The sheer cost of running a financial institution means the industry will need to pursue more infrastructure virtualization projects, says Colin Kerr, industry solutions director for banking at Redmond, Wash.-based Microsoft.
"When we look at what's happening across banking in the U.S. and in other markets -- whether they are mature or emerging -- we see the economics of banking has to change," he says. "The industry can't survive on a traditional model. Banking has the highest percentage of IT cost compared to the total cost of running the business of any industry, at 14%. There needs to be a drastic cost reduction, and virtualization is an extension of that."
In theory, there's no part of the infrastructure that couldn't be virtualized, Kerr says, though some impracticalities will arise in certain areas. "When you think about replacing aging technology, there are complex code issues still to be dealt with as you migrate over time," he says.
And it's not just virtualization but also the increasing use of cloud services that will help banks become more agile, he says. "You see public clouds being used for scalability and things like running complex simulations, as long as there's no sensitive data involved."
Kerr can also envision a future where entire core banking systems are run in a cloud, although he acknowledges that it's "something we're still a little bit away from."
Banks also are interested in virtualization as a way to achieve elasticity -- the ability to have flexible data storage and clustering capabilities, says Vic Dossey, an industry technology strategist for banking at Microsoft. "It's about the ability to combine shared servers and resources in one pool," he says.
The lingering concerns around the security of data and applications that are stored or run in the cloud and other virtualized environments raises the question of possible future regulatory scrutiny of these strategies. Could there be government-imposed restrictions around what banks virtualize?
[Bank Branches Are Dead]
Neither Kerr nor Dossey believes that regulatory mandates will inhibit banks' virtualization and cloud use, though there will continue to be "a little bit of caution," notes Kerr, as banks look to see what regulators will have to say about these technologies.
Ultimately, AlixPartners' Samuelson says, the financial savings that can be realized through virtualization will help banks overcome their hesitations and will drive the industry farther down that path. "It can be a real benefit financially," he says.
Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio