The future of FinTech is ever evolving. Thanks to cloud, FinTech has taken some impressive strides forward from agile and adaptive banking to the power of artificial intelligence and everything in between. Coupled with the cloud, the FinTech industry is aiding the development of a range of technological solutions in several areas, such as financial management, online and mobile payments, and big data. Here are a few numbers that will help drive home the point:
- According to a report by Information Age, around 42% of financial services firms need to adopt cloud to provide data security.
- According to a report by Deloitte, 78% of financial institutions have realized cost savings through the adoption of cloud technology.
- Next-gen cloud-based core banking systems in BFSI have reduced the time-to-market for new digital banking products by up to 50%, as reported by McKinsey and Co.
None of this would have been possible without the adoption of cloud services. This blog will explore how cloud is revolutionizing the delivery and experience of financial services, and the various benefits that are unlocked along the way.
The Evolution of FinTech
The Fintech revolution finds its roots in the 1970s, coinciding with the rise of computer and electronic systems. Since then, it has undergone rapid transformations. In the late 1990s and early 2000s, pioneers like E-Trade and Wells Fargo introduced online stock trading and electronic banking, laying the foundation for today's financial technology. Between 2005 and 2010, the surge in smartphone usage further fueled Fintech, giving rise to peer-to-peer lending platforms and mobile payment innovations, like Square. Cloud services played a vital role in handling the data generated by these mobile transactions.
From 2010 to 2015, following the 2008 financial crisis, Fintech expanded into crowdfunding and cryptocurrencies like Bitcoin. Kickstarter enabled crowdfunding, while blockchain, supported by distributed cloud-based networks, ensured secure and transparent transaction records.
The Role of Cloud in FinTech
When it comes to financial technology, especially FinTech applications, they always need to be available (on) and accessible to their users. On top of that, these applications must comply with regulatory, compliance, and governance requirements. They should also have robust data security systems in place, maintaining proper authorization and authentication systems to thwart the most advanced cyberattacks and mal practices.
Managing all these scenarios at one go, 24x7 while also ensuring uninterrupted availability and accessibility is overwhelming. A challenge, which cannot be overcome unless FinTech companies consolidate their operations end-to-end on cloud. FinTech firms are swiftly adopting cloud managed services to deliver efficient solutions to both businesses and consumers. According to Statista, cloud banking has made a substantial contribution to innovative technology advancements in FinTech. This includes areas like:
- Online and mobile payments
- Big data applications
- Alternative finance, and
- Financial management.
Cloud financial services are transforming the financial services sector in the following ways:
- Modernizes And Migrates Mainframe Applications: Legacy systems or mainframes that are built using outdated programming languages like COBOL. These older systems can pose problems such as a lack of skilled personnel to support them and high operational and maintenance costs. FinTech companies can leverage cloud services to not only transfer and host data from their mainframes, but also translate the code into modern programming languages like Java, Python, C#, etc. This ensures that the data can be easily managed, maintained, and scaled on the cloud infrastructure. FinTech companies can also choose to modernize their older monolithic applications by breaking these complex systems into smaller, more manageable parts called microservices. This ensures speed to market and agility.
- Enables Security with Hybrid Cloud: For banks and financial institutions, datacenter breaches and the compromise of sensitive information is their worst nightmare. However, the FinTech cloud offers a solution through datacenter authentication, which eliminates the possibility of attacks. FinTech companies can also use hybrid cloud services to ensure data governance, in-country compliance, and security. Popular cloud providers like AWS and Microsoft Azure offer hybrid cloud computing servers that ensure end-to-end data protection. These servers guarantee confidentiality, integrity, and the 24x7 availability of the most sensitive data. In terms of compliance with industry regulations, cloud banking is again a winner because it uses like next-gen firewalls, intrusion detection and prevention technologies, endpoint security, data encryption, audits, penetration testing, tokenization, and VPNs.
- Increases Integration Capabilities: Cloud platforms provide flexibility. Fintech companies don't need to completely overhaul their existing technology stacks. They can choose cloud-native solutions to create new features that attract and retain customers. Cloud-native applications can streamline business processes and improve team efficiency. Fintech companies can use microservices architecture and APIs to quickly develop and integrate new digital services or build upon their existing platforms and establish unified communication between diverse landscapes across regions and operational hubs. APIs are essential for connecting different systems and providing customers with a seamless experience across various channels, such as web, mobile, and kiosks.
Top Technology Trends in FinTech
- Agile and Adaptive Banking
Agile and adaptive banking is a customer-centric approach that combines agile methodologies and digital technologies. It allows banks to swiftly respond to evolving customer needs and market dynamics. The Cloud plays a pivotal role in streamlining operations and accelerating the launch of innovative products. The Agile banking academic study by the Journal of Business Economics indicates that about 77% of banks and 44% of FinTech firms intend to improve their financial services by adopting Agile methods.
By leveraging cloud resources, banks enhance their digital presence, offering online banking, mobile payments, and personalized customer services. Cloud computing ensures scalability, flexibility, and cost-efficiency in deploying these digital solutions.
