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The use of software-as-a-service (SaaS) has surged in the fintech space in recent years. SaaS has become critical to the massive rise of fintech in the wider financial services industry. A mere ten years ago, many market observers still considered fintech to be a peripheral trend that would come and go. However, in the last decade, it has transformed the financial sector.
Fintechs have either driven market innovation directly with their own products or indirectly by changing customer expectations of what was and continues to be possible. As a result, traditional financial institutions have invested in their own adoption of fintech products, via collaboration with, or outright acquisition of, fintech companies, or through in-house development. SaaS has played an essential role in this rapid growth.
Enabling the rise of SaaS in fintech: What’s behind its success?
SaaS is quickly replacing the traditional use of installed software packages for all manner of business finance applications. A few factors have made this transition possible.
The rapid evolution of downloadable software, later evolving into SaaS solutions, has made the delivery of programs on a physical medium or custom-installed by a consulting firm increasingly obsolete, as companies continue to migrate to the cloud via SaaS solutions.
Smart technology is getting smarter, with more rudimentary forms of AI progressing to highly intelligent robotic process automation through machine learning, knowledge engineering, and data management.
Rapid regulation development
Across the world, developments in regulation, some of which are unprecedented in their scale and scope, have opened financial services up to greater competition and possibilities. Regulators also largely require all financial institutions to comply with certain stipulations in virtually all financial verticals.
To meet these stipulations though, banks have had to move away from legacy systems to more efficient, capable workflows. To achieve this end, they have turned to SaaS fintech solutions. For instance, this is evident in client onboarding, with legacy know-your-customer checks falling short of regulatory expectations. In their place, regulators insist that banks adopt automated processes that can manage massive amounts of data, detect suspicious activity, and execute identification and client profile checks. Again, it is SaaS that can best address these challenges in a cost-efficient, security-optimal way.
Five benefits of SaaS fintech solutions
SaaS fintech platforms and products offer a plethora of important benefits over on-site software environments.
Massive cost reduction
In-house software development has traditionally meant investing substantial sums of company money. First of all, the development itself can total amounts that, depending on the size and needs of the organization, could be anywhere from thousands to millions of dollars for a full tech software stack. Companies also traditionally have had to hire large IT teams to service their own products, to keep them working in optimal conditions, and carry out maintenance, security updates, and troubleshooting.
The investment to support this kind of outlay has typically been enormous. SaaS eliminates many of these costs. Additionally, in-house IT workforce requirements can be far lower, as the SaaS provider does the heavy lifting when it comes to maintenance and updates. Moreover, companies are usually able to pay only for what they need with SaaS, which optimizes investment allocation.
Financial institutions were once distrustful of cloud computing providers, as they deemed it a data security risk. As a result, they preferred to persist with their on-site software infrastructure. In recent years, this outlook has inverted. Now, market observers overwhelmingly regard cloud service providers to offer the benchmark in data security, while on-site infrastructure, particularly that of a legacy technology nature, represents a glaring data security risk.
Most security breaches take place via tactics like phishing and other email-borne attacks. This is the primary benefit that cloud security provides, because cloud-based data management is not vulnerable to individual employee workstations like on-premise software. Moreover, cloud data is stored on remote servers, which are protected and encrypted.
Customizable and fit for purpose
With pre-fab software packages, companies normally had to choose an option and buy it, usually a “business” or “enterprise” version that contained superfluous features or capabilities that weren’t an exact fit. In-house development carried its own pitfalls, such as having to contend with legacy technology or overscoping, which resulted in building clunky solutions with features users didn’t necessarily need or want. Fintech SaaS provides a more robust and customizable platform for development, to keep output in line with user expectations. Companies building a solution can turn new features on or off to deploy additional services to users quickly. Tech teams can also develop discrete new functions to integrate specifically into the platform, reducing development costs and time to market.
Speed of service access
Many SaaS fintech companies focus on optimal speed of integration and launch, with some able to power companies from concept to market within weeks, not months, or even years, as has been the accepted norm. It usually takes a lot longer to develop and launch a product when companies do it in-house on their own. This is because it can often involve long recruitment searches to find the right talent and subsequently get these employees up to speed on the company’s products and development requirements. Moreover, it tends to involve process planning, market research, compliance and legal obligations, as well as investment and timeline design, among other time-consuming elements.
Ready-made core and value-added solutions
SaaS fintech positions companies to go to market much faster than in the past and for markedly lower investment. Out of the box, leading SaaS fintechs meet so many business needs that were traditionally laborious, time-consuming, complex, and, of course, expensive. These include compliance with a host of regulatory frameworks, fast client onboarding, optimal payments and foreign exchange rates, product development sandbox, security frameworks, among many more. In the past, the large cost, and workforce and regulatory requirements involved in meeting all these business operational requirements acted as barriers that were too great to overcome for virtually all would-be challengers to market incumbents.
SaaS fintech has broken down these barriers. As a result, it has enabled companies to enter the financial industry and compete with incumbents. For instance, Spanish company Crealsa is a Spain-based neobank that uses fintech SaaS to provide SMEs and individuals with business loans.
The Toqio verdict
The bottom line is that all financial institutions face multiple pressures to launch SaaS-based financial solutions or migrate operations. These encompass traditional, neo-, and challenger banks, as well as other kinds of fintech service providers. These pressures come primarily from heightened competition, regulatory demands, and shareholder stipulations to lower costs. However, by resisting the winds of change and persisting with on-site software, there is an opportunity cost of foregoing the most innovative solutions that SaaS fintech uniquely provides.
There are other factors too that also threaten a lack of competitiveness by persisting with on-site software environments. SaaS fintech can markedly reduce research and development costs, with the ability of rivals to redeploy funds elsewhere across their business to support growth. It also supports agile migration to full digitization. Furthermore, a big problem for financial organizations is getting to market in time before consumer preferences shift along with technology innovations. It isn’t uncommon for financial institutions to have developed a product over the course of 12 to 18 months that is already out of date by the time the development stage is complete. SaaS fintech can position organizations to respond optimally to market demands with fast, go-to-market execution of new products.