Today, the conventional approach of constructing legacy networks and proprietary infrastructure has been replaced by cloud solutions, which enable novel business models. In the fintech sector, newcomers who understand the importance of providing user-friendly products to digitally savvy consumers are leading the way, while established retail banks are still catching up.
Forbes' 2022 Cloud 100 list demonstrates that early adopters of fintech cloud computing like Stripe have rapidly risen to the top of the industry. Like with any significant innovation, competitive advantage in the marketplace will often depend mainly on how quickly the company cares and adopts new technology.
Cloud computing in the Fintech brings superior benefits in terms of scalability, enhanced security, improved flexibility, and reduced operational costs. With cloud solutions, businesses can accomplish more with greater efficiency and at a lower cost.
Cloud computing and financial services: Powerful couple of fintech
It could be argued that the vast opportunities offered by cloud technology, particularly in terms of regulation, have fueled the success of fintech startups, leaving the old guard of finance apprehensive. While traditional finance is subject to strict regulations, technological innovations have opened up new avenues in financial services with significantly fewer restrictions and lower barriers to entry. Decentralized finance (DeFi), a financial market powered by blockchain technology that relies on the cloud, is a prime example of this trend. While DeFi has faced challenges in the past year, many believe that it has the potential to revolutionize the industry, provided significant issues such as usability, security, and regulation are adequately addressed.
Besides regulatory issues, the enormous volume of data generated and transmitted online is another challenge that traditional infrastructure cannot handle. According to research firm Statista's global data report, over 79 zettabytes (each zettabyte representing a trillion gigabytes) of data were generated in 2021, with only 10% being original data and the remaining 90% being replicated data copied to backup and redundancy storage sites. Statista's projections suggest that by 2025, the amount of data produced will more than double that (181 zettabytes), making cloud-based solutions essential for fintech operations to manage the vast amount of data that the industry requires.
As user expectations, data volumes, and complexity continue to rise, data integration has become an indispensable requirement. Cloud technology is the only solution capable of meeting the computational demands of a rapidly expanding industry like fintech, as it provides unparalleled reliability, and delivers a competitive edge.
8 benefits of cloud computing in fintech
Cloud technology has the ability to take fintech to new heights, but as experienced fintech professionals have pointed out, implementation is never a one-size-fits-all approach because each financial services company has its different scale, stages, services and conditions. However, regardless of the context, it is the combination of cloud benefits that results in a substantial improvement over traditional infrastructure solutions.
1. Flexibility
Cloud architecture eliminates the data storage management issues that hindered pre-cloud infrastructure. In banking, cloud computing offers faster and simpler access, risk mitigation, analytics, deep learning, and the identification of risk management anomalies.
2. Lower costs
Eliminating the cobwebs of legacy systems is only the first step. With the new approach of cloud computing, you can get the services you require when you require them, while also reducing overhead costs by not paying for features that you don't utilize, typically Pay-as-you-go for cloud services.
3. Better data management
Cloud offers scalable financial services that can accommodate fluctuating data volumes, effectively addressing the issue of creating data silos. This approach results in more streamlined and contextualized data structures. In contrast, on-site grids require banks to allocate dedicated computing resources, whereas cloud resources are readily available on-demand, allowing for efficient allocation and utilization.
4. DevOps enhancement
By integrating with the cloud, fintech companies can swiftly introduce fresh ideas and product iterations for rapid testing and deployment. This approach enables seamless provisioning of environments and monitoring for compliance, resulting in enhanced adaptability with lower risk. With quick testing of new solutions, it becomes easier to adjust and find the most efficient path forward.
5. Tracking compliance efficiently
Cloud-based solutions simplify compliance tracking by providing high-speed data processing capabilities to handle large volumes of data. This includes collecting, storing, processing, and reporting data across various products and asset classes. The flexibility and reliability of cloud data management make it a better fit for meeting compliance standards as a fintech business grows and expands.
6. Open banking
When it comes to high-volume data processing in finance, open banking is a topic that cannot be ignored. It involves customers granting authorized third parties access to their financial data through APIs, enabling the provision of more personalized financial services to the customer. This capability is transforming the banking landscape at its core, but it demands real-time processing of vast amounts of financial data to connect service providers with banks and other financial institutions.
7. Risk management
Cloud solutions offer unmatched processing power, providing dependable data (particularly external data) that can be analyzed to generate fresh and often crucial insights. Cloud security enables efficient development at scale by leveraging automation, Big Data, and AI to conduct comprehensive risk assessments.
8. New prospects for integration of AI/ML
Banks are increasingly adopting AI/ML solutions for various purposes such as personalization, anti-money laundering, and reaching out to the underbanked. Cloud-based services provide cost-effective, user-friendly, and scalable options for these institutions.
By leveraging cloud-based AI and machine learning, banks can improve customer interactions through chatbots, surveillance, and ideation based on unstructured data. Additionally, they can offer customized financial product offerings. These AI/ML-powered strategic assets, combined with predictive modeling, will create endless opportunities for further integration.
The future of financial services
The Global Finance Cloud Market size is expected to reach $68.8 billion by 2028, rising at a market growth of 20.5% CAGR during the forecast period.
In the midst of the many technology-driven disruptions happening across industries, there is an ongoing debate about which technology will emerge as the industry leader. As Big Data continues to expand, regulatory scrutiny increases, and competition intensifies, cloud computing will increasingly divide financial services into two groups: 1 is those who embrace it and thrive, 2 is those who don't and struggle.
As consumers become more tech-savvy, they are increasingly gravitating towards digital financial services. This trend is incentivizing traditional banks to incorporate fintech solutions into their core offerings, as they face competition from new players in the market.