At the heart of this technical transformation are DevOps practices and containerization technologies. DevOps bridges the gap between development and operations teams, fostering collaboration and automating the deployment process. With DevOps, banks can accelerate the development and release of new financial products and services. Containerization tools like Docker and Kubernetes enable banks to encapsulate applications and their dependencies into portable containers. These containers can be effortlessly moved between development, testing, production environments, ensuring that banks can quickly scale their digital offerings to meet growing customer demands.
- Open Banking
Open banking is an established yet recently recognized phenomenon. It presents a transformative opportunity for the financial industry because it fosters digital experiences, expedites onboarding, and widens access to alternative asset markets. According to Polaris Market Research, the revenue forecast for the open banking market is expected to hit US$128.12 Billion by 2030. Open banking is crucial in facilitating
- API management infrastructure for streamlined data sharing.
- API governance architecture enhancing compliance and security.
- Efficient data policies improving financial service delivery.
In this context, open banking facilitates data-sharing practices, elevating customer experiences, primarily between central banks and peripheral fintech and online banking service providers. Open banking frameworks are behind the explosive rise of mobile app-based transactions, money transfers that facilitate connection of a seamless digital interface with personal bank accounts, ensuring quick seamless actions securely. Comprehensive risk management strategies, supported by cloud security measures, ensure these technological advancements also comply with regulatory standards.
- Artificial Intelligence and Machine Learning
AI and ML are revolutionizing the FinTech industry with their remarkable growth. In banking, AI chatbots alone save around 826 million work hours. Global searches for "AI in banking" have surged by 104%. And, according to Research and Markets, global artificial Intelligence in the FinTech Market is projected to become a $41.16 Billion Market by 2030. These technologies offer more than automation; they bring:
- Enhanced Productivity: AI and ML swiftly process vast financial data, boosting operational efficiency.
- Personalized Services: They analyze clients' personal information, refining services across various sectors, including finance, credit cards, mobile, cloud services, and money management.
- Innovative Products: These technologies empower financial institutions to introduce new products and explore fresh business models.
In a data-driven era, AI and ML excel at harnessing information compared to traditional methods. This is what makes these financial services trends so valuable in 2023 and the years to come. Generative AI, a term needing no further definition, has further elevated the capabilities of the FinTech industry. There are several exciting applications for AI in FinTech:
- Fraud Detection: It enhances security by analyzing extensive financial data, spotting anomalies, and improving over time through historical data analysis.
- Legacy System Security: Generative AI can help modernize large financial systems relying on outdated tech.
- Regulatory Compliance: It ensures companies meet regulations by pinpointing potential violations, essential for avoiding fines and maintaining trust.
- Market Insights: Trained on historical financial data, it predicts market behavior, identifies patterns, and analyzes trends, assisting in future predictions.
- Hyper-automated banking with Robotic Process Automation (RPA)
The RPA and hyper-automation market in banking is rapidly growing, projected to reach $4.9 billion by 2029 with a 27% annual growth rate from 2022 to 2029. This accelerated growth is attributed to their potential to enhance financial services.
Similar to AI, ML, and open banking, the financial sector has long embraced hyper-automation, now employed to expedite transactions and reduce operational costs while minimizing human errors. In the front office, it can streamline customer interactions, enhancing services like personalized wealth management. In the back office, it excels in automating processes related to compliance, document verification, and data analysis, leading to reduced errors and cost-efficiency.
RPA and hyper-automation significantly reduce staff workload, enabling them to focus on core financial tasks. They also enhance compliance by minimizing the risk of human errors and data breaches, a view held by 73% of respondents according to Accenture.
Furthermore, a report by Deloitte reveals that about 80% of banking customers have interacted with at least one RPA tool in the past year. As commercial banking advances with more sophisticated hyper-automation systems, like IBM Watson, the sector can unlock greater operational efficiencies, boost customer experiences, and diversify their service portfolio. This empowers banks to create new revenue streams and make informed decisions by harnessing insights from AI, ML, and RPA. The future looks promising for financial institutions as hyper-automation, coupled with RPA, AI, and ML, opens new horizons.
- Acceleration of Biometric Adoption
In 2021, Federal Reserve Chairman Jerome Powell noted that cyberattacks pose the greatest risk to the global financial system, as per CNN Business. Fintech companies are responding with enhanced security measures. Password-less authentication, favored by about 90% of security leaders, offers high-level security, per a survey commissioned by HYPR, a company that offers a multi-factor authentication platform. Biometrics, like fingerprint and facial recognition have been in use since 2015, with voiceprint technology following closely. Today's voiceprint tech analyzes 1,000 micro-characteristics in a user's voice for identity verification. The First National Bank of Omaha adopted Pindrop's voiceprint platform, saving 2.5 million customer service call minutes in a year and reducing fraudulent account takeovers by 50%.
Advanced authentication methods extend beyond login to detect fraud during a user's session. Behavioral biometrics assesses physical and cognitive behavior to identify fraud, leveraging machine learning to analyze mouse activity, touchscreen behavior, and keystrokes. This technology distinguishes legitimate actions from criminal behavior, even from new users.
