The ascent of the cloud in fintech

For India, it’s a case of the right place, right time, right conditions for the enthusiastic adoption of cloud tech for financial entities

India is undergoing a renaissance in terms of technology use in the financial domain. It is not very long ago when we thought of “any branch banking” as a revolution in customer focus, convenience, and a marvel of technology. Today, India is leading the world with services such as UPI, making money transfers fast and economical, with India leading the world in real-time payments. As the regulatory landscape has become more open to innovation, we are seeing a huge surge of financial products and services that prioritise speed and scale. And there is no way to keep pace with this innovation without adopting technology such as cloud infrastructure.

With new digital technologies such as mobile money and 100% digital ‘neo’ banks gaining popularity among users, financial services, and Fintech as industries are being steered towards cloud infrastructure more and more, both as an adopter and as an enabler. From seamless self-service capabilities to better data management and a higher quotient for innovation – there are many reasons behind this choice. Fintechs that aim for non-linear and exponential growth—with cost and convenience as major dependencies—need to rely on the cloud.

Cloud as a Fintech game changer

Perhaps it would be disingenuous to call cloud ‘a game changer’ in the same context as fintech. The very term ‘fintech’ is borne of companies relying on the cloud and rapidly scalable technologies. Cloud is the game right now, and for very good reasons. The trigger point that has made cloud adoption a necessity in banking, for instance, is sheer scale. With more and more of the unbanked populace coming online, thanks to favourable policy and connectivity, traditional datacentres will simply not keep pace. Between 2010 and 2021, the banking subscriber base increased by 75%. Even if traditional tech infrastructure could be ramped up effectively, players who adopt cloud stand to see savings of between 10 and 20%. It’s a very competitive landscape, and incumbents cannot afford to stay lax.

The Industry 4.0 revolution banks on a scale with velocity – a capability that is found wanting in legacy, monolithic systems. Cloud, on the other hand, serves the purposes of modularity, availability, performance, scalability, shift from CAPEX to OPEX, and on-demand sizing for varying business requirements.

Challenges and solutions for legacy organisations

Traditional organizations, particularly, public sector banks are likely to find the alignment of their top management to be the key factor in adopting the cloud, or any new technology considering the industry being entrenched and bureaucratic. It is also likely that their monolithic tech architecture itself has come over an extended period of time, and possibly late. Overcoming this inertia will be a key challenge. The solution is already here: market dynamics. A liberal regulatory framework and fintech startups innovating at breakneck speeds will take customers away by providing more interesting products at lower transaction costs, and with quick turnaround time. It may take just a few tech-savvy people on the boards of these institutions to effect change. Legacy institutions must deal with legacy systems as well. The cloud is an industry 4.0 technology, and while it is possible to map monolithic systems to it, the resultant performance will not be satisfactory considering the expectations of today’s consumers who are used to seamless service delivery, from the likes of e-commerce players.

Another key challenge for which one that does not have easy or immediate answers is that of compliance. For traditional on-premise systems, compliance processes are well-understood and in place. However, the transition of these processes to cloud infrastructure may not be entirely clear just yet, as the paradigm is still comparatively new.

Banking on the cloud

Global banking organizations have already begun their migration to the cloud to avail its benefits and scale up operations in a disruptive marketplace. Research shows that 25% of the core activities of the largest global banks are already on the public cloud, and 40%-90% of the workload of global banks could be on the public cloud in the next ten years.

Notable strides have been made by banks such as Axis Bank Ltd – India’s third-largest private sector bank – when it comes to cloud adoption. The bank recently signed a multi-year digital transformation agreement with Amazon Web Services (AWS). Axis Bank will use AWS, the cloud computing arm of Amazon.com, to build new digital financial services to deliver better banking experiences.

Federal Bank, an enthusiastic supporter of the ‘neo’ bank phenomenon, is relying on a cloud-based CRM with partners Oracle and Infosys to further their “digital at the fore, human at the core” mantra. This will no doubt deliver dividends in the sort of customer insight that can be unearthed to inform future interactions, products, and services for their customer base. The cloud makes this possible for Federal Bank across all stakeholder departments and customer touchpoints, extracting more RoI from data that they already have.

The way forward for cloud adoption

The benefits for traditional financial institutions are clear: a cloud infrastructure allows faster computing, higher transaction velocity, reduced costs, higher availability, agility, and performance, among other things. Gartner predicts a 23.1% growth in cloud spending in 2021, over the past year. “Emerging technologies such as containerization, virtualization, and edge computing are becoming more mainstream and driving additional cloud spending. Simply put, the pandemic served as a multiplier for CIOs’ interest in the cloud,” they said, as recently as April this year.

For India’s vast populace, specifically, cloud technology shows promise in tapping the unbanked population. For existing customers, one could see automation, AI-based personalisation, and enhanced service levels. In recent times, service levels have taken a hit as volumes have grown. Banks adopting cloud tech have the opportunity to overcome this notion. The thought process of the government and regulators has been changing steadily since 1995, with a focus on efficiency. However, in a country as large as India, change is slow. Cloud technology has the potential to accelerate this change.

But the level of convenience offered by the cloud comes with caveats. Organizations must first ensure that the required amount of groundwork is in place before rushing to reap the benefits of a cloud architecture. Red flags should not be ignored, and due attention must be placed on data governance, resiliency, security, and compliance, among others, to realize the end goals. The latest Financial Stability Report from the RBI has specifically mentioned cybersecurity risks in the context of remote working as a result of the pandemic situation. A well-thought-out cloud strategy can enable sleepy organisations which have lost market share to nimbler competitors, reboot and excel.

The article has been written by Jaya Vaidhyanathan, CEO, BCT Digital