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Banks are tiptoeing into their cloud-based future

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Banks are tiptoeing into their cloud-based future

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By Lananh Nguyen, The New York Times Company

Michael W. Lucas has made big plans to tour the world in March 2020. He has arranged to travel from his home in Detroit to Tokyo, then attend conferences in Hong Kong and Bangalore, India, before to make a last stop in Paris.

But on her first attempt to buy plane tickets, the ambitious itinerary – costing $2,932.48 – caught the attention of Capital One, who blocked the fee.

“I was both annoyed and thrilled that the credit card company found out that someone was booking unusual flights,” said Lucas, a 54-year-old tech writer who is also a detective novelist. After calling the bank to explain their plans, the transactions went smoothly. (The trip, however, was ultimately canceled due to the pandemic.)

Lucas’ fraud alerts were made possible by an invisible force tiptoeing into Wall Street: cloud computing. Before moving to the cloud, his bank, Capital One, was limited to tracking fraud using the bandwidth of the servers it owned. Now that it’s leasing the capacity from Amazon Web Services, the bank can use machine learning to process the numbers faster — and at scale — to catch anything out of the ordinary.

As Lucas said, “Cloud is a fancy word for ‘other people’s computers’. ”

Banks see huge potential in cloud technology to make their systems faster, more agile and more responsive to their customers’ needs. Consumer banks can develop cloud-based tools to quickly introduce new features into mobile banking apps or detect fraud. Lenders can use the cloud to process loan applications and analyze underwriting decisions for everything from mortgages to business borrowings. They can use machine learning to detect money laundering. As volumes increase in financial markets, traders can use additional computing power to analyze price movements and manage spikes in client activity.

Yet the banking industry has generally been slow to adopt cloud computing. Currently, major banks operate their own data centers, which house computer servers that process vast amounts of customer account data, payment records, and transaction logs. The machines are expensive to operate as they require a lot of electricity and also need to be kept in air-conditioned premises.

While Wall Street executives have long recognized the potential of cloud computing to cut costs, they’ve only allowed their companies to take hesitant action. Executives balked as banks are tightly regulated by governments and any sudden changes involving consumer deposits or privacy are not possible. They also fear that computing on the Internet opens the door to cyberattacks. And some businesses are held back by legacy IT systems that are difficult to revamp or retire, making the transition even more difficult.

David M. Solomon, CEO of Goldman Sachs, is optimistic about the migration of financial services companies to the cloud. However, “it must be done with high levels of security and real data and information protection,” Solomon said. “That’s why you have to go slow and you have to go carefully,” he said.

In North America, banks manage just 12% of their tasks in the cloud, but that could double in the next two years, consulting firm Accenture said in a survey. Jamie Dimon, CEO of JPMorgan Chase, said the bank needed to embrace new technologies such as artificial intelligence and cloud technology “as quickly as possible”.

Banks are tiptoeing into their cloud-based future

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