Cloud-based applications are being touted as the catch-all solutions for firms with software infrastructure problems. You’ll see experts – be they software vendors, consultants or anyone else with a vested interest – lining up to sing sweetly about the benefits of moving everything to cloud-based computing. Mention that there are degrees of choice, and that chorus becomes a cacophony of “Nos.” Common opinion seems to be that if you’re looking for buy-side fintech, you’re only looking for something hosted by a vendor in the cloud – but the choice may not be quite so cut-and-dried. What works for one financial institution doesn’t always work for all of them. Each has to find the solution that benefits its business the most.
Option one: continue to retain or deploy platforms on internal networks
This might mean keeping away from the cloud altogether – investing in locally-installed servers might be the preference for firms still wary of cloud-computing, whether that be over concerns about security or a desire to retain greater control over its systems. It is recognised that this stance requires substantial investment in the physical network architecture (and that hardware needs to be replicated offsite for the added security of back-up and disaster recovery), but it is not necessarily the wrong choice, even if the hardware investment required is sizeable.
Option two: move to a centralised private hosting service provider Operational challenges
An alternative would be a private cloud service – essentially a reserved area of a cloud service provider’s environment or even directly owned datacentres. Many of the new systems being used by a buy-side firm could be installed in this private cloud-based virtual machine world. Operating in such an environment provides benefits in terms of centralisation, management, monitoring, upkeep, maintenance and connectivity. It’s a solution that is proving popular with many buy-side companies that are updating their IT infrastructure as it enables many of their key operational platforms to be hosted and managed in the same cloud environment …provided the vendor has software solutions that can be deployed in these virtual locations. Never forget, in complex system-based infrastructures, the platforms have to be able to connect and communicate with each other.
Option three: use cloud hosting services from the system provider
The third way is for vendors to offer their own cloud-based hosting service. Using cloud computing services such as Microsoft Azure or Amazon Web Services (or even their own private cloud services), they can offer a virtual machine environment to buy-side firms. This can be tailored to the needs of the buy-side companies in terms of software, system architecture, and services.
This option shifts the onus for managing and monitoring the system to the vendor, with many problems for the buy-side firm being handled by the vendor through its direct relationship with the cloud computing service provider. Additional benefits include client systems being directly managed by the vendor’s experts, plus greater opportunities to stay current with system enhancements and upgrades. These kinds of systems do not take care of themselves, so simply setting it up and walking away doesn’t work. But there is also an opportunity to reflect the cost of the provision and upkeep of cloud-based software infrastructure in pricing models that have a more defined service element.
It is certainly a possibility that the third way will become more and more popular for some buy-side firms, even though it’s not necessarily the cheaper option. It’s the simplicity of this alternative as part of a long-term strategy to move away from supporting in-house technology as cloud-based services flourish that holds the appeal.
For most buy-side firms, a greater shift towards the cloud is inevitable. But a singular option is never going to be a winner. Quite simply, people need choice. Some will only want to dip a toe in the water, while others will dive right in. Some will still want to wait and see – they need to be sure that any troubled waters they perceive have calmed before they take the plunge.
No matter which decision they take, buy-side firms should be demanding flexibility as their business models are likely to evolve as quickly as the technology that underpins it. Solution vendors are putting themselves in a position to provide cloud-based services that they may never have offered before to help facilitate this change. Buy-side firms will eventually be looking to extract maximum value from their software vendors – and that means ensuring they have the advantages of cloud-based fintech without the overheads of running and maintaining such a system, as one of their primary choices.