponisation of finance: how the west unleashed ‘shock and awe’ on Russia (Financial Times 6th April 2022) 

7. How new sanctions could cripple Russia’s economy (The Economist 27th Feb 2022) 

8. Weaponisation of finance: the role of European central banks and financial sanctions against Russia (Western European Politics 27th Jan 2023) 

9. Joint Statement on further restrictive economic measures – European Commission 26th Feb 2022 

10. How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to Address Them – July 19, 2021, Information Technology & Innovation Foundation  

11. How Barriers to Cross-Border Data Flows Are Spreading Globally, What They Cost, and How to Address Them – July19, 2021 ITIF.org 

12. WEF_Paths_Towards_Free_and_Trusted_Data _Flows_2020.pdf (weforum.org) 

13. AI Regulation is coming – HBR.org Sept-Oct 2021 

14. Bank Failures in Brief – 2023 – Federal Deposit Insurance Corporation – fdic.gov 

The post <strong>Digital Sovereignty: A Critical Consideration for CEOs in the Financial Services Industry</strong>  appeared first on VMware Industry Solutions.

Financial Services at Scale with VMware

VMware has over two decades of experience being a strategic partner and provider of advanced technology solutions for the global financial services community. In this blog, we are going to examine three customers at various places in their digital transformation and learn how VMware helped them to scale fearlessly.

Digital Transformation for Explosive Growth

Access Bank is a leading full-service commercial bank operating through a network of more than 600 branches and service outlets, spanning three continents, 12 countries, and 45 million customers.  Access Bank was at a point where it had to rethink how it procures its systems, followed by a complete modernization of an aging technology stack in order to stay relevant with existing customers and new prospects.

Access Bank turned to VMware’s vCloud Suite, Carbon Black App Control, and VMware Horizon is its’ solution to embracing cloud-based services and modern application architectures while delivering the speed and agility that its team craved. Since deploying VMware solutions, Access Bank has seen numerous benefits, with scalability being front and center. The bank now has an online loan product that disposes a loan to a qualifying customer in less than 10 seconds.

Security and stability are some of the other benefits enjoyed by Access Bank as VMware is a critical component to securing data on its private cloud for PCI-DSS compliance. As part of its transformation, the bank also has achieved infrastructure stability.

Modernizing Business with Improved Technology Strategy

Nippon Wealth Life specializes in over-the-counter sales at financial institutions and offers products and services centered on single-premium fixed annuities in foreign currencies, targeting mainly high-net-worth seniors. To prepare its IT environment to support continuous, stable development, Nippon Wealth Life launched a cloud migration project to improve its existing system and further the company’s business imperatives.

Nippon Wealth Life faced several problems with its existing IT systems, including a shortage of server resources and rising operational and maintenance costs. The company struggled with an existing, on-premises system, with constrained resources caused by a rising number of servers,

dealing with EOS/EOL for its legacy operating systems and the escalating costs of hardware and software maintenance and operations.

Nippon Wealth Life chose Azure VMware Solution (AVS) as part of a fully managed cloud migration strategy to modernize their business through technology. With AVS, Nippon Wealth Life could immediately connect its on-premises network to the cloud with zero delays and migrate without affecting existing applications.

Security Transformation with Deep Insights

The United States Senate Federal Credit Union (USSFCU) serves high-visibility clients, including U.S. senators, making the protection of sensitive data a top priority. The organization had already empowered employees with secure, digital workspaces with VMware Horizon and VMware Workspace ONE. As part of its continuous improvement strategy for infrastructure security, USSFCU is a unified solution that stretches from the perimeter to the data center, across its network and virtual desktop infrastructure (VDI), with granular policy controls to protect applications, services, and workloads.

With VMware, USSFCU was able to protect its brand and customer data with a Zero Trust strategy to mitigate security risk. VMware security solutions provided USSFCU the micro-segmentation it required for deep visibility into securing critical VDI resources with advanced threat protection via a single platform. This single platform approach simplified operations and automate policy management for the credit union while scaling east-west protection faster and at lower cost than with traditional, hardware-based alternatives.

See How VMware Can Help You

VMware offers customized half-day outcome-focused workshops for financial services organizations to help you determine and set achievement outcomes that meet your timelines and objectives. Reach out to your VMware representative or contact us at (INSERT EMAIL ADDRESS) to find out how you can maximize your profitability in the multi-cloud.

The post How VMware is helping Financial Services customers maximize service profitability and scale ​ appeared first on VMware Industry Solutions.

By Paul Nothard, Solutions Architect – Financial Services Industry Solutions, VMware; Dr. Jochen Papenbrock, Head of Financial Technology EMEA, NVIDIA; Yuval Zukerman, Senior Director, Content Strategy, Domino Data Lab

While many industries are investing in AI/ML, with a majority seeing cost savings and increasing revenues, the financial services industry has not always been as fast at adoption, having faced some industry-specific headwinds. With several repeated projects not graduating from the testing and prototyping phases into production, we must ask why this is.

The rapid adoption of AI/ML within financial services has led to disparate groups forming, mirroring the tensions previously seen between more traditional developers and the operations teams. This often leads to a separate center of excellence dictating technical direction and policy for AI/ML-driven initiatives, much like a form of Shadow IT. This is exacerbated with the ‘buy button’ ability of a cloud consumption model.

Exploring the state of AI/ML within the financial services industry (FSI), demands an examination of some of the specific challenges faced by financial services customers, and the consideration of a potential solution. Any financial services solution must give customers an optimized, validated, and unified data science and infrastructure platform that enables them to deliver more business value and innovation through AI/ML.

