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MULTI-CLOUD BONDS FINANCIAL SERVICES AND FINTECH INDUSTRIES

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By DAVID BLESOVSKY, Chief Executive Officer at Cloudhelix

 

In the past, the financial services sector has held the reputation of being behind the curve when it comes to technology and digital transformation, but that is changing. Earlier this year, a report showed that 60% of financial services businesses will use multi-cloud to architect their IT environments within the next two years. Alongside this stat, agility tops the list of cloud adoption drivers (47%, compared to 32% of businesses overall). Being able to innovate quickly to capture new market opportunities and emerging technologies, such as AI and blockchain, shows how the bond between the two financial sectors is growing. Adaptation is at the heart of these partnerships, led by the need to gain ready-made customers, motivate growth with innovation, and avoid being left behind by the competition.

The traditional three pillars for IT in financial businesses are security, compliance and flexibility – reviewing these can help to understand where multi-cloud will come into its own:

 

Multi-cloud – an introduction

Multi-cloud has become a buzzword and it’s easy to lose track of the true meaning. Unlike a hybrid cloud, where you can use different platforms (such as public and private clouds) but with the same provider, multi-cloud allows you to use multiple platforms with multiple providers for separate workloads. Multi-cloud is broader than hybrid – you could have a hybrid cloud within a multi-cloud but not vice versa.

There are several reasons why you want to host workloads on entirely different cloud platforms or with different providers:

  • DAVID BLESOVSKY

    compliance for security and data protection policies

  • better data control
  • to avoid vendor lock-in
  • cost and performance optimisation
  • opportunity to develop new tools and services, such as AI and blockchain
  • flexibility to use the best environment for each workload

 

More security for your firm

Keeping all your business-critical systems with just one service provider is a bit of a gamble. There are multiple threats to the reliability of technology – cyber-attack, natural disasters, nuclear war!

A multi-cloud strategy increases resilience, it’s a solution that can be consistently deployed in the same manner, regardless of location. It improves cost efficiency as well as allowing you to leverage different services, ensuring each of your department’s critical functions are served and secure.

Public cloud can be used for big workloads with low compliance needs, whilst private cloud could be more compliant and efficient for data with security policies attached, and another set-up could be provided for dev testing and building etc.

There is a solution for firms that need to keep an on-premise product; the converged cloud stack brings the benefits of the cloud on-prem. While on-premise data centres perhaps aren’t the best way of working, there’s been a recent acceptance in the industry in the role of on-prem.

This is shown in products like AWS Outposts, which is Amazon’s version of the CCS. Historically, AWS have said ‘you can run anything on AWS, public cloud will be the way everything works eventually.’ However, AWS building an on-prem solution shows that on-prem is still important. We’ve seen how it can be used within the financial sector. When used in the right way, on-premise has a role, and is likely here to stay.

 

Compliance, no matter what

Compliance is a close second to security; financial data has always come with compliance policies, even more so now with recent changes in how data is stored and reported on.

43% of the financial industry sees multi-cloud architecture as a way to meet regulatory needs, and this can be met by working with providers who understand your compliance needs.

Part of compliance is documenting and proving an effective Disaster Recovery strategy. If your service is hosted on a single cloud provider’s infrastructure, a natural follow-up question from an auditor will be “What is your plan for when that cloud provider experiences an outage?” Having your solution spread across multiple cloud providers in an active-active configuration facilitates a satisfactory answer.

By introducing a multi-cloud strategy to your firm, you can make the most of the strongest services offered by each individual provider to ensure your business can handle almost any situation. Mission critical data can be held on the most suitable platform whilst other elements of your infrastructure can be run on another to ensure security and cost efficiency.

 

Flexibility, on your terms

Vendor lock in can occur easily when you use a single cloud service that restrains you from easily being able to transfer to another service.

This can happen because of introductory offers that have constraints in the fine print, not having a cloud strategy that allows for unexpected usage, using technologies or services that are incompatible with the common standard, or even long-term reliance on a provider, skill sets, or older systems and processes.

A multi-cloud deployment will mean that the cloud vendor’s native services cannot be used – instead, independent services are required. As an example, let’s imagine that your application requires a real-time data/event ingestion service. These services are natively available on public cloud, e.g. Amazon Kinesis, Microsoft Event Hubs and Google Pub/Sub. While you could write your application in three different ways to account for all three of these options, you might prefer to deploy your own equivalent solution using Apache Kafka. This would avoid being locked into the vendor-specific services and add flexibility to your deployment strategy – the software could even be deployed in the same way on private cloud infrastructure. The trade-off is that as you do not have a managed service from the cloud provider, you have an additional administrative overhead.

