As-a-service strategies are saving banks from terminal complexity

Key elements of service-oriented operating models and cloud-based solutions, like software as a service (SaaS) and platform as a service (PaaS), have been around since the 1960s. Back then, these applications were siloed, monolithic giants, accessible only from a handful of hard-wired locations.

Public clouds (e.g., AWS) have split this functionality into nimble, composable services that can build new (or augment existing) applications. Now, access is possible from anywhere via any channel, freeing both staff and data to drive greater productivity and deeper insights.

Outsourcing commodities and readily automated elements of infrastructure and software enables IT staff to consume technology on a pay-per-use basis. Third parties maintain everything at the lowest level in the stack, allowing institutions to focus on their business processes.

As-a-service operating models add to the business worth of IT departments

Due to the complexity of their systems, financial services companies spend more on running legacy applications than those systems generate in revenue. Eager for change, leaders are leaning toward as-a-service models for a smarter, more efficient path forward.

End-users of aaS solutions experience a significant improvement in their day-to-day activities, thanks to simplified processes, enhanced automation and increased operational effectiveness.

Thickening the bottom line

As-a-service operating models are gaining momentum as potential business solutions that solve for cost and revenue to ensure profitability. They also provide rapid scaling and market responsiveness, as well as access to the latest software developments.

Typically, XaaS offerings require a higher level of standardization than traditional, custom-built, on-prem solutions. This shift from complex business processes to streamlined, standardized ones paves the way for codebase mutualization, smoother support and operations, and significant gains in cost efficiency and profitability.

Public clouds have unlocked new flexibility for advanced data analytics and machine learning (ML). Many of these services can be integrated into existing applications without resorting to data scientists or ML specialists.

By leveraging low- or no-code analytics, ML and seamless cloud connectors, business and IT staff can quickly uncover valuable business insights, turning everyday data into actionable propositions.

As-a-service models help clients determine which functions should be retained in-house and which can be entrusted to external experts. Business processes, such as front- and back-office operations, accounting, data management and risk management, are ideal candidates for outsourcing. The aaS ecosystem integrates easily with leading-edge fintech solutions that handle these functions with unmatched efficiency and flexibility.

The point is, as a service is more than simply a patchwork of platforms, its brilliance lies in interconnection. Separate systems and processes work in harmony, exchanging data swiftly and securely, simplifying complex, interconnected systems while retaining full functionality.

Commoditized agility and flexibility

Future FSI operating models will utilize off-the-shelf banking technology (consumed as a service) more extensively, combined with shared utility platforms and key differentiating systems retained in-house. This setup will spark greater collaboration while enabling organizations to work with the latest external solutions.

Models range from niche applications, like regulatory reporting as a service (RRaaS) and collateral as a service (CaaS), to central platforms, such as trading systems as a service (TSaaS). This flexibility allows businesses to scale services up or down effortlessly, paying only for what they use.

Collaboration is the key to success

Another unique and welcome development in this space is the emergence of collaboration between multiple independent software vendors (ISVs), system integrators, IT service providers and fintechs. These expert agencies, working together to harmonize and commoditize their offerings, allow businesses to access the latest technologies at reduced costs and with greater flexibility.

Standardizing integration is crucial. It enables businesses to keep costs lower than those incurred through using APIs to manage various types of integration. Other bespoke, as-a-service solutions — such as integration as a service (IaaS) and data as a service (DaaS) — can also manage this process, removing the overheads associated with infrastructure and potentially making hefty savings on DevOps, platform maintenance and data management.

By working with a partner organization experienced in as-a-service transition and delivery, it’s possible to retain many bespoke, client-specific customizations, while building a springboard for future business-driven transformation.

A strong technology partner can also manage cybersecurity, tech risk and outsourcing compliance, freeing up senior executives to focus on growth rather than risk aversion. Such a partner brings the right mix of skills and resources to support change — from frontline subject-matter experts to technical analysts addressing complex integration challenges.

Science fact

Imagine a large financial organization with a range of complex and integrated applications, powered by advanced analytics and ML data optimization, but few (if any) in-house IT resources to manage it all.

Not so far-fetched now, is it?

In our opinion

Although future banking, insurance and capital markets technology will be radically different, the tech and strategies that underpin that brave new world are available right now.

However, a multitude of challenges loom on the horizon, including rising costs, market volatility, complex regulatory requirements and emerging threats such as black-hat quantum computing. The coming years represent a last chance to make the changes needed to weather the approaching storm.

Resistance to change and the cost of modernization are obvious barriers to progress. As a result, financial institutions face a deepening dilemma.

While the cost of action may be high, inaction will likely cost considerably more.