What is the state of AI/ML in the financial services industry

From banking and fintech institutions to insurance and asset management firms, the goal remains the same – how to manage risk, enhance efficiencies to reduce operating costs, and improve experiences for clients and customers more accurately. NLP (Natural Language Processing) and LLM (Large Language Models) are core technologies powering financial services – similar technologies have recently captured public attention via ChatGPT. NVIDIA’s “State of AI in Financial Services: 2023 Trends” survey of nearly 500 global financial services professionals reveals these top four takeaways: 

1. AI delivers meaningful business impacts to financial services firms

TAKEAWAY: AI is a strategic imperative. Companies that are not investing in AI and cannot migrate AI-enabled applications from research to production will be at a competitive disadvantage.

2. Executive support for AI at new high 

TAKEAWAY: Executive support for AI is higher than ever before. Financial services executives value and believe in AI more than ever before. 

3. Financial services institutions are investing in trustworthy AI & explainability to support new AI use cases

72% percent of respondents are building a framework for AI governance and risk management to help ensure their AI systems are trustworthy and explainable. With Explainable AI, companies will be able to apply deep learning to additional use cases. Today, internal compliance officers and auditors restrict the application of deep learning, as they require the model outputs to have an explanation, should the outcome be questioned by customers, regulators or other stakeholders. 

TAKEAWAY: Expanding the use cases through explainability will increase demand for accelerated computing.

4. Multi-cloud is coming on strong and is critical to AI in financial services

44% of financial services respondents’ companies use hybrid infrastructure for their AI workloads and project.  In reality, sensitive data cannot always be migrated to the cloud and certain workloads are cheaper to run on premises.  Because of this, the debate is not about on premises versus the cloud—rather, it is about how to optimize both and reduce costs in the process. 

TAKEAWAY: Many financial services firms state they are cloud first. Yet, the reality is that few companies migrate all their data to the cloud, leading them to turn to a well-managed multi-cloud infrastructure solution.

Challenges faced by financial services customers

AI practitioners (data scientists, quants, analysts, actuaries, etc.) need to experiment quickly, prototype, train, iterate, and adapt. They are under pressure to deliver results to their lines of business, and for a good reason. This can often affect the repeatability and consistency of model results, eroding confidence in the modeling. They want to deliver results to their line of business customers and do not and should not care where the resources are located. Left unmanaged, this has recently been referred to as the ‘wild west’ of modeling and introduces its own business risk.

On the other hand, IT operations teams are acutely aware of the various constraints they must adhere to, such as data security, operational resilience, data residency, and new and evolving governance frameworks (e.g., DORA, Gaia-X, etc.) in addition to, cost and efficiency concerns. Offering choice to the data scientists, utilizing the most appropriate technology and location for the task at hand while not adversely impeding the data scientists’ flow.

The topic of ethical and explainable AI is a concern for both groups and is addressed in different ways. The tension is real, but there are significant opportunities to help both parties to benefit the business.

Can this tension be solved with MLOps?

Yes. Businesses should embrace MLOps principles and platforms to help manage the complexity and risk associated with this rapidly evolving technology. 

Data science, machine learning and AI development present challenges that are distinct from the mainstream software engineering lifecycle, let alone the requirements of IT operations teams. MLOps aims to address the differences, applying DevOps principles to the development and deployment of machine learning models. This involves the complete lifecycle from data provisioning and model development through deployment. MLOps incorporates model integration into automated CI/CD pipelines. Deployed models are monitored for precision and performance in production. MLOps seeks to increase the efficiency, scalability, and reliability of machine learning applications. It enables efficient, reliable, and predictable processes to obtain model-driven insights and predictive capabilities from data.

A unified data science and infrastructure solution from VMware, NVIDIA, and Domino Data Lab

Financial services institutions must carefully balance innovation, risk management, and regulatory compliance to adapt to changing market conditions, find new revenue streams, model risk, engage customers, and automate business processes.

VMware has collaborated with Domino Data Lab, NVIDIA to provide a unified analytics, data science, and infrastructure platform optimized, validated, and supported, purpose-built for AI/ML deployments.

This diagram represents the solution we created along with NVIDIA and Domino Data Lab. Diving into each section of the integrated stack in turn, we have:

A – Domino Data Lab

Domino Data Lab provides an enterprise-grade MLOps platform, acting as an enterprise’s system of record for all its AI/ML artifacts and enabling the complete data science and AI/ML lifecycle.

Domino helps enterprises address the main challenges of scaling data science. Wasted work is reduced thanks to a rich set of collaboration tools that align business goals and project milestones with model development. Data scientists are empowered with access to data in any format on any infrastructure alongside the best and most modern development tools and the ability to access powerful GPU (Graphics Processing Unit) and computing clusters to accelerate model training and boost productivity. Model deployment delays are avoided with the ability to train and deploy models as APIs or containers on premises and in the cloud. And once your models are in production Domino can monitor model performance to ensure accuracy and avoid financial and reputational risks. 

Despite the open, flexible nature of the platform, IT maintains control with the ability to specify hardware and software standards and more securely provide access to data repositories. 

Finally, Domino offers hybrid- and multi-cloud workload execution. With enterprise data spread across on-premises and cloud platforms, Domino can execute algorithms with data in place. This capability helps financial services organizations comply with data privacy and sovereignty regulations. Better yet, data is processed in place, avoiding slow and costly transfers.

B – NVIDIA AI Enterprise

NVIDIA AI Enterprise is an end-to-end, secure, cloud-native suite of AI software, enabling organizations to solve new challenges while increasing operational efficiency. It accelerates the data science pipeline and streamlines the development and deployment of predictive AI models to automate essential processes and gain rapid insights from data. It includes an extensive library of full-stack software, including AI solution workflows, frameworks, pretrained models and infrastructure optimization. Available in the cloud, the data center and at the edge, NVIDIA AI Enterprise enables organizations to develop once and run anywhere. Global enterprise support and regular security reviews ensure business continuity and AI projects stay on track.

