Technical strategies for large computing centres in banking environments –between the pressure to merge and to innovate

Not all IT providers are alike. The customer structure and hence the portfolio make up part of the distinction, as well as the actual position in the technical upgrading cycle which all IT providers are more or less subject to. The consultants at noventum consulting have been working in the IT banking environment since the mid-1990s. In an editorial interview, noventum Management Consultant Markus Ristau and Stefan Wolters put together key data for a situation analysis dedicated to this special kind of IT provider.

novum: What are the important technological challenges currently facing the banking IT business?

Server technology is driving technological development

 

Stefan Wolters: In terms of technology, we are once again about to take a large step forward, this time it‘s called "Windows 2012". This new operating system generation will create a major stir at some IT providers. If not all system generations were installed in the past, time can be running very short. Almost 3 years between the appearance of Windows 2012 in September 2012 and the end of support for Windows 2003 by mid-2015 might at first sound like a long time, but for a large computing centre, the issue is relative. To develop a new platform and convert all systems to run on it within this time period is a huge job. It naturally generates a lot of pressure. The number of servers to be migrated can quickly reach into the thousands. And one does not "simply migrate". The process often involves exchanging the server hardware or even setting up parallel operations. However, in this case the other side of the coin is considerable savings made possible due to the long service life of the platform. Whether or not an IT service provider should implement every operating system change or not is definitely a question of arithmetic.

Markus Ristau: The large number of servers in the banking IT environment we are talking about also brings forward other topics beyond the Windows server 2012 issue: virtualisation, centralisation, and provisioning. For both the banks and the customers as well as for IT providers, being able to provide computing capacities "just in time" is increasingly becoming an important talking point.

Stefan Wolters: That‘s true. Although there‘s a somewhat slower pace of on-going development in the banking environment and the banking industry is less enamoured of innovation than the total IT market, still the pressure on service providers is high. That said, flexibility is still valued more highly than quickly realised innovations.

Markus Ristau: Yes, most computing centres in the banking environment maintain their own central solution, platforms with a comprehensive active directory and tailored to their environment. But that definitely has consequences.

Stefan Wolters: Which brings us to the greatest challenges of an IT provider – the creation of a standard valid for every customer that nevertheless provides room for the individuality of the customer. And if that‘s not enough of a paradox, the dependence on one of the common, commercially available platforms (e.g. Microsoft) additionally means that at any change in the operating system, all individual developments must follow suit as well. A large but calculable effort and expense. Working with one‘s own platform might possibly switch the dependence and dynamic response (from the application to the platform), and that slows down the fundamental development cycles a great deal, since such time and expense is immense. Basically one has to say that the larger the number of applications operating on a central platform, the slower the development cycles of these platforms.

novum: What is there to be said against a slow development?

Stefan Wolters: Primarily the lack of any possibility to make rapid use of innovative technologies. Let‘s take a look at the possibility of participating in the attractive innovations that arise elsewhere in the IT economy, such as cloud computing. Once implemented (which definitely involves an investment in time and money), the whole system provides a wonderful possibility of reacting flexibly to changing requirements. However, by the time that‘s been implemented in such an environment, it‘s really no longer new.

novum: Whether looking at the operating system or large-scale banking applications, is centralisation once again the general trend today?

 

Centralisation is the current trend in the IT banking environment

Markus Ristau: Yes and no. As a common target range for current projects, the topic of centralisation once again ranks high. The objective is to completely provide all IT services centrally in one computing centre. At the same time there is a whole set of customers who want to decide individually which services and applications they purchase, and which ones they want to provide themselves. An additional challenge is the demand for central and decentral structures and applications to communicate with each other in order to gain the greatest degree of flexibility for diverse requirements. Thanks to continually improving network infrastructure,
"always on" has become a matter of course, which is how-ever the necessary basis for current cloud solutions.

 

novum: If we take a look at the trend towards centralisation, where do you see the reasons?

Markus Ristau: One reason or a group of reasons can be found in the interesting technical options. Using a centralised solution makes it easier to offer "smarter" applications, and regulatory requirements can be met better centrally than if they have to be covered by the individual customer.

novum: What does this mean in concrete terms?  What does this mean in concrete terms?

Stefan Wolters: Especially the smaller banks can hardly meet the requirements made on them by the BaFin (Bundesanstalt für Finanzdienstleistungsaufsicht = German Federal Financial Supervisory Authority, editor’s/translator’s note). These are safety requirements (also architectural), documentation obligations, operating expenditures, and revision requirements. Such cost drivers promote the readiness to give up one‘s own IT completely to the external IT provider. But naturally there are countermovements in this centralisation process. In the beginning, some customers are very reluctant to give up their partial autonomy. However, this privilege can add up to real expense and also has its limits.

novum: And the technical side?

Markus Ristau: Let‘s take the diverse possibilities of cloud computing, which can also be understood as a variety of virtualisation. Cloud ultimately means that I get a complete infrastructure including application landscape with one press of the button. In the meantime this actually functions very well. The option makes it attractive for the individual customer to go along, since each technological development can be immediately reproduced one-to-one. No customer has to build up his own know-how himself or incur other expenses if his provider does this work for him.

 

Cloud computing also opens the door to the competition

Stefan Wolters: Profit and loss hold the balance just at this interesting point for IT providers in the banking environment. The technical possibilities of cloud computing support the trend towards centralisation. This contributes to customer loyalty. At the same time, especially due to the possibilities of cloud computing, there is increasingly less occasion to lean back and be satisfied. Other providers have the same possibilities and nobody holds a monopoly on the technology. The customer focus of IT departments as well as large IT providers will and must improve significantly in the future. That of the competition is at least doing this.

novum: Are you describing a general trend here?

Markus Ristau: Yes, the translation of business requirements in the direction of IT implementation has to become easier. In the future one will post requirements as a business request to the cloud, and at the other end there will be a solution that can be easily had. This is naturally a simplified image, but it‘s the direction we‘re going in.

novum: Does this approach also exist for the personnel side? That is, not only technology from the cloud, but also combined with know-how and real-life experts on-demand? The basic thought behind this question is the image of a „just-in-time" system for technical specialists. Assuming a corresponding professional affinity to the customer‘s line of business, would that be an attractive model for an IT provider in a defined professional environment?

Markus Ristau: No, this combination of IT services and ‚temporary work‘ is not yet on the market. Instead there are IT consulting companies such as noventum that cover personnel bottlenecks.

 

Technical simplifications also open new business perspectives

novum: One last question on the technical strategy of the large IT provider in the banking environment: Is the idea of opening up further markets as well as the perception that cloud computing is already illuminating existing customer relationships a motivator for change?

Stefan Wolters: The central platforms that run over all bank-typical core applications are the heart of this special type of IT provider. An incredible amount of development time and expense goes into these platforms, and from the customer‘s point of view they are also the core of the service. There‘s not all that much room for change in this constellation. And since this is where the greatest amount of specialised know-how combined with the largest intersection between expertise and technology is involved, I do not see the IT provider for banks beginning to offer IT services for everyone in the near future. This might change going forward, when there are certification standards for cloud solutions. But right now that‘s only a future vision.

Markus Ristau: This is my experience as well. And yet there is a general technological trend towards standardisation and simplification. IT providers in the banking environment will not ignore this trend either, so that perhaps in a few years‘ time we‘ll be talking differently about this topic.

novum: Thank you for this interview.

 

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