The real cost of cloud banking
In theory, economies of scale mean lower cost. This is the theory behind cloud adoption, too.
Simply moving old software to the cloud will not necessarily save you much money
However, lower costs in the cloud are not realised by simply moving existing software to the cloud, as too many banks are finding out. Some are now even looking to move back on premise.
As I have mentioned in previous articles, you have to design your products for the cloud. Simply putting your old software in a container and deploying to the cloud will not yield huge savings unless you are closing down data centres at the same time. And even then, the gains will be marginalised.
However, cloud platform providers are after all, like any other business, here to sell you as much as possible. Firstly, they make it really easy and inexpensive for you to play with new technology. A click of some options and a few lines of code and hey presto, your solution now has AI built in. And all it cost you was the developers’ time, maybe half a day, right?
Wrong. The cost is in using this software, not developing with it. For each service, there are a number of parameters. From a developer’s standpoint, they are simply tasked to get something working. Billing is somebody else’s issue, right? Wrong again. When it comes to costs based on resources, processors, memory and storage, this has to be a combination of technical and business/finance. However, as I have previously found out, these decisions are not easy for either side.
I remember when I worked at a bank developing Windows applications to run on 286/386 Intel PCs with 2MB of memory. We could still run five to six applications. Then along came Visual Basic, which made it much faster to write our Windows apps but required us to upgrade all our 40,000 PCs with more memory.
Although compute and memory costs have come down and capacities have gone up over the years, the fact is an inefficient piece of software will still cost you more today than a well-designed, optimised one. Before it was a simple case of running your software and checking how much memory you were using. With cloud, the pricing may be transparent, but the options available and cost calculation are much more complex.
Such is the complexity involved with cloud costs that many banks bring in specialists to help them optimise their spend. In fact, it’s not only banks, but banking software providers too. Cloud cost optimisation is a fine art that requires time and expertise to fully understand.
It would be easy to blame developers, but I’ve never seen business requirements that state that applications should minimise their memory use or use the least expensive type of storage.
I’ve been in the position of “the business” needing to make decisions on requirements for storage options, and these decisions aren’t easy, even for someone with a technical background. In defence of cloud providers, their pricing is transparent. However, it could be argued that some provide too many options and encourage developers to utilise too many components. All of this has led to the creation of “FinOps”, which essentially is the combination of financial management and cloud engineering/operations teams to reduce costs.
This week, I’m just saying that simply moving old software to the cloud will not necessarily save you much money. Even writing software for the cloud may not save you money, unless you make smart decisions upfront and really design for optimum cost efficiency as well as other technical requirements (scale, security, performance and so on).
In the meantime, it’s worth getting cloud cost optimisation experts in who can tell you how many millions your company could save.
About the author
Dharmesh Mistry has been in banking for more than 30 years both in senior positions at Tier 1 banks and as a serial entrepreneur. He has been at the forefront of banking technology and innovation, from the very first internet and mobile banking apps to artificial intelligence (AI) and virtual reality (VR).
He has been on both sides of the fence and he’s not afraid to share his opinions.
He founded proptech start-up AskHomey (sold to a private investor in spring 2023) and is an investor and mentor in proptech and fintech. He also co-hosts the Demystify Podcast.
Follow Dharmesh on X @dharmeshmistry and LinkedIn.
Read all his “I’m just saying” musings here.