C – VMware Cloud Foundation

VMware Cloud Foundation is a multi-cloud infrastructure and management platform capable of running both enterprise and cloud native workloads across private, public and edge environments.  VMware Cloud Foundation enables infrastructure and operations teams to utilize a consistent infrastructure and cloud operating model. 

With VMware Cloud Foundation, NVIDIA AI Enterprise software and accelerated computing, as well as Domino Data Lab software, organizations are able to extend VMware’s proven cloud platform for AI. The result is an AI-ready platform that runs all enterprise apps – VMs, containers, Kubernetes and AI – and a single set of operations, tools, and processes for all apps – significantly expanding the reach of AI while simplifying operations.

This solution provides the following key benefits: 

• Delivers a fully engineered and integrated solution that reduces the risk of internal projects that require a higher level of maintenance and engineering effort to deliver the same outcome.
• Supports regulatory compliance through intrinsic security, operational resilience and the agility and choice that the platform provides. 
• Includes essential capabilities such as disaster recovery, ransomware protection, capacity optimization and planning, and more.
• Increases efficiencies to contribute ESG carbon targets, improve efficiencies for high value systems and direct cost savings. 

D – Accelerated hardware

Using accelerated compute for AI delivers better performance which also improves efficiency and reduces costs, including savings from reduced energy consumption. NVIDIA delivers high performing computing systems while optimizing for efficiency^[1].

To be successful with machine learning and AI, enterprises need a modern coherent computing infrastructure that provides functionality, performance, security, and scalability. Organizations also benefit when they can run both development and production workloads with common technology. NVIDIA-Certified Systems go through additional certification, including VMware GPU certification, to help ensure compatibility with NVIDIA AI Enterprise. An NVIDIA-Certified System that is compatible with NVIDIA AI Enterprise conforms to NVIDIA design best practices and has passed certification tests that address a range of use cases on VMware vSphere infrastructure. These use cases include deep learning training, AI inference, data science algorithms, intelligent video analytics, security, and network and storage offload for both single-node and multi-node clusters.

Summary

An optimized, validated, and unified data science and infrastructure platform solves the tensions between disparate groups – IT Operations and AI practitioners. Allowing financial institutions to concentrate on deriving business value from the increased focus and innovation surrounding the use of AI/ML is critical to actively managing risk, efficiency gains and improved customer/client experience. A platform that continually addresses the concerns around security, compliance, operational efficiencies, TCO and more accurate/explainable models benefits all stakeholders. Access to accelerated hardware is democratized and enhanced allowing organizations to be faster and more efficient.

This gives data scientists what they want and need while keeping them safe, secure, and compliant, thus creating better business outcomes with reduced risk.

Learn More

To experience this solution in a live environment, try NVIDIA’s hands-on-lab: NVIDIA LaunchPad lab with Domino MLOps platform. With ready-to-use infrastructure running in a VMware virtualized environment, you can take a curated walk through our MLOps solution from infrastructure optimization to application deployment for up to two weeks for free.

Learn more about VMware Cloud Foundation AI-Ready Enterprise Platform and the vSphere AI/ML solution.

As Diamond sponsors of NVIDIA GTC, both VMware and Domino Data Lab have sponsor pages containing links to further resources, including videos, downloadable e-books and more. Of particular interest are the sessions that each company is running at NVIDIA GTC.

^[1] References: NVIDIA MLPerf Benchmarks; NVIDIA A100 Tensor Core GPU

The post <em>Accelerating AI-powered Finance with VMware, NVIDIA and Domino Data Lab</em> appeared first on VMware Industry Solutions.

By Joe Chenevey, Industry Solutions Architect, Financial Services & Samuel Awonuga, Business Development, Financial Services.

In an article published earlier this year, Martin Hosken, Worldwide Chief Technologist for VMware Cloud Services, discussed the concept of cloud exit and instances where a cloud exit strategy may be necessary for businesses. We highly recommend you revisit that article and his earlier series on the same topic.

Leading on, we will take a closer look at why cloud exit is especially relevant for the financial services industry. In addition, we will discuss how VMware solutions can assist financial institutions in implementing cloud exit strategies.

To start, let’s examine an underlying problem statement: 

As financial institutions, particularly banks, become increasingly invested in the public cloud, cloud service providers (CSPs) become de facto extensions of critical national infrastructure. As such, concerns about cloud concentration risk have grown among banking regulators, which are recommending that banks develop cloud exit plans to mitigate the impact of public cloud outages on digital operations and avoid lock-in. Many banks continue to look for agile and cost-effective contingencies rather than owning dedicated IT infrastructure for business continuity / disaster recovery.

Industry Regulatory Landscape

Regulatory authorities in the European Union and the United Kingdom have issued guidelines, consultations and draft legislation regarding cloud exits and outsourcing to address perceived systemic and institution-level concentration risks. Specifically, the incoming EU Digital Operational Resilience Act (DORA) addresses operational resilience and the ability of banks to recover from operational disruptions that could be caused by cloud outages. 

In another example, the European Banking Authority’s (EBA) guidelines (2019 Final Guidelines on Outsourcing Arrangements) require institutions to have a comprehensive, documented and sufficiently tested exit strategy (including a mandatory exit plan) when they outsource “critical functions” to a CSP. The EBA further reinforced its cloud adoption guidelines in an additional consultation paper issued by the European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) on draft guidelines for outsourcing to CSPs. 

In the United Kingdom, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) issued guidance expecting financial institutions “to be operationally resilient by having a comprehensive understanding and mapping of the people, processes, technology, facilities and information necessary to deliver each important business services.” In their most recent report, the PRA specifically addressed the issue of concentration risk, which is caused by banks being locked into contracts with vendors or outsourcing their connectivity to the cloud.  

