The Aligned Stars Of Fintech And Cloud
With the world's second-largest internet user base, India has been fairly quick in its adoption of financial technology (fintech). In fact, the country ranks third in the list of the largest fintech ecosystem, valued at USD 31 million. This segment is further expected to grow at a CAGR of 22 per cent over the next five years, according to a report by BLinC Insights. The major drivers of this fintech revolution in the country are lower rates & fees, ease of setting up an account & 24/7 access, innovative and customised products & services, and compatibility with businesses & infrastructure.
The sector can be broadly divided into four categories, including Banking, Lending, Insurance, and Wealth Management. And the opportunities for fintechs to grow in all these categories are aplenty as internet users continue to grow. Moreover, India will add 140 million middle-income and 20 million high-income households by 2030. When these statistics are coupled with government initiatives like Digital India, India Stack (Open API Platforms), Startup-India, and Aadhaar, it's easy to say that the only way is up for fintech in the coming decade.
But fintech's stars rely heavily on the technology available today and its growth in the coming times. And much of this weight is being carried by cloud technology which is enabling financial organisations and fintechs to deliver their services with speed, and access to data 24/7 for 365 days, every year.
"Fintech is completely functioning as a 'Cloud First' sector, thanks to the evolution and maturity of cloud technologies with a fascinating track record and validation of delivering scale, availability, reliability, agility, security, and favourable economics", says Souparno Bagchi, COO, TrueBalance.
Cloud computing also allows fintech teams in the product upgrading process as they assist in audits and quality. The technology can even help fintechs to expand into newer markets and extend their reach.
"Without cloud computing, fintech companies would be forced to invest in their own physical infrastructure, which is both expensive and time-consuming. Additionally, they would need to hire staff to manage this infrastructure, further adding to their costs. By using cloud services, fintech companies can avoid these sunk costs and focus on what they do best: providing innovative financial services to their customers", explains Manoj Dhanda, Founder and CTO, Microhost Cloud.
The collaboration between cloud and fintech is quite organic, as the former can easily provide the infrastructure and bandwidth to help the fintechs scale. At the same time, the latter can entirely be focused on building creative, innovative products and services for the customers. Cloud is, after all, also a great platform to test and deploy the latest products and services.
Challenges Aplenty
While the symbiotic relationship between the two can help both thrive, there are also certain challenges that test it.
Fintechs are under constant pressure to deploy functions to provide renewed cutting-edge experiences to their customers, and it is not easy to consistently deliver this while managing security. Vulnerabilities can crop up from anywhere, including app development, development process, and even third-party integration.
According to IBM's 2021 Cost of a Data Breach Report, the average cost of a data breach for financial services is USD 5.72 million. This stat is second only to the healthcare industry. And when you add to this the sensitive nature of data handled by fintechs, the matter of security becomes even more serious.
From being a disruptive sector in the last decade, fintech has transitioned fairly fast into being the poster child of disruption. Its success is undeniable, but it has also attracted a fair amount of malevolent interest, working on getting its hands on some money and data.
"As we all know, data security is of the utmost importance for any business, but it's especially important for fintechs. This is because fintechs deal with sensitive financial information on a daily basis. If this information were to fall into the wrong hands, it could have disastrous consequences. That's why cloud providers go to great lengths to ensure that their client's data is always secure", says Mr. Dhanda.
One of the ways cloud providers protect user data is by encrypting all of the data that they store. Cloud providers also keep data secure by offering two-factor authentication and placing strict access controls in place, which means that only authorised personnel is able to access the data stored on the servers.
Governments across the globe have identified the dangers lurking around fintechs and are now placing stringent regulations to protect consumers. Fintech companies in India are subject to a variety of regulations by RBI, IRDA, TRAI, and the Consumer Protection Act. Cloud service providers are expected to ensure that their services comply with all applicable regulations.
The regulations primarily affect fintechs that are looking to expand globally as they have to comply with the local government regulations. "As fintechs are expanding globally and with evolving government policies, there is an increasing need to add new cloud features which aid the local environment of the region and meet its regulatory compliance", says Kapil Sharma, Chief Sales Officer, Collabera Technologies. He further says that Collabera consistently works with the fintechs to help them expand seamlessly without impacting their core processes and operation.
Fintech startups have attracted over USD 23 billion in venture capital funding since 2014. But one of the challenges that these companies face when it comes to adopting cloud technology is not having sufficient funds to deploy large cloud infrastructure as the initial setup cost is high despite being hugely beneficial and cost-effective in the long run. It is one of the pain points for startups looking to enter the fintech space as the cloud remains important to delivering services to consumers. And consulting companies need to plug this gap between solutions available in the market and the ones that fintech needs. "This will aid fintechs in optimising costs, enabling them to become a lot more competitive in the market", adds Sharma.
The Outlook
Fintech is one of the fastest evolving markets in the world going forward, and the cloud is one of the top trends that will drive its growth, as it has over the past decade. "The outlook on Cloud and Fintech collaboration is highly optimistic and reassuring. For the next decade, core Cloud computing and its marketplace solutions should operate as a Direct to Business offering", says Souparno Bagchi.
Moving forward, there needs to be greater collaboration and cross-pollination of ideas, knowledge, and talent, which can spur deeper domain-oriented solutions catering to - Business, Products, and Regulatory needs. The cloud-fintech collaboration also needs the evolution of computing power with a lower consumption-to-cost ratio and faster time to market.
