From increasing flexibility to better security, the usage of cloud technology is an added advantage in the financial services sector. In this post, we will walk you through the benefits of cloud computing in FinTech.
This year, the FinTech market value is expected to be worth $310 billion. Cloud solutions have repaved the path to growth for the FinTech sector.
As digitalization continues to sweep through all industries—especially financial services—technology has enabled new and optimized business models. We examine some of the ways the cloud has supported both growth and disruption in FinTech.
Reduction of Costs
Cloud solutions offer significant cost benefits as initial capital costs on traditional IT infrastructure are reduced. Ongoing expenditures toward maintaining servers and overall on-premise data storage costs are also reduced. The cloud enables banks and FinTechs to manage computing capacity more accurately and efficiently, especially as customer demand grows. Additional cost benefits occur as a result of the inherent risk reduction and agile innovation that the cloud enables.
Security, Compliance, and Risk Mitigation
More agile infrastructure can enhance security while reducing maintenance costs. 60% of companies plan to employ cloud computing in the next 18 months. Cloud services adapt to seasonality, which is flexibility not afforded by traditional on-premise systems. Many providers wrap global, regional, and industry-specific information, security best practices, and compliance measures into their offerings.
Additionally, capacity, redundancy, and resiliency risks are automatically lowered by cloud technology. Highly sophisticated systems for data storage and protection improve business continuity and better guard against vulnerabilities that result from disasters. Encryption can also prevent breaches, hacks, and other threats.
Agile Innovation & Improved Efficiency
The cost savings from IT infrastructure and the maintenance of that infrastructure allow banks and FinTechs to reallocate resources toward agile innovation and further enable the quick-to-market delivery of new products and services. The cloud enhances both efficiency and productivity by incorporating centralized data management and faster processing in a disruptive landscape. These enhancements mean banks can shift the focus away from IT issues and toward the core business.
As big data continues to explode, data management will become critical. Cloud computing facilitates the secure storage and management of high volumes of financial user data. Paired with automated, intelligent technologies like artificial intelligence and machine learning, banks and FinTechs can streamline and improve payments, banking processes, credit scoring, lending, and fraud prevention and detection. As AI and machine learning evolve, many of these specialized processes will be accelerated and automated.
The end result of all of these enhancements is better client satisfaction. Advancements in cloud technology enable banks and businesses to streamline processes and shift the focus back to customer-centric services.
Realizing Benefits of the Cloud
A cloud-based approach to digital transformation requires a clear understanding of steps forward as well as education on what a successful transformation looks like. Senior leadership may have the perspective that key applications are “locked-in” to existing infrastructure and may not like what appears to be a significant overhaul needed to move to the cloud. The reality is that banks and FinTechs have little room to wait on digital transformation via the cloud. While waiting to see what unfolds as competitors adopt cloud technologies in order to stave off negative outcomes—may seem prudent, it could be the final nail in the coffin for slow-adopting banks. Cloud capabilities are highly agile and can support many strategic initiatives.
Making the move to the cloud—whether step-by-step or in one fell swoop—requires some organizational preparedness.
As Accenture notes, cloud technology facilitates innovation and excellence and should be supported by a culture rooted in those values. This requires top-down executive sponsorship by senior management that effectively communicates to the rest of the organization the impending changes.
Similar to culture changes, a move to the cloud will also require some strategic thinking around talent attraction and retention. While there is a myriad of out-of-the-box SaaS cloud solutions, banks and FinTechs will inevitably look to develop their own software around core needs. This means building fully-supported development teams made up of highly-specialized talent. It can be a huge undertaking that requires substantial forethought.
Cloud Migration Roadmap
As with any internal transformation or adoption of new technology—a roadmap is required. This helps prioritize and assign steps to the most efficient migration plan. Key considerations for implementing cloud architecture include backup and redundancy planning, security, workflows, processes, and overall management post-migration. This can ensure that banks and FinTechs get the most out of the move to the cloud and that maximum efficiency is realized.
How Cloud Will Impact the Future of FinTech
The cloud will be a growth catalyst for banks and FinTechs, and more than half of their expenditures over the next two years will be focused on cloud-based applications. With banks making this shift, innovation will accelerate as banks gain the power to collaborate globally via the cloud. Cloud-based project management platforms and sandboxes facilitate this collaboration and can support truly decentralized and cloud platform-agnostic software development. The end result could be shorter proof of concept (PoC) sprints, which will foster faster innovation and faster learning.
As omnichannel banking expands alongside the Internet of Things (IoT), customer data will explode. Technology that utilizes sensors for data capture will accelerate this data collection, as the cloud presents a great platform for the safe storage and analysis of data collected from multiple sources. Real-time data capture paired with real-time insights and analysis can allow banks and FinTechs to offer more personalized products and services to the end customer.
The cloud gives banks and FinTechs more ammunition against cyberattacks and bad actors. Cloud providers that infuse global best practices and quickly deploy the latest security features will offer banks and FinTechs a leg up against these negative forces, allowing them to protect sensitive data and manage risks in real-time.
Rumblings of Change Happening Globally
With the likes of PSD2 and open banking making their mark in Europe, global banking has seen a shift towards business models and infrastructures that support the sharing of data. Grounded in a move towards more customer-centric banking, this shift is making its way toward North America as well. This new movement requires collaboration between banks and FinTechs, and TPPs, making cloud-based technology an important tool to facilitate the secure sharing of data. It enhances the customer experience and reduces the costs associated with creating customer-responsive products and services.
Application programmable interfaces (APIs) are a big part of this collaboration and require an open ecosystem that cannot be supported by legacy systems. Banks that fail to embrace this shift risk becoming outdated and irrelevant. Cloud platforms will be crucial to allowing existing and new providers to be more nimble and cost-effective. It will also be necessary to possess the ability to scale up and down in response to customer demand.
The cloud presents the opportunity to bypass the old “one-size-fits-all” mentality in favor of a very customized approach that each bank and FinTech can adapt based on its own unique needs and business cases. In many cases, this may involve a hybrid public and private cloud approach.
Paving the Way Forward with Cloud
On-premise servers and traditional IT infrastructure are quickly becoming a thing of the past. Banks and FinTechs must adopt cloud technology to maintain pace with new industry standards and expectations around security and agility. Get in touch with us to know how the cloud can benefit your FinTech organization.