While concerns of cloud concentration risk are being raised most prominently in the European region, cloud concentration risk is no less of a concern in other regions . According to Cornerstone Advisors’ 2022 “What’s Going on in Banking” study, two-thirds of US banks and credit unions already have apps running in the cloud or expect to by the end of 2022.  Considering clear evidence of increased use of cloud computing in the securities industry by US banks, US regulatory authorities may eventually strengthen guidelines such as those originally set forth by the Financial Industry Regulatory Authority (FINRA) in 2021.  Financial institutions should keep an eye out for more public consultations and not miss the opportunity to engage with regulators with feedback.

Forms of Cloud Exit

As Martin stressed in his article, an exit strategy should not be an afterthought. A financial institution’s cloud exit strategy should be developed in conjunction with the selection of the cloud service provider(s) and their respective cloud services. Generally, the more business processes rely on the cloud (e.g., core financial processes) and/or the number of proprietary cloud services used (e.g., those specific to a CSP) to run those processes increases, the more complicated the cloud exit plan will be. 

In this article, we do not intend to describe every possible scenario or form of cloud exit. To simplify things, we’ll categorize cloud exit strategies by financial institutions into two groups: 

• Banks that have yet to move substantial numbers of core financial processes (or none at all) to the cloud and need to create an exit strategy before doing so.
• Banks that have already gone “all-in” with a single CSP and need to devise an exit strategy based on varying use of certain cloud services of the CSP.

Although some of the methods for cloud exit are similar between the two scenarios, it is reasonable to assume the cost and complexity will be substantially different. Taking the first scenario into account, we will now examine three forms of “cloud exit” we believe banks should consider:

Cross Cloud Migration

This is perhaps the most active managed form of cloud exit. Migrations from one cloud to another (e.g., cross-cloud) or back to on-premise (e.g., repatriation) can be made more or less difficult depending on the architectural choice to:

• Utilize services and/or interfaces proprietary to a CSP, or to 
• Utilize a multi-cloud architecture at either the infrastructure platform or application platform layer respectively

For banks a hybrid architecture provides the most flexibility when considering cloud entry and cloud exit strategies. As Martin notes in his article, “the key to the hybrid cloud model is application and data portability, which is one of the most challenging issues when it comes to pairing private and public cloud solutions. For this reason, the first step in any hybrid cloud strategy should be the deployment of a model that will support this critical functionality. By its very nature, the ability to seamlessly migrate workloads and their respective applications across public and private clouds is a key step that will support any cloud exit strategy.”

In this respect, VMware’s software defined data center (SDDC) architecture shines, since it enables a hybrid cloud infrastructure platform that can be deployed across a wide variety of cloud endpoints, whether they are on-premises, in public clouds, in sovereign clouds (participating in the VMware Cloud Provider Program), or increasingly at the edge. 

The ubiquity of VMware’s hybrid cloud infrastructure platform is a key value which allows banks the ability to innovate quickly by taking advantage of one or more public clouds and their respectively differentiated services while providing sufficient separation to ease a bank’s migration between providers, should the need or desire arise. 

Additionally, VMware HCX continues to enable portability among those of our financial services customers who are not only looking to make their initial migrations from the data center to a public cloud, but also to enable cross-cloud migrations and cloud exits. As a refresher, HCX is an application mobility platform designed to simplify application migration, workload rebalancing, and disaster recovery.  Banks can benefit from its capabilities for a variety of commercial, governance, and regulatory reasons when they move from one cloud to another, permanently or temporarily, such as in the case of disaster recovery which we will discuss more in the next section.

Cross Cloud Disaster Recovery

Disaster recovery capabilities are necessary for banks to bolster their operational resilience and readiness. For several years, the cloud has offered banks an agile and cost-effective contingency in lieu of owning and operating a dedicated on-premise infrastructure solely for business continuity / disaster recovery purposes.  Similarly, banks should also consider using the cloud for disaster recovery for its digital operations that are already running within a particular CSP.

Nevertheless, in many cases we see financial institutions relying on a single CSP and spreading workloads across multiple availability zones and/or regions, believing this will be sufficient to address workload availability. The spread of bank workloads among several AZs and regions is in and of itself a sound architectural approach, but it does not eliminate the possibility of widespread cloud service failures across multiple regions. No matter the state of technology, a cloud service outage can occur.  In case of a multi-region service failure, an outage can last for a significant period of time, and the SLOs of the public cloud provider will not provide a remedy to protect a bank’s goodwill with its customers.

As we noted earlier, proposed legislation like the EU’s DORA is looking to address business continuity risk, which inherently involves avoiding cloud concentration risk. In context to of disaster recovery, rather than relying solely on the same public cloud provider could banks utilize a second or alternative public cloud? Given the commercial and competitive dynamics between public clouds and the need to look for third-party DR solutions to facilitate failovers/failbacks, the answer has usually been, “yes, but…” 

However, this past August VMware announced a public preview of bi-directional cross-cloud DR between VMware Cloud on AWS and Azure VMware Solution. With this managed cloud-based approach, VMware is bringing a new and leading capability which offers substantial value to our financial services customers. This news is exciting for our Financial Services Industry Solutions team, as it addresses a large need for banks lacking viable disaster recovery solutions which complies with the intent of legislation like DORA by utilizing a multi-cloud approach. Learn more about this new cross-cloud DR solution here and stay tuned for more updates!

Ransomware Recovery as a Service

For banks and other financial institutions, perhaps there is no area that keeps associates up at night more than the threat of ransomware attacks. According to the US Treasury’s Financial Crimes Enforcement Network (FinCEN), 1489 ransomware-related filings were received in 2021, a 188 percent increase from 2020. While their Financial Trends Analysis report cites increasing ransomware incidents or improved reporting and detection as possible explanations for the increased number of ransomware filings in 2021, the dollar values remain eye opening.

