Benefits of cloud computing in financial services
The standard of building legacy networks and proprietary infrastructure has given way to cloud solutions that enable entirely new business models. Newcomers in the fintech industry who get that digitally savvy consumers want slick products at their fingertips set the pace while some household name retail banks are just getting the memo.
Indeed, Forbes' 2021 Cloud 100 shows that early adopters of fintech cloud computing such as Stripe, Checkout.com, Airwallex, and HighRadius have rocketed their way to the top of the industry. As with every major innovation, as interest and adoption of cloud technology grows more prevalent, competitive advantage often depends on how quickly businesses can adopt it.
Ultimately, the advantages that are inherent to cloud computing all boil down to capacity: Cloud solutions can do more, with greater efficiency, and less expensively.
Cloud computing and financial services: fintech's first power couple
One could argue that the wild west opportunities presented by cloud tech – particularly in terms of regulation – have powered the newcomers' success that has finance's old guard shaking in its boots. While traditional finance is tightly regulated, technology innovations have opened up new avenues in financial services with substantially fewer restrictions and a lower cost of entry. An example: decentralized finance, or DeFi, the financial market powered by blockchain technology (which relies on the cloud), with no institutional go-between. Sure, DeFi has taken a beating in the past year, but many think that it will still be a game-changer – if admittedly massive issues like usability, security, and regulation are successfully sorted out.
Beyond just legislation, there's the staggering amount of data being generated and communicated online that no legacy infrastructure can wrangle. In its global data report, research firm Statista found that over 79 zettabytes (with each zettabyte representing a trillion gigabytes) of data were created in 2021; of that, only 10% was unique (read: original) data, with the other 90% being replicated data – data copied to back-ups and redundancy storage sites. Given that Statista's projections indicate that by 2025 we'll be producing more than double that (181 zettabytes), fintech operations require cloud-based solutions to handle the sheer volume of data that being in this industry requires.
With user demands, the amount of information being processed, and the complexity of that data all only increasing, data integration is now a necessity. Only the cloud provides a way to meet the computational needs of an industry that's continually growing while ensuring unmatched reliability and providing competitive advantages.
Starting to sound unbeatable? Well, there's a reason this article isn't titled "The cloud and other equally good options."
Where the bang meets the buck
Fintech can reach new heights when enhanced by cloud technology, but as our fintech advisors will tell you, implementation is never one-size-fits-all. We've worked with a large variety of financial services companies of different sizes, at different stages, and in many cases offering entirely distinct services. But no matter the context, it's really the combination of benefits of the cloud that make for an exponential improvement over older infrastructure solutions.
Cloud architecture eliminates the data storage management problems that plagued pre-cloud infrastructure. Cloud computing in banking in particular means faster and easier access to data for regulatory reporting, risk mitigation, analytics, deep learning, and discovering risk management anomalies. And who doesn't love discovering risk management anomalies?
Clearing out legacy system cobwebs is just the beginning. Cloud's pick-and-choose model means getting what you need when you need it while reducing overhead by not charging you for features you never use. Not only does it reduce costs, but every dollar spent can go further. (Example: When our client Sungage Financial implemented a Salesforce, it saw a 30% increase in effectiveness, bringing in more customers and raising additional revenue.)
Better data management
Cloud-based financial services can scale to meet variable data volumes, and you can rely on the cloud to eliminate the blind spots caused by data silos; the result is cleaner, contextualized data structures. Plus, on-site grids require dedicated computing resources from the banks that use them, while cloud resources show up when you need them and scoot when you don't.
Cloud-integrated fintechs can rapidly unleash new ideas and product iterations for faster rollout and testing. Simultaneous provisioning of environments while monitoring for compliance means improved adaptability at reduced risk. You can test for new solutions quickly and adjust easily as you find optimal ways forward.
Effective compliance tracking
Cloud solutions also make compliance way easier: They have the capacity to process the massive amounts of data that compliance tracking requires at lightning speed. We're talking collection, storing, processing, and reporting across multiple products and asset classes. Cloud data management is better suited to the flexibility and reliability needed to meet those standards as a business scales.
If the topic at hand is high-volume data processing in finance, you know we're going to mention open banking. That's when customers allow vetted third parties access to their financial data via an API to offer more customized financial services to that customer. That capability is fundamentally restructuring the world of banking, but it requires that a massive amount of financial data be processed in real-time to connect service providers with banks and other financial institutions.
With unparalleled processing power, cloud solutions deliver reliable data (especially external data) that can be analyzed to generate new and often vital insights. Cloud security allows for streamlined development at scale by utilizing automation, big data, and AI to create comprehensive risk assessment.
New opportunities for AI/ML integration
We're seeing an increase in banks relying on AI/ML to various ends (think personalization, anti-money laundering, and expanding access to the underbanked), courtesy of cost-effective, easy-to-use, and scalable cloud-based services.
These tools enhance customer interactions via chatbots, surveillance, ideation via unstructured data, and customized product offerings powered by cloud-based AI and machine learning. Combine this with other AI/ML-powered strategic assets like predictive modeling and the opportunities for further integration are limitless.
The future of financial services
Financial analyst firm IBSi projects massive market growth for financial cloud services, forecasting a CAGR of 24% between 2018 and 2028, when it will reach $52B in market size. 2021 alone saw the announcement of cloud-based financial services platforms from a couple of scrappy, underdog companies like Microsoft, IBM, and Goldman Sachs.
As the drama of so many tech-driven disruptions plays out across so many industries, we see a recurring debate when it comes to innovation: What technology will win out and direct the industry? This makes fintech in the cloud something of a rarity. Cloud computing is already the winner, its position already secured as the "new normal" in the financial sector. As big data gets even bigger, regulatory pressure intensifies, and competition sharpens, cloud computing will increasingly split financial services into two camps: those who get on board with it and succeed, and those who don't and flail.
Finally, with a consumer base increasingly more tech literate, more consumers move increasingly towards those digital financial services, incentivizing those traditional household name banks to make fintech solutions a part of their core offerings. As the saying goes: nothing like a little friendly competition.