Financial services is increasingly a data business, with good information and fast processing delivering new customers, cross-selling opportunities, arbitrage and numerous other advantages. The data centre is, therefore, the engine of growth for most retail/wholesale banks, insurers, exchanges and other financial institutions. Given its vital position then do you really want to outsource it? Liz Morrell looks at the issue of Datacentre-as-a-Service (DaaS), its differing definitions and whether it’s suitable for financial services

Building and running a modern data centre is time consuming, costly and largely inflexible. According to independent research conducted for Savvis by Vanson Bourne in April this year, 86 per cent of business decision makers in the financial services sector reported that they have been unable to develop or pilot business services or projects due to the cost of, or constraints within, their IT infrastructure – a current problem for 51 per cent of respondents.

Of the 456 IT decision makers surveyed in the report entitled Rising to the Challenge, 2010 Global IT Leadership, Strategies for Success, only 24 per cent of the financial sector business decision makers believed that data centre space should be in-house, claims the vendor, who as a supplier of data centre space and services was no doubt gratified by the findings. Many financial companies are undoubtedly though looking at new models that could help solve the expense and inflexibility problem surrounding increasingly crowded data centres, especially tier two or three institutions with limited upfront funds. Datacentre-as-a-Service (DaaS) is emerging as one possible solution. Like Infrastructure-as-a-Service (IaaS) and Software-as-a-Service (SaaS) – with which it is often confused – DaaS is a private cloud offering, where the functionality is delivered via internet connections. As ever in the technology world various companies use different acronyms but the offering is the same.

Differing definitions
Properly defining the term is a challenge though with different inter-pretations depending upon what vendors you speak to. “DaaS was first being discussed in late 2008 but like other cloud services a clear and unambiguous definition does not exist,” says David Howard, director of IT automation, at Unisys. “Typically, the phrase is used to describe a service that is operated remotely, providing the facilities of a data centre.”

Greg McCulloch, UK managing director of Interxion calls it, “a private cloud solution that provides its users with full cloud-like computing capabilities, while at the same time keeping security, performance and support within a dedicated hosting solution. The technology allows users to position their own ‘virtual data centres’ via a web interface, this identifies what server, storage, network bandwidth and application components are used.”

The concept is a step up from traditional co-location, where users lease empty floorspace in a data centre to house their own equipment, as with DaaS users get the use of the hardware too and usage is metered. “The internet acts as the facility which provides access to a bank or insurer’s data and services, delivering scalability, resources and support all via the click of the mouse,” adds McCulloch. The managed services DaaS model would allow users to also add on physical services, such as monitoring and configuration, to optimise performance.

But many observers say that rather than being something new, DaaS is simply a new name for existing cloud-like services – most notably Infrastructure-as-a-Service. Unisys itself admits that its IaaS offering has many of the same characteristics as a DaaS solution. “I would understand that DaaS is the same as IaaS, whereby a data centre operator provisions the racks, servers and virtual environment so that the customer can buy ‘compute and storage on demand’,” says Nick Razey, CEO of data centre operator, Next Generation Data. Others say the overlap is between SaaS and DaaS, further illustrating how a proliferation of vendor names for basically the same service can be infuriatingly opaque.

Barriers to adoption
Despite the varying terms, the principle remains similar – and the DaaS solution offers a number of pros and cons for financial firms. Due to the critical nature of data within the financial services world, and the issue around data protection, the biggest concern comes from a natural reticence to outsource. The loss of control, business continuity worries, ongoing contractual costs and the need to constantly manage service level agreements (SLAs) are all potential barriers to adoption. Each bank or insurer must ask themselves if these possible cons really outweigh the immediate savings and quick rollout benefits that can be gained by utilising another firm’s facility, rather than building your own data centre or overhauling an existing facility. “The common worry in my experience is around a fear about lack of control,” comments Interxion’s McCulloch.

According to Rami Rihani, data centre technology & operations lead at Accenture, “traditionally, companies have always wanted to keep their IT assets close to their chest and the data is their crown jewels”, hence the aversion to outsourcing its repository.

Andrew Jay, head of the data centre technology group, at CBRE, agrees, stating: “Most people already have data centres anyway so it needs some drivers to push people into using DaaS.” Whether that’s a lack of extra capacity, and surging demand, or a lack of flexibility depends upon each individual case.

