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”.
- Everbridge Software: "poor communications are your biggest security threat"
- Unicorn spotlight: Numbrs and Knotel
- Top 10 FinTech Leaders
- Read the latest issue of FinTech Magazine
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.
FIVE things fintechs must do to keep investors onboard
New investors flocked to the stock market during the COVID-19 pandemic. Thirty-eight percent of investors said they had never had a brokerage or similar account before opening one in 2020.
Low or no-fee trading options have helped accelerate the trend – nearly half of new investors said they accessed their account primarily through a mobile app. As FinTechs, how do we create the trust needed to keep new investors in the market and create a fruitful customer experience for them?
The financial industry does a disservice to individual investors if we merely offer tools that focus on making money quickly, an approach that usually backfires. Instead, the surge of interest presents an enormous opportunity for those who want to help more consumers use financial technology to educate them on responsible spending, saving, and investing in order to achieve financial wellness current fintech tools have welcomed individual investors in the door.
Now, it’s time to focus on education and improving their experience going forward. There are several ways those of us in fintech can step up to shape the future of retail investing so that it works better for everyone, starting with the following areas.
Equal access to financial wellness education
Financial health should be available to everyone — but today, not everyone has the educational resources to achieve it. One study shows that only 3.9% of students from low-income schools were required to take a personal finance class. What they aren’t learning in school or from family members, fintech companies can provide on their platforms.
The companies should move from solely offering financial services to a more responsible model of education, advice, and prescriptive choices to help consumers develop better habits and make wiser financial decisions. Not only can they empower consumers and bridge historical wealth divides, but they can also stimulate growth by opening up new consumer segments.
Just as we’ve come to expect that our fitness routines are tailored to our individual bodies, we’re also ready for finance tools that go beyond one-size-fits-all solutions. But only six percent of financial institutions say they’re using the kind of technology that allows them to deliver a deeply personalized experience. Fintech tools need to reflect that financial success looks different for each of us.
For one consumer, it may mean providing guidance on how to pay off student loans early; for another, it may mean prescriptive actions that enable them to stick to a budget for the first time; for a third, it could look like prioritizing environmental, social and governance (ESG) investments, so that her portfolio aligns with her political beliefs.
Now, we are seeing financial technology beginning to meet the demands of personalized finance in a substantial and meaningful way.
The rise of AI-Powered Advice
Big-picture advice and predictive guidance used to be a feature of high-end financial advisory firms — a perk only available to those who could afford it. But thanks to rapid advancements in data analytics and artificial intelligence (AI), that kind of holistic advice is now more accessible than ever. AI-driven robo-advisors can parse many different streams of financial information, delivering customized answers to key questions: Is it time to buy a home, or is it smarter to keep renting? Can I afford to take out another student loan?
Intelligent connectivity powered by AI can anticipate consumers’ needs and next steps, making proactive suggestions that guide them along the path to financial wellbeing. Fintech companies can also help consumers identify when their financial picture becomes too complex for a robo-advisor, and help them find a human financial advisor to meet their needs.
Focus on financial mental health
New investors are quickly finding that the market can be overwhelming. That’s not surprising, financial anxiety is common and studies show that financial stress can have an impact on mental health for some.
It’s not enough for fintech companies to give retail investors access; they also must provide the guidance and support that help consumers manage their financial well-being. Educational tools can ensure that consumers are well informed about their options.
Predictive analytics can anticipate consumers’ questions, serving them key information and insights before they ask. Features that emphasize a comprehensive notion of financial well-being, rather than short-term wins and losses, can also help ensure that consumers are keeping their eyes on the bigger picture.
Gamification for good
The surge of gamification apps has done an impressive job making investing as engaging as playing a video game or joining a social media platform.
Much of the current use of gamification emphasizes short-term thinking, but there’s also an opportunity to help consumers think more broadly about their overall financial picture. One example is peer benchmarking, a feature that enables help consumers to see how their financial habits compare to those of friends and fellow consumers.
Gamification can also be used to incentivize making smaller, smarter choices — for example, rewarding saving over making an impulse buy.
The future of fintech is about more than just broadening access to the markets. It’s about making sure more individuals have access to the tools that can help improve their financial well-being—in the ways that suit their own circumstances and needs. The potential to act within their own set of individual priorities, with their long-term financial wellness in mind is much more empowering to a consumer than simply relying on short-term, high-risk investments.