We know the pain of being trapped by a provider and it’s something a business shouldn’t have to deal with. Working with a provider who only has an allegiance to you, will allow you to utilise multiple services across different platforms whilst ensuring your flexibility comes with the peace of mind of dealing with a single company. This also provides you with more freedom when it comes to acquiring new fintech solutions as you adapt and grow.

 

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Finance

GET READY FOR A LARGER-THAN-EXPECTED INTEREST RATE SPIKE IN 2022

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By Nicholas Sargen

As investors assess what is in store for 2022, they should not lose sight of what has transpired over the past two years. What stands out is that the COVID-19 pandemic is different than any prior global shock in the last 50 years. When it struck in early 2020, the economy suffered its steepest decline on record as businesses and schools were shuttered. But it also rebounded quickly as businesses reopened, and it has since recouped all the output declines and most job losses. The economy has also experienced the steepest rise in inflation in three decades.

The quick recovery is testimony to the unprecedented fiscal and monetary policy response that occurred, as well as to the resilience of U.S. businesses and the workforce that has been facilitated by the digital economy.

Nick Sargen

The vigorous policy response in turn provided cover for investors to add risk to their portfolios. Stock market returns since late March 2020 have exceeded any comparable period in U.S. history with the major indices doubling in value. And there has been no meaningful correction over that period.

Looking ahead, the investment landscape will likely prove trickier for several reasons. First, the COVID-19 pandemic is proving more difficult to eradicate than many had anticipated. Second, the Fed has signalled it will likely raise interest rates to curb inflation. Third, much of the good economic news has been priced into markets.

Of these, the hardest to forecast is the pandemic. One of the key lessons from the delta variant, however, is that it did not produce lasting damage to the economy because businesses and schools remained open. Accordingly, Federal Reserve Chair Jerome Powell told lawmakers that the economic effect of the omicron variant would not be “remotely comparable” to what occurred at the onset of the pandemic. But it could influence monetary policy if the economy slowed.

The focus of investors currently is on the prospect of Fed tightening to curb inflation. After being in denial earlier, the Fed now recognizes the pickup in inflation this year is not transitory and could persist into 2022 and 2023.

At the December Federal Open Market Committee (FOMC) meeting, the Fed announced it would speed up its tapering of bond purchases to conclude in March 2022, and it increased the projections for the federal funds rate. The median forecast of FOMC members now calls for three rate hikes in both 2022 and 2023, with a terminal rate of 2 percent-2.25 percent by 2024.

The looming issue is whether this gradual glide path of rate increases will be sufficient to bring inflation back to the Fed’s average annual target of 2 percent.

I am sceptical for several reasons. First, the median projections of Fed members for the coming year call for real GDP growth of 4 percent and the unemployment rate to fall to 3.5 percent, which suggests the economy will be approaching its long-term potential.

Second, inflation expectations are becoming embedded in wages, which have risen steadily and are now approaching 4 percent.

Third, while supply-chain disruptions may ease as the coronavirus pandemic abates, the housing component of the Consumer Price Index is likely to stay elevated. Finally, fiscal, and monetary policies are still accommodative.

Financial markets have taken the news in stride thus far, as the Fed’s forecasts are in line with what investors were anticipating. Bondholders, nonetheless, should realize that even if inflation subsides to the Fed’s 2 percent target in the next few years, they in effect will be accepting negative yields in real terms throughout this period.

 

So, why would they do so?

My take is that investors’ expectations about inflation and interest rates have been shaped by the experience following the 2008 Global Financial Crisis, when economic growth and inflation were subdued for a decade. This outcome is consistent with prior bouts of financial crises, as Carmen Reinhart and Kenneth Rogoff spell out in their article “Recovery from Financial Crises.”

By comparison, the coronavirus pandemic is a completely different type of shock that did not inflict lasting damage on the economy and the financial system.  While it has taken a heavy toll on people’s lives and well-being, it has also unleashed unforeseen changes in the way business is conducted and how people go about providing for their livelihood. Throughout the travail, what stands out is that many U.S. companies are highly adaptable and experienced increased productivity while others have seen their businesses disrupted.

As a result of the policy support during the pandemic and the resilience of the American economy, the U.S. stock market has posted outsized returns in the past two years that far exceed other developed markets. To a large extent, the gains this year reflected a strong rebound in corporate profits, with earnings for S&P 500 companies up by 40 percent. Going forward, however, investors should lower their return expectations as the economy and earnings normalize while interest rates rise.

How well the stock market performs will hinge to a large extent on how inflation fares. If it recedes as the Fed expects and interest rate increases are gradual, valuations are likely to remain high. But should inflation prove to be persistent, and the Fed is compelled to accelerate the pace of rate hikes, the stock market would become vulnerable, and the bull-run could end. For this reason, I believe caution is warranted.

