Moving from proprietary technology to outsourced cloud technology has defined key growth spurts in the evolution of Fintech.

Platforms are now undeniably part of any value chain.

What’s more, they are able to leverage new things meant to fulfil business needs in excess of those normally considered.

Think mission-critical workloads, and bypassing the internet to run simultaneously both containerized workloads and virtual machines.

Development cycles get accelerated and engineers now have the chance to connect products to next-gen, cloud-native apps so their products become enterprise- or mass market-ready before they even realise it.

According to Forrester Research, Cloud SaaS has now overtaken on-premises solutions in categories such as human capital management (HCM), customer relationship management (CRM), and in collaboration tools. Solutions once available with options are now cloud SaaS only: look at Oracle’s RightNow, Cisco’s Stealthwatch or SAP’s Ariba.

13% of enterprises spend more than £10 million a year on public cloud, while 50% spend more than £1 million per year. Public cloud spend is growing 3x faster than private cloud usage (24% vs. 8%).

Outsourcing critical infrastructure is the new normal, not just that, we even get people to move it for us (check out Data Migration-As-A-Service…it’s a thing). But does this concentration of technology simply cause more problems than it solves? No, it doesn’t — there is a reason we move local servers to the cloud, in fact several. But the same question is asked each time ‘build’ gets pitted against ‘buy’ with each new cloud innovation.

Field-to-Fork Finance

Open Banking is mirroring the cloud hosting market.

Cloud hosting providers were once Etailers and search engines. Then pivoted when they realised completely by accident that they had a competitive advantage in something that wasn’t their core product. Serendipity, if you like.

Early champions of open banking and neo-banking itself have recognised one thing: the most valuable thing about themselves is who they are not what they do, in much the same way.

This is nothing new…the economist John Law in the 18th century recognised, when France was experiencing an economic catastrophe, the county’s value sat not in the bourses nor the stock market, but in the potential value of its fields, factories and people.

A Fintech’s competitive advantage lies in it’s unique business structure, talent and systems, not necessarily some frontend application they crowbarred into a user’s crowded mobile home screen for a while.

For this reason, Banking-As-A-Service is overtaking Software As A Service as the biggest buzzword in Fintech.

This definition extends to aggregation services, for those providers who were early to champion open banking feeds.

Given there are 500 or so banks in the UK (and 6000 across Europe) that need to comply with PSD2 over the coming months, the likelihood even the largest of companies using open banking will tolerate a 6+ month testing and adjusting period building a handful of bank connections (let alone having to handle indefinitely the various performance levels) is hopeful.

The downtime, the languages, the bank support channels, the engineers, the maintenance, regulatory compliance…even the carefully incubated Goliaths (banks ordered by the CMA in the UK to play by specific rules) are proving too much effort to maintain alone and in-house. The search began as early as summer 2018 for a solution to this problem.

For this reason, an exciting ‘retail aggregation’ space has emerged, providing gift-wrapped connectivity to any business wishing to tap into open banking. This is the SaaS layer, seeking to imitate not just some but all of the things ‘packaged software’ (in-house builds) attempt. Field-to-fork finance, all in one.

More than half maintain legacy screen scraping services to achieve this, and currently cater only to a small focus group of end users. Soon, the market will be juggling fast changing open banking infrastructure demands (and the exponential rise in API availability) with the need to constantly innovate pristine frontend payments and data solutions. For what could potentially be a worldwide audience.

Most current aggregation solutions were first personal financial management (PFM) apps and have realised their value lies in the power lines they manage to the banks. Others have built PFM apps or maintain frontend applications to meet the needs of businesses.

I work for a pure technology house that powers the backend of many aggregators, so sitting outside this retail space (we provide specialist PaaS support for regulated open banking providers alone) we’ve seen this market go from zero to sixty in less than two years.

These developments and the seemingly elusive state of open banking raises some old adages.

What do you need to consider when contracting with a third party for something we were once sure could be achieved internally, and as more emerge, what distinguishes them?

Profitability

Is it cost effective; does it really need to be outsourced?

One way to look at ‘build vs buy’ is as a study in pride, of all things.

The best companies create the best products, so it follows they should know when they see another one. This is a strength, not a weakness.

Swallowing your pride isn’t nice, but the bottom-line doesn’t lie.

Don’t feel guilty if you appear to be a middleman sitting between a hard-paying customer and hard-working suppliers. This means you’ve made it.

The happiest entrepreneur I ever met wasn’t a bicep-curling, 4am-club motivational speaker, it was actually a modest accountant based in Cambridgeshire who ran his entire accounting practice off 3 cloud service providers. One for bookkeeping, one for analytics and one accounting software. I’ve never seen (such) a big smile from an accountant in my life.

