For the average person, the cloud is a relatively incomprehensible service that lets them store files and photographs online. For the FinTech startup, it holds the key to their rise in popularity. It transforms the way they can store and share financial data, making it faster and easier to do both than ever before. As a result, cloud technology gives FinTech the edge it needs to disrupt the traditional banking world.
Data storage that affects speed and flexibility
Traditional financial services are so named because of their long history as the primary provider of banking products and services to customers. It’s also an apt name because of the way they store data. In the past, the typical branch was built around old-fashioned IT silos. These legacy systems made it difficult to make universal changes or share information between branches. It required a dedicated team of IT employees willing to put in the hours to merge this data using conventional methods.
The cloud represents a newer alternative to data storage and data sharing. It relocates data from siloed, on-site devices accessible only in person to a network of off-site servers accessible to anyone with Wi-Fi. The cloud connects these networks (or data farms) with the Internet, giving its users fast, easy, and affordable access to data.
Why does the cloud favor FinTech?
Unlike traditional services that are stuck with their legacy systems, FinTech startups are fresh to the market. Many of them are younger than cloud technology itself, so they don’t have to retrofit their data storage at all. They can start from scratch with just the cloud.
The cloud is also the reason why they could challenge the traditional banking system. Old-fashioned silos relied on expensive equipment that took up a lot of space and money in maintenance. Its size and costs out-priced fledging startups that didn’t have the capital needed to invest in these legacy systems.
By comparison, the cloud is relatively inexpensive. Startups don’t need to provide the same investments upfront to cover the space and equipment involved in department silos. That’s covered by a third-party provider, which also covers its ongoing maintenance. This has given startups the chance to provide alternative financial services that offer a faster and easier way to bank.
FinTech offers a different way to bank
Convenience and simplicity are two major features consumers expect from their financial experience, and FinTech wouldn’t be able to deliver on these promises without the cloud. Cloud technology helps FinTech companies achieve scalability with rapid data sharing. They can be flexible and nimble when launching new products or maintaining services that solve existing issues.
Though data-driven, FinTech is a broad term for customer-facing services that put value on user experience. Traditional banks, by comparison, put less value on a personalized and adaptable user experience. Even now, as it’s trying to recapture the market share stolen by FinTech, it’s failing to mimic FinTech’s rapid scalability. They’re having to partner with existing FinTech startups or they’re buying them out right to achieve the same responsivity.
So what are these alternatives?
FinTech describes a wide-ranging group of services just as varied as those found in the traditional financial world. If it already exists in the bank, then a FinTech company has moved it online. That includes simple things like cashing a check or transferring money. A mobile bank like Chime offers these services only through their website and app; they don’t need a physical branch for their customers todo these things.
Another FinTech sector without a physical presence is the growing number of online lenders. These lenders facilitate online cash advances that lack the complexities of traditional loans. Their digital platform makes it easier for companies like MoneyKey to process online loans at every stage of the borrowing experience.
Other companies are solving old problems with new online features. The founders of ChangEd leverage FinTech’s automation to help graduates pay down their student loans faster. The app syncs with their bank account and automates savings by rounding up purchases made on these accounts. For example, if you spent $35.01 on gas and $3.45 on coffee, it would charge your account $36 for gas and $4 for coffee. It would then invest the difference into your debt payment.
According to the latest data, FinTech has made massive ground in the market, while the traditional banks are struggling to retain customers. They’re trying to make up for their loss in many ways, including adopting the cloud for themselves. In the meantime, FinTech has a competitive advantage. The cloud lets them make fast changes as their customers need fluctuate.