- Green Finance
The FinTech sector, like other industries, is embracing green finance and sustainability. FinTech companies are actively investing in sustainable solutions, and according to PwC’s State of Climate Tech 2022 report, more than one quarter of all venture capital funding is going to climate technology, with increased focus on technologies that have the most potential to cut emissions. These investments leverage AI/ML, big data, and blockchain to develop sustainable financial products like green bonds, eco-friendly cryptocurrencies, and carbon-offsetting solutions. As part of this growing trend, FinTech firms serve as intermediaries between businesses and users, promoting sustainable finance solutions and a carbon-neutral future.
FinTech's adoption of green finance is accelerated by cloud banking, providing an agile and scalable infrastructure for developing and deploying sustainable financial solutions. Cloud financial services enable efficient data management and analysis, which are vital for tracking and promoting environmentally responsible investments. This, in turn, helps FinTech companies align their services with Environmental, Social, and Corporate Governance (ESG) principles. Furthermore, cloud services support the development of eco-friendly cryptocurrencies, digital wallets, and carbon-offsetting solutions, which are central to sustainable or green finance.
Challenges, Considerations, and the Cloud
Challenges and Risks:
Embracing the latest financial technologies presents both opportunities and challenges. The speed of technological evolution can be overwhelming, and not keeping up means losing competitiveness. Rapidly evolving trends like agile and adaptive banking, AI and machine learning, and open banking require continuous learning and adaptation, posing a challenge to financial institutions that are slower to innovate.
Furthermore, implementing cutting-edge technologies carries inherent risks. Cybersecurity remains a top concern, especially with the acceleration of biometric adoption and open banking. The complex and interconnected nature of these systems creates vulnerabilities that malicious attackers may exploit.
Data Security, Compliance, and Scalability:
Data security and compliance are paramount. Compliance with central bank regulations and industry-specific norms is a critical aspect of the FinTech industry. Central banks often set stringent requirements for financial institutions to ensure stability and security of the large volume of transactions at play. This includes guidelines related to data management, customer privacy, and transaction security. However, regulatory requirements can vary widely between regions, and financial institutions must navigate a complex web of regulations while ensuring the security and privacy of customer data. Getting lost in this web of regulations is not an option if FinTech organizations want to stay compliant with the latest data guidelines. What they require is a repository of country-specific guidelines, along with data sovereignty and data localization capabilities enabled on cloud to ensure compliance with local laws and protect sensitive information.
Scalability is essential to accommodate growing data volumes and transactional demands, making it crucial to have robust cloud infrastructure in place. Cloud services offer scalability that adapts to the evolving needs of FinTech applications.
The Role of Cloud Services:
Cloud managed services provides a robust foundation for tackling these challenges and considerations. It offers the flexibility to scale infrastructure and services as needed. It also enhances data security by providing advanced protection measures, including encryption, intrusion detection, and next-gen firewalls. Cloud banking aids in meeting regulatory requirements and ensure compliance by offering robust auditing and monitoring tools.
In the face of evolving financial technology trends, the FinTech cloud empowers financial institutions to stay agile, secure, and compliant while embracing cutting-edge solutions, promoting customer trust, and ensuring a seamless financial experience.
In today's rapidly changing financial landscape, embracing FinTech innovations and cloud managed services is not merely an option; it's a necessity. The synergy between these technological forces has reshaped the industry, offering transformative opportunities to meet evolving customer demands and regulatory challenges.
At Cloud4C, we specialize in offering cutting-edge hybrid cloud solutions tailored to the banking and financial services sector. Our extensive experience in banking cloud services has positioned us as industry leaders. We also offer Banking in a Box: customized, end-to-end cloud banking managed services, architected on private, public, hybrid or multi-cloud, which offers agility, scalability, and in turn, faster innovation, while simultaneously protecting your applications and infrastructure. To understand how and explore these offerings better, get in touch with us today!
|FinTech & Cloud|
|Cloud tech transforms FinTech, powering innovations in online payments and big data. Essential for data security and compliance.|
|Evolution of FinTech|
|Began in the 1970s with computer systems. 2005-2010: Surge in mobile payments and peer-to-peer lending. - 2010-2015: Growth of crowdfunding and cryptocurrencies.|
|Role of Cloud in FinTech|
|Crucial for efficient operations and data security. Enables mainframe modernization and hybrid cloud security. Enhances integration capabilities.|
|Top Tech Trends in FinTech|
|Agile banking leverages cloud for customer services.|
|Open banking streamlines data sharing and improves services.|
|AI & ML boost productivity, personalize services, and drive innovation.|
|Hyper-automation like RPA automates operations.|
|Biometrics improve security.|
|Green finance advances via sustainable products and cloud support.|
|Challenges and the Cloud|
|Rapid tech evolution requires learning and poses cyber risks.|
|Data security, compliance, and scalability are vital.|
|Role of Cloud Services|
|Cloud managed services offer flexibility and advanced security. Empowers institutions to stay agile, secure, and compliant.|