Why the Banking Sector Needs More Data Center Knowledge
By: Kayla Matthews on April 8, 2019
The flow of information is critical in every industry on earth — but this realization seems to be taking the banking industry by storm lately.
Data centers have been vital assets in banking and trading for many years, but their importance is only growing as the demand for mobile services increases, compliance standards grow more strict and as institutions contemplate the future of technologies like blockchain and AI.
Here's why data center knowledge is more important than ever in the banking sector.
Data Centers Facilitate Faster Trading
The proliferation of electronic stock trading is one of the biggest drivers of data center adoption in banking today. In 2011, just 35 percent of American adults owned a smartphone — but that figure now stands at 77 percent. These silicon wonders offer all kinds of convenience and utility, but money management is one of the most popular app categories.
Among smartphone users, 63 percent use at least one financial app. This means the number of people buying and trading stocks on-the-go will only increase with time — and this, in turn, means banks and other financial service companies need data centers. But individual stock traders are hardly the only use-case for the deployment of data centers.
High-frequency trading (HFT) is now the rule rather than the exception among Wall Street firms. It involves computer-driven analysis of trends in real-time and allows traders to time their actions down to the millisecond or automate them entirely based on a predetermined set of triggers or conditions. And sometimes, milliseconds are all it takes for a lucrative trade to fall through or be preempted by a competitor.
Data centers and "proximity hosting" are instrumental in shaving those seconds and milliseconds off the time required to execute a trade. The concept of proximity hosting is increasingly vital for data mobility. It means traders don't need their own servers, but can instead rely on vetted third-party data centers located closer to data facilities operated by stock exchanges. In addition to eliminating latency, this setup also allows for multiple data streams at once.
Data Centers Facilitate Disaster Recovery
Gaining a competitive advantage through data center development, or building a relationship with a vendor, is a top priority for financial institutions. But banks and other entities need to engage in wise data center deployment for another reason: natural and manmade disasters.
Following the events of 9/11, many banks and other financial services companies chose to achieve "geographic diversity" for their data centers by relocating them outside New York City proper. A similar situation happened in the wake of Hurricane Sandy. Data centers which weren't moved from storm- and flood-prone areas outright were hardened against future disruptions with retrofits to their power and communication systems.
Financial companies operating with a risk-conscious mindset need data center specialists and IT architects who understand threats like these and who know how to deploy data centers strategically.
Data Centers Are Vital for Compliance
When regulations are working as intended, they help keep financial institutions honest, transparent and focused on the well-being of the customer rather than exclusively on their own profitability. Compliance with financial sector regulatory requirements — and general privacy measures like GDPR — is another reason why data centers and data center expertise are essential in modern banking.
In 2017, New York State implemented what was then a national first: it required financial institutions with a presence in the state to design risk-based data management platforms with customer data protection as a first-order priority.
Programs like these require banks and similar businesses to collect, securely store, analyze, and deliver notifications about fraud, cybercrime and other types of customer harm in as close to real-time as possible. The goal is to perform ongoing risk assessments — but doing so requires regular access to secure data stores.
That means data centers. In addition to helping institutions collect real-time data related to security, data centers also help banks and traders securely store these records and retain them for as long as current regulations require.
Data Centers Power Future Technologies
The case for data centers in banking is a strong one. But it also means training in the technological aspects of modern banking needs to be an even stronger focus in the financial sector going forward. Traders, accountants and bankers already have to wear a variety of hats to do their jobs competently while remaining in compliance, from auditing and fraud prevention to tax preparation and payroll management.
Banking institutions need to invest in data center talent that sees the larger picture — not just for today, but also for the future. Because situating data centers and choosing colocation partners strategically is just the beginning.
Blockchain is an emerging technology that represents the future of "trustless" exchanges of information and value. It requires networks of data centers functioning as "nodes" in the shared ledger. But major institutions already see the lack of talent cultivation in this area as a potential pain point that may impede its rollout.
Artificial intelligence is another major technological opportunity, and concern, for the banking sector. Rudimentary AI already performs some of that high-frequency trading we discussed earlier. But in the future, AI will be even more important as a means to personalize banking products and identify sources of risk faster than humans can alone. But AI needs vast stores of data to act upon, or else it can't reach meaningful conclusions. And data needs a home.
Some of the biggest names in banking today have been around since stagecoaches. But the need for real-time data-gathering tools and strategically placed data centers means the whole field is changing and modernizing before our eyes.
Committing to "investing in technology" isn't the whole story — banks today also need to make sure their culture and hiring practices are built from the ground up to emphasize ongoing learning and skill development.
In other words, they need people who understand the technologies that keep our money and our economy working for us.
About Kayla Matthews
Kayla Matthews writes about data centers and big data for several industry publications, including The Data Center Journal, Data Center Frontier and insideBIGDATA. To read more posts from Kayla, you can follower her personal tech blog at ProductivityBytes.com.
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