Kenyan banking security regulation spurs data center growth

The Kenyan government’s regulations for back up and disaster recovery plans in the banking sector has spurred growth in data centers, as businesses move to comply to new rules.

The Central Bank of Kenya has strict risk and compliance guidelines that compel banks to put in place mechanisms to guarantee business continuity in case of disaster, forcing banks to invest in data centers or to lease space within existing data centers.

Safaricom has four tier-three data centers and tier-four facility in the pipeline, Kenya Data Centers recently launched its own facility covering four floors of an ultra modern building while Equity and other banks have put up data centers to cater for internal and external demands.

“Regulatory requirements for backup and business continuity plans especially in banking have led to increase in awareness,” for security said Nzioka Waita, Safaricom corporate affairs director.

Kenyan banks offer mobile-phone based and online applications, and disaster recovery has become a major concern.

“With increasing IT sophistication, the dependence on IT becomes greater — if a bank was to suffer a hacking attack, or even a fire at its data centre, to protect the customers, it is under obligation to store data at a remote site and have a disaster recovery plan,” said Francis Hook, manager, IDC East Africa.

Affordable connectivity has allowed banks to interconnect branches, set up terrestrial links and Virtual Private Networks, which were more expensive when the country was relying solely on satellite connectivity.

Harder economic times have forced companies to cut back on capital expenditure while the falling cost of connectivity has enabled businesses to invest in operational expenditure mainly through managed services provided by telcos.

“Smaller players wishing not to invest huge amounts of money on hardware (servers, storage, networking) and software (generic applications like ERP, CRM) can now lease capacity and access software under a pay as you go model,” added Hook. “It makes sense to pay as you go rather than pay huge sums to acquire and maintain hardware and software, telcos and major vendors are positioning themselves to provide cloud services.”

While bigger corporations will be attracted to cloud services and hosting locally, the cost of hosting for smaller companies and individuals is still considered higher compared to Europe and the U.S.

The core challenge, Hook said, is in the critical mass needed by hosting service providers to recoup their investment costs in order to be competitive like the U.S. and Europe, which means that the data centers may not attract many customers beyond the corporate sector.

Power outages and frequent fiber optic cable cuts have also made selling data center services harder mainly because clients want to pay lower prices, yet access services as provided in U.S. and Europe. Meanwhile, telcos insist they have sufficient mechanisms to counter down-times.

“Safaricom is connected to the grid via Kenya Power and Lighting Company, has standby power generators and wind power in some of the stations to counter any outage,” added Waita.

The need for data centers in the banking sector may have been required by the regulator, but there is no clarity whether the banks will open up and offer external cloud services to the public and compete with telcos. There is also no information whether the banks are willing to collocate with each other to offer more resilience.

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