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Straight Talk Technology

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Most banks initially adopted a conservative approach to cloud computing at the start of the decade, particularly regarding use of public cloud, with concerns over control and security driving a stronger focus on creation of private clouds. However, this has shifted significantly over the last couple of years with public cloud now a core component of IT sourcing strategy for many banks.

This shift in approach has been driven by a number of factors. First, the security concerns that inhibited early adoption of cloud computing have effectively reversed with the realization that security practices of the leading cloud providers now surpass and lead enterprise standards, with new technologies deployed in the cloud being more secure than other services. Second, the financial benefits are significant. This is not just because individual line item costs are lower, but cloud use offers significant run-the-bank savings compared to older, mainframe-based, on-premises systems where there are significant maintenance costs. Third, cloud platforms provide access to a range of technologies and an ecosystem of services, making it far easier to gain access to new capabilities (such as analytics, artificial intelligence, or machine learning) or new services to enhance systems and develop the business model.

The banking industry is a good example of how cloud strategy has developed. Ovum has spoken with a major European bank that has developed its own on-premises private cloud with IBM over the last six to seven years, and now has 90% of its application workload running on that private cloud. However, over the last two years the bank has been building an off-premises component with a preference to acquire off-the-shelf packages on a SaaS basis so that the company that provides the software also has to manage it. On the infrastructure side, it is also increasing its use of off-premises (public cloud) usage, with a preference to use this first if possible. That said, the institution plans to continue operating its private cloud, with its mainframe-based applications likely to remain within its private cloud set-up.

However, a key learning here, and an important consideration for cloud strategy, is that banks should not just look to migrate all current systems to the cloud. Banks must evaluate what they are migrating. The bank in question, alongside its cloud strategy, had a program aptly named 'Clean' which focused on cleaning up and consolidating over 2,000 applications. Initially, the bank had 99 platforms and 20 different operating systems; the move means it now runs on three platforms and with three operating systems. While cloud-financials have produced cost and scalability benefits, the larger benefit to the bank came from this simplification program.

Banks need to evaluate whether applications are in use and look to rationalize and consolidate their platforms. Cloud platforms provide cost benefits, but banks should not look to just replicate complexity in the cloud, but rather use it to drive standardization.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.

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