FinTech in the cloud – are Industry Utilities the new reality?

​Industry utilities are fast becoming the new reality in the post financial crisis banking arena, with Know Your Client (KYC) and Collateral Management initiatives already in progress.  The main driver behind this utility model is improved operational efficiency and the associated cost savings, yet many large financial institutions have yet to break through the misconception that ‘inside the firewall’ is always safe and ‘cloud’ is always bad.

In an ever more challenging regulatory environment, cloud based utilities are the antidote;  tackling the challenges in solitude is costly and offers no competitive advantage.  So why the reluctance to embrace the cloud?

This seems to mainly boil down to an internal lack of clarity between different stakeholders within business and technology teams about exactly what is permitted.  Presented with a lack of certainty and no time to understand the internal policies, external laws and regulations, it seems far easier and safer to do what you have always done and grow your internal IT estate, despite the problems this will bring.

In many cases this decision can perpetuate the problem, with overburdened teams struggling to host, manage and support yet another system.

As the founder of a cloud based service, I am frequently asked for pricing ‘inside the firewall’ because a cloud solution isn’t viable.  When asked for the rationale behind this, it is rarely forth coming, despite pointing out that prices become artificially inflated if a bank insists on hosting the services internally.  So much of the value resulting from economies of scale and the confidence that an industry standard utility model can provide is eroded in this way.

Fortunately the wave of FinTech businesses challenging the status quo in banking are unconstrained by the same legacy thinking and through the threat of stealing away business share from the established banks they are forcing internal banks policies to be more open minded.  The regulators are doing their bit too, with the Financial Conduct Authority (FCA) in the UK recently publishing proposed ‘guidance for firms outsourcing to the cloud and other third-party IT services’.  In this document it is clear that the regulators are challenging banks to review the idea that cloud is ‘bad’ and instead adopt a set of principles to follow when determining the suitability of cloud based utility services on a case by case basis.

Hopefully this common sense approach will accelerate clearer thinking and support more efficient banking which can only be good for everyone.  Either way it is not a case of ‘if’ cloud based FinTech services become the new norm, but ‘when’.