The financial service sector is adapting its business model as a result of a number of expected trends. The increase in stricter regulation and the continuous movement towards more transparency in the marketplace has seen institutions focusing ever more on regulatory capital requirements. The scale and scope of compliance requirements have entailed considerable investment in headcount, processes and technology. Cost of capital has increased significantly, aggravating the data management challenge institutions currently face. This is exaggerated by the pressure to divest themselves of ‘risky’ and capital-intensive businesses, and having to focus more on core consumers, hampering returns.[1]  Furthermore, a new era of consumerism, in which consumers have expectations on how they wish to interact, e.g., via mobile banking, has disrupted the traditional business model, forcing firms to find cost-effective solutions to consumer and operational demands.

How have they dealt with this?

This transition has prompted Financial Institutions to acquire FinTech software and services for their daily operations, helping firms with compliance requirements and the development of faster and cheaper services, while simultaneously increasing their presence in customers’ daily lives. The Cloud has been a major force behind this capability, by allowing start-ups to provide Software as a Service (SaaS). In basic terms, the cloud is what we referred to as Internet, and now, cloud computing means using software and services over the Internet[2].

Software as a Service (SaaS)

SaaS is the best-known branch of cloud computing and has become an increasingly popular delivery model for Financial Institutions. Under SaaS, applications are hosted and managed in a service provider’s datacenter, paid for on a subscription basis reflecting usage, and accessed via a browser over an internet connection.[3]

The cost advantage of moving away from the high capital expense of installation, maintenance and upgrading of internal IT infrastructures to the comparatively low operation cost of a SaaS subscription is especially attractive for businesses. SaaS offers ease of access, automatic updates at no extra cost, and the scalability, all at a cost much lower than traditional in-house IT systems.[4]  As a business grows, all that is needed is an adjustment to the monthly subscription rather than investing in additional in-house servers’ capacity or software license, and in many cases SaaS providers also offer customisation for each company to meet its individual needs[5].

What is holding back adaptation?

Investment banks, rightly so, have traditionally been very protective of sensitive data leaving the internal infrastructure of the bank. Confidence and security assurance needs to grow in the cloud-based services before we will see mass adaptation. However, facing regulatory pressures, banks may need to head to the cloud quicker than they may have envisaged and faster than they might be willing to their customers.

What the future holds

The use of software as a service has overcome the initial objections and risks surrounding the concept of entrusting sensitive company data and processes to third party providers. The need to survive a lagging economy and the trends discussed above have resulted in concerns over information security being overshadowed by cost reduction – an item at the top of the corporate priority list. Focus is on making business processes efficient by seeking solutions with rapid and measurable positive results on operating costs and performance. SaaS models across the world are helping Financial Institutions achieve this goal with minimal need for IT resources, guaranteeing secure and always-available access to the applications.[6]

[1] http://www.resilience.willis.com/articles/2015/04/28/top-6-trends-are-redefining-financial-institutions/

[2] http://www.interoute.com/what-saas

[3] http://www.zdnet.com/article/saas-pros-cons-and-leading-vendors/

[4] http://www.computerworld.com/article/2565349/it-management/the-pros-and-cons-of-software-as-a-service.html

[5] https://www.salesforce.com/ca/saas/

[6] https://www.techopedia.com/2/29475/trends/the-impact-of-mobile-banking