We realize or not; cloud computing is already an integral part of our daily digital life; be it through our email accounts, media streaming services or smartphone apps. In that sense, cloud computing is already a little aged kid in the block. It has been in mainstream since early 2000. However, due to various reasons financial services industry has remained a late adopter of cloud-based services. Recently a lot of interests are being shown by major players from the industry; and that is not without solid reasons. Let us have a quick look.
A brief primer on cloud computing
Simply speaking, cloud computing is providing computing services over internet. The term ‘cloud’ is just a metaphor for worldwide web; most possibly came from of the usage cloud icon to depict tele network in earlier telecom flow diagrams.
Computing services mean everything starting from servers, storage to software applications and analytical tools. Such cloud-based services are typically charged on usage basis, just like mobile bills or electricity bills. Users pay as they use.
In general, there are 3 broad categories of service models in cloud computing. They are,
- IaaS or Infrastructure as a Service – servers, storage, virtual computing facility etc.
- PaaS or Platform as a Service – a complete development and distribution environment, including hardware and software, for cloud-based applications.
- SaaS or Software as a Service – different applications like, office applications, accounting applications etc.
For deploying cloud-based service, there are 4 broad categories.
- Public cloud – infrastructure is owned, maintained and managed by the service providers. Users do not have any control other than using the service.
- Private cloud – infrastructure can be owned and maintained by the providers but users have active management control over it. It is more secure network compared to public cloud and more expensive too.
- Hybrid cloud – it is a mix of public and private cloud facilities offering better flexibility, control and affordable pricing.
- Community cloud – this type of cloud services are accessible only by member organizations. Such facilities can be operated and managed jointly by provider as well as member organizations.
What makes cloud computing a perfect choice for financial services industry?
Technology today is playing both the role of enabler as well as disrupter. Like many other sectors, financial services industry is also witnessing unprecedented changes. Consumer expectations are fast changing. Competition is becoming fierce. Regulatory and security compliance is becoming more stringent and a critical component for business success. And all these are making financial services companies more and more reliant on cutting edge and fail-proof information technology (IT) solutions for mission-critical operations like,
- Service delivery
- Customer expectation management
- Regulatory & security compliance
- Risk management
- Customer acquisition
Cloud-based services offer unique advantages over legacy solutions for all these requirements of any financial services companies.
- Cost efficiency – With cloud-based services, organizations do not require capital expenditure on physical infrastructure, like, hardware and software, for availing benefits of IT in businesses. Cloud services are available on “pay as you use” basis and can be customized for wide category of users, from small Fintech start-ups to large banks.
- Capacity elasticity – It removes the pressure of capacity planning as cloud computing is primarily on-demand and self-service. Excess capacity of IT resources can be made available within a very short period of time, even on a few minutes’ notice, if the situation demands. So, there is no need to maintain excess capacity unnecessarily when there is no demand.
- Better productivity – Cloud-based services also free up IT team from unnecessary maintenance and support responsibilities. So, they can be available for other pertinent and productive business goals.
- Cutting edge performance – All top of the line cloud service providers are active from geographically distributed wide network of datacenters. These facilities are maintained professionally; regularly updated and secured with latest software tools. So, user companies can expect cutting edge performance all the time.
- Reliable operational continuity – Cloud services make businesses resilient. Taking data backup, business continuity during disasters are lot easier and less expensive with cloud-based plans.
- Device agnostic – Most of the cloud-based services are deployable across wide range of devices removing limitations on endpoint users.
All the above advantages make cloud computing win-win proposition for businesses like banking, insurers, consumer credit firms, investment funds, financial intermediaries, brokerage firms and many others. Some of the typically offered cloud-based solutions for financial services companies are;
- Virtual computing
- Wealth management
- Risk management
Some serious drawbacks
Despite all these advantages, cloud computing is not free from drawbacks; mostly for a few structural limitations and shortcomings. And these can particularly matter of concern for financial services industry.
- Limited customization – Unlike legacy solutions, cloud computing offer less flexibility in terms of management and control. Such services achieve cost efficiency through the inherent economies of scale; and this very nature of cloud infrastructure ends up cutting down on service customization. This can be a major drawback for financial technology operations.
- Susceptible to hacking attacks – All the major cloud service providers maintain high level of hardware as well as software security measures. However, for cloud-based services large size of data from different users can reside on same datacenter. Theoretically, even a single instance of successful hacking attempt can get hold of large size of data.
Having said all these, for the majority of Fintech users, cloud services offer immense business potential. The service providers are getting matured every day and becoming more and more conversant in managing common risks attached to their cloud-based platforms. There will be challenges and their disruptive solutions too. We just need to be open to accepting new technologies.