With typical IT organisations parting with over 30% of their budget on infrastructure (data centres and networks normally), shifting some or all of this work to the cloud can save firms between 10–20% of an annual IT budget, savings that can either be returned to the firm or reinvested in growth and innovation.

Remember too that customers don’t care about how your technology works. They don’t care if another company is doing the hard work. They just care that you were there to advertise to them at the one point they were searching for a solution, and your service and price point made sense. Given the rancid state of marketing ROI for disruptors especially, your front office needs all the support it can get.

…but revenue is the driver for your supplier, too.

Will my supplier force my business on a new road trip, constantly upselling products with a ‘we know best’ mentality? Will it change when you want it to, or make us change?

Make sure they are not forming your product. They should preferably sit in a sea of opportunities, of which they are currently the best solution.

Don’t dwell on whether routine updates or downtime could affect end customers — this is a bigger problem with in-house builds (especially in open banking), only it wouldn’t get the SLAs and it costs more to change. Focus instead on how specialist they are. If they provide a range of products, could this mean they are an unfocused, complacent technical gateway?

The number of products a service provider has and specialist knowledge is inversely proportional, but the number of products and the likelihood of upselling are directly proportional.

Security

How much discreet control are you handing to the vendor? If it breaks, what happens?

Despite all now being on the cloud, security doesn’t get relegated.

Third party suppliers should exist to be more efficient, cheaper and more secure than you are. Unlike the vulnerabilities of multi-party products at the end customer level, a focused supplier should provide ISO assurances and show you standard practices it follows to keep data safe.

Unlike you (again), a supplier should possess cookie-cutter security standards, because they only exist to fulfil a B2B pain point. Make sure you obtain active assurances that suppliers are protecting your data, that reduce the risk of information security incidents. You need standardised assessment methods ensuring a consistent approach to measuring supplier risk.

API security relies on standard adherence to protocols. Deep linking and screen-scraping bots create vulnerabilities for banks and third parties alike.

Neutrality

What happens if your competitor is using the same supplier? Will trade secrets get exchanged over a pint between two account managers?

Let’s look at Netflix. Netflix’s biggest rival is Amazon Prime, but Netflix stores the majority of its data with AWS. They even chose to be a case study for AWS.

Enough said.

Yes, this is always a risk, but technology thrives mostly on assumptions learnt from metadata, not the unique identity of you as a business. The risk is worth it for the enabling services the supplier provides.

Transparency

Do they explain in detail what tech they use, if they themselves outsource any?

It’s important to select suppliers on a competitive landscape. With this fees will always be a question mark in future. The more useful they are, the more critical and price sensitive too. In a competitive market, they should align their business goals with your own — stating clearly you are a key account they want (but don’t desperately need) to see succeed.

Hackathons, developer community and public feedback spaces are crucial at a time when no one has all the answers. As a sector so dependent on regulatory supervision (at the moment, but hopefully soon this won’t be the case) all products should be collaborative. No open banking vendor should fear being criticised if they start from a place of inclusivity and taking an agnostic approach. Developers need to feel comfortable and that this new technology is very much on their side.

Flexibility

What is your re-platforming ability? Can you escape if you don’t like it?

You should not settle for the sluggish complacency of many tech providers because they know (correctly) that you can’t change quickly or easily.

Things are changing: a recent example of this is the move by cloud-based e-commerce platform provider BigCommerce to move more than 60,000 of their retailers who use its services (to conduct online transactions) from IBM Softlayer and AWS to the Google Cloud. BigCommerce has processed more than $21 billion in sales and now supports merchants in more than 120 countries around the world.

Closer to home, Tandem Bank migrated to AWS in a single weekend.

The off switch needs to be visible. At Yapily, we work hard to make sure the exit is signposted at all times, and users — whether hobbyists or giant corporates — can migrate as quickly and painlessly as possible. It serves us to make it easy for clients to leave and realise their mistake. We have nothing to hide.

Final Thoughts

As the open banking harvest dawns, the seeds sown in London, Singapore, Brussels and Mexico City will soon become an enchanting rainforest of technical diversity and exciting products. Make sure you can see the wood for the trees.

It’s all too easy to say that it’s all down to ‘trust’.

Open banking adoption is more than simply an exchange of data protection contracts between supplier and customer. Any open banking technology needs to be value first, branding second.

This is a time where evangelists must sit side by side; those intelligent and brave first adopters should accept nothing less than a supplier led by a simple willingness to make open banking happen, uninterrupted.

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