Remember when choosing a service provider entailed lots of physical software and constant upgrades? That all changed in 2006 when tech leaders like Google and Amazon first began moving to the cloud. Today, most companies use some sort of cloud computing; a 2020 computing study by Foundry (formerly IDG) found 92% of IT environments were at least somewhat cloud-based.
However, certain industries have been slower to embrace the cloud than others. Banking, in particular, has been slow to move to web-based technology given understandable security and regulatory concerns. But with the rise of fintech — accelerated, in large part, by COVID-19 — many financial institutions are finally turning to cloud-based solutions. The New York Times reports Wells Fargo, Morgan Stanley, and Capital One are all transitioning to cloud-based services, and according to The Wall Street Journal , NASDAQ plans to move all 25 of its markets to Amazon’s cloud-computing infrastructure, Amazon Web Services. Goldman Sachs is also collaborating with Amazon Web Services to launch Goldman Sachs Financial Cloud for Data.
With these titans of the financial industry setting the pace, smaller financial institutions are poised to follow suit. In this article, we look at why fintechs should choose a cloud provider sooner rather than later — and the benefits they can expect after making the switch to the cloud.
Types of cloud computing
But before we dive into the fintech market, let’s take a moment to review the types of cloud computing available:
- Public cloud is an infrastructure owned by a cloud provider and sold to the mass market, such as Google Cloud. According to research by Foundry, 55% of organizations use multiple public clouds systems. The advantage of public cloud is that it’s affordable and has great security; however, customization is limited.
- Hybrid cloud uses multiple cloud providers — both public and private — connected to a proprietary infrastructure. IBM Cloud is an example of a hybrid cloud model. Accenture reports 61% of financial institutions use a hybrid cloud model.
- Private cloud is an infrastructure custom-built for an individual organization’s use. Providers like Microsoft’s Azure and HP’s GreenLake offer private cloud services. Though the most expensive option for cloud computing, private cloud has the benefit of being completely customizable.
Why fintechs need to choose a cloud services provider
Now that we have the lay of the land, let’s explore why companies in the fintech industry are finally embracing cloud computing — and why those fintechs without a cloud infrastructure in place should choose a provider now.
Cloud computing is accelerating in fintech
In a report on the top technologies influencing the future of fintech, McKinsey shares research indicating that by 2030 cloud computing will account for over $1 trillion in earnings (before interest, taxes, depreciation, and amortization) across the world’s top 500 companies. Research and Markets predicts the global cloud computing market will reach $947.3 billion by 2026, a CAGR of 16.3%.
Curious to understand the catalyst behind fintech’s cloud boom, The Economist Intelligence Unit and Temenos — a Swiss software company — surveyed IT executives in the banking sector and obtained the following data:
- 72% of respondents reported implementing cloud computing would help “achieve their business priorities.”
- 43% cited cost as a driving factor for cloud adoption.
- 40% believed cloud computing would improve “agility, elasticity and scalability.”
- 21% considered better customer service a driver for cloud computing.
Andrew Reeves, Head of Cloud at Temenos, said in the report that he believes COVID-19 is at least partially responsible for fintech’s sudden shift to cloud: “The pandemic has clearly lit a fuse under cloud adoption with banks having to deliver and scale digital services rapidly. However, cloud is also a prerequisite for success in the world of open banking and Banking as a Service. These are megatrends, powered and enabled by the cloud, that are shaping the future of banking.”
Fintechs without a plan to implement cloud computing should prioritize finding the right provider, or risk being left behind. As Nicole Lanza, Managing Director and Banking Cloud Lead at Accenture, puts it: “Banks make decisions based on risk—and smart banks will consider the risk of moving to the cloud too slowly.” But if the market wasn’t convincing enough, there are myriad benefits to cloud computing for fintechs to consider.
Benefits of cloud computing
There’s a reason cloud computing has become a popular alternative to traditional data management. In fact, there are many. Take a look at a few of the most popular and prevalent benefits of cloud computing in fintech:
- Improved security measures — Security might have been a primary concern in implementing cloud computing in financial institutions, but the truth is, cloud infrastructures are extremely well-protected thanks to advances in data encryption and zero-trust security measures. As McKinsey puts it, “cloud can improve platform integrity through automated and embedded security processes and controls. Development, Security and Operations (DevSecOps), or the idea that security is a responsibility that can be actioned across an organization in step with the growth of its development and operations, is a primary example of a cloud-based feature that reduces technical risks through a consistent, cross-environmental technology stack.”
- Better data management — A major benefit of cloud computing is the ability to securely store large volumes of data, and make that data instantly accessible. According to Forbes, “That means there’s no need to wait for an IT specialist to clock in to access vital information, providing an employee has the correct credentials. This can be done from anywhere at any time and often automatically.”
- Lower costs — McKinsey reports cloud computing can “raise infrastructure cost efficiency by 29 percent; and reduce migrated applications’ downtime by ~57 percent, thus lowering costs associated with technical violations by 26 percent.”
- Innovative services — With the rise of contactless service in the wake of COVID-19, fintech and Banking-as-a-Service are not only valued by customers, they’ve come to be expected. Financial institutions with a cloud infrastructure are better prepared to innovate and iterate as financial services continue to become more personalized and digitized. McKinsey concludes, “cloud is spawning new formats such as open banking and banking-as-a-service, shaking up the age-old relationship between customers and financial service providers.”
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