Cloud Computing Adoption in Financial Services

[00:00:00] Ali Curi: Markets Conversation is an ION podcast where we discuss topics of importance to capital markets participants with product owners, subject matter experts, and industry leaders.

[00:00:15] Bob Cioffi: The best practice is about coming up with a cloud strategy that’s realistic about how you can take advantage of the benefits that are there today and working towards a future of moving more and more things to the cloud.

[00:00:30] Bob Cioffi: And certainly that has to align with your organization’s skillset because there is a large ramp up in terms of knowledge and expertise required.

[00:00:40] Ali Curi: Hi everyone and welcome to Market’s Conversation, I’m Ali Curi. On today’s episode, we’re discussing what cloud computing is and how it can offer a number of benefits to financial institutions.

[00:00:52] Ali Curi: Our guest today is Bob Cioffi from ION’s Equities Division, and he will help us understand why cloud computing is a rapidly [00:01:00] growing trend in financial services. He’ll explain how cloud computing providers offer a wide range of services, which can help financial institutions to improve their efficiency, reduce their costs and improve their security.

[00:01:14] Ali Curi: Let’s get started.

[00:01:16] Ali Curi: Bob Cioffi, welcome to the podcast!

[00:01:19] Bob Cioffi: Hey Ali. Thank you.

[00:01:20] Ali Curi: The cloud that we know as consumers is not the same one that we’re discussing today, correct? Let’s start with some background and a general overview of cloud computing in financial services.

[00:01:32] Bob Cioffi: Well, I think it actually, it is the same, in the sense that cloud means just not having your own data center, right? In the context of any discussion about cloud, we’re generally talking about storage or hosting of services and technology in a data center that’s shared in the public sphere as opposed to your own private data center.

[00:01:54] Bob Cioffi: So in the case of financial service technology, we’re talking about, instead of hosting our [00:02:00] products in ION data centers, we would use what we call “the public cloud solutions” like AWS, Amazon’s Cloud solution, or Google Cloud, right? or Microsoft Azure. So these are the same products that are available, to anyone in the public domain.

[00:02:17] Bob Cioffi: So in the, in our sense, it is essentially the same cloud, although obviously we’ll be using them in different ways from the general public.

[00:02:24] Ali Curi: Let’s discuss some of the upsides first. What are the benefits of implementing cloud computing in financial services organizations?

[00:02:31] Bob Cioffi: I think historically there’s been a perception that the biggest benefit is cost, and it seems obvious. Today you have large cost associated with maintaining a data center and, you hope to get rid of that and benefit from economies of scale that cloud providers have and have a lower total cost in the end. Obviously, there are other benefits. Things like as the world has become more complicated, technologically speaking, you don’t have to have the same staffing and hiring to support [00:03:00] your cloud and infrastructure that’s in your private data center. The maintaining the real estate, the power costs, all these things that come along with maintaining a data center, get moved off to the cloud provider. So on paper it sounds like a win and there are a lot of benefits. The biggest benefit I think, that a lot of people don’t think about is, time to market.

[00:03:22] Bob Cioffi: Because today, if you have a private data center, procuring hardware can take a long time. It could take six months or longer even. Just for a simple ordering of server, getting the server in, building out the server, and then installing it in your racks and making it available In the cloud world, the servers are there waiting to be provisioned.

[00:03:42] Bob Cioffi: You could provision the server in a matter of hours and have an environment for testing or experimenting or even production very quickly. You orders a magnitude faster than you would achieve in your own private environment, no matter how many resources you threw it. And even better [00:04:00] is if you just wanna do something for a temporary test or a test.

[00:04:04] Bob Cioffi: Once you finish with that hardware in the cloud world, you can just give it back. You give up the cost. You don’t have to pay for it any longer. In the private data center world, once you buy that hardware, you own it. Sure, you can probably sell it potentially, but at a much, significant loss. So that’s, I think, the most overlooked benefit, is how it can help us achieve a much faster time to market, and even if the price is the same, that in of itself is a big benefit.

[00:04:31] Ali Curi: Now let’s discuss the flip side. What are some of the challenges that financial institutions might encounter when implementing cloud computing?

[00:04:40] Bob Cioffi: There are a number, I mean, the biggest one, the obvious one is, risk associated with security.

[00:04:46] Bob Cioffi: When cloud came up as an idea, people said, oh, it’ll never be adopted by, fill in the blank. Usually big banks, big Swiss banks will be too cautious about it, it’s too high risk, they don’t control it. And, that was true at the time, but [00:05:00] certainly over the last few years or the last five years, that’s changed dramatically.

[00:05:04] Bob Cioffi: And now we’re in a point where cloud security isn’t as much of a concern. It always will be a concern, but it’s a concern for people in private data centers as well. So I think there’s a general acceptance of the security risk and people have a number of, technological solutions to address those risks, but I think that has been the biggest downside that is being mitigated slowly. Another big issue with cloud is that the services need to be available in the cloud environment that you want to install your software. So for example, if you’re a data or trading platform, you need to market data for your service. That may or may not be available in the cloud at the moment, it usually is not.

