The criticality of cloud for fintechs: insights from IBM

The 2020s have become the era of cloud. How is cloud revolutionizing the fintech industry?

The financial services industry is changing due to a convergence of new technologies and the evolving expectations of consumers, who now want convenient digital services in real time. To meet this expectation, financial institutions are shifting towards digital platform business models that are built on a foundation of cloud technology. It’s the essential building block of modern organizations, because through cloud platforms businesses can not only scale quickly but they can also leverage other exponential capabilities that power digital products and services, such as AI and automation.

Many fintechs today are cloud native businesses, which gives them the advantage of not needing to transform and replace cumbersome legacy IT environments from a previous era. They are born on the cloud and already have a digital platform business model, allowing them to be agile and quick in seizing new market opportunities and making it easier to form collaborations with other digital-first organizations. This has led to the emergence of new, disruptive ways of providing financial services, making it a very exciting time to be in fintech.

How does an effective cloud strategy drive innovation and growth for a fintech?

Given that cloud is the foundation for the future of business, having the right strategy for leveraging cloud is critical to success. We’re now seeing the next chapter of cloud emerging. This is characterized by growing awareness that one size does not fit all and that businesses—particularly in highly regulated industries like financial services—need a more tailored cloud solution that helps them overcome the friction of stringent security and regulatory requirements.

As fintechs grow in influence and value, regulators are taking a closer look at them and any risks they might introduce to the financial system. Strict compliance controls mean it can take as long as 18 months or more for a bank to onboard a fintech so they can start doing business, stymying huge opportunities for growth and innovation.

A key pillar of IBM’s strategy is focusing on industry-specific cloud solutions that help businesses in highly regulated sectors overcome this friction. In 2019, we developed IBM Cloud for Financial Services in collaboration with Bank of America as our first client. The platform now has an ecosystem of more than 125 technology partners and fintechs. They all benefit from automated security and compliance controls that are built into the platform’s code, which in turn helps to de-risk the entire industry supply chain while accelerating transactions.

This combination of a cloud platform designed for the industry and being part of an ecosystem of financial institutions, fintechs, and other technology providers is an effective cloud strategy for both fintechs and banks looking to modernize and grow quickly.

What's the number one mistake fintech founders make with their cloud strategy?

When cloud started becoming more prevalent, a lot of cloud-native startups that emerged started to run into problems as they tried to scale their business on generic cloud platforms. Factors such as being tied to proprietary solutions and not being able to seamlessly deploy workloads across different cloud environments as needed began to inhibit their growth. Moreover, generic cloud platforms aren’t designed to address the specific pain points that stand in the way of fintechs collaborating with banks, which are a major customer base.

Another issue we’ve seen across industries, not just with fintechs, is that in the rush to cloud-based operations, businesses have ended up with complex IT environments and supply chains made up of various different vendors and software providers that are not connected on a single platform. The disconnected nature of this digital supply chain opens up vulnerabilities that hostile actors can exploit with ransomware attacks.

Why does a fintech's success or failure hinge on working with the right cloud partner?

Having the wrong cloud configuration can be fatal in our increasingly digital world. Today, almost all organizations that use cloud have adopted a hybrid cloud model, which means they use a mix of public clouds and on-premises (private) clouds. This not only allows for more flexibility, but it’s also an essential requirement of regulators in critical industries such as financial services to mitigate the systemic risk that comes from over-reliance on one cloud vendor.

It’s therefore very important that fintechs work with a cloud partner that enables them to seamlessly operate a hybrid cloud model and work across multiple cloud environments, with different providers. IBM Cloud and IBM Cloud for Financial Services leverage Red Hat Open Shift, which allows companies to build an IT workload once and deploy it across any cloud—including cloud platforms from other providers.

A hybrid cloud model also provides a singular view of the whole IT environment, which makes it easier to detect and neutralize threats, wherever they appear in the system.

What steps should a business take to choose the right cloud partner and platform?

The first step is to be clear about what the business’s goals are. Cloud is part of the means to achieving those goals; migrating everything to the cloud should not be seen as an end goal in itself.

Once the objectives are clear, it’s about considering what cloud and general IT configuration is going to help achieve them.

If a fintech needs to be able to easily work with banks to be successful, then what do they need to have in place from a technology standpoint to enable that to happen smoothly and quickly?

If the fintech also needs to be able to collaborate with other partners such as technology providers, as well as banks, what kind of cloud provider and platform offers a partner ecosystem that facilitates that?  

Having access to the right skills is crucial to realize the full benefits of cloud. Does the fintech have those skills in-house or is it more cost-effective to work with a partner that can fill this gap?

In an industry like financial services, which has unique complexities and challenges, fintechs that work with a cloud partner with deep industry expertise and solutions tailored for the sector’s needs will have a clear advantage.

How is IBM supporting Antler fintech founders to help realize their full growth potential?

While fintechs focus on innovation, they cannot drive forward without adhering to the regulatory environments their clients operate in. This is where IBM is uniquely positioned to help fintechs become compliance-ready from the onset. 

The IBM Cloud for Financial Services leverages built-in security and compliance controls. These industry-informed controls—established by the IBM Financial Services Cloud Advisory Council’s network of CIOs, CTOs, regulators, and other experts from more than 80 financial institutions around the world—were designed to set a standard for the compliance-conscious industry.  

Through the IBM Cloud and IBM Cloud for Financial Services, fintechs also benefit from a suite of specialist AI-powered cloud software such as IBM Cloud Paks for Data, Automation and Security.

Together, these solutions allow fintechs and financial institutions to predict customer behaviors to enable greater personalization of offerings, automate compliance tasks, secure highly sensitive financial data and transactions, and modernize mission-critical workloads while adhering to security and compliance regulations.

Learn more about IBM’s cutting-edge cloud solutions.