Q: Why did the undersea cable break affect my local bank? I live in the same city as its headquarters, and I’m sure banks are supposed to keep their data inside the country?
A: You are correct about banks having to keep customer data within the country where it operates. This is known as data sovereignty, and most cloud computing providers have to make sure such data is kept on servers inside the same country where it is generated. However, the emphasis is on customer data, and not on banking operations.
Even though customer-facing services might be on local servers, banks often rely on the internet for various kinds of communication between different departments or branches within the same city and across their operations in other countries. Disrupted internet connectivity affects these internal operations and indirectly slows down customer services.
Banks also use cloud-based services or third-party vendors for specific functions, like fraud detection, credit card processing, or regulatory compliance. These external services might be located elsewhere and often rely on the global internet for communication. That means a broken undersea cable that disrupts that connection can also disrupt these services.
And then there is interbank communication, which is usually conducted through a system called SWIFT (Society for Worldwide Interbank Financial Telecommunication), and SWIFT relies heavily on the internet. If a broken cable out at sea disrupts the connection between the local bank and SWIFT, it is likely to disrupt money transfers or other financial transactions with other banks.
Surely banks have “redundancy”, or backup lines? Yes, of course they do but, because banking systems have to prioritise security, switching to those backups can take time and is unlikely to be completely seamless. During the switchover, it is probably also likely that data synchronisation or updates need an internet connection, and cannot happen instantly.
In short, a broken undersea cable can still cause issues for any business operating locally and storing its key data locally. The moment it relies on external services and communication with other organisations, it will be affected by undersea cable breaks, if its traffic is carried on the affected cables.