A while ago, Alex Williams posted about a consortium made up of three banks – Bank of America, Commonwealth Bank of Australia and Deutsche Bank – that was specifically set up as a buying alliance to source cloud infrastructure. Alex’s take on it was that this move was made because of a frustration on the part of the banks about the high cost of maintenance with their legacy systems. Alex referenced an IDC piece written by Jeanne Capachin which analyzed the move saying that:
What these banks are really fighting against are the hefty maintenance fees their technology suppliers are assessing. They believe that by joining together, they can force a change in procurement practices and move to more shared or even open source solutions when they make sense.
Capachin focused on the technology aspect of this, contending that the banks are “frustrated with [their] IT suppliers, interpreting their slow embrace of innovation and cloud delivery as proof of their dependence on current revenue structures.”
I think this analysis misses the mark somewhat. There is no real cost or scale reason for banks to be setting up groups in order to drive cloud computing adoption, rather this is more a reflection of their risk aversion. Under the global financial crises, banks are being squeezed in terms of expenditure. Traditionally their approach has been to build their own solutions rather than buy offerings from external parties – a move to utilizing more commodity products is scary for banks (who aren’t exactly known as big risk takers) – a group such as this, rather than “pressuring technology vendors to innovate” as Capachin suggests, is more about mutual hand-holding as these entities take their first tentative steps into the 21st century.
In his assessment, Williams states “The winners? SaaS providers. The losers? The technology giants” – I think this misses the mark by a long shot. For a start this is very unlikely to be a SaaS play by these banks, they’ll be looking as far down the stack as possible, wanting to start by leveraging some IaaS offerings for edge (read safe) use cases and perhaps a bit of PaaS to allow for some rapid development of prototypes. SaaS is a long way off from gaining widespread adoption within banks. As to the contention that the big technology vendors will lose out from this move, I don’t agree – as stated before, banks are highly risk averse and take great comfort in the stamp of approval that buying from an IBM or a HP brings – that’s unlikely to change any time soon.
Read more about banking 2.0 here.