• Capital One gives clients access to loan data via Amazon Echo
  • Pressure to cut costs, nods from regulators hasten migration

Imagine reclining in your La-Z-Boy, closing your eyes and asking the voice-activated Amazon Echo on a nearby shelf when your next car payment is due. Just a few years ago, banks would have needed a houseful of their own computers to provide such service. 

Instead, new capabilities announced Wednesday by Capital One Financial Corp. run on Amazon.com Inc.’s cloud. It’s the latest sign banks are growing more comfortable using other companies’ servers instead of their own closely guarded data centers -- and that longstanding security concerns are fading.

For years, banks have been outliers, shunning web-based data centers run by Amazon, Microsoft Corp. and International Business Machines Corp. Pressures to reduce costs and innovate are changing that. Of the world’s 38 largest financial institutions and insurance companies, 25 have signed up with Microsoft and are beginning to put applications in the cloud. Capital One, the eighth-largest U.S. commercial bank, started deploying applications in cloud services in early 2015.

“The momentum has been tremendous, especially in the last six months,” said Karen Cone, general manager of worldwide financial services at Microsoft.

Banks are trying to speed up internal development to keep up with innovative startups that are reinventing everything from cross-border payments to bill pay and doing it faster by using the cloud. The lenders look to the cloud as a way to lower costs and improve profits in a climate of stiffer capital rules and low interest rates.

Yo Alexa

Capital One on Wednesday added to the services it first started offering through the Amazon Echo in March. The bank became the first company to give customers access to auto, mortgage and home-equity information using Alexa, the Echo’s voice-activated assistant, providing answers to questions such as “How much is my next mortgage payment?” and “How much more until my motorcycle is paid off?”

“The primary motivation for the banks to do this is because they want to create agility and flexibility in their middle and back office that would let them digitize their business on an end-to-end basis,” said Likhit Wagle, general manager of banking and financial services at IBM, based in Armonk, New York. “They want to be able to automate all of their processes.”

Two developments have contributed to the bankers’ growing embrace of cloud computing. Regulators have welcomed the shift and cloud companies have revamped their practices to accommodate lenders.

“We see no fundamental reason why cloud services (including public cloud services) cannot be implemented, with appropriate consideration, in a manner that complies with our rules,” the U.K.’s Financial Conduct Authority said this month when it published new guidance for the industry.

Financial Services

Microsoft, based in Redmond, Washington, created a special financial-services compliance program that gives banks full access to all audit reports, notification of any security incidents and provides them with a road map on upcoming security and privacy features.

“I know from our own checks that both Amazon and Microsoft are all over the global banks,” said Karl Keirstead, a software analyst for Deutsche Bank AG. “This is a massive opportunity and prize that the public cloud vendors are well aware could move the needle for them.”

The transition to the public cloud began in Europe and Asia. Commonwealth Bank in Australia has begun using web-based computing for development and testing new software, and running its website, for example.

Major Savings

“Through this hybrid approach of combining the use of public cloud with our internal cloud, we have realized major savings in infrastructure costs and reduced project delivery times,” Nick Giles, executive general manager of IT Delivery Services at the bank, said in an e-mail. “As a result, we have been able to channel that capital toward innovation and customer-facing technologies.”

On Wednesday, Singapore’s DBS Bank said it will use Amazon Web Services and expects to move as much as 50 percent of its computing needs to the cloud by 2018.

Capital One, based in McLean, Virginia, is so happy with cloud services it’s closing data centers and expects to be down to three from eight by 2018.

“There’s nothing we aren’t willing to put in the public cloud,” said Rob Alexander, Capital One’s chief information officer. “We are now doing the vast majority of all our new development in the public cloud, and we are systematically moving our legacy applications.”

Larger banks are expected to follow in coming months, though they are expected to do so cautiously.

Many are starting by putting marketing, human resources and other non-core applications onto the cloud -- usually, no more than 10 percent of their total applications, according to IBM’s Wagle. Other parts of the businesses will take longer.

“Banks move slowly, especially regarding IT decisions with regulatory implications,” said Keirstead of Deutsche Bank Securities. “Hence one should expect any move to be gradual.”

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