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Leveling the playing field: Cloud as the enabler of limitless innovation in financial services

(Image credit: Image Credit: Rawpixel / Shutterstock)

In the past, when you thought of banking services and financial products, the words “fast,” “innovative” or “hassle-free” seldom sprung to mind. However, start-ups and incumbents alike are transforming how they deliver new experiences and engage with customers across the industry.

Today, businesses differentiate themselves by offering services that solve new or existing customer problems through technologies built in the cloud. Take chatbots as an example: a technology that was once clunky and impractical is now disrupting the customer service industry.

Cloud has democratised access to these kinds of new services by removing barriers to innovation such as high cost, long time-to-market, and security concerns. As a result, financial services are being disrupted by players that are rethinking and transforming the way the industry works and are enhancing the value they provide to their customers.

This in turn is raising customer expectations. Combined with the proliferation of mobiles and increasing regulatory requirements, changing consumer preferences are driving the need for transformation in the industry, creating pressure on the incumbent, established institutions to innovate, and opening opportunities for start-ups to carve out their niche. Each faces their own set of challenges: whether it’s cumbersome organisational structures, outdated business models or legacy IT infrastructure of traditional players; or the challenge of scaling quickly with a minimum of available capital for start-ups. No matter the size or age of the organisation, the cloud is leveling the playing field for all, helping traditional players to innovate and become agile, and helping start-ups to cost effectively access and scale the latest technologies with the click of a mouse.

Agile innovation is possible for any organisation

By using the cloud, both large and small organisations can meet their individual technology and business operations challenges head-on.

Incumbent banks need to adapt to an industry changed by regulation. For example, since January 2018, the Open Banking Standard (backed by the Payments Services Directive 2 in Europe) requires all banks in the UK to provide third parties access to account information and payments execution at the request and with the consent of their customers. This will erode the competitive advantage of established banks constituted by large amounts of highly valuable and proprietary customer data. At the same time, it can represent a strategic opportunity for banks to enhance customer service through a wider range of applications and services running on their core platform. Established players must balance their size with the need to react nimbly to market conditions and quickly address customer demands for faster, easier and better services.

For smaller players, small budgets, a lack of brand recognition and the need to build consumer trust can make breaking into financial services at scale difficult. For FinTech start-ups, it is imperative that they tap into the tools and technologies that enable them to effectively, efficiently and securely collect, store, and process customer data at scale and at a low cost.

The cloud helps both types of companies to make data-driven decisions on customer segmentation, pricing, product development, or cross-selling using the analytics, visualisations, storage, and management tools in the cloud. The cloud also provides tools companies need to develop applications faster and deliver new solutions to the market at the speed required by the modern consumer.

Allianz UK, for example, uses the cloud to accelerate their software development. To achieve its digital-first goal, the incumbent insurer has embarked on a fundamental shift to a DevOps and cloud based operating model with a high degree of automation.  The development team is able to deliver changes through an automated build, deploy and test pipeline in 30 minutes, scale their entire platform to another region within 3 hours and deliver a completely new microservice within an hour.

Another example from the start-up world is Starling Bank, the UK based mobile-only challenger bank. It uses AWS to deliver and scale infrastructure on demand while ensuring proper governance by automatically managing developer privileges for releases on AWS via Slack. It was also the first bank to be natively compliant with the Open Banking and the PSD2 requirements. Furthermore, it is using open APIs as a strategic opportunity through the Starling Marketplace, a launchpad for new payments and banking applications for their customers.

Scaling FinTechs securely and quickly in the cloud

In 2017, according to the EY FinTech Adoption Index, 33 per cent of digitally active consumers used services provided by a FinTech company. Recognising this opportunity, FinTech companies are using cloud services to create new ways to enrich customer experiences growing their market share and increasing stakeholder value as opposed to building and managing an on-premises infrastructure.

One of the most successful examples of a FinTech start-up using the cloud to tackle scalability and security in a highly regulated industry is Robinhood, a start-up offering no-fee securities trading. What makes the company unique is its $0 commission trades, its mobile trading app that provides an easy-to-use experience for customers, and the ability to open a brokerage account in less than four minutes.  As a result, the company has recorded steady customer growth and recently announced that it now has three million registered accounts, has executed $100 billion in transactions, and saved investors $1 billion in transaction fees – all with just 100 employees.

Using 18 distinct AWS services, some of which regulate the access to its services and data, help identify possible instances of fraud and money laundering and simplify compliance efforts in the process, a team of just two DevOps professionals built the entire system. Launching and scaling at such a speed – and with this robust level of security – would have been impossible without the cloud.

Meet complex compliance and regulatory requirements with ease

In the past, the financial industry’s regulatory landscape was a significant barrier for both incumbents and new start-ups. They all require the most robust security and compliance capabilities to meet regulatory obligations, protect themselves from threat actors and instil confidence in their stakeholders. Regulators themselves require secure, agile, and performant technology to support their own oversight activities and continue to ensure the stability of the financial system.

Operating comprehensive governance, risk, and compliance programmes can pose a significant challenge to financial institutions. They need to manage operational risk across business lines, global regulatory regimes, and large employee populations. By providing virtually unlimited computing and enabling the integration of disparate data sources, the cloud can mitigate many of these issues. Moreover, extensive security certifications and accreditations, data encryption, a state-of-the-art toolset of security services and strong physical security, all contribute to a more secure IT infrastructure, while automation decreases the chances of human error and saves time and capital.

The Dutch banking regulator, De Nederlandsche Bank (DNB), approved the use of AWS across all platforms of the Dutch financial system enabling the country’s financial organisation to take advantage of the benefits of cloud computing. This approval allowed Ohpen, a company that provides banks with a core banking platform for retail investment and savings accounts, to build all-in on the cloud. Ohpen can deploy new features in three months or less, compared to a year or more using traditional IT and their institutional customers estimate being able save up to 80 per cent in IT costs by using the Ohpen platform in the cloud.

Cloud is the new normal for the financial industry

For both incumbents and FinTechs, cloud is the “new normal”. The industry has evolved in the way it thinks about this technology and cloud is now ingrained in daily business operations. It is ushering in a new wave of innovative solutions from players of all sizes.

Today, opportunities in financial markets are no longer just available to large organisations with deep balance sheets that can afford capital-intensive projects; rather, the advent of cloud as the “new normal” in the industry has levelled the playing field for players of all sizes, enabling them to compete on the merit and value proposition of their products and services.

Stephan Schmidt-Tank, Senior Manager, Financial Services Business & Market Development, Amazon Web Services
Image Credit: Rawpixel / Shutterstock

Stephan Schmidt-Tank, Senior Manager, Financial Services Business & Market Development at Amazon Web Services.