As financial institutions assess their budgets and technology spending for the coming year, a growing number are seriously considering new or larger investments in cloud-based platforms.
Financial services executives who will invest more in cloud technology totaled to 71%, from 18% year ago, according to the March 2013 PricewaterhouseCoopers study, Digital IQ Snapshot: Cloud.
With resources tight and myriad internal projects competing for limited investment capital, cloud technology affords financial institutions new levels of flexibility in payments processing. Rising cloud adoption rates can be attributed to the ability of cloud technology to help financial institutions achieve multiple objectives simultaneously from greater agility to cost savings.
Paper checks are still relevant and continue to be used by customers; however, declining check volumes combined with fixed processing costs create a significant pain point for financial institutions. For example, the first waves of work to transition to recurring electronic transactions have been the cleanest work, increasing the amount of dirty work as a percentage of overall paper volume. As a result, per-unit costs for check processing can rise as much as 5% to 10% annually. This compounding, cumulative cost directly impacts the bottom lines at financial institutions.
The world of cloud technology or scalable hosted services gives financial institutions a secure and flexible option to address this issue. The three cloud delivery methods Infrastructure as a Service (IaaS); Platform as a Service (PaaS); and Software as a Service (Saas) allow financial institutions to select the level of support needed and can ease the impact of check processing technology and service upgrades on existing resources.
The SaaS model brings the most value to remittance processing. While the remittance processing industry has traditionally been segmented into two camps financial institutions with in-house capabilities and those that rely on outsource providers SaaS provides a third, often more attractive option.
SaaS enables financial institutions to outsource infrastructure responsibilities, while retaining the management of transaction processing, bank deposits and receivable updates. In an era when regulatory compliance and security are paramount, the cloud is proving to be a viable, cost effective way to maintain ultimate control of operations.
Reducing Risk with the Cloud
There is a degree of risk associated with any payments method, making it an ongoing priority for bank executives. In a 2011 PwC survey of executives at more than 500 companies, 62% rated data security as a serious concern to IT infrastructure in the public cloud. Two years later, the same apprehensions about cloud services persist.
Among financial executives top concerns when exploring cloud technology is the continuing protection of data, since security controls for cloud offerings are not the same as those for a closed-network environment.
A potential solution to this problem is to engage a vendor that delivers hosted software, but is not technically utilizing the cloud. In this traditional SaaS delivery environment, the network may not be infinitely scalable, but it can be more closely controlled and managed than a true cloud environment. For the end-user, the delivery mechanism from a hosted SaaS environment is almost exactly the same as via the cloud, although different processes may need to be in place if rapid scalability is required.
Another consideration when looking at cloud-based technology for payment processing is the continuing availability of data. Redundant and resilient architectures are not unique to a cloud provider environment. Technology providers must have methods for managing the risk of hacker attacks, and there is no certification other than existing self-attestation oriented audits.
It is important to understand and carefully evaluate the hosting environment before selecting a provider, since standards can vary greatly between vendors, and even the definition of cloud itself takes on multiple forms. A thorough evaluation should include a review of technology and facility redundancy, including disaster recovery and business continuity planning consisting of backup sites and multi-site production, and whether the delivery mechanism is truly cloud-based, or a more limited form of SaaS.
Finally, the entire financial industry continues to face new and changing legislation. Privacy protection laws and regulations around government access to private information vary from country to country as do data export laws. Financial institutions must ensure their cloud provider considers all legal and compliance issues as they relate to remittance and is also flexible enough to adjust as regulations inevitably change.
Room to Grow
In todays shifting payments landscape, cloud services provide low-cost technologies based on economies of scale. Implementation timelines are drastically reduced when leveraging an up-and-running cloud platforms. For example, expensive servers and software and costly licenses are not necessary, thereby freeing room in a financial institutions budget for other high priority projects.
By shifting the focus to these business outcomes, the impact of the cloud becomes clearer and more compelling. This is especially true when considering that software upgrades are usually included in cloud offerings, so there is no need for ongoing investments in upgrades and support.
Cloud-based offerings also bring financial institutions greater levels of agility, enabling them to easily adapt to continuing evolutions in payments, emerging technologies and changing consumer preferences. Should remittance volumes drastically increase following a merger, for instance, or if they decrease due to the banks addition of new electronic payment methods, the financial institution can easily scale up or down as needed. And modularized products allow financial institutions to easily expand services, which is crucial as new banking channels become more desirable to customers and lockbox services are leveraged for cross-selling purposes.
In a rather short period of time, self-service banking alternatives such as mobile remote deposit capture have completely changed the payments landscape. While it might not be possible to predict the ever-evolving technologies that will emerge in the next five to 10 years, financial institutions must prepare themselves today for foreseeable changes. Cloud-based remittance processing delivers this flexibility, assuring financial institutions that processing does not have to hurt the bottom line and helps lay the foundation for long-term profitability and success, no matter what shifts in payments lie ahead.
John Kincade is a vice president at Norcross, Ga.-based TransCentra.