The Impact Of Cloud On Fintech In 2023

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For years, cloud computing and cloud-based applications have been transforming industries. The cloud is playing a critical role in assisting the financial services sector's transition to digitalization in the age of disruption.

Cloud-based services have become commonplace, and cloud computing is one of the top 2023 buzzwords. End-user spending on public cloud services is expected to reach a high of 20.4% in 2023, according to recent Gartner reports. This amounts to $494.7 billion, an increase from $410.9 billion in 2021. Across industries, the cloud has been used to reduce costs, increase efficiency, and improve security. Cloud computing stores, manages, and processes data over the internet using a remote server rather than an on-premise server. This allows for more secure storage as well as 24/7 uptime for banks and FinTechs looking to scale and improve service and product offerings in order to become more customer-centric.
The technology's broad range of benefits makes it particularly appealing to the banking and finance sectors, which have also been proactive in implementing cloud computing to help solve long-standing ...
... headaches and improve payment through online payment gateway while also enhancing the various banking products and services.

The convergence of cloud computing and FinTech has already permeated consumers' and businesses' daily lives. Digital payment tools make it simple for customers to complete online transactions. These applications have streamlined the payment process and enabled better transaction management by all parties involved.

Cloud computing solutions provide an agile infrastructure for those solutions to exist and evolve as FinTech continues to disrupt the financial sector and create more payments and banking solutions.

Cloud Considerations & Other Implications for FinTech
While cloud technology holds a lot of promise for the FinTech industry, it also has some drawbacks. For those in regulated industries, such as banks, the benefits must be balanced against the regulatory and security implications of cloud adoption. Some key issues are capturing the attention of global financial watchdogs, and how these key issues will play out remains to be seen in some cases.

Regulations
The cloud is flexible, efficient, and secure, but it is not without flaws. One issue that regulators are looking into is how to handle service continuity. If a mishap occurs, the transition from the cloud to owned databases must be seamless. Banks and other third-party providers (TPP) are also under scrutiny for how sensitive customer data is stored, used, and secured within cloud infrastructure.

Regulators are also watching to see how banks and TPPs handle the mixing of financial and non-financial data on servers shared by entities. The Office of the Comptroller of the Currency continues to monitor bank-TPP relationships, including cloud providers. This growing concern will only grow as more tech behemoths (Amazon, Google, etc.) offer financial services. They are far less regulated than banks because they are technology companies. They must, however, follow compliance standards and banking rules as financial service providers.

Security
Another high-priority factor as we see a massive shift from traditional IT infrastructure to the cloud is security. Customer data security and the protection of sensitive personal information are critical. Before outsourcing anything to cloud providers, the Banking Authority (BA) recommends that banks, best online payment gateway and financial institutions (FIs) address this issue head on.

Overcoming IT Inertia
While the cloud promises to eliminate many of the disadvantages and burdens of legacy IT systems, many organizations have been slow to adopt cloud computing due to cost and operational concerns. Slow adoption increases the risk of being outpaced by more agile, innovative competitors who have been quicker to adopt new technologies and realize the inherent business benefits. Financial players have been able to overcome several long-standing challenges by embracing the transformative power of cloud computing services, including:
Lack of IT and business alignment: IT initiatives are frequently separated from business strategy, and service mapping and service level agreements are not included.
Stagnant, unmovable IT models: Piecemeal IT initiatives such as software-defined networks, virtualization, and automation frequently fail to deliver on ROI.
Legacy IT dependency: Mainframes and waterfall development imply lengthy development cycles and ineffective cost management. Nonetheless, many core applications are centered on legacy IT infrastructure.
No single source of truth: Banks have long relied on disparate data sources for reporting, which can be time-consuming in large organizations. Reporting and analysis are complicated by the use of multiple tools, platforms, and workflows.
Risk reduction is a significant factor and value driver in the migration from mainframes to cloud infrastructure. When combined with increased computing power and efficiency, it's difficult to argue against moving to the cloud. A consistent and highly agile infrastructure can also reduce complexity, making risk management easier and less expensive.

Understanding Cloud Risks
While the benefits appear to outweigh the drawbacks, there are some key factors that organizations should consider when considering a cloud migration.
Regulatory Factor: As a heavily regulated industry, some banks are concerned that they will be unable to migrate to the cloud or will face significant fines.
Reality: The Financial Conduct Authority (FCA) and other regulators are providing cloud adoption guidance and support.
Security Factor: Financial institutions have more security incidents than other industries, causing a reluctance to work with TPPs, particularly when it comes to data.

Reality: Cloud encryption services can add extra layers of data encryption for sensitive applications that are not under the control of cloud service providers. Encryption services keep encryption certificates and are separate from the cloud application and the end user, with only cipher text stored in the cloud application when information is sent.
Data Storage Factor: Strict data storage regulations may limit the options for cloud providers, particularly those based in other countries.
Reality: Many cloud providers are constructing data centers in the region of their customers in order to align services with local regulatory and compliance requirements.

Outsourcing Factor: Cloud collaboration entails granting access to operational systems to TPPs and contractors hired by those TPPs, as well as other sensitive systems. This raises the stakes.

Reality: Cloud providers frequently provide on-demand availability and durability, as well as data control policies and change control procedures. This minimizes service disruption while maintaining version control across all changes and configurations. Data incidents are usually immediately reported to the cloud provider.

Migration Factor: According to reports, 75% of data teams find cloud migration difficult and problematic.
Reality: For most organizational transitions, large-scale adoption necessitates a comprehensive migration plan. Migration should adhere to a standard framework and include a thorough process of planning, analysis, design, construction, testing, and deployment. This can ensure a smooth transition.

Impact of Cloud on FinTech: Final Thoughts
Cloud computing has allowed banks and FinTechs to cut costs, evolve to better business models, and innovate more quickly. As the amount of data grows, the cloud will enable startups to process large amounts of data quickly and cheaply, allowing for scalability. The end result has been and will continue to be faster delivery of higher-quality goods and services.

More secure and customer-centric workflows will accelerate innovation now and in the future.