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.