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June 24, 2016updated 22 Sep 2016 1:32pm

Why UK banks are getting rid of their data centres

Analysis: Banks’ private data centres are in free-fall and there is a huge opportunity for the wholesale players. CBR investigates.

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Historically, banks used to have their in-house data centre, run their own services and keep everything on premise.

However, today things have changed and colocation services are being sought after by banks who need to focus on banking and not IT.

Speaking to CBR, Rob Garbutt, CEO at data centre provider LDeX Group, said: "UK banks seem to be disposing of their self-owned and operated data centre estates in favour for colocating in a third-party data centre."

Garbutt said the reason for this shift is most likely to move away from a capital expenditure (CAPEX) model towards an operating expenses (OPEX) one, whereby colocation is rented from third-party data centres.

"The benefits of this include the ability to increase and decrease their storage space, power and cooling requirements without the need for large volumes of capital.

"It also negates the requirement to manage a large property portfolio and its associated overheads as well as infrastructure maintenance and the refresh of aging M&E."

To keep banking sector ICT services and others running, data centres need to be secure, offer a great deal of performance and scalability capacities, a solid backup and disaster recovery strategy, and so on.

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The shift away from owning their own facilities seems to be not only noticed by colocation providers, but also by big comms companies like CenturyLink.

The company’s EMEA regional sales director for financial services, Jay Hibbin, also spoke to CBR, saying that "running a DC is not the core business of a bank" and that that is one of the reasons why we are seeing this major shift.

He said: "The process is too capital intensive to keep investing in and growth of IT estate is no longer a given in a more uncertain world.

"After the banking crisis, most banks have recapitalised, and focused their capital budget on achieving capital adequacy ratios putting pressure on maintaining DC assets."

Hibbin also hinted that from a demand perspective, the end of a long bull run has meant an end to certain growth, and banks now operate in a much more uncertain world.

"There is no guarantee of continuous growth in new trading types – and there is also huge macroeconomic uncertainty leading to a much greater need for agility and flexibility.

"At the same time, there is the broader move to cloud computing, which banking is not immune from, which diverts IT away from DC assets to off premise locations."

He also said that there is more and more pressure to move applications from hosted data centre environments into a cloud estate to stay more agile.

However, not everyone in the industry is seeing a decline in ‘banking data centres’ business. Asset management company Trackit Solutions, who works with the likes of Bank of England, Citi, Credit Suisse, Lloyds, and Santander, is seeing its business boom.

Also speaking to CBR, Trackit’s CEO Steve Beber said: "Banks are not getting rid of their data centres, they are going through an evolution – virtualisation, private cloud, etc.

"Banks are conservative, they are not like Internet companies (Facebook, Google, etc.) They still have legacy mainframe systems which are still being used for mainstream banking."

"The issue is not about getting rid of their data centres , but more about reducing the capital cost of running legacy inefficient data centres and also the impact of virtualisation.

"Banks have a choice, they can refurbish their existing sites (costly), develop new sites (even more so) or look at migrating their systems to newer locations (wholesale colo – cheapest)."

As the banking industry shifts its attention to the wholesale data centre, Beber sees colotation providers like Equinix or Digital Realty as some of the main players in this field.

"They are the guys that are trying to attract these types of customers with big data halls with power, cooling and network connectivity, located in areas which are close to the city."

Click next to find what banks are looking for in the digital age.

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