It’s an almost endless debate across financial data centres: physical or cloud? Though many banks still feel more comfortable hosting their own facilities on-site, cloud solutions are emerging as a simpler and greener alternative. Abi Millar delves into this rapidly changing – and increasingly sustainable – field by talking to Alex Rabbetts, managing director of the European Data Centre Association (EUDCA) and Ricardo Jantarada, global head of telecom and datacenter at BNP Paribas.

In years gone by, few banks would have countenanced the idea of a cloud-based data centre. Moving their computing off-premises would have seemed unforgivably reckless, given the notional security threats and the risks of cyberattacks.

More recently, though, that perception has shifted. True enough, not every IT application can be hosted by third-party providers – at least for the foreseeable future, some mission-critical functions will need to remain on-site. However, an increasing number of banks are embracing a hybrid model, in which a portion of their IT infrastructure is migrated to the cloud. 

“There has been a notable change in industry attitudes,” says Alex Rabbetts, managing director of the European Data Centre Association (EUDCA). “For back-office and non-critical applications, the people responsible for IT realise that these can be easily fulfilled using cloud services and are more than happy to access them this way.”

In a 2020 survey by International Data Corporation (IDC), 57% of banks said they already ran in hybrid environments, with another 31% said they would move to hybrid models within the next 12 months. Another survey, by Accenture, found that banks only handle 8% of their tasks in the cloud to date, but that this could double by 2024.

The reasoning is clear: cloud computing is faster, more efficient and better equipped to handle banks’ growing data demands.

“I think the benefits going into the cloud include a managed environment provisioned and supported by organisations for whom the data centre is their core competence,” says Rabbetts. “It’s almost certainly run better than you run your own facility. Your costs are fixed and predictable.”

These considerations have come to the fore since the start of the pandemic. All sectors, not just banking, have seen an uptick in their data usage, with global internet traffic surging by more than 40% as ever more services moved online.

This has prompted many firms to think beyond their own facilities. Data centre transactions more than doubled between 2020 and 2021, with the overall market expected to grow from $48.9bn in 2020 to $105.6bn by 2026.

Rabbetts notes that, while many banks were planning digitisation projects pre-pandemic, Covid-19 had the effect of speeding them up. For instance, some banks set up virtual call centres in the cloud, which were ready in a matter of days.

“The fact is that the catastrophe provided an inflection point which almost forced industries to break traditional patterns of working and evolve. Cloud remains very much a positive enabling technology for this evolution,” he says.

Going green

The other benefit of cloud, which has not escaped banks’ attention, is that it is significantly greener than running your IT facilities on site. While data centres are certainly electricity intensive – they guzzle around 1.1-1.4% of the world’s total energy consumption, according to the International Energy Agency (IEA) – many are on a mission to reduce their footprint. 

Statistics from the IEA show that internet traffic surged almost 17-fold between 2010 and 2020, and data centre workloads more than 9-fold. Their energy usage, however, only grew by 10% over the same time period – indicating that demand for data is being offset by efficiency improvements.

“As a general principle, the sector has been very responsive to sustainability concerns,” says Rabbetts. “If you look at those responsible for designing, building and operating today’s data centres, they are clear about the need to ensure efficient use of power because power is their largest operating expense. In a very real sense, what’s good for the sector is good for the planet and vice versa.”

This ethos is reflected in movements such as the Carbon Neutral Data Centre Pact (CNDCP), a pledge among European industry players to achieve climate neutrality by 2030. Internet giants like Amazon and Microsoft are taking steps to lower the carbon impact of their operations, while various small data centre providers are powering their generators via renewables.

“These sorts of actions are becoming pervasive,” says Rabbetts. “The sector continues to challenge itself to answer questions like, how do you use water more efficiently? Is there a secondary use for resources such as data centre waste heat? How do we create a circular economy? These concerns affect data centres, cloud service providers and the financial sector alike.”

BNP Paribas’ approach

However banks choose to run their IT workloads, there are always going to be a few different factors at play. As well as sustainability, they need to consider the cost, security and complexity of their systems.

“BNP Paribas is facing an ever-growing set of challenges that are constantly shaping its data centre strategy,” says Ricardo Jantarada, global head of telecom and datacenter at BNP Paribas. “Our approach to those challenges is to have a differentiated strategy where we look, on a case by case basis, for the best solution to host our IT systems.”

