SaaS Driven Transformation in FinTech

The cloud-native space underpinning SaaS models is highly competitive. It houses various new-age fintech services poised for growth, and there’s a real drive in the startup community to build the best solutions possible for the industry.

SaaS has drastically shortened the journey between launch to profitability for many. We’ve seen an entire industry of FinTech and RegTech startups (some successful, some not so much) launch with the help of a SaaS framework. The SaaS template takes advantage of cloud architecture by maximizing its scalability and letting companies create an entire business offering. Before the advent of the internet, financial services companies relied on conventional communication and a headcount to launch services and products, grinding their way towards acquiring assets and eventual profitability. As of today, the SaaS space in terms of market capitalization is predicted to grow to $623bn by 2023.

Fintech’s next decade is expected to be radically different from the last.

In the past decade, the financial industry has evolved very quickly, but not fast enough. Technology has always been part of the financial world to some degree, be it the introduction of credit cards in the 1950s, personal finance apps, ATMs, electronic trading floors, or high-frequency trading in the following decades. A lot of the recent adoptions of technology are leveraging blockchain tech, data science, and machine learning algorithms to simplify everything from running hedge funds to processing credit risks. There’s now a whole subset of regulatory technology coined “RegTech” to make sense of the complex world of regulatory and compliance issues of industries like fintech.

Regulation of banks was changing well before the pandemic. Initiatives such as the Revised PSD2: Payment Services Directive and Open Banking were being put forth to encourage growth in the banking industry. This created a space for upcoming challenger firms to break into a market that has long been dominated by enterprises. Today we’re seeing that the effects of these changes go beyond just opening up a space for other players. With open banking, banks were required to make valuable data available through APIs, and this has led to a revolution in the opportunities for mid and small-sized companies to join the field — one in which not hard capital but data becomes the most crucial factor driving fintech success.

How the SaaS model can be a gamechanger for the financial industry

SaaS, this cloud-based technology, can prove to be a gamechanger for banks and fintech companies alike, particularly in providing security to their customers and meeting regulatory demands. Financial organizations can leverage benefits such as data security, end-to-end cost savings, agility, and scalability. PwC has predicted that to mitigate issues raised in the post COVID era, more companies are bound to embrace SaaS. For larger incumbent financial services companies, the opportunities are obvious: With the proliferation of network access points, SaaS access can lead to the breakdown of organizational structures, encouraging greater creativity and innovation.

SaaS apps are incredibly scalable. It can help you transform your company’s processes digitally while enhancing compliance and strengthening security. You can even introduce automation for more efficiency and to reduce the physical footprints. Simply by adopting the SaaS model for online transactions, a number of fintech startups have survived their competitors. Today, FinTech lenders can process and accept business loan applications within minutes online and issue the amount to eligible borrowers in a few days.

Some of the advantages of the SaaS model, fintech companies and the BFSI sector have leveraged are-

• Improved cost predictability and reduction in operational cost
• Reorganizing costing from capital expenditures to operating expenses
• Better agility to support volatile demand patterns and business cycles
• Planned business growth with data analysis
• Better operational control through interface customization
• Enhanced controls and a higher level of security

Now, just because you can afford to take advantage of SaaS architecture does not mean it will work for you.

For one, there are many regulatory hurdles you’ll encounter. Due diligence of SaaS providers will prove to be a thorough and extensive job in itself.

Things to keep in mind:

• NBFCs and banks will have to implement a higher level of control with intrusion prevention and detection when it comes to perimeter defense. The control of traffic that goes in & out of various networks of the data center is what perimeter defense deals with. Here, perimeter network defense acts as a firewall to filter out unwanted or unknown traffic and potential threats that could harm the network. Based on the types of various traffic, it works on a set of predefined rules, ensuring it’s a legitimate source. It’s responsible for the security of the entire network and data.
• The security of IT infrastructure is incredibly important. By upgrading virtual machines frequently, the BFSI sector can stay on top of this. With frequent updates, you can be prepared for even the latest cyber vulnerabilities and threats. To ensure the safety of third-party applications and standardized virtual machines (VM) used in the existing system of the finance companies, an experienced SaaS vendor or developer will integrate security features in the software. Virtual machine management can also help fintech companies address security threats fast and effectively.
• It is important to define who can access the SaaS-based app and the kind of permissions each one would require to do so. We typically offer a unified framework to manage user authentication based on access management.
• Incident management and regulation management are crucial when it comes to financing operations. Certain incidents must be captured, monitored, and reported. You have to document and define everything clearly for effective governance while deploying SaaS-based applications.
• With a rushed SaaS adoption, the risk of a data security breach becomes heightened. You have to stay on top of how the data is managed between both parties and see how data is securely integrated by checking the security standards the tech firm adheres to.
• Scalability is a big advantage with SaaS. As compared to horizontal and vertical scaling, SaaS services are more scalable and reliable. Using a content delivery network (CDN), your developing team can add more robustness to the solution. Horizontal scaling can link many different hardware or software entities to function as a single working unit, while vertical scaling is limited to the size of the server. However, horizontal scaling demands high deployment time, so make sure you’re working with a software partner that explains the solution and its pros and cons extensively, so you can make a studied decision.
• To neutralize the impact of any disaster, an experienced SaaS app development firm will offer a DR or a disaster recovery plan to replicate data and apps. While deploying SaaS solutions, the vendor should be able to avert data breach attempts, and here, it’s the firm’s methodology that is key. It’s a good idea to give NBFCs and banks the option of managing encryption keys themselves to ensure even the development team’s engineers can’t decrypt the confidential data. The development team can also integrate various features, including fingerprint or face recognition features and two-way authentication, to ensure better data security. SaaS vendors should offer customer-level controls and complete audit trails along with these measures.

SaaS can help keep costs down, enabling firms to offer invest in better performance. Good app development practices and new-age solutions can work wonders in the fintech sector. Reach out to us here to find out what tools and solutions could work best for the problem you’re looking to solve.

SaaS isn’t a fix-all or the ticket to success.

There have been a number of high-profile duds from big firms that haven’t been able to make SaaS work for their services. Numerous tech firms are still struggling with scalability.

As financial services continue to evolve and get ahead of the times, the SaaS model could soon become unavoidable. Most of the fintech players are still in the early stages of scaling their payment propositions, and early adopters of SaaS solutions will have the upper hand. Online payments is one of the first of many fintech game-changers. The next steps were card issuing, lending, payroll, and cash management services with SaaS technology.

The most important step is to understand all the requirements well. Ask questions like, How easily can your user solve their problem with your service or app? What are your technology requirements, and how are they reflecting growth plans? For instance, would 1500 new clients in a quarter mean ‘X’ amount more storage? What compliance challenges are you solving?

Take the time to really understand what your company needs from a SaaS provider.

Vet third-party providers thoroughly. Grill them on their existing financial services clients, security strengths. Look into what their contingency plans are. Gauge what your SaaS vendor will do on a monthly basis. What will the first few weeks be like? What will the onboarding process entail, and who will be actively using the technology? How long would a crossover period last? In a crossover period, what communications are required for clients?

If you are looking to build enterprise-grade solutions, you must understand enterprise concerns, problems, and requirements.

You have to offer hybrid solutions that can help bridge the gap, not just solutions that work in the cloud. You need to get the right certifications. You will have to build in granular security controls. And you will have to surface relevant data on demand. As SaaS providers, we helped legacy financial companies align and integrate their data so they can capture the full value of digital transformation. Find out how our team made a difference by reaching out to us here.