As part of our ongoing effort to help our customers combat this threat, VMware announced our new Ransomware Recovery service in August and subsequently announced its general availability recently in mid-October. For banks seeking operational resilience, VMware Ransomware Recovery for VMware Cloud DRTM brings these industry leading capabilities for cloud-based ransomware recovery as a service:

• Ransomware recovery workflow – Streamline recovery with a step-by-step guide
• Guided restore point selection – Confidently assess and identify recovery points
• Next-Gen AV + Behavioral Analysis – Embedded in a single UI
• Air-gapped, immutable recovery points – Preserve data integrity of restore points
• On-demand IRE and VM network isolation – Prevent reinfection at recovery
• Instant VM Power-On – Conduct rapid recovery point iterations

Again, VMware continues to address our financial services industry customers’ most pressing technology challenges like ransomware with a differentiated solution!

Key Takeaways for Banks and other Financial Institutions

In summary, managing cloud concentration risk and ensuring operational resilience are key drivers for cloud exit strategies for banks and other financial institutions.

Ideally, a bank’s cloud exit strategy is developed as part of its initial decision-making when choosing a cloud service provider(s) and their respective cloud services. 

To ensure the greatest flexibility when considering cloud entry and cloud exit, banks that have not migrated any substantial number of core financial processes to the cloud should consider a hybrid architecture. 

Three forms of “cloud exit” that we believe every bank needs to consider are:

• Cross Cloud Migration
• Cross Cloud Disaster Recovery
• Ransomware Recovery as a Service

The ubiquity of VMware’s hybrid cloud infrastructure platform (available on-premises and in hyperscaler & VCPP clouds) coupled with our cloud migration, disaster recovery, and ransomware recovery capabilities allows firms to leverage the advantages of public cloud while mitigating concentration risk amid an evolving regulatory climate. Ultimately, VMware offers our financial services customers unequivocal choice in both application platform and infrastructure platform layers enabling them to strike the right balance between agility and cost!

The post Financial Institutions: The time to plan a ‘Cloud Exit’ is before you need one  appeared first on VMware Industry Solutions.

This is the third part in a series of articles on how legacy banking architecture should evolve to keep pace with the increasing customer expectations, as well as competition from FinTech and Big Tech. It gives an approach of how to modernize the application platform, so that the technology teams in the bank can focus on core business features that are critical for growth and driving innovation. This part talks about the levers available to modernize and expedite the transformation. You can refer to Part 1 and Part 2 for background.

Prioritisation Framework

Modernising needs to occur while the heritage systems continue to run and serve customers. Banks need to approach this transformation in the smartest, lowest-risk and the most efficient way possible. Begin by identifying a subset of candidate applications for modernization using the following criteria:

• Contribution to business growth, customer satisfaction
• Magnitude of enhancements planned in the application
• Run cost
• Technical Debt
• Efforts required to modernize

Refactor first the applications that contribute to business growth, undergo continuous changes, with significant technical debt.

Two of the most beneficial factors for modernising legacy applications are openapis and microservices.

Open APIs

Banks are moving away from acquiring new customers by distributing flyers in the malls and relying on a digital experience. Third party applications can trigger the account opening processes by allowing integration via Open APIs. Payments, reward redemption, transaction inquiries are amongst the several capabilities that banks can expose to a third parties from the secure Developer Portals.

Moving from a well-defined set of channels to multiple third-party channels allows a rapid increase in reach. It also brings uncertainty in terms of transaction volumes and capacity requirement. See how an elastic architecture will help, and ensure you do not fall in the trap of over-provisioning, as explained in part one of this series.

Microservices

Microservices decompose a single monolithic application as a suite of small services, each running in its own process and communicating with lightweight mechanisms. It is the preferred way to build open APIs. There are many rules for microservices, but at its core is ‘business logic that has a well-published public interface that clarifies its usage’. 

Going to microservices is as much a technology architecture change as it is an organization change. Having self-contained teams that evolves products using microservices style is the backbone of moving to a product-based organization’ from a project-based culture.  

Independent teams provide the escape velocity to overcome the boundaries of ‘Mythical Man Month’ and expedite delivery.

Design Principles

While microservices are the preferred way to build OpenAPIs, its critical to establish design principles so that applications are future proof.

Plan for failure

Design applications to have self-healing capabilities since failures will happen, and architecture needs to define the impact tolerances. Please don’t assume that the application will be running in a fault tolerant hardware!

Design for Evolution

Requirements will change. Application will change. Embrace continuous changes for software build as well as delivery.

Define Build versus Buy Framework

Modern enterprise platforms as well as opensource frameworks power innovations. Identify which business differentiating capabilities to focus builds on, and leverage partners and platforms for the right foundations and surrounds.

Design Patterns

These design patterns can help you build reliable, scalable and secure applications.

Event Driven 

Event-driven architecture use events to trigger and communicate between decoupled services. Event-driven architectures are key to extend loose coupling – these even provide temporal decoupling allowing components to be scaled and lifecycle managed independently. Combine it with a robust event mesh, and it allows geographic decoupling as well.

CQRS Pattern

Command Query Responsibility Segregation (CQRS) pattern defines how you can use a different model to update information than the model you use to read information. This separation is valuable in several situations.

For retail banking, majority of the traffic from the channels is read-only. This is a huge opportunity. It allows rearchitecting progressively and offloading inquiries from the legacy systems on to modern applications.

CQRS immediately unlocks the data, and instead of relying on operational data, for example, kept for a year on the mainframe to be moved to a high speed in-memory data grid which has transaction data for multiple years as well as augmented with analytical trends. Customer experience is vastly superior with this – both in terms of breadth of data and performance. 

Banks can even exploit this pattern further to address the CAP theorem and partition the data and make it available across multiple geographies. Use this pattern to even align the shape of the data to the consumer, and it will bring additional simplicity in the architecture.

