Guest Contributor: David Penney, EVP Strategy and Product Management , SmartStream Technologies Group
It seems a weekly occurrence that a new cloud product/service is announced. But beyond the marketing buzz and the use and abuse of the term ‘cloud’, is there a concrete reason why so much attention is being paid to service-based applications?
At a time when regulators and clients are demanding increased transaction visibility and heightened reporting and audit trail capabilities, firms are examining their post-trade operations and the software they use to run them.
In the current climate, the ‘cost’ element of post-trade processing has gone beyond the initial purchase and implementation to include the total cost of ownership (TCO) for the lifetime of a solution and staffing costs. This is because traditional on premise solutions can have many ‘hidden’ costs that must be taken into account when calculating TCO: backup and archiving services for historical data, maintenance and regularly testing a business continuity site, maintenance of application, database and operating system releases.
It is this combination of pressures that has led to increasing interest in Software as a Service (SaaS) and cloud solutions and their potential to lower TCO. According to Gartner, the financial services sector is the second-largest industry user of SaaS, after the technology sector. To date many of the current financial services SaaS deployments have been CRM or compliance applications but that is now evolving into the transaction processing and reconciliations function, helping to remove the barriers to greater transaction automation.
Some small to mid-sized institutions do not have the same levels of risk control and exception management capabilities as many of their larger competitors, yet still have sophisticated reconciliations needs. The ability for these firms to access proven functionality with no compromise on quality or usability simply because of the way it is delivered to the end user is highly attractive.
This is where the potential of SaaS comes to the fore; the provision of the same capabilities as larger rivals but without the up-front costs that are associated with the traditional on premise model. Furthermore, the rapid deployment capability offered by SaaS solutions provides small and mid-size firms with limited IT budget a viable path to solving critical problems.
SaaS is attractive because, unlike outsourcing, leaves control of the IT system in the organisations hands but removes the day-to-day technical burden of maintaining the IT infrastructure. Service-based approaches take on the expected hardware purchase and hosting, the routine of software and database maintenance, data backup and archiving services, full business continuity, as well as all software upgrades and testing.
There is no doubt these applications are already delivering more efficient and cost-effective operations. Indeed, their ability to lower costs is leading many larger firms that perhaps were not the original target for these types of services to examine how and where they can utilise SaaS within their operations.
However, while there is evidence of more of these types of services and applications coming to market, the up-take is not yet as impressive as the hype suggests. That ‘yet’ is important, however, as it is clear that for processes such as reconciliations, particularly of vanilla instruments, they can offer huge potential for firms that are looking to replace legacy systems or automate processes, without drastically increasing their overall IT budget.
These factors are pertinent in the current market, where firms need to rapidly respond to volatile conditions, increase transaction visibility and reporting capabilities and gain greater predictability of operational costs. If they can do so through a more flexible, service-based approach then SaaS and cloud applications usage will evolve to become an everyday aspect of post-trade operations.