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Will Public Cloud Come Of Age in 2014?

Most financial firms already have established private clouds tucked safely behind corporate firewalls. In 2014, firms will begin to use public cloud on a larger scale.

Challenge: Most firms are active in their own private clouds, but a few banks are starting to move to the public cloud. To do that, banks need to make sure data is safe and secure before making the jump.

Why It's Important: The cloud has been embraced. Almost every firm is in some stage of deployment, or at least considering the cloud. Before they make the jump, financial service firms are wrapped up in one very important debate: private cloud or public? In the end, the answer comes down to security, the biggest barrier to cloud adoption, and private cloud has won (for now).

Security concerns are declining as the top inhibitor of cloud adoption with 46% citing it in 2013, as opposed to 55% in 2012." -- GigaOM Research

But is this sensible? Probably not. From a service, transparency and speed perspective, the case for private cloud may be strong for a particular business, but in the area of security, firms are starting to have a hard time justifying claims that private cloud is more secure than a public cloud. Yes, breaches are possible, and more people are trying to hack into the public cloud, but there will be more defense and robustness from providers like Amazon and Microsoft than from private players. But try telling that to any financial services CISO right now.

From the perspective of public cloud providers, top-of-the-line security is beyond important for their reputation. With such a large number of institutions relying on their services, damage to their credibility could bring the entire brand to its knees as clients switch to competitors. Still, financial firms need to convince themselves, and ultimately regulators, that public cloud is just as safe, or even safer, than their own systems.

Where The Industry Is Now: Arun Karur, head of global commodities practice at Sapient Global Markets, says a barrier to public cloud adoption is that corporate culture and policy often dictate that financial data be kept secure in a proprietary environment. He says firms are simply "uncomfortable with the idea of sending data outside the enterprise" and that "there is no business pressure to reverse that decision."

[For learn more about all of the topics that will shape the business technology landscape next year, download the November Digital Issue: Capital Markets Industry Outlook 2014.]

Focus In 2014: Private cloud projects are on the rise, but recent projections by Gartner analyst Thomas Bittman have suggested that hybrid solutions, a mix of public and private cloud operations, are also picking up. Furthermore, 50% of enterprises will be engaged in a hybrid cloud system by 2017. It's argued this is going to be the most appealing to the industry because firms can dictate what's most appropriate from a data point of view.

The hybrid model is potentially the first push toward public cloud acceptance. According to Louis Lovas, director of solutions at OneMarketData, security is going to factor into the decision as they start moving to hybrid models, but they're going to test it out with an asset that isn't that critical. In time, firms will use a broader range of applications on the public platform.

Technology Providers: Popular public cloud providers include Amazon Web Services, Google Compute Engine and Microsoft Azure. VMware, Rackspace OpenStack, Verizon Terremark and Oracle Cloud also top the list. Both Nasdaq OMX's FinQloud and NYSE Technologies' Capital Markets Community Platform are billed as industry-specific cloud options that offer services tailored for financial firms.

Price Tag: In the end, it will be cost pressures that bring financial institutions around to the idea of adopting public cloud for more sensitive assets. With technology budgets still under pressure, firms will have no choice but to take public cloud options seriously and find ways to address security challenges. Many public cloud options drastically reduce the cost of owning and operating technology for larger enterprises. Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

