Software as a service (SaaS) is seeing a major uptake among financial services firms, thanks to its promises of business flexibility, speed of implementation and the support for an open ecosystem.
Despite the keen interest shown by the banking and insurance industries in testing out various SaaS and cloud-based software models, these industries are, in fact, among the last to adopt SaaS to drive success factors around the total cost of ownership and innovation. The predecessors of SaaS-such as active server pages (ASP), as well as the use cases brought out by enterprise resource planning (ERP) and customer relationship management (CRM) systems to vastly improve effortlessness of business change management, speed of feature launch and ease of testing-have drastically changed the way software implementation models have worked in various industries.
However, the financial services industry has previously taken a more conservative position with SaaS; primarily due to fear, uncertainty and doubt around security as well as external factors such regulations restricting its widespread implementation.
Today SaaS adoption in the financial services sector is perhaps at the point where other industries were 10 years ago, with a keen desire to cater to a customer-driven need for improved agility, faster launch of products or services and a better user experience. If you had asked any bank a couple of years ago about their biggest challenge, they would have answered (as indeed they did 20 and even 50 years ago) that they need to drastically lower the cost of ownership.
Moreover, the fact is that they need to have much better control over the cost of customer acquisition and retaining their good, profitable customers.
Lower upfront costs will be the next logical step, as well as seeking the best infrastructure and software models that help them become truly global players. Ask banks the same question now and they will probably add in a slight twist; that they need to be able to better focus on their core resources and use their strengths to be on a level playing field with nimble, innovative financial technology (fintech) startups. Time to revenue has become the key area of focus.
The changing needs of the financial services industry are reflective of the traditional manufacturing, retail and media industries in many ways. With a marked reluctance to change in the beginning, these industries soon welcomed SaaS applications to cater to the changing needs of the consumer and meet their desire for faster and better service while having the flexibility to keep track of profitability.
Three pillars of a SaaS delivery model
While the open platform versus proprietary platform debate has raged over several decades, open platforms have proven their strength by providing extension capabilities for SaaS platforms. This has created a sustainability and scalable strength to SaaS that was never previously experienced, especially in the financial services industry. Fintech firms started bringing in the majority of the capabilities that expensive legacy systems had within large banks, but for a fraction of the cost.
With the help of open application programming interfaces (APIs), here was an opportunity to create an ecosystem to enable banks to collaborate with these fintech partners, who can bring in innovative processes and products at a relatively low cost and use of resources. It is also important to bring in outside innovation into a financial institutions internal environment dominated by legacy systems. The need to start out small; to be agile and grow with the ever-changing requirements from the market and customer are evident.
The growth of APIs in the financial services industry has had a big push from the maturity of SaaS models, while regulations such as the Payment Services Directive (PSD2) are pushing banks to create and support open platforms. While API-based SaaS platforms have opened up a large market and empowered the developer community, they have also helped eliminate the faceless products that have dominated traditional industries. It has also helped derive immense value from data and creative system integrations, which is now shared across a larger and more powerful ecosystem.
The three pillars of a SaaS delivery model all cater to these compulsions. Scalability and the need to add on disparate products to existing systems quickly; a high aptitude for security of data and platforms; and a superior ability to control costs all help SaaS models become the delivery model of choice for traditional as well as challenger banks around the world.
It is also the model that works best in the ever-expanding fintech ecosystem, helping them work closely with banks, development communities, incubator programmes and data providers. All of these are wrapped in a customer experience layer, with an ease of use that allows business users with limited technical skills to launch products in a way that make commercial sense.
This evolution of SaaS-based delivery models into a revenue and customer-driven one is good news for everyone involved. Some challenges remain, but the overall contribution of both proprietary and open business built on the SaaS cloud has been phenomenal for the financial services industry. If the total cost of ownership figures for the manufacturing industry are anything to go by, we can surely see an almost immediate impact on banks’ total costs with the collaborative delivery models that have now been introduced on the market.