Eventual Consistency

Instead of relying on traditional centralized transaction managers which manage the messaging and ACID databases, modern architecture uses eventual consistency model. Eventual consistency is a consistency model used in distributed computing to achieve high availability that informally guarantees that, if no new updates are made to a given data item, eventually all accesses to that item will return the last updated value. Eventually consistent services are often classified as providing BASE (Basically Available, Soft state, Eventual consistency) semantics, in contrast to traditional ACID (Atomicity, Consistency, Isolation, Durability) guarantees.

Cloud scale requires adapting this pattern. In banking there will be use cases where ACID is still required, but for several cases eventual consistency will work much better. Getting a banking transaction analyzed and classified correctly in a few milliseconds so that user can view it on the channel almost realtime is a feature that can be done using eventual consistency and microservices easily. This model is typically supported by other patterns such as compensating transactions and event driven architecture. Don’t forget to discuss about the error budget in your SRE processes so that failure resolutions can be continuously improved.

Polyglot

Till the start of this millennium bulk of the codebase, in terms of lines of code, was executing COBOL. This was due to the investments in mainframes. Most of the investments in the last couple of decades have been on Java. Benefits of an object-oriented language, and Java fill multiple shelves in libraries. As data science and machine learning become more critical to banks, Python and Scala have moved to mainstream as well. 

For countless years the internet banking frontends, and then the mobile banking frontends were built by the same teams that were building the server-side modules. Despite best intents of the architects and developers, shortcuts were taken, and JavaScript and HTML were muddled with Java or Java Server Pages causing complex frontend screens, slowing the pace of innovation. Customer experience becoming important, JavaScript/Typescript, Swift, Kotlin, Dart have taken the space for frontend development, and architecture constraints are ensuring server and client code remain separate.

For right talent to thrive, they will need tools and efficient programming environment. Banks will embrace this polyglot development style and will need to invest in platforms that can cut across these languages. It will not be enough to have tools only for privileged Java developers and leave out the rest.

The same goes for polyglot persistence as well. SQL databases need to coexist with NoSQL, Graph databases etc. It is no longer a debate between Oracle versus MS SQL, but applying design considerations to choose the right persistent store.

Modern Platform

For microservices to be successful, at a minimum, below tenets must be adopted.

Rapid Provisioning

You must be able to scale up or down instances based on needs – in a fully automated fashion.

Monitoring

Having instrumentation to detect the health of each of the services is necessary to quickly identify and recover from technical issues. Extend it to business metrics, so that any sudden failure, for e.g., in card activation or payment rejections can be detected and corrective action triggered via rollbacks, bulkhead pattern etc.

Rapid Application Deployment

With an increasing number of moving parts, the platform needs to provide rapid rollout of new application versions to test environment, as well as production environments. 

Immutable Infrastructure

Configuration drift and snowflake servers are some of the issues that get overcome as you move out of mutable infrastructure. Using immutable infrastructure efficiently needs comprehensive deployment automation, fast server provisioning and solutions for handling stateful or ephemeral data like logs.

There is a constant tension between the developers who are keen on getting changes in production, and operations, who are the guards for ensuring a stable environment. But if the target for bank is to have multiple deployments in a day, there must be a process, technology and talent to deploy changes non-intrusively during the working day.

It is not enough to bring down the services and deploy changes in the night – since with digitization and global ecosystem of partners depending on each other there is almost no green-zone. 

Apart from tremendously improving the customer experience and the velocity of change, another advantage of this model is that changes are occurring at a time when the experts are awake and available to troubleshoot if required.

Whether it’s a canary deployment or a blue-green deployment, bank will have an opportunity to release the application in a predictable manner with a goal of eliminating any downtime associated with the release.

Look Beyond CPUs

Moving to x86 platform has given immense benefits. But look at compute capabilities beyond CPUs in an evolving IT landscape. Graphical processing units (GPUs) bring tremendous efficiencies in big data computing scenarios. And Data Processing Units (DPUs) offload networking and communications workloads from the CPUs. A modern platform should allow you to harness as well as efficiently manage these processing units as well.

Hybrid Cloud

Hybrid cloud is the new operating model of IT, creating new digital possibilities, opening the door to cost-effective scalability, flexibility and modernization. It provided agility to drive digital transformation agenda.

Not everything belongs in a public cloud, and it becomes more apparent for heavily regulated financial industry. At the same time the several cloud services undoubtedly provide the foundations for banks to innovate. Having a robust governance and keeping the data fabric between the old and the new is a must. 

Further, invest in a platform to have a common operating model across these multiple cloud providers as well as your data center. Instead of having separate operating teams you will have a single team to manage across the different cloud providers as well as your own data center. 

In summary, embrace change, understand the design patterns as well as capabilities required in a modern platform and adopt design principles that accelerates the creation of innovation capabilities.

The post Innovative Banking Architecture (Part 3) appeared first on VMware Industry Solutions.

This is the second part in a series of articles on how legacy banking architecture needs to evolve to keep pace with the increasing customer expectations. This part talks about the process of reimagining banking and having a playbook for digital transformation.

To be successful, the bank of the future needs to embrace emerging technology, remain flexible to adopt evolving business models, and put customers at the center of every strategy.

Researchers at the MIT Center for Information Systems Research (CISR) identify two crucial dimensions for mapping digital transformation: customer experience (CX) and operational efficiency. 

The Four Pathways to Future Ready

Bank of the future’s goal is to meet customers’ need rather than push products, and provide a delightful experience. You measure this typically by NPS or similar metrics. On the operational side, banks need to get more efficient, and is measured by cost-to-income ratio, net margin and similar metrics.

A bank may be advanced on one and need to improve on the other or may need major work on both. There are four paths to transformation to Future Ready.

PATHWAY 1: STANDARDIZATION

The first pathway moves to the future-ready state by building API-enabled business services, getting rid of legacy systems to improve efficiency, and then focusing on improving the customer experience. This pathway is usually slow and very complex because it impacts the entire firm as part of the transformation. Danske Bank, Nielsen, CBA, and Tetra Pak are among those that have adopted this approach.

