In this article Erwin Deeben, technology manager with network infrastructure leader Brand-Rex, looks at the industry mega-trends identified by PWC and other forecasts for the sector and explains how this will drive massive changes to the data centre and general IT needs of companies in the financial sector.
Insurance and pension providers, payment services, investment funds & services, foreign exchange, credit-card providers, loan providers, stock brokers and stock exchanges, financial intermediaries, traditional and challenger banks are all witnessing the start of unprecedented change. This change - affecting both their users and their employees - is being driven by major social and demographic change and technology breakthroughs according to international consultancy PWC.
We don’t need to go too far back in history to when the majority of financial transactions were done offline, with cheques and credit slips being used for the customer part of the transaction and bank operatives inputting the details for batch processing on the banks’ mainframes.
Move closer by a few years and most customers were drawing cash from machines in the wall rather than from a human bank teller.
Fast forward to today and most of us are doing the majority of our banking from apps on our smartphones or from our laptops/PCs.
Even in the high street branches some banks – notably Barclays in the UK, Santander in Spain and Rabobank in the Netherlands have replaced most of the human bank tellers with touch screen multifunction automated machines that allow users to transfer money between accounts, pay bills, apply for loans and withdraw cash. Finding a human to talk to in these banks can be difficult!
If we look over to the trading of stocks and shares, then it used to be that you required the services of a stockbroker. Yet today there are any number of smartphone or tablet ‘apps’ and web-based services that allow users to conduct self-service trading. Whilst these apps/services don’t have the up-to-the-microsecond information that professional traders require, they are more than adequate for most people to manage their stocks and shares portfolios. And of course they offer various safety functions whereby users can set limits where the host server will sell or buy under pre-set conditions as specified by the customers themselves.
What about insurance? Well at the car and domestic buildings/content levels no-one can have missed the pervasive TV advertising of major brokers and aggregators like comparethemarket.com or moneysupermarket.com. But it’s already gone much further along the self-service route as revealed by a simple search on the Apple AppStore where a search for “insurance” turns up 3,649 different insurance related smartphone apps!
Looking to borrow money? It no longer requires an in-person application and a face-to-face interview with an unsympathetic bank manager. Pick up your smartphone; there are numerous loan providers with apps and of course many of the mainstream banks now offer loans through online banking and their banking apps.
Most of the 349 apps listed for foreign exchange (ForEx) are exchange rate calculators at this time, but amongst them are apps that allow you to actually trade and spread-bet using your smartphone.
The self-service trend
We can clearly see, within each sub-sector of financial services that the trend is away from human interaction to instantaneous smartphone, tablet or PC-based self-service transactions. And whilst those of us over 40 may find this move to ‘de-humanised’ financial services daunting, the younger generations are absolutely on-board. Some shun anything that’s not self-serve, instantaneous and available 24-7-365. Server downtime and non-availability has become completely intolerable.
Now it doesn’t take much in the way of scientific genius to realise that the move away from batch processing financial transactions on mainframes to the world where everything is self-serve and instantaneous means that an incredible data centre park or cloud infrastructure is essential to support this trend.
Gartner forecasts that this trend will see the financial services sector suffer a 50 per cent reduction in financial and admin jobs.
And whilst that is quite understandable, you’ll probably be surprised to read that Gartner forecasts that there will be 500 per cent (yes five hundred per cent) more IT personnel needed to support this metamorphosis.
Of course it’s not just the user interface that’s being transformed. IT related employees are prime-movers in demanding that they can do their work from whichever device they happen to have in their hands at the time. Of course if their employing institution hasn’t formally enabled BYOD they’ll find a back-door way to do it anyway.
But it’s not just them. A corollary of the reduction in financial staff is that those who remain will mostly need to be mobile in their work combining a certain amount of hot-desking with being out seeing clients. So they too will need mobile solutions.
And of course all of this BYOD, apart from needing financial-grade security solutions, means that a high grade infrastructure of cloud/data centres and high bandwidth network delivery is absolutely essential.
In the data centre
The massive legacy IT systems of the big banks were until now a competitive defence in that the investment required to compete represented a significant barrier to entry.
They now look to be potential ‘millstones’ as challenger banks and the new tech-efficient financial industries of countries like China can be far more agile - leaving the dinosaurs lumbering behind.
The IT requirement that the data centres need to support are:
- A massive and growing 24-7-365 instantaneous transaction processing capability.
- A more conventional enterprise-like IT back office system to support mobile and BYOD enabled key operational/financial staff and the hoards of IT staff.