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Becca L
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Becca L,
User Rank: Author
11/5/2013 | 11:29:30 PM
re: Will Public Cloud Come Of Age in 2014?
Thanks! Great points. I'm surprised we don't hear more about #5 (I'll accept "anonimization" as a word). Companies can strip customer identifier data from the information, turning "sensitive" data into gibberish for those without the corresponding internally stored information. It's definitely an approach that will speed up the move to public cloud.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Apprentice
11/4/2013 | 12:08:30 PM
re: Will Public Cloud Come Of Age in 2014?
Some of the largest financial services companies are beginning to look at public cloud. These firms run multiple (large) data centers, but they are even starting to experiment with the public cloud to see if they can gain greater efficiencies. Luckily, since they have "cloudized" most of their infrastructure already, the banks can easily move applications from private cloud to public cloud, and back to private cloud if they don't like what they see during a public cloud pilot.
IvySchmerken
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IvySchmerken,
User Rank: Author
11/1/2013 | 8:36:35 PM
re: Will Public Cloud Come Of Age in 2014?
Yes, I've heard companies will start with storing historical market data in the public cloud. However, I met one broker that needed to store massive amounts of data from algo trading using Amazon Web Services. He found that at a certain point, it became cheaper to store the data on its own servers.
sdubois944
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sdubois944,
User Rank: Apprentice
11/1/2013 | 8:22:01 PM
re: Will Public Cloud Come Of Age in 2014?
Agreed with Becca. 1) Initiatives like NASDAQ FinQloud go a long a way in practically addressing security concerns and will make the Public Cloud more attractive to Financial Services, 2) Cost concerns trump everything and eventually firms will be compelled to move 3) They may start with less security sensitive data like market data instead of customer holdings 4) many firms are already doing it but they are not touting it loudly by fear of taking arrows in their back, 5) many are using certain techniques like anonimization (if its a word :-) to render the data they put in the cloud less sensitive to security risk.
So it's not 'if'. It's 'when' and it sure could be in 2014. The public cloud--because of it's openness,scale and cost--creates massive cost efficiencies for the industry as a whole. You don't get that with a private cloud--even if a private cloud is better than business as usual. Every bank re-creates the same multi-million dollar wheels... and they can't afford that any more. It's not your father's financial service industry.
Becca L
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Becca L,
User Rank: Author
11/1/2013 | 4:09:49 PM
re: Will Public Cloud Come Of Age in 2014?
Great point about the economics. For FS, it's all about cutting costs. A recent article on WS&T reported the private cloud is not as economic as believed, and with public players beefing up their security (at a lower overall economic cost) it doesn't take a genius to see where this market is heading. Eventually, dollars will trump "groundless" concerns
Becca L
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Becca L,
User Rank: Author
11/1/2013 | 4:06:03 PM
re: Will Public Cloud Come Of Age in 2014?
Yes, it does come up. But I think this is just part of the trend. they want to know where the data is because they're used to having it in house - letting it lose is still uncomfortable. I think, with time, we'll see some people relaxing on this point. Putting non-sensitive data into the public cloud will be the first step of that journey.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
11/1/2013 | 3:39:50 PM
re: Will Public Cloud Come Of Age in 2014?
Private and hybrid clouds offer more control/security, but I've heard they also takes away from the economic benefits of the cloud. Nobody is willing yet to trust the big public cloud vendors, but those vendors are really focused on building up their security right now. So I think eventually public clouds will become more popular with enterprises as the players build up stronger security for them over time.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
11/1/2013 | 3:10:06 PM
re: Will Public Cloud Come Of Age in 2014?
Laws regarding data privacy also differ from country to country and that can complicate moving data to data centers across borders.
IvySchmerken
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IvySchmerken,
User Rank: Author
11/1/2013 | 3:00:32 PM
re: Will Public Cloud Come Of Age in 2014?
I have not talked to a securities firm running its customer data in the public cloud. One of the concerns is that with public cloud, data is moved to servers in different parts of the world. FS firms want to know where their data is at all times. Becca, was this issue raised in your travels?
Zarna Patel
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Zarna Patel,
User Rank: Author
10/31/2013 | 7:36:44 PM
re: Will Public Cloud Come Of Age in 2014?
Some firms and banks have extensive "what to do where there is a breach in our data center" drill! I'm sure a similar drill for cloud would be vital in terms of security. On the other hand, Quantum Dawn 2 was postponed because more banks and firms (no vendors allowed) were interested in participating than originally anticipated, according to SIFMA. So it seems like cyber security is a priority despite cloud or data center.
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