PATHWAY 2: CUSTOMER EXPERIENCE FOCUS

If an organization wants to focus on improving the customer experience across the entire organization before improving the company’s efficiency, this is the path to take. With this pathway, new products are developed, contact centers are improved, apps are updated, etc., all with the focus on improving customer satisfaction. mBank, a fast-growing bank based in Poland took this approach, focused on adding features and channels and growing the customer base rapidly

As the customer focus improves, the concentration shifts to building a new operating platform that will improve efficiency. The challenge with this pathway is that the focus on the customer experience can increase complexity initially before the new systems are built to improve efficiency.

Nearly 40% of organizations chose efficiency as the primary driver for improving the operating environment

IDC-VMware Industry Thought Leadership Survey, 2022

PATHWAY 3: STAIR STEP APPROACH

This pathway moves to a future-ready state by alternating the focus from customer experience to improving operations. This pathway is made more possible today because of the ability to replace components of a legacy platform versus the entire back office, and by the availability of APIs. BBVA and Schneider Electric are examples of companies that have effectively taken Pathway 3.

This pathway requires a very structured approach where the entire organization is aware of the projects underway and the impact of each component to the overall strategy. This pathway has less risk that the other options since each change is smaller. It does require careful planning and communication, so that change in focus from step to step doesn’t  introduce confusion in the organization.

PATHWAY 4: BUILD A NEW ORGANIZATION

This option focuses on building a completely new subsidiary organization that is future-ready. By separating the new organization from the existing entity, many of the challenges around legacy systems and creating a customer focus are eliminated. Some example of this approach are Mox by Standard Chartered, Marcus by Goldman Sachs.

Two of the challenges include how to avoid embedding some of the old legacy thinking (or systems) in the new organization as well as how to integrate the new and old organizations. Sometimes, there is an internal battle against allowing the improved organization to ‘steal’ business from the less efficient, product-focused organization.

For most organizations, the decision as to the correct pathway revolves around what part of the organization requires the most amount of improvement (customer experience or efficiency). Another factor in the decision is the level of urgency caused by the marketplace. The further from market norms an organization is, the more radical the pathway selected.

While any pathway is difficult to execute successfully, the process is made simpler because of current solutions available that allow a “plug and play” implementation instead of requiring massive back-office overhauls. In most instances, highly focused leadership is the key to success.

Digital Transformation leaders place a greater importance on tightening customer relationships and engaging in new ecosystems, while followers focus on operational efficiency, managing costs and exploiting new markets.

IDC Study – Achieving the Future Enterprise Through Digital Business Acceleration, 2022

Roadmap for Future Ready Bank

Organizations need to have an adaptive roadmap, with high priority use cases that adds color to the vision.

Future Ready Bank

Considering Future Ready Bank as the destination with transformed Customer Experience and Operating Efficiency, the main characteristics will be:

–           Both Innovative and Low Cost

–           Great Customer Experience

–           Modular and Agile

–           Data is a strategist asset

Data is currently the biggest asset of the banks against the FinTechs, if it can be unlocked and leveraged. Big Data will cultivate customer loyalty through innovative and personalized offerings. It will boost cybersecurity and increase the trust for customers.

Data will act as the right foundation for Machine Learning and Artificial Intelligence. It will fuel efficiency, reduction of false-positives and much better use of workers’ time and bank’s resources.

AI Models can further provide significant value to customers as well as bank using solutions like Robo Advisory. 

With a flourishing partner ecosystem, OpenAPIs will allow banks to connect to accelerate the value creation and also allow banks to shift from building end-to-end financial solutions to assembling best-of-breed financial services.

The trust in the ecosystem can be based on Blockchain and DLT which can reshape many of banks’ daily operations as well as automatic execution of contracts and changing the way value is transferred.

And infrastructure will become a utility service via Cloud.

While adopting any of the paths to reach Future Ready there will be substantial time when the old and new need to co-exist. Banks have to decide how they want to balance improvements in customer efficiency and operational efficiency as they move to a future ready bank.

In the next part of the series, we will cover the levers available to modernize.

References

1. KPMG, 2019 – Pulse of Fintech H2 2019, https://home.kpmg/xx/en/home/campaigns/2020/02/pulse-of-fintech-h2-2019.html
2. Rene Stulz, 2019 – FinTech, BigTech, and the Future of Banks, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3455297
3. Unbundling Bank, 2015, https://www.cbinsights.com/research/disrupting-banking-fintech-startups/
4. Banking in 2019, 2019, https://www.worldfinance.com/banking-guide-2019/
5. Martin Fowler, 2014 – Microservice Prerequisites, https://martinfowler.com/bliki/MicroservicePrerequisites.html
6. https://www2.deloitte.com/au/en/pages/financial-services/articles/bank-of-2030-the-future-of-banking.html
7. https://cisr.mit.edu/publication/2021_0201_PathwaysUpdate_WoernerWeill
8. https://thefinancialbrand.com/88407/digital-banking-readiness-transformation-journey/

The post Innovative Banking Architecture (Part 2) appeared first on VMware Industry Solutions.

This is the first part in a series of articles on how legacy banking architecture needs to evolve to keep pace with the increasing customer expectations, as well as competition from FinTech and Big Tech. It provides an approach of how to leverage modern application platform so that the technology teams in the bank can focus on core business features that are critical for growth and driving innovation in banking. This part specifically talks about the challenges and the competition faced by banks.

Banks have been serving customers for several decades, and over time the heritage systems have become very complex. FinTech and Big Tech are starting from greenfield and using it to their advantage by using modern technologies. They are eating into bank’s wallet share and revenue causing disruption. 

Banking haven’t traditionally moved at the modernization velocity of Big Tech and have focused on delivering incremental value. They have been handling complexity across many generations and leveraging it to boost revenues. But is this enough going forward? Banking of 2025 and beyond will need to look very different so that advantage is back with the banks. For this to occur, banks need to do bold transformation for some of the systems, while doing minimal non-invasive repair for the rest, and repeat this cycle.