- As I’ll explain below, a massive “Big Data’ processing and analytics capability – partly in order to support the service providers’ own marketing but much more importantly, to deliver a new set of personalised machine-provided financial advice services. All of which are informed by mining for success patterns in the company’s customer data.
All of this points to the need for massive and growing needs for processing power and storage.
Add to this the requirement for 100 per cent uptime and the indication is that the sector will need more data centres than at present and data centres on a far larger scale.
Networks to the fore
The sheer volume of transactions and data flow means that the networking element of the data centre - the copper and fibre cabling, connectors, interconnects and switches - becomes even more critical. We forecast that data centres can no longer afford the risk of an unmanaged physical layer with systems like our new SmartPatch self-documenting hardware and internal/external plant management software becoming essential elements of the infrastructure integrating into the BMS (building management systems), DCIM (data centre management platforms) and NOC (network operation centre) systems.
All of this processing horsepower and storage are going to require ever faster interconnects from server to server and storage; with true extra high speed Ethernet switches connected by stable and reliable passive infrastructure.
Already many data centres are deploying multiple 10 Gigabits links in the network backbone, with a significant number now deploying 40 and even 100 Gigabits connections. Fibre is the natural choice for this, but with 40 and 100 Gigabits requiring eight or even 20 fibres per link (unless single-mode fibre is used) it is essential to use a cabling system that can handle any combination of 10, 40 and 100 Gigabits with the ability to switch between or mix multimode and singlemode fibre and which, like our own HI-DEX solution, is specifically developed to facilitate easy in-service upgrades and migrations now and in the future.
For financial services data centres however, 100 Gigabits is unlikely to suffice for very long and you will need a solution like HI-DEX designed to be upgradeable to 400 Gigabits (currently being standardised) and 800 Gigabits that is forecast to follow it.
In terms of connecting individual servers to their adjacent switches we expect the current 10 Gigabit/s copper cabling to soon be replaced by 40 Gigabits Ethernet using Category 8 hardware - due to be available internationally in 2016.
To cloud or not to cloud?
Rather than the conventional financial sector model of main and backup data centres, the “no-downtime” expectation of the market and the need of the financial service providers to provide massive computation and storage levels at acceptable cost indicate that cloud or cloud-like infrastructures will be needed.
Large players will not want to rely on such infrastructures outside their direct control - and indeed they may be constrained by financial regulators to only use cloud services provided under their sole control. This will lead to multiple ‘per provider’ Financial Grade Clouds being built.
However, it would be very short-sighted to rule out the emergence of some financial grade mega-cloud infrastructures, with perhaps a number of major players joining forces to build a common cloud for all the donkey-work of transaction processing and Big Data crunching.
Once built, it may make good commercial sense to sell capacity to other financial services companies.
Will machines give better advice than humans?
I’ve alluded to the de-humanisation of financial advice and you might find it surprising when I say that this could lead to us all getting better and more personalised financial advice.
Of course this is a forecast rather than a fact at the moment – but there seems to be general agreement that this will happen.
Unlike your personal financial advisor (if you even have one) who gives advice based on ‘snapshot views’ of your finances, a PFM (personal finance manager) algorithm will be able to view, track and analyse ALL your financial dealings from personal banking to loan and mortgage management, pension planning and implementation, stocks and shares trading, property portfolio management, etc., etc.
From anonymised Big Data analysis, the PFM service will be able to identify the patterns from cohorts of people that are similar to you and determine the factors that have made for the best financial outcomes.
Based on this data, the PFM will be looking constantly at how to improve your fortunes, and rather than give customers advice once a year or once a quarter, PFM will alert them whenever intervention would make a positive impact or mitigate a negative one. For the financial service providers this will mean they can develop new products for much smaller cohorts of customers – in due course possibly even personalised to each individual customer!
Make no mistake; this will be a mammoth undertaking to store vast amounts of data relating to each customer, their transactions and the financial outcomes. Applying the powerful mining and analytics techniques that we expect to see emerging in the Big Data field will take massive amounts of storage and processing.
It’s an exciting prospect that will only come to fruition if the financial sector builds the right data centre or cloud networks now to give the industry the capacity and flexibility so imperative to the sector’s success.
And a final reminder: With the criticality of data centres increasing, it is more important than ever before to select manufacturers that produce high-reliability, high-performance solutions that will support your needs in the future.
Erwin Deeben, technology manager at Brand-Rex
Image Credit: Shutterstock/Ralwe