Banks tiptoe toward their cloud-based future

By Lananh Nguyen, The New York Times Company

Michael W. Lucas made big plans to take a trip around the world in March 2020. He arranged to travel from his home in Detroit to Tokyo, then attend conferences in Hong Kong and Bangalore, India, before making a final stop in Paris.

But on his first attempt to buy plane tickets, this ambitious itinerary — costing $2,932.48 — got the attention of Capital One, which blocked the charges.

“I was both annoyed and pleased that the credit card company caught that someone was booking unusual flights,” said Lucas, a 54-year-old technology writer who is also an author of mystery novels. After calling the bank to explain his plans, the transactions went through smoothly. (The trip, however, was ultimately canceled because of the pandemic.)

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

As Lucas put it: “The cloud is a fancy word for ‘other people’s computers.’ ”

Banks see huge potential for cloud technology to make their systems faster, more nimble and responsive to the needs of their customers. Consumer banks can develop cloud-based tools to quickly introduce new features in mobile banking apps or detect fraud. Lenders can use the cloud to process loan applications and analyze underwriting decisions for everything from mortgages to corporate borrowing. They can use machine learning to detect money laundering. When volumes spike in financial markets, traders can use extra computing power to analyze price movements and handle bursts of client activity.

Still, the banking industry has been mostly slow to adopt cloud computing. Currently, major banks run their own data centers, which house computer servers that process vast troves of customer account data, payment records and trading logs. Running the machines is costly because they require a lot of electricity and also need to be kept in air-conditioned rooms.

While Wall Street leaders have long acknowledged the potential of cloud computing to cut costs, they have only allowed their firms to take halting steps. Executives have been hesitant because banks are tightly regulated by governments and any sudden changes involving consumer deposits or privacy aren’t possible. They’re also concerned that computing over the internet will open the door to cyberattacks. And some firms are held back by old computer systems that are difficult to revamp or retire, making the transition even more tricky.

David M. Solomon, CEO of Goldman Sachs, is optimistic about financial-services firms moving into the cloud. However, “it’s got to be done with high levels of security and real protection of data and information,” Solomon said. “That’s why you’ve got to go slowly and you’ve got to go cautiously,” he said.

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

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