Is SaaS the right solution for all financial institutions?

By Jean-Luc Freymond, CEO of FINARTIS

10 December 2018

If you manage a financial institution then you will know that your IT is the backbone of your business. Your clients come to you for your financial expertise but it is your IT systems that allow you to translate that expertise into practical solutions for your clients. For many firms managing those IT systems is a significant problem. Not many small finance companies can afford to employ dedicated IT personnel to check that their software is kept up to date, that their data is secure, and that any faults are quickly remedied. Without a dedicated team of engineers on staff, IT often becomes the job of whoever happens to be free. IT fixes can quickly be relegated to a few minutes at the beginning or end of the day leading to patches being missed and faults developing. A better way to deal with your IT systems is to outsource them to a SaaS (software as a service) company, not only does that ensure effective IT management by trained engineers but it is expected to be cheaper as well.

Reduced hardware costs

If you want your company to successfully run the latest software then you often need a fairly modern infrastructure. Frequently the processing power of older machines is unable to cope with large programmes leading to system crashes or the programme taking too long to execute. Added to the cost of the computers in your offices is the cost of your server room. When you choose SaaS you are able to significantly reduce most of these costs. Since you won’t be storing data on your own in-house servers you no longer need rows upon rows of servers costing money in server rooms that require uninterrupted power and proper environmental controls and cooling accessories. Instead your data will be securely held on the servers of your SaaS partner for you to access whenever you need it and the costs for this storage is shared among all the SaaS customers rather than being yours alone.

A better maintenance regime

Instead of struggling to fit in hardware maintenance on an ad-hoc basis or calling out a specialist engineer in emergencies you can outsource your IT to a SaaS company and then relax in the confidence that all hardware upgrades and repairs are being taken care of by dedicated technicians. There are no more concerns about data restore being handled by someone unsure of what they are doing, instead you get expert help whenever and wherever you need it.

If a failure occurs on your network the results could be disastrous, especially if your server fails and you have not been backing it up as frequently as you should have been. Even if it is only one computer which fails you may discover that you don’t have the required software on another machine, or that the software runs painfully slowly when you need the job completed urgently. With SaaS you only need to login to another computer and everything you were working on is stored there ready for you to carry on where you left off.

Working with a SaaS firm can benefit your maintenance regime in other ways as well. Their larger infrastructure allows them to keep system downtime to levels approaching zero which is great for financial institutions that wish to offer 24x7 web or mobile access to their clients.

Enhanced client security

As a financial institution not only do you have the responsibility of taking care of your clients’ data. You must continually monitor your systems to ensure that there are no security holes and that all the needed security patches are being properly applied. All of this security is expensive and requires constant monitoring from trained staff which is difficult to accomplish without dedicated personnel. If you outsource the responsibility to a SaaS company then they will have all the resources they need to ensure your clients can continue to do business in a secure environment and your team is free to get on with providing them with the best possible service.

Frequent upgrades

Who in your company has the time to keep your software updated? There is often much more involved than pressing a few buttons. In addition to the software application there is also the operating system and the database that needs to be maintained. You can’t risk missing one of the latest ‘fixes’ and leaving a security hole that could be exploited leading to a data breach. This task is particularly important for financial institutions as your systems must remain compliant with rapidly changing regulatory requirements. In a SaaS scenario these updates are normally automated within the SaaS infrastructure and patches are seamlessly installed without the users noticing.

Instant implementation and scalability

With in-house IT support the speed of implementation can vary depending on how busy your team are and what else may be happening in your business. With a cloud-based SaaS solution the deployment is instantaneous. The system is already operational and deployments across multiple regions can be completed with speed and simplicity. For many companies perhaps the most significant advantage of using a SaaS service is scalability. Instead of buying and installing expensive IT systems you can add-on services as you need them. Your business can grow or shrink with you. If you need extra services for a particular project then you can simply add them to your SaaS package for the duration of the project without any additional capital costs or hassle.

Is SaaS the right financial solution for you?

The operational advantages of choosing a SaaS solution seem appealing but how do they translate in practice? For smaller financial institutions, there are considerable savings to be made by outsourcing their operations to a cloud-based provider. They will benefit from a cheaper initial price point and a reduced capital expenditure. However, such simple financial institutions are not the majority and even small institutions often have complex operations. For those more sophisticated financial institutions which normally try to differentiate themselves from their competition by the uniqueness of their offering SaaS does have some potential difficulties. Since SaaS vendors provide the same basic service to several customers it is only possible to offer a standardized SaaS offering ‘out of the box’. A degree of customization is usually possible, but this is often limited and configuring a uniquely customized service may end up costing the same as an in-house option. The true cost of ownership could eventually be higher than an in-house alternative and even with SaaS the implementation time could be significant.

Is true customization possible?

If SaaS is to successfully serve beyond the smaller financial institutions and become the favoured choice for larger more unique financial institutions, they need to offer flexible workflows that can cope with the complexity of compliance checks and four-eyes policies across multiple deal flows. The SaaS workflow system needs to be adjustable and capable of adaption to the uncertain nature of future regulatory requirements.

These SaaS systems must incorporate flexible and highly granular authorization systems that give financial institutions full access controls to determine who can access what data and what actions they can perform on it. The difficulty for the present is that few systems manage to offer this level of customization without becoming overly complex to set-up and use.

Setting up a customized SaaS system

For SaaS to be widely adopted in more complex financial environments a rule-based system that supports customized logic and that can fit specific needs is required. For their operational processes to be automated the financial institutions must be able to teach the system a significant number of business rules. Some of these rules may be straightforward while others may be much more complex. In many cases these rules will be unique to that specific financial institution and the incorrect implementation of those rules would expose the institutions to significant operational risks. The creation of these rules and the configuration of the associated workflows has the potential to be highly complex. The specialized knowledge required would therefore have a significant impact on the SaaS implementation costs.

One solution to this problem is to use expert systems and AI to perform the complex setup automatically based on business logic expressed by the users. In more advanced systems such business logic could be expressed in natural language, but simple User Interface setup screens could also be used as long as the options could be related to easily understood business terminology rather than technical options prone to being misunderstood. The ability to be able to review all of the established rules, when they are expressed in clear language in a centralized user interface would also contribute greatly to reducing the risks and simplifying the entire setup process.

Creating an IT system that works for your unique financial institution isn’t always easy, and for SaaS to be adapted to a sophisticated financial institution it must be highly configurable. The true cost benefits of switching to a SaaS system will only be seen if the customizable systems are smart enough to self-service and to be configurable with only minimal work from users.

Jean-Luc Freymond is CEO of FINARTIS

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