Moving to the cloud can be burdensome for a bank: If you don't know exactly how and where your company's data is being stored, meeting regulations that control it can be almost impossible. Howard Boville is betting he can solve that problem.

Last spring, Boville left his post as chief technology officer at Bank of America to lead IBM's ambitious bid to build a cloud banking platform. The concept: that any bank or fintech would automatically be following the rules in any part of the world it operates, as soon as it started using the platform.

"I saw a big gap in the marketplace," Boville told Protocol. "How do you have the right compliance controls built into a cloud, so that you could satisfy regulators and also the risk posture you have as a financial institution?"

The cloud he envisioned would have "all these little railway sets with different gauge tracks," he added. "The big idea was to set a series of standards on those controls that the industry could consume. Then on a global basis, you could ride on those rails to carry the analogy of the railway set, and all of the gauges met and de-risk the whole financial services industry."

While IBM has long been a major provider of hardware and software used to run the in-house data centers of major banks and other institutions in the financial services industry, that business has been under fire as banks slowly started to migrate to the cloud.

"You cannot be in the technology business and not be serving financial services, because you're missing one of the largest areas of spend in technology," Sonny Singh, executive vice president of Oracle's financial services business, told Protocol.

That's why the financial services cloud is a major offensive for Big Blue — and a chance for Boville to prove his idea works.

'Compliant out of the box'

Boville was still CTO of Bank of America when he began developing with IBM the concept of a financial services cloud that would be "compliant out of the box." The idea was to build a platform geared to a heavily-regulated industry known for a web of regulations meant to protect the interests of consumers and businesses, and to guard against fraud and criminal activity.

The rules are typically extensive and complex, Falk Rieker, SAP's global head of banking, said. "I have here on my desk the outsourcing guidelines from the European Banking Authority," he told Protocol. "It's 20 pages and goes down into hundreds of details that banks have to keep in mind when they outsource their operations."

Yobie Benjamin, who served as the global chief technology officer of Citi's global transactions group and is co-founder of the fintech infrastructure startup Token, noted that banking rules often take a long time to change and pointed to strict regulations for record-keeping: "In the banking system, we can't throw shit away. … Technology changes at the speed of light. Regulations move at the speed of molasses. … Regulatory burden is not trivial."

It's a burden not just for the big banks, but also for vendors that sell them software and services, especially fintech startups. Boville himself had to deal with this issue at Bank of America: "We had to do vendor risk assessments on software companies that we consume technology from." It's no problem for bigger vendors that could afford to go through the process, which could take up to two years, "but the fintechs are too small."

"That's a problem for the industry, because it meant that we couldn't consume innovation at the pace that we wanted to because we had to go through all these various checks. If you're a small fintech, you haven't got the capacity to have that overhead," he said. "It's a very long checklist to check that the vendor is not going to introduce risk into the financial system. And for smaller companies, that's just too much of an overhead, particularly when every bank will ask you to do the same thing but in a slightly different way."

Howard Boville, head of IBM hybrid cloud IBM

Boville had worked closely on the financial services cloud project with Arvind Krishna, who took over as IBM CEO last year. By the time IBM launched the platform in late 2019, Boville said he was looking to return to his technology roots.

He had started out as a database programmer in England and ended up working in the telecommunications industry, including a stint with Comcast in the 1990s when he "started to figure out that the internet might be a thing." He subsequently spent nearly 14 years with BT Global Services before joining Bank of America in 2012.

He said he told IBM about his plan to move on. "That's when the conversation with Arvind arose," he said, adding that Krishna told him, "Come here and continue the incredible work that you're doing." Boville said he "was humbled by the opportunity. It was just such an easy decision to make."

A way to win trust

The IBM cloud provides "a comfy bubble" where banks and fintech startups have access to tools that would ensure that they're doing everything right when it comes to such matters as encrypting their data properly or handling and storing them properly, Hillery Hunter, chief technology officer of the IBM financial services cloud, said. It is also set up to prevent "people from doing the wrong thing and leaving things vulnerable" and to "send an alert if anything was left vulnerable" by developers or engineers who work for the bank or a third-party software vendor, including fintechs.