[00:05:44] Bob Cioffi: So there are functional gaps that make that more difficult. I think another disadvantage and challenge is that initially people pictured, well, going to the cloud, going to save a lot of money, but in reality, you’re probably gonna need more than one cloud [00:06:00] provider for resilience and redundancy and backup.

[00:06:04] Bob Cioffi: So that throws out a lot of the benefits of cost and means, it’s questionable whether you really are saving money in the end. Then lastly, I would say that another significant downside is the adjustment that an organization has to make to deal with cloud. It’s a completely different way of building applications, so there’s training and experience needed to build, effective cloud communication applications and also, the same staff might not have that knowledge and expertise, so you may need to look outside for staff.

[00:06:38] Bob Cioffi: So it’s a different mindset, a different skillset required. That can really be a big challenge for an organization because the developers, have to think differently and work differently, and it may mean additional staffing or a lot of time training, or long ramp up times.

[00:06:56] ION Ad: This episode is brought to you by ION.

[00:06:59] ION Ad: At [00:07:00] ION, our clear derivative solutions automate your complete trade lifecycle and deliver actionable insights whenever and wherever you need them. We offer execution and order management, post-trade processing, and a complete front to back business solution. To learn more, visit us at ion group.com/markets or email us at: [email protected].

[00:07:26] Ali Curi: Now Bob, you touched a little bit on the risks of cloud computing… privacy, security, always a big issue. How can organizations ensure the privacy and security of their data when they’re using cloud services?

[00:07:38] Bob Cioffi: It’s inherent in the offerings now. I think the biggest change was really one of mindset, that the perception was that, “we don’t know about cloud, we don’t have the experience. We don’t know that it could be secure enough to meet our needs or our clients’ needs.” So I think the biggest change is that the perception is changing and the solutions that we need to make it secure, [00:08:00] inherent in the cloud offerings.

[00:08:02] Ali Curi: Bob, for any financial service institution looking to utilize cloud computing, what are some best practices and what should they be aware when adopting a cloud solution?

[00:08:12] Bob Cioffi: I think that’s a great question. It’s really important to realize that cloud isn’t a binary decision. You’re not going all in on the cloud, you’re not turning off or moving all your data centers tomorrow. It’s, a long term way of working and not everything is lending itself at this time to working ideally in the cloud.

[00:08:34] Bob Cioffi: Either the cost could be too high, there could be, like I said earlier, functional gaps that mean it’s not a good candidate for cloud. So I think that what people need to think about is how they’re going to start using cloud. It’s not gonna be, “tomorrow we’re moving to the cloud.” It’s what can you do?

[00:08:52] Bob Cioffi: And we all need to be thinking because we know the future is fairly, very heavily, cloud focused. [00:09:00] For example, in our work, we’re looking at applications that we could move to the cloud, these probably around the periphery of our offering. They’re not going to be necessarily the core trading capabilities.

[00:09:10] Bob Cioffi: Because another issue that we didn’t speak about earlier is latency, right? That’s always been a concern and has been mitigated by things like local zones that Amazon is implementing, trying to move the data centers closer to sources and eliminate some of that latency. But there’s some applications that highly sensitive to latency, those aren’t gonna be good choices for a one cloud adoption.

[00:09:37] Bob Cioffi: There might be other applications where you can gain benefits immediately by moving them. And whether that’s cost or time to market benefits. So I think that, the best practice is about coming up with a cloud strategy that’s realistic about how you can take advantage of the benefits that are there today and working towards a future of moving more and more things to the [00:10:00] cloud.

[00:10:00] Bob Cioffi: And certainly that has to align with your organization’s skillset because there is a large ramp up in terms of knowledge and expertise required.

[00:10:10] Ali Curi: What are some examples of financial services companies that have successfully implemented cloud computing? Like, what lessons can be learned from their experience?

[00:10:19] Bob Cioffi: I think what we’re seeing, the most interesting developments I’ve seen recently are the exchanges that are partnering with the cloud providers. Google partnered with the CBOE and Nasdaq partnering with AWS. Those, I think are the changes, the adopters that we were waiting for to really accelerate the adoption of cloud that it’s been in everyone’s mind for a number of years now.

[00:10:42] Bob Cioffi: The adoption has been, I think, slower than everyone expected. If you said five years ago where we would be, I think people expected we would be a lot further along as an industry. But in the last year or two, when you’re starting to see Amazon AWS partnering with major exchanges like NASDAQ, [00:11:00] SIBO partnering Google, I think those are signs that the adoption is accelerating.

[00:11:05] Ali Curi: And Bob, how can companies leverage cloud computing to improve their customer service, experience and engagement?