He adds that for general-purpose applications, the bank typically uses cloud solutions, whether public or private. For other use cases, such as legacy workloads that are not cloud-ready, the bank seeks out ways to improve its IT footprint on-site. With all its data centres, it thinks about sustainability in a holistic way. 

“In the past, cooling efficiency was the priority,” says Jantarada. “We now expand our analyses to multiple domains, such as the origin of the electricity, the efficiency and usage ratio of the IT equipment, the re-use of the heat produced and finally, the life expansion of the IT equipment.”

Some of these challenges can be addressed in its existing data centres. However, others require looking into new locations. In general, the bank’s IT workloads are flexible enough to move to new facilities relatively easily – a boon, says Jantarada, to anyone’s sustainability agenda.

Recently, BNP Paribas teamed up with Dell Technologies and data centre provider atNorth to move a portion of its IT infrastructure to Iceland. In common with many financial institutions, the bank was starting to make use of high-performance computing (HPC) applications. HPC has opened new doors in the financial services industry, enabling banks to analyse massive amounts of data, but it is energy intensive and requires a significant physical footprint.

“The Iceland project with atNorth is one of our first data center projects that had a sustainability agenda,” says Jantarada. “When we realised that our HPC farm would keep on growing, we started looking for new locations to spread our risk across multiple countries and improve our energy footprint. To achieve this, we looked at several criteria, such as power efficiency, origin of the electricity, costs, and international connectivity.”

Ultimately, the bank decided to house its infrastructure at one of atNorth’s colocation data centres in Iceland. Compared to its previous HPC deployment, the bank says this has reduced energy consumption by 50%, decreased carbon emissions by 85%, and moved 100% of energy supply to renewable generation.

“We quickly realised that the country was ticking all the boxes,” says Jantarada. “On an ecological standpoint, Iceland offers two outstanding factors with its energy efficiency thanks to natural free-cooling and the energy origin, which is 100% natural and renewable.”

Trends to watch out for

Cold countries like Iceland and Norway have emerged as a winning choice for data centre providers looking to cool their facilities. Microsoft has even tested an underwater data centre, which takes advantage of the icy subsurface seas around northern Scotland.

However, the use of third party data centres is not confined to specific geographies – and in fact, balmy southeast Asia is currently the world’s fastest-growing region for data centre colocation. That is boosting demand for other green energy solutions like Direct Liquid Cooling.

“This solution has been around for some time now but has now become mandatory in certain conditions,” says Jantarada. “It allows for a better thermal performance in dissipating the heat produced by processors, but also allows for an easier transport and re-use of the heat outside of the facilities.”

Another trend worthy of note, he says, is heat re-use. In principle, this approach means any data centre could reduce its impact without having to relocate somewhere colder.

“When you consider a data centre as a black box, what it does is take electricity in, and produce heat with it,” says Jantarada. “Re-using this heat in local communities, industries or farms will allow data centres to become more neutral. Obviously, for this to be possible, there need to be specific infrastructures and partnerships between data centre operators and local communities or industries.”

As banks’ data requirements continue to grow, we are likely to see ever more discussion around these issues. Given the right approach to IT infrastructure, more data does not have to equate to a proportional rise in energy usage. But that can be hard for a bank to achieve on-site, and that’s where cloud comes in.

 “It’s interesting to see what extent banks are considering green issues today,” says Rabbetts. “I think they’re starting to look at their resources with the realisation that they cannot simply offshore the challenges of climate change. They are realising that a cloud-based data centre is always going to be greener.”

Stats

$2bn – Reported annual savings made by Bank of America after building its own cloud – https://www.nytimes.com/2022/01/03/business/wall-street-cloud-computing.html

38% – Percentage of collaboration & office applications banks currently host in the cloud, compared to

1% of risk and compliance workloads

64.2 zettabytes – total amount of data created, captured, copied, and consumed in the world in 2020 – https://www.statista.com/statistics/871513/worldwide-data-created/

19% – Compound annual growth rate of the green data centre market from 2020-2026 – https://www.statista.com/statistics/626003/worldwide-green-data-center-market-size/ 

This article appears in the Winter 2022 edition of Future Banking