Why build fintech in the cloud now
Cloud computing in financial services is driving industry change faster than ever. On one hand, cloud computing opens up the playing field and democratizes powerful solutions which in turn accelerates innovation in a positive feedback loop.
Today, technologies that were highly exclusive or experimental only a few years ago are quickly becoming commonplace. Now, solutions such as biometric authentication, virtual assistants, predictive loan offers, virtual reality trading, AI-enabled claims processing, and ML-enabled fraud detection will become available to fintechs of any size.
The changes cloud has brought to the financial sector are truly revolutionary in terms of service, scalability, security, and innovation.
Why are fintech organizations embracing cloud?
The recently published The Cloud 100 list shows that early adopters of cloud for financial services such as Stripe, Checkout.com, Airwallex, and HighRadius literally smashed their ways to the top of the fintech Olymp. And the situation is not likely to change.
The combination of increasingly stringent regulation plus technology disruption in financial services has created an environment where old rules quickly expire. The standard of building legacy networks and proprietary infrastructure has given way to cloud solutions that enable fintechs, both young and old, to rapidly employ highly evolved business models.
Simply looking at Big Data challenges reveals why a cloud-based approach has been widely adopted.
Just over the past few years, 90 percent of all the data in the world has been created with 2.5 quintillion bytes of data generated on a daily basis. The New York Stock Exchange alone captures 1 terabyte of information each day. Outdated monolithic architecture fails to keep up with managing and leveraging the massive data being generated in finance.
Due to technological pressures, along with the innovative advantages of cloud, Deloitte Global saw a threefold increase in the number of financial service organizations adopting cloud from 2016 to 2018. Another report predicts that the finance cloud market will grow at a CAGR of 24.4% to $29.47 billion by 2021.
Cloud computing has shown clear advantages in areas, such as capacity, agility, regulatory compliance, APIs, rapid modernization, and banking payments. The benefits are not only widespread, but they have also proven to be durable.
Why is fintech and cloud computing a match made in heaven?
Some insights gleaned from a recent joint Sentiment Paper from AWS and Finextra include the following benefits that cloud brings to fintech:
Cloud eliminates many data storage management problems that plague dated enterprise infrastructure. Cloud computing in banking offers easy access to data for regulatory reporting, risk mitigation, analytics, deep learning, and discovering risk management anomalies.
Freedom from legacy system maintenance and updating is only one aspect of the cloud cost advantage. Cloud’s “pay-as-you-go” model enables resource provisioning on demand. Capacity remains stable while the cost of capacity tracks consumption.
Better data storage management
Cloud based financial services can scale to meet variable and increasing data volume. Plus clean, consolidated, contextualized data eliminates the blinders caused by data silos. Additionally, on-premise grids typically force banks to allocate compute resources while cloud resources are available on-demand.
With cloud, fintechs can deploy new ideas and product iterations from a validation and production standpoint in a more agile fashion. The provisioning of environments, while monitoring for continuous compliance, enables improved adaptability to changing business and technology needs.
Cloud computing in financial services eases compliance by providing the capacity to process massive, yet fluctuating amounts of data. New regulations require firms to collect, store, process, and report more granular data across multiple products and asset classes. This is more easily accomplished with flexible and accessible cloud data management.
Critical cloud computing trends shaping fintech
Big data and cloud computing
Data sitting in a data lake can be more easily exposed. For example, data lakes can store structured and unstructured data at scale and run dashboards, visualisations, big data processing, real-time analytics, and machine learning. Cloud APIs offer much more scalability than APIs since they decompress data storage problems. The cloud becomes the fintech’s backend data infrastructure.
Open banking promotes banking and payments technology standardization, drives competition, enhances security of customer account data, and leads to data use innovation. APIs simplify the way financial institutions collect actionable data (e.g. customer purchasing, loan needs, preferred journey patterns, risk profiles, and future income projections).
Personalization dramatically improves customer acquisition, satisfaction, and retention. It also optimizes cross-selling, revenue, and profitability across a bank’s entire portfolio. The cloud offers better data-driven preparation for more predictable customization results which maximizes the ROI of decision making strategies.
Cloud computing can enhance risk management capabilities by providing resiliency and access to pooled data (particularly external data) that can then be analyzed to create new risk insights. Cloud flexibility, scalability, and security allow for streamlined development of new technologies on a larger scale thanks to automation, Big Data, and AI.
New capabilities for AI/ML integration
Cloud data scaling removes obstacles to AI use, such as the lack of sufficient data sets available to generate historical behaviour intelligence. Banks are increasingly investing in AI/ML, thanks to cost-effective, easy-to-use, and scalable AI/ML cloud based services. These tools enhance customer interactions through chatbots, surveillance, ideas from unstructured data, and customised product offerings.
The future of cloud based financial services
It’s plainly evident that cloud solutions have become the new normal in the financial sector. The demands of Big Data, regulatory pressure, and intense competition have transformed the industry radically in a short period of time.
The digitization of finance begged for versatile, scalable solutions found currently only in the cloud. The conversation has shifted in the blink of an eye from “should we move to the cloud?” to “how fast can we move and what can we do once we get there?” Migration roadmaps, therefore, quickly become an area of concern, and firms often seek insight there.
The future will certainly witness increased emphasis on AI/ML initiatives that leverage experiences from end-to-end, including the automation of front end sales and customer facing environments. Plus, predictive modeling will play an ever increasing role.
Perhaps the most exciting aspect of these dramatic shifts is who will emerge as the new industry movers-and-shakers based on the wide open opportunity facing fintechs today.