In fact, one of IBM's key goals is to attract fintechs. The platform aims to make it easier for a startup with a hot new technology to convince a bank or a financial services company that it is safe to work with them. "We have heard story after story after story of startups that got positive affirmation from financial institutions about what they were trying to do, but the banks were unwilling to move into production," Hunter told Protocol. She said a typical response startups get from a bank is: "You know, your functionality is great, but I don't trust you with my clients' data."

IBM is building the financial services cloud after falling behind in the cloud more generally — the most dominant trend in enterprise tech dominated by Amazon, Microsoft and Google. IBM has recently struggled with sliding revenue as a result: The company last month reported fiscal 2020 revenue of roughly $74 billion, down 4.6% year-over-year, and continuing a streak of annual revenue declines.

IBM does not break out revenues for its financial services business, but the overall revenue drops are hitting at a time when IT spending in the banking and securities industries has actually been rising: It's projected to reach roughly $589 billion in 2022, up 14% from 2018, according to Gartner. That would be about 14% of total enterprise IT spending of $4.1 trillion.

The problem is most of that spend is shifting to the cloud. Jerry Silva, IDC's vice president of financial insights, said banks and financial services companies have been allocating bigger chunks of their IT budget on the cloud based on a yearly survey of banks worldwide. In 2018, most banks said they were spending roughly 20% of their budgets on cloud related expenses. By 2020, that figure was up to 33%. On the other hand, the share of IT budgets for in-house data centers dropped from 44% in 2018 to only 13% in 2020, Silva said.

Singh said IBM "has been pretty solidly positioned in financial services traditionally," but "a lot of that presence was under threat from aging of the systems that they were serving up on those mainframes."

Silva said he had mixed reactions when IBM shared its plan for the financial services cloud. "I think it will resonate with the industry because you're taking the workload off the bank," he said.

But it is such an enormous undertaking that he wondered if IBM, even with a market cap of roughly $108 billion and a massive technology arsenal, could pull it off. "If you just look at the U.S., sometimes the [regulations] get down to the county," he said. "It's going to take enormous resources from IBM to do this. … I think it will be a longer rollout when they talk about global ability. It's not a trivial thing to do."

Up to the job?

IBM hopes to meet this challenge with the help of cutting-edge technology like AI and the capabilities it acquired when it bought Promontory Financial Group, a consulting company that specializes in regulatory compliance, in 2017. IBM is building the cloud in a way that ensures "continuous monitoring of all regulatory obligations," including potential rules that are not yet on the books, Hunter said.

"There are some common trends and themes and other things like that that you can start to see emerging, and having those headlights [shining on] what's happening, for example, in the U.K. or in Singapore, helps us develop better technology and be proactive and stay ahead when those obligations then begin to become required in other countries," she said.

It's a capability that would make life easier for fintechs, said Sandeep Tandon, chief technology officer of digital banking technology company Intellect Design Arena, an IBM cloud client. "We don't have to be concerned whether we are deploying for a European Bank or for a North America bank or an Asian bank," he told Protocol. "There may be different requirements and IBM should have taken care of those beforehand."

So far, IBM cloud's partners include Bank of America, Luminor (the third largest bank in the Baltics and Estonia), and around 50 software vendors and fintech startups, including payments platform Ripe Hub and Zafin, a product and pricing platform for banks.

Silva said IBM's financial services cloud "does seem to be unique." He added: "Let me put it this way, it's much more than marketing-speak at this point ... assuming they can deliver on the promise."

And IBM is a force to reckon with in financial services, SAP's Rieker said. "They have the footprint in the banks … They're still in most of the large banks. They have a wide understanding of the infrastructure and the landscape banks are running. I think that this is something IBM can bring to the table, which the other providers cannot do to the same extent," he said. "We all know they are the 800-pound gorilla."