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Fintech and Cloud – Why are large players hesitant?

Fintech and Cloud – Why are large players hesitant?

Fintech solutions being developed and hosted on Cloud are gaining popularity, as cloud environments offer many benefits in terms of cost (Manpower, Premise, Software, Hardware), security, scalability, availability and also better flexibility. That is not all, Cloud also enables partnerships / integration between ecosystem players (API driven Plug & Play Interfaces), thereby accelerating Go To Market & Growth.

Another flexibility offered by cloud is the ability to offer an “as a service” model, ability to scale based on volumes & need. And all this with a pay as you use model (Opex), implies that the upfront costs (capex) are minimal.

New age Fintech players have been at the forefront to use cloud based capabilities to their advantage, as flexibility of cloud complements well with their superior product design & development skills. This has helped them compete with established and larger players, as with cloud they can now do so at a lower cost, operational agility, scalability, availability and flexibility.

But then, the obvious question is, why can’t the larger and more established players (Financial Services / Banks / Insurance Cos) also use the capability of cloud to their advantage? Is something stopping them? Do they have some challenges & limitations?

Well to begin with most big players know and acknowledge the relevance / importance of cloud, and have started using the same. Another good part is, there is good regulatory backing for cloud technology. So, there is nothing stopping them. But, they do face some challenges & limitations w.r.t cloud adoption, which we discuss as below.

a. Legacy Systems – Many large / old players are stuck with legacy systems (especially their core). These systems are not cloud native and not very flexible, in terms of their configurability and integration. Though a containerised approach does help port some of their capabilities, allowing plug and play with other interfaces and partners. But, this is just a short to mid term approach, and many large players are working on redefining their core solutions, which are cloud native. This will also involve larger digital transformation exercise / strategy, and may play out over a few years. 3F: Future Fintech Framework helps with an approach for digital transformation.

b. Cloud Misconfiguration – Cloud being a complex environment (and somewhat open too), any error, glitches or gaps during deployment of solutions on cloud, can leave organizations exposed to external risks. These can be in form of Data breaches / exposure, wrong access configuration / settings or other vulnerabilities. So, while the cloud provider does offer enhanced security, there can be breaches because of compromise or error, at user firms end. This can be addressed through better awareness, development and release policies.

c. Comfort – Well on one side cloud does offer enhanced security, scalability & uptime / availability. Most large players are also slightly uncomfortable, as it involves shifting all your critical solutions to someone else’s environment. This is more about psychological feeling of control, and will get addressed over a period with better acceptance / adoption of cloud.

d. Single point of failure – It is important to note that a cloud environment can prove to be a single point of failure. So, a larger breach can have a bigger impact. Am sure over a period this risk can be mitigated through some failover mechanisms.

e. Multi Cloud Options – With multiple clouds existing, many established players are gradually watching for the maturity and experience across each. I also feel that multiple cloud environments / providers can also make issues complicated w.r.t partner / integration. But, this will get addressed, as we will have a set of large key cloud players, and as people gain familiarity and comfort using them. Today there are also tools to manage multi cloud configurations.

f. Training of Staff – Cloud environment needs some specialized skills and capabilities, on which employees need to train and gain familiarity. Many existing players are facing some issues here. But, this is getting addressed with effort from players and cloud providers.

g. Cloud Expenses – Many large players move first to hybrid cloud environment, before moving completely to the cloud. This implies they run services on their own data centre as well as on cloud, which increases the complexity and costs for a few years of transition (Ideally 2 to 4 yrs). So, this becomes a challenge.

It is very clear that though there are challenges, gradually all players will move to address them and gain comfort with the cloud. We can also infer that this will likely happen over the next 5 to 10 years, and not very instantly. Till such time many large players will not have much flexibility and may possibly partner with existing fintech’s.

Look forward to hearing your thoughts and Happy reading.

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Comments: (3)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 07 January, 2022, 12:322 likes 2 likes

h) None of the above?

Per ZDNET, Wells Fargo, one of the biggest of biggies in the financial services industry in the world, decided against Public Cloud due to its exorbitant Egress Charges. I don't see this reason covered in this post.

Disclosure: My company provides marketing solutions for HPE Greenlake, the solution that Wells Fargo eventually signed up for.

Kartik Swaminathan
Kartik Swaminathan - Fintastech (Fintech Consulting & Coaching) - Navi Mumbai, India 11 February, 2022, 11:00Be the first to give this comment the thumbs up 0 likes

This is good insight. However, I feel this Egress charges will not remain in long term, as market forces will be at play to take care of these too. Also, something like ATM usage charges where few initial ATM trxns are free per month, may become the order.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 11 February, 2022, 14:56Be the first to give this comment the thumbs up 0 likes

I've been selling IT to Banks and FIs for decades. 20 years ago, if I'd told somebody that an article on banking technology in 2022 will open with "legacy systems", people would have told me to get my head examined.

But it's not your fault. It just shows how hard it is to make predictions. 

The way I see it, the cloud infra market is headed for AWS-Azure duopoly, so, I see Egress Charges skyrocketing in future. Which is the exact opposite of your prediction.

Your post is about what's holding back at present. I submit that it should restrict itself to present facts, and not indulge in crystalball gazing, which, as we've seen, can lead to aspersions being cast on the sanity of the predition maker. 

ATM fees is not a suitable analogy in this context. For one, your post is B2B where pricing is unregulated whereas ATM charge is B2C where pricing is regulated in many countries. For another, in advanced markets, there's no concept of charging for ATM only beyond a few initial free transactions.

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