Nicholas Sargen, Ph.D., is an economic consultant and is affiliated with the University of Virginia’s Darden School of Business. He is the author of “Global Shocks: An Investment Guide to Turbulent Markets.”

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Looking Ahead: 2022 Fintech Predictions and Reflections

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By

Will Marwick, CEO of IFX Payments

 

2021 was the year of recovery and opportunity for many, following months of disruption caused by the pandemic. But whilst many industries have struggled to bounce back from the disruption, many Fintechs have managed to thrive in a somewhat hostile economic climate as a result of innovation, digital disruption, lucrative funding and a vision for how products can change the lives of consumers whilst helping businesses grow.

From a personal perspective, it’s been wonderful to see that as an industry we have shown our continued resilience and ability to pivot to customer needs which has seen the likes of open banking and contactless payments boom in the wake of the pandemic. The agility and disruptive mindset of both established players and emerging disruptors meant that competition has only become fiercer, making everyone work harder and smarter which ultimately pushes the boundaries of what is possible.

Its therefore no surprise that UK FinTech funding more than doubled to $11.4 billion in H1 of 2021 alone, indicating investor confidence in the industry. This will pave way for further opportunities to innovate and disrupt financial services for the better.

2021 for IFX was one of the best years to date since our inception in 2015. We’ve expanded our capabilities, worked with new partners and bolstered our team with great success. All of which we aim to amplify even further this coming year.

As we look forward into 2022 it’s important to consider the new emerging trends and movements set to shake up the industry and how as a business we can play our part in what is set to be another trailbrazing year.

 

2022 Trends 

1. Embracing Fintech Partnerships. In 2022 we’ll see greater collaborations between services providers across a host of industries. Being a collaborator, rather than a competitor, is key to being successful in this sector as we all look to identify a means of fitting into a modular ecosystem. As a starting point, every business has to recognise that success comes from leveraging the strengths of others to amplify their own. Businesses must admit that they can’t be best at everything and counter that by creating strategic partnerships that will reign supreme. Ultimately, collaborating with and embracing other specialists within the sector allows fintechs to expand their capabilities and set themselves apart from competitors. As the industry grows, to be the best in the field, means not offering the cheapest cost or the tightest margin, but integrating value-add propositions that make the product more appealing to its customer base. For instance, this year IFX have successfully partnered with Volt connecting IFX’s virtual IBANs with Volt Connect allowing UK and EU-based merchants to realise the full potential of open payments.

2. Changing Consumer Payment Habits via Open Banking. Open Banking has been a hot topic in 2021 and we know the work will continue in the space this year. Whilst the majority of the work in the last year around Open Banking was rather conceptual, it paved the way for some innovative ideas and an enhanced customer experience. Without doubt, there are many benefits of Open Banking, settlement is faster, and rails are cheaper and arguably safer for customers but now it faces the challenge of encouraging customer adoption by competing with the convenient and simple UX of card payments afforded by smart phones and computers. As such, I expect that changing the mould of how people make payments will dominate the majority of the conversation and work we do as an industry in the coming year.

3. Elevating Regulation. At IFX we always aim to set industry best practises through our regulatory expertise, and ultimately break the mould of malpractice that has blemished the FX industry historically. Whilst regulation has definitely taken centre stage, and took over most senior level discussions, I anticipate a greater focus on PSPs and EMIs with both safeguarding and operational resilience being tested to ensure customer funds are adequately protected. Being stringent in terms of regulation is a way for payments and fintech companies to separate themselves from the pack. The FCA is also sure to take further regulatory action as they start to clear the covid backlogs, which in my opinion will be a welcome move to help combat some of the issues we have seen this year. Firms need to be sophisticated when it comes to making sure they’re compliant with regulations. Safeguarding client money correctly is a challenge which requires consistent attention so we’re likely to see this being an obligation that firms invest in significantly.

4.Introduction of the UK Central Bank Digital Currency. This is likely to be the door for many banks to embrace crypto-related technology. Blockchain infrastructure is an incredibly powerful tool that can revolutionise the industry through a host of features not limited to instant global settlement and transaction monitoring capabilities. The hesitancy to embrace this infrastructure, alongside a number of crypto assets, appears to come from the dark web usage of old, where assets were used for illicit purposes and money laundering; but then again, so is cash. Ultimately, we shouldn’t be afraid of the capabilities that this revolutionary development can carry due to the negative connotations. Instead the focus in 2022 should be on education and equipping our industry on understanding the power of the blockchain so that everyone can understand the good that it can do, the risks it carries and how to mitigate those