Security is also a potential con with the ability to audit DaaS solutions a critical concern, and it is this that is often making companies think twice before going down the DaaS route. However, experts point out that despite the wariness it could make sense to move non-critical business applications, such as email or training applications, onto the DaaS model. “What it comes down to is weighing the pros and cons. In my opinion, it makes business sense and I believe the security features are there, and that people should start test driving it,” says Accenture’s Rihani. He also believes that for new banks wanting to enter a market quickly – say Metro Bank or Virgin in the retail banking space or a new investment firm – the DaaS model could prove particularly valuable.

Pros: speed & flexibility
Brian Klingbeil, managing director, EMEA, at Savvis, believes because DaaS can be rolled out so quickly it can offer first mover advantage as we come to the end of the recession. “We are seeing the need to move fast and nimbly at an all time high, especially in financial services because people need to be able to take advantage of the upturn when it happens,” he says. As long as the dreaded double-dip recession is avoided outsourcing your service delivery and processing channels to another firm’s data centre may help newcomers, like Metro Bank say, to gain a foothold as the economy picks up.

DaaS’ biggest benefits are the flexibility in meeting peaks and troughs of demand and potential reductions in cost. “It’s an infrastructure that is very scalable and elastic so if you need more capacity you just go through a screen or portal and you get a bigger or smaller bill,” says Unisys’ Howard.

Cost is likely to be another driver of adoption. Although vendors are still coming to grips with how to price and package the service it is going to be cheaper for most smaller companies than going down the usual route of building your own data centre. According to one expert, vendors are boasting that the use of DaaS and the cloud will lead to ten fold savings within five years. Of course, that’s all true in terms of upfront capital expenditure costs and perhaps the first few years of operation, and is precisely why the concept is attractive to smaller tier two and three institutions that don’t perhaps have upfront money, but – and it’s a big but – the ongoing running costs of always paying for data centre services could be considerable.

It is still early days for the finance industry and clouds, let alone DaaS, so there are few adopters as yet: “The case studies aren’t really there yet,” reckons Accenture’s Rihani. Although the co-location trend perhaps gives some small indications as to how it might work, with the proviso that there are differences between leasing empty floorspace (co-lo) and getting to use another firm’s hardware on a metered basis (DaaS).

Unisys says it has an interest in SaaS for functions such as mortgage processing and has also been piloting secure payment transactions, based on a cloud model. “For DaaS our clients have been looking more at internal clouds, than external cloud environments,” says Howard.

At Savvis the company is offering an enterprise cloud solution to deliver stricter SLAs via its virtual private data centre. Data centre space is becoming particularly tight for wholesale trading banks where the move towards high frequency trading (HFT) has meant greater demands on space.

However, the majority of financial organisations are using the co-location model for the moment, rather than DaaS. “Co-location data centres offer financial services customers low latency access to the key exchanges across Europe and can benefit from a wide community of companies offering specialised value added services to trading firms all located under one roof,” says Interxion’s McCulloch. His firm has a number of financial communicates across its data centre footprint, which it calls financial hubs, providing good connectivity and speed. “These offer financial services customers access to readymade, highly interconnected communities,” he explains.

Similarly, rival firm Equinix, hosts Chi-X Europe’s trading platform at its data centre in Slough, and various trading firms in its financial hub, which are there to take advantage of proximity hosting services, near to the trading venue. “We have taken co-location to several vertical markets, whose participants need to co-locate, so we have the necessary ecosystem,” says Robin Manicom, director of financial services Europe, at Equinix.

Other examples of the trend include Thomson Reuters who recently unveiled a new global high-speed data distribution network and hosting environment. The Elektron fibre optic network and data centres allow hedge funds, asset managers, banks, brokerages and exchanges to share information and connect with trading partners. The ‘cloud’ links strategically located proximity and co-location hosting centres, initially in New York, Chicago, London, Frankfurt, Tokyo and Singapore. Hong Kong, Indian and Brazilian data centres will follow later this year.

NYSE is also a believer. The initial co-location phase of its new European liquidity data centre in Essex, UK, is now underway. More than 40 HFT firms are presently installing and testing systems prior to the migration of the four main matching engines for the NYSE Euronext, NYSE Liffe, NYSE Arca Europe and Smartpool markets, which will move to Essex in Q4 2010.

Although Accenture’s Rihani believes financial institutions should be looking at the new DaaS model, he warns against rushing in. “It’s still a burgeoning industry and I would recommend you weigh the pros and cons and think before you go to DaaS, because as with cloud it’s easy to get on but it’s hard to get off.” When everything is outsourced it’s not easy to backtrack once you’ve started dicing with DaaS.

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