The impact of new technology on the Financial Services Industry

To begin with, I need to make a confession, I’m a self-confessed technophobe. Whether it be at home or at work I’ve managed to steer well clear of anything that looks like modern technology. Not, I should add, because I fear new technology, rather because I like what I know and it always seems such a faff to learn something new! To live in blissful ignorance has historically been tough in the home but much easier in the workplace.

At home, little by little, modern technology has crept in. To the point now where my fridge ‘talks’ to my computer, I can turn the heating on from 20 miles away and from my iPhone, not only can I turn music on in any room, I can also check if anyone is strolling around the house on CCTV!

The contrast between this and my work life is stark. In the 20 years that I spent in an investment bank very little changed. I began using very clunky mainframe-based technology in various operational roles and, two decades later, ended up selling solutions to institutions which were based on the very same, clunky old system I was using a decade earlier!

Many of my core beliefs about technology were formed during this period. I came to learn that the cost of maintaining IT platforms was eye wateringly expensive and time-consuming. Worse still, the thought of changing these platforms brought many out in cold sweats! Three-year, $5,000,000 dollar projects would rapidly ‘evolve’ into 5-year projects costing multiples of the original estimate. It’s perhaps not unsurprising that, given this inflexibility, the reliance on manual processing was significant. Ultimately, it was easier and cheaper to use Excel.

All this said we were no different to any other bank. All were struggling to keep up as markets were developing so quickly. We all accepted this IT mess and tried to ameliorate the situation through increased expenditure. Increased profits made this a very easy decision, along with the absence of any alternative solutions. This merry-go-round of significant expense for marginal gains became standard operational procedure for the industry at large.

Two years ago I left banking and joined a Financial Technology company. I was asked to join as I knew the ‘domain’ well. As a technophobe (a topic we covered in the interview) I was perhaps not the best positioned to promote the advantages of the cloud?! Fast forward to the present day and I can honestly say that the last 24 months have been the biggest learning experience of my professional career.

Getting to grips with the (cloud based) nature of innovative solutions was relatively simple. A lot of jargon I’d heard for many years was suddenly becoming clearer. What took longer was really understanding the philosophy that sits behind SaaS (Software as a Service). This involved challenging all my pre-conceived ideas about technology. For those that haven’t been on this ‘journey’ I will simply summarise this concept as: the desire to fundamentally change how companies implement and support their IT infrastructure and, by doing so, provide enormous efficiencies and competitive advantage to those institutions adopting this new model.

The learning doesn’t stop there however; it really gets interesting when you take this message on the road: I had assumed that the objections to cloud based solutions would be either security concerns or the challenges we faced from Heads of Technology as they try to protect their fiefdoms. How wrong I was!

It was clear from my first few conversations that many of even the largest buy side and Sell side institutions are embracing cloud-based services. Sure, they have questions around security. These are very reasonable. They expect their cloud-based providers to meet the same exacting standards they would impose upon themselves. With this confirmed…no problem.

As for the Heads of IT, they are the guys tasked with achieving the impossible. They are being asked to significantly improve systems whilst at the same time radically cutting costs. These IT folk require the equivalent of modern day alchemy. Cloud computing along with a series of other modern technologies may just be able to achieve this. Again, from the outset, I often found myself pushing an open door.

Sounds simple…not so quickly! Not everyone has got Cloud religion quite yet. It seems (not dissimilar to myself 2 years ago), for those who are not versed in the benefits of this new technology, there remains a certain scepticism. Before we analyse this I think it makes sense to analyse what these benefits are. In the context of SaaS, at least, this means sophisticated, secure and functionally rich platforms that can be implemented in weeks, not months (or years!!). Platforms which cost a small fraction of their locally installed or developed equivalents. Solutions where all users are on the most up-to-date version; with new functionality released on a weekly basis. And finally, platforms which talk to each other; or, if they don’t, platforms which can be made to talk to each other with a few days or weeks development time only. As our American brethren say, what’s not to like?

Why, therefore, do certain constituencies remain sceptical? One key element is that it all sounds too good to be true. Especially for those companies who have been relying on antiquated technology for years. Secondly, there’s an element of ‘giving away control’ where ownership of the platform no longer resides with the institution using it. And finally, and we have to be honest about this, the young, FinTech start-ups which promote this brave new world are…young…and…start-ups. They’ll struggle to provide 10 years of fully audited accounts as a rule! None of these concerns are unjustifiable. And yet, as time passes, and cloud-based solutions become more ubiquitous, even these concerns are being voiced less.

In summary, FinTech and the emergence of SaaS solutions is coming of age. This is reflected in both the length of time that some of these ‘new’ companies have been in existence, along with the sheer number of institutions that have migrated to the cloud in one form or another. One need only go to the websites of some well known Cloud providers to see the sheer number and nature of their users.

In perhaps more formal terms, adding a historical perspective, what I’m saying is many Heads of IT and their business sponsors are confronted today with the options of build, buy or partner. Looking at each in turn: build has become the expensive option and business sponsors are increasingly unlikely to give IT an ‘open cheque book’; buy has been the popular option in recent years but as large enterprise software companies consolidate and “manage” their clients rather than innovate, these solutions too have become expensive both in terms of time and budget. Partner is, in effect, the cloud. These best of breed solutions are open and highly connected. They represent an entirely natural evolution In today’s business world where connectivity, speed of deployment and cost effectiveness have become a virtual mantra.

In the context of the finance industry, the success of the cloud is a function of the symbiosis between the push coming from the application of new technologies along with the pull from an industry sorely in need of a solution for an age old problem. Better still, the future looks rosier, where a number of cloud solution providers are joining forces to create a fabric of best-of-breed solutions; all of which interoperate but are provided in such a way as to ensure that flexibility and choice remain at the heart of the combined offering. And, before you ask, I know that sounds too good to be true as well!

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