Altus: Don’t let the FUD cloud the cloud
Darren Briaris, Consultant at Altus, discusses whether Financial Services firms are letting Fear, Uncertainty and Doubt (FUD) impede their progress when it comes to using the public cloud. As Fintechs and Insurtechs plough ahead with cloud services, some FS firms are missing out on the huge benefits on offer such as reduced costs, ease of use and increased innovation. Darren believes that in order to maintain a competitive advantage, all FS firms should take the leap and incorporate the cloud into their IT strategy before it’s too late.
No-one has ever said that the traditional financial services companies are leading edge when it comes to IT, but the use of public cloud seems to be an area where some FS companies are still struggling to even climb onto the ledge, let alone fear falling off it.
It’s very easy to get criticism, as a technical consultant, evangelising about the use of public cloud. The level of FUD (Fear, Uncertainty and Doubt) can sometimes be deafening.
The reality is clear though - Fintech and Insurtech companies are already there. And the reasons? Cost, ease of use and the continued innovation that the big tech suppliers are offering (in their ever-expanding cloud product range) all allow the start-ups to innovate quickly, build cheaply and pivot when they need to.
The recent results of Microsoft, when they became a trillion-dollar company, were driven by a 73% surge in revenue from their Azure cloud. Amazon Web Services (AWS) revenue grew 41% in the quarter to $7.7 billion. These companies are only going to increase innovation and offerings with that kind of return, and the gap in capability between what you can do with your own data centre/IT and what you can get from public cloud is only going to grow wider.
The Fintech and Insurtech companies are already taking small chunks of big FS companies’ business (Starling with their current account is a great example) and you can be sure that if Amazon decides to target your market ( https://www.altus.co.uk/insights/amazons-insurance-opportunity-10-areas-amazon-can-disrupt ) in FS, then they are going to be taking full advantage of all the functions that AWS can offer them, and at the cheapest cost. This assumes, of course, that they haven't already - I can now buy my Kindle with 5 months of interest free credit at the touch of the 'Buy' button.
If, as a large FS company, you are only just starting to consider moving some development servers to run on 'Infrastructure as a Service' in the cloud, you're not on the slow boat, you've missed the boat entirely. As Werner Vogels, the CTO of AWS, said a couple of years ago “virtual servers in the cloud are already legacy”. Your competitor is going to be running their business with native cloud offerings such as ‘Code as a Service’ and ‘Function as a Service’ (FaaS) - no servers, no patching, no upgrades, no out of support software and no owned data centre costs. They will be paying just thousandths of a pence for each call to the code (did I mention that the first million calls are free AND the solution will scale automatically from 1 to 100 million users?). They will be taking advantage of the huge investment that Microsoft and Amazon have made in AI and Machine Learning, by simply calling functions (via API) to do voice, text and image recognition that before would have been out of reach of most companies.
And it’s not just start-ups – some of your competitors are starting to go public cloud native as well. At an AWS finance event late last year, David Knott, Chief Architect, talked through three solutions that HSBC have implemented, using native cloud offerings, to help transform the HSBC business. By embracing and taking full advantage of what these features can offer, they are evolving a legacy estate.
So are there perhaps some unique regulatory obstacles to adopting the public cloud? The FCA has tried to help with its FG16/5 Guidance to Outsourcing, which covers cloud usage among other topics. In that guidance the FCA states, “We see no fundamental reason why cloud services (including public cloud services) cannot be implemented, with appropriate consideration, in a manner that complies with our rules”.
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As always with regulation, however, the devil is in the detail (or lack of) when it comes to practicalities. How much effort do you need to expend to develop an ‘Exit plan’ from your public cloud supplier? Do you really need to build your IT solutions to the lowest common technical denominator so that you can ‘easily’ move to another cloud provider? The time and effort involved in these activities is arguably better spent building secure solutions using native public cloud components which will reduce risk in other areas – no servers to patch, no upgrades to operating systems, no hardware failures to manage. These are much bigger risk areas than the theoretical need to change cloud provider; Microsoft and Amazon are going to be around for quite a while yet.
It is also interesting the different perceptions that public cloud has compared to other SaaS solutions. Many companies will completely rule out using a cloud provider’s cheaper, serverless database – as it is shared via segregation across multiple customers – but will quite happily sign up to a Salesforce contract where, of course, their instance is sitting on a database that is shared and segregated.
Yes, these risks and others do need to be carefully considered (security, skills, cost, lock-in), but in the meantime, don't let the FUD cloud the future of your IT strategy.
Stripe backs Step - the digital bank for teens
The Series C round raised US$100m in capital from a number of backers, including Coatue, TikTok star Charli D’Amelio, actor Jared Leto, and Will Smith’s Dreamers VC, for the enterprise.
Step provides a free FDIC-insured bank account and Visa card to teenagers. The accounts are backed by Evolve Bank and there is no subscription charge for its usage. Users don’t pay for their accounts and there are also no overdraft fees.
The mobile banking app enables parents to set controls and limits on spending and encourage responsible finances. According to data released by the company, 88% of the platform’s users say this is their first bank account.
To date, Step has seen great success in the marketplace. The company has raised more than $175m from investors and now has 1.5m users.
Stripe, which was founded by Irish brothers Patrick and John Collison, previously led Step’s $22.5m Series A round in 2019.
Step's Series B funding round also brought in $50m, and has a distinctly celeb-tinged reputation with investors including Justin Timberlake and the pop duo The Chainsmokers.
Users get access to a free, FDIC-backed bank account, a spending card and P2P payments platform to send and receive money instantly.
CJ MacDonald, chief executive of Step, said the company is aiming to improve the financial futures of the next generation. “Step is the only banking platform that enables teens to start building a positive credit history before they turn 18 and does not charge fees of any kind.
He has previously spoken about the importance of financial literacy for young people. “Money is just one of those things where I think the more educated and equipped you are early, the better decisions you can make down the road,” he told . “And you can also prevent yourself from making costly mistakes. I mean, the average American doesn't have $400 in emergency savings and pays $350 a year in banking fees. If we can help this next generation just ultimately be smarter and more educated as it pertains to money, I think we'll all be better off.”
Kyle Doherty, managing director at General Catalyst and Step board member, explained, “Gen Z is flocking to modern financial solutions that can be easily embedded within their digital lives and Step has a unique model for how to do this right.”
The news follows on from Stripe’s recent announcement that it plans to acquire TaxJar. The fintech, which builds software for online businesses that automates the reporting and filing of sales taxes, will most likely be integrated with Stripe’s billing services.
Currently, No terms have been disclosed but the Boston start-up had raised more than $60m from investors including Insight Partners.
Stripe chief financial officer Dhivya Suryadevara said of the move, “With TaxJar, we will help millions of internet businesses running on Stripe with their sales tax and make it easier for them to sell internationally.”