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Banks tiptoe toward their cloud-based future

But on his first attempt to buy plane
tickets, this ambitious itinerary — costing $2,932.48 — got the attention of
Capital One, which blocked the charges.

“I was both annoyed and pleased that the
credit card company caught that someone was booking unusual flights,” said
Lucas, a 54-year-old technology writer who is also an author of mystery novels.
After calling the bank to explain his plans, the transactions went through
smoothly. (The trip, however, was ultimately cancelled because of the
pandemic.)

Lucas’ fraud alerts were made possible
by an invisible force tiptoeing into Wall Street: cloud computing. Before
moving into the cloud, his bank, Capital One, was limited to tracking fraud
using the bandwidth of the servers it owned. Now that it rents capacity from
Amazon Web Services, the bank can use machine learning to crunch numbers faster
— and on an enormous scale — to detect anything out of the ordinary.

As Lucas put it: “The cloud is a fancy
word for ‘other people’s computers.’ ”

Banks see huge potential for cloud
technology to make their systems faster, more nimble and responsive to the
needs of their customers. Consumer banks can develop cloud-based tools to
quickly introduce new features in mobile banking apps or detect fraud. Lenders
can use the cloud to process loan applications and analyse underwriting
decisions for everything from mortgages to corporate borrowing. They can use
machine learning to detect money laundering. When volumes spike in financial
markets, traders can use extra computing power to analyse price movements and
handle bursts of client activity.

Still, the banking industry has been
mostly slow to adopt cloud computing. Currently, major banks run their own data
centres, which house computer servers that process vast troves of customer
account data, payment records and trading logs. Running the machines is costly
because they require a lot of electricity and also need to be kept in
air-conditioned rooms.

While Wall Street leaders have long
acknowledged the potential of cloud computing to cut costs, they have only
allowed their firms to take halting steps. Executives have been hesitant
because banks are tightly regulated by governments and any sudden changes
involving consumer deposits or privacy aren’t possible. They’re also concerned
that computing over the internet will open the door to cyberattacks. And some
firms are held back by old computer systems that are difficult to revamp or
retire, making the transition even more tricky.

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David M Solomon, CEO of Goldman Sachs,
is optimistic about financial-services firms moving into the cloud. However,
“it’s got to be done with high levels of security and real protection of data
and information,” Solomon said. “That’s why you’ve got to go slowly and you’ve
got to go cautiously,” he said.

In North America, banks handle only 12%
of their tasks on the cloud, but that could double in the next two years, the
consulting firm Accenture said in a survey. Jamie Dimon, CEO of JPMorgan Chase,
said the bank needed to adopt new technologies such as artificial intelligence
and cloud technology “as fast as possible.”

Wells Fargo plans to move to data
centres owned by Microsoft and Google over several years; Morgan Stanley is
also working with Microsoft. Bank of America has saved $2 billion a year in
part by building its own cloud. Goldman said in November that it would team up
with Amazon Web Services to give clients access to mountains of financial data
and analytical tools.

Cloud services enable banks to rent data
storage and processing power from providers including Amazon, Google or
Microsoft, which have their own data centres dotted around the globe. After
moving to the cloud, banks can access their data on the internet and use the
tech companies’ computing capacity when needed, instead of running their own
servers year-round.

Seeing a big opportunity to sell
cloud-computing services to Wall Street, some tech giants have hired former
bankers who can use their knowledge of the rules and constraints under which
banks operate to pitch the industry.

Scott Mullins, AWS’s head of business
development for financial services, previously worked at JPMorgan and Nasdaq.
Yolande Piazza, vice president for financial services at Google Cloud, is the
former CEO of Citi FinTech, an innovation unit at Citigroup. Bill Borden at
Microsoft and Howard Boville at IBM are Bank of America alumni.

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Cloud providers are “moving at a much
faster development pace when you think of security, compliance and control
structures,” compared with individual banks, said Borden, a corporate vice
president for worldwide financial services at Microsoft. The cloud, Borden and
the other executives said, enables companies to increase their computer
processing capabilities when they need it, which is much cheaper than running
servers on their own premises.

But glitches do occur. One week after
Goldman teamed up with Amazon, an AWS outage halted webcasts from a conference
hosted by the bank that convened CEOs from the biggest US financial firms. The
glitch also caused problems for Amazon’s Alexa voice assistant, Disney’s
streaming service and Ticketmaster. AWS and its competitor, Microsoft Azure, both
had outages recently.

Banking regulators in the United States,
including the Federal Reserve, Federal Deposit Insurance Corp. and Office of
the Comptroller of the Currency, have jointly underscored the need for lenders
to manage risks and have backup systems in place when they outsource technology
to cloud providers. The European Banking Authority warned firms about
concentration risk, or becoming overly reliant on a single tech company.

The Financial Industry Regulatory
Authority, which oversees broker dealers — firms that engage in trading
activity — has already moved all its technology to the cloud. The group
previously spent tens of millions of dollars a year to run its own servers but
now rents space on AWS servers for a fraction of that amount, said Steven J
Randich, FINRA’s chief information officer.

Randich estimated that without the
cloud, FINRA would have had to bear at least $100 million in expenses to track
market movements using its own data centres — especially as trading volumes
have ballooned in recent years.

“We are all in,” Randich said. The use
of web-based systems has enabled FINRA to process hundreds of billions of
market records, and its surveillance staff to analyse unusual trading activity
by pulling data in seconds or minutes, compared with hours earlier. But Randich
added that “there’s a way to do it right and there’s a way to do it wrong,” and
the wrong way can expose a company to security breaches.

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Capital One is all too aware of the
risks. In 2019, it suffered one of the largest-ever thefts of data from a bank
after a hacker obtained the personal data of more than 100 million people. The
bank was fined $80 million by a regulator and ordered to strengthen its
security controls as it moved information-technology operations into the cloud.
It also agreed to settle a class-action lawsuit covering 98 million consumers
for $190 million.

“Security of our customer data is of
paramount importance, and we invested heavily in our cybersecurity capabilities
to defend that,” said Mike Eason, Capital One’s chief information officer for
data and machine learning in Richmond, Virginia.

Despite the breach, Capital One said it
had experienced huge benefits from migrating to the cloud. It shut all eight of
its data centres last year and runs its technology via AWS. As customers ramped
up spending for the holidays, the bank used rented servers to handle a seasonal
surge in transactions, without having to pay for all the servers year-round as
it did before. It also plans to move most retail call-centre operators to work
permanently from home.

The new arrangement works well for Rosie
Hardy, a call centre worker for Capital One in Tampa. In March 2020, with the
pandemic raging, Hardy packed up her tech gear into a big cardboard box and
drove home to Gibsonton, Florida. Within an hour, she was back online from her
spare bedroom bathed in natural light, fielding calls from the bank’s
small-business customers.

Hardy and her colleagues were untethered
from phone banks because of a service that routes calls through the cloud,
enabling them to work remotely. “You couldn’t tell where I was. All I needed
was internet access, and I picked up like we never left,” Hardy said.

© 2022 The New York Times Company

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