[00:11:13] Bob Cioffi: Great question. And it goes back to what I was saying earlier. I think two things come to mind. One, time to market. It’s gonna enable us to spin up environments and give those back much faster than we ever could in the private data center world.

[00:11:27] Bob Cioffi: The other big change is the ability to build more test environments easily without the hardware procurement cycle. So if we want to do more testing with clients, we can build an environment test with them. If we have a special case that we want a test, and maybe in today’s world doesn’t justify the expense of hardware and the cloud world is probably not an issue.

[00:11:49] Bob Cioffi: So that’s a big advantage that I think we can engage with our clients more by offering them some of those advantages of cloud, the ability to build those environments, even if they’re very [00:12:00] specific for specific use cases and thereby improve resiliency and performance, reduce the number of post production issues, make sure requirements are tested and flushed out earlier in the process rather than after production.

[00:12:16] Bob Cioffi: So I think there are a number of benefits, and it goes back to that ability of being able to build up those environments and do it quickly and then give back the hardware later when you don’t need it.

[00:12:25] Ali Curi: What are the regulations and compliance requirements that could impact the use of cloud computing in financial services?

[00:12:32] Bob Cioffi: So I’m not aware of any specific cloud computing requirements. However, I would speculate and I’ve heard discussion of would some areas or some regulators may specify that, you need to have more than one cloud provider and that could have enormous implications in terms of complexity of moving to the cloud and cost as well, obviously.

[00:12:54] Ali Curi: What do you see happening in the near future with cloud computing? Any emerging trends or any thoughts [00:13:00] on how AI may play a role in cloud computing going forward?

[00:13:04] Bob Cioffi: I’ll answer the second question first, AI. I think what we were talking about with the ability to spin up environments and test, I think is very supportive of the kind of things people want to do with AI.

[00:13:15] Bob Cioffi: If you want to build a sandbox, to test something, you won’t have to wait to buy hardware, get it shipped. You can build up a cloud environment. It’s perfect for that type of thing. And also the cloud providers have and will have more and more AI services as part of their offerings. So by just dealing with a cloud provider, you can have access to some AI services that you wouldn’t have in your private environment without doing a lot more work.

[00:13:40] Bob Cioffi: The second part of your question, Which is where do we see things going? I see more and more, obviously, since this is not yet a mature offering across the board, but growing offering, the functional gaps, getting closed. Certainly we see, on a daily basis announcements, some cloud providers are forming more partnerships, [00:14:00] so more and more services that you need to run and build applications of the cloud are gonna be added over time and that list is growing quickly.

[00:14:07] Bob Cioffi: The other thing is, we mentioned earlier, the local zones by Amazon, so people looking to address the specific concerns that people have with moving to the cloud, like latency, which has been always a concern of anyone looking at cloud computing that has a latency sensitive applications, so they’re looking for ways to address these concerns.

[00:14:29] Bob Cioffi: Another change we’re seeing is a type of a hosted private cloud, so you could still use a cloud provider to have some more control than you would get in the public cloud through that cloud provider and the cloud providers are offering that service as well.

[00:14:44] Ali Curi: Bob, before we close out, what’s the one big thing that you hope listeners would take away from this episode?

[00:14:51] Bob Cioffi: There’s one thing I think to keep in mind. It’s that moving to cloud doesn’t have to be an all or none decision. There are benefits you can gain today and there are use [00:15:00] cases that benefit from use of cloud, and you can start doing that today and fit that into a broader migration strategy for the cloud that may take many years.

[00:15:09] Ali Curi: Now, let’s talk about career advice and productivity. What is some career advice that you wish you had heard earlier in your career?

[00:15:18] Bob Cioffi: Oh, great question. Career advice is, keep an open mind. When I went to college, I went, got my degree in economics, so I was very sure that I wanted to have a career in trading.

[00:15:29] Bob Cioffi: I was absolutely positive. I didn’t even think of anything else. I came out of school, I got my quote unquote dream job, and very quickly found that it wasn’t really for me and it didn’t suit me. And I think that I found my way into, fortunate to find my way into, a career that I enjoy and is rewarding combining that experience I had and the educational background with my kind of core skillset and I think that, I see looking at people coming outta school today, I’d advise them the same thing, that you never know where you’re going to [00:16:00] end up. I would probably, early in my career, not say no to any opportunity if it had a good learning and exposure opportunities with it.

[00:16:11] Bob Cioffi: So I think that, to keep an open mind and be flexible and any experience you gain will help you in the long run. And even if it’s not ultimately you want to do, working in a role could lead to something more interesting to you later on.

[00:16:25] Ali Curi: Bob Cioffi, thank you for joining us today. It was a pleasure having you on the podcast. I hope you visit us again.

[00:16:30] Bob Cioffi: Thanks so much. It’s a pleasure. And thanks for having me.

[00:16:33] Ali Curi: And that’s our episode for today. You can follow ION Markets on Twitter and LinkedIn. Thank you for joining us. I’m Ali Curi, until next time.