By Kris Sharma, Financial Services Sector Leader at Canonical, on why open source cloud is empowering the financial services sector in Britain
According to KPMG, investment in the UK’s fintech sector reached a new high of $37.3bn in 2021 in value, a 600% increase compared to 2020. Cloud-native innovation is currently saturating the market as financial service organisations continue to rely on cloud technologies – specifically open source private cloud – to accelerate their transformation efforts.
Cloud computing is no longer cutting-edge technology but is part of mainstream IT, making businesses more agile, cutting costs and offering access to potential new revenue streams. In particular, cloud technologies power innovation by harnessing emerging technologies such as Artificial Intelligence (AI) and blockchain. Start-ups and established financial institutions are leveraging the collaborative energy of open source. At the heart of open source is a collaborative and unfastened philosophy where professionals can inspect, modify, and enhance cloud-based systems. The potential here is massive, with the open source market set to grow 24% by 2025, according to a study from Research and Markets.
The Covid-19 crisis accelerated digital transformation in the financial services sector, but customers now demand more innovative services and experiences. Challenger banks have meant the whole industry has had to level up and provide seamless, consumer-friendly services that help people manage their money more effectively. For financial services, open source cloud technology will be vital in meeting this demand. The next few years will be critical for market leaders in this sector as they adapt to a rapidly transforming landscape.
In this environment, market leaders are integrating multiple cloud platforms to harness the business value of emerging technologies, which we have also found ourselves. Research by Canonical has found that around 60% of financial services businesses expect to use multi-cloud (a mixture of on-premises and externally hosted infrastructure).
The UK as a fintech innovation hub
Britain remains at the forefront of fintech innovation worldwide, with UK-based fintech companies attracting more funding than companies across the rest of EMEA combined, according to KPMG’s research. Payment technologies are key to this sector, which is why it saw the most investment in the country in 2021 compared to other innovations in the industry. But British fintech companies are also innovating across everything from wealth and asset management to cybersecurity.
For financial institutions in the UK, innovation is no longer an optional ‘nice to have’, as they are surrounded by competition pioneering the latest and greatest in financial technology. Companies must embrace these new technologies and innovate internally to stay afloat in a changing market.
The advantages of open source for financial institutions
In this highly competitive market, financial services companies face the challenge of keeping pace, where open source technologies can be transformative. A hybrid or multi-cloud setup, based on open technologies, offers key advantages like flexibility. This allows financial services to quickly respond to innovation in the broader market while keeping pace with regulatory requirements. For financial services companies, agility tops the reason they are adopting cloud technology, with 47% citing it as a driver, according to a survey by 451 Research. Additionally, data privacy requirements and regulatory compliance mean financial services companies have to think carefully about where customer data is stored and where applications are running – hence why an open source private cloud is a perfect choice for many fintech businesses.
Open source cloud technology will also be crucial for companies as they engage with emerging technologies, thanks to standardised platforms such as Kubernetes. Open source private cloud means that companies can be more daring in embracing emerging technology; compared to legacy data centres, there’s a significantly lower total cost of ownership (TCO) over time. This allows financial services companies to experiment with technologies that will be central to the sector’s evolution, such as AI and blockchain. Perhaps most crucially, open source private clouds can also scale at speed, offering financial institutions the chance to add extra cloud resources to meet demand as needed.
Looking ahead, the next few years will be critical for the UK’s financial services, as cloud platforms enable the sector’s outdated technologies and practices to be transformed. Open source private clouds are poised to play an important role, allowing for much-needed engagement with new technologies.
Thinking further afield, financial services must collaborate with other emerging tools beyond the cloud, such as hybrid IT architectures, to lay a foundation for robust and rapid change. Organisations that use these technologies will be at the forefront and thus more likely to succeed in the coming years, having capitalised on the emerging opportunities that open source cloud technology provides.