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May 26, 2016

Cloud finally breaks into FS – could IBM & AWS deals trigger a stampede of adoption?

News: Core infrastructure moving to the cloud made more appealing by regulations.

By James Nunns

Financial services is widely considered to be one of the last industry areas to fully embrace the cloud, but two big deals show that this could be able to change.

FleetCor, a company that offers specialised payment products and powers 1.9 billion transactions per year, has decided to move its infrastructure to the IBM Cloud.

The deal will see the company migrate a quarter of its data over the next 18 months.

FleetCor provides payment cards for expenses in the areas of fuel and lodgings to businesses and has a market capitalisation of around $14bn, with around $1.7bn in sales expected for 2016.

The company said that the move is due to expected efficiencies that IBM will be able to provide due its scale.

FleetCor is already using IBM’s z Systems mainframes and will transition to access them virtually through the cloud in order to save the company as much as $30m-$40m annually, said John Reed, FleetCor’s CIO. The company will continue to maintain an on-premises base for z System mainframes.

Another company operating in the FS market that has decided to take the plunge and move to the cloud is OakNorth, a UK challenger bank that specialises in small-business loans.

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The bank, which launched in 2015, has decided to move its systems to Amazon Web Services.

Like FleetCor, OakNorth said that the move will allow it to scale up more quickly and enable it to launch new services and products more quickly.

Banks have typically been slow to move to the cloud due to regulatory concerns and because of the complex nature of shifting away from legacy systems that have been the core of their operations for decades.

To some extent the regulatory concerns have been eased by actions taken by the Financial Conduct Authority which proposed guidelines in 2015 for cloud technology to be used as long as the appropriate safeguards are in place.

AWS is said to have been working closely with FS regulators in order to help support its push into the market. The cloud company already has Capital One as a customer but desires more.

OakNorth said that it has been working with both AWS and the FCA over the past six months regarding policies related to access to data, data protection, and security provided by the cloud.

Rishi Khosla, co-founder and chief executive of OakNorth, said: "Having our core banking system based in the cloud is an important milestone for us and for the banking industry in the UK. This achievement will enable us to continue scaling the business safely and efficiently.

"This development is proof of the regulator’s willingness to do that and will open up the opportunity for other financial institutions to follow suit."

Regulatory changes and a growing trust from the FS market in cloud’s security credentials mean that a move to the cloud should both be easier and more likely.

It is now up to the traditional banks to make the move, or further risk losing out to challengers which are acting more quickly.

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