Challenges from FinTech

In 2021, global investments in FinTech hit $210 Billion. These are FinTech players which typically operate in a narrow space and provide delightful customer solutions and keep nudging away at the customers of traditional banks. Whether its Lending, Payments, Personal Finance, Equity Financing, Insurance, Consumer Banking and the list goes on – there are niche players in each of these segments, gradually eating the wallet share from traditional banks.

Traditional banks have a few advantages that can protect them from the FinTech threat: the trust from the customers, government regulation, branch networks. But that advantage is rapidly diminishing.

Challenges from BigTech

Banks are also facing threat from Big Tech like Apple, Amazon, Alibaba, Facebook – technology companies with modern platforms and workforce. They can lead a frontal assault as opposed to attacking niches. Apple Pay is on pace to account for 10% of all global card transactions.

In Asia, Big Tech is already ahead, and banks are now trying to catch-up to Big Tech. Alipay and WeChat Pay have become leaders in peer-to-peer payments and almost half of domestic payments now flow through third-party platforms.

Payments conducted through e-wallets continue to surge. At the height of COVID crisis, during several weeks of shutdown, several residents found that the Alipay and WeChat Pay were enough even though the banks were closed.

Banking is necessary, banks are not

Bill Gates, 1994

Factors Impeding Transformation

Over the several decades, several acquisitions, diversifications in the banks, changing priorities, and need to keep building on heritage technology platforms have created substantial complexity in banking architecture. Solutions rely on reliable hardware but not so nimble software. Mainframe systems, NonStop hardware and languages of 60s like COBOL are slowing down the innovation – both in terms of providing a modern efficient platform as well as availability of talent.

Running the bank, keeping the lights on, having systems up and running is non-negotiable. But the architecture and infrastructure of the previous century takes up substantial cost and energy and often the banks use upto 70% of their IT budget for run-the-bank. This leaves very little for driving innovation and build-the-bank. Further, every time there are additional gaps identified in controls, the run-the-bank efforts bump up, slowing the innovation further.

CIOs in Banks are grappling with how to ramp-up the feature velocity so that business objectives are achieved. All this, while juggling technical debt spanning end-of-support-technology risks, security-challenges, insufficient observability, lack of end-to-end automation etc. It is a balancing act to ensure that hygiene, availability and controls are adequate while launching new features.

Some of the factors impeding the transformation are:

Infrastructure Cost

Having a fixed hardware to run the systems causes the banks to size up for peak. This has resulted in almost 20 times more infrastructure provisioned.

For typical banking workloads, peak usage is about three times the average requirement. If there are 10 units required to handle average volume, handling the peak volume needs additional 20 units. To accommodate for occasional short bursts another 20 units are kept as buffer.

To ensure no single point of failure, this entire footprint is doubled to give 100 units in the primary datacenter. And, if you consider the replica in the disaster recovery the total footprint grows to 200 units.

Paying for 200 units when the bank only needs 10 on an average is a flashing red sign calling for improvement. The information silos between development and platform teams, no clear agreement on service level objectives and associated error budget further contributes to every team building a safety buffer and leading to significant excess spend.

Software Development Cost

Current Enterprise software stack is comprised of varying technologies, and the provisioning of these products and tools for developers and the servers is significantly manual and error prone. Inconsistent and mutable environments require significant resources to troubleshoot the environment nuances and hygiene rather than the focus on developing code that drives business value.

Large development teams support home grown frameworks. This takes up cycles outside the core business value to be delivered from applications.

Use of old languages, products and frameworks exert cost pressures without translating to revenue growth.

Operations Cost

Efforts incurred to setup, operate the infrastructure and moving the application code from one environment to another isn’t directly related to the business objectives. Workforce who are working on manual and receptive tasks will better serve the organization goals by automating the platform creation and working on features that drive differentiation for business.

Change Velocity

Most of the existing applications are architected as monolithic applications. It causes efficiency drag during requirements, design, development, testing as well as deployment. A lot of checkboxes need to be checked, and significant orchestration is needed to move the changes across multiple systems from one stage to another. Current convoluted architecture can lend itself for minor enhancements every few weeks, but noteworthy changes take multi-months of planning and delivery.

Velocity of changes from non-banks often seems like a quantum leap ahead. They can deliver user experience changes, new channels and new functions continuously.

By 2025, two-thirds of enterprises will be prolific software producers with code deployed daily

IDC FutureScape 2020

Security & Controls

Banks invest in dozens of products to secure the environment. But these products are siloed and typically get bolted-on, often resulting in insufficient controls. For e.g., banks invest a ton of money to set up the DMZ to scrub the traffic coming from the internet, but once the request reaches the application server the onus of securing falls almost totally on application code.

In summary, there is a huge opportunity to transform and accelerate the velocity of change in a bank. In the next part of this series, we will talk about how banking can be reimagined and mitigate a lot of these challenges.

References

1. KPMG, 2019 – Pulse of Fintech H2 2019, https://home.kpmg/xx/en/home/campaigns/2020/02/pulse-of-fintech-h2-2019.html
2. Rene Stulz, 2019 – FinTech, BigTech, and the Future of Banks, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3455297
3. Unbundling Bank, 2015, https://www.cbinsights.com/research/disrupting-banking-fintech-startups/
4. Banking in 2019, 2019, https://www.worldfinance.com/banking-guide-2019/
5. Martin Fowler, 2014 – Microservice Prerequisites, https://martinfowler.com/bliki/MicroservicePrerequisites.html
6. https://www2.deloitte.com/au/en/pages/financial-services/articles/bank-of-2030-the-future-of-banking.html
7. https://thefinancialbrand.com/88407/digital-banking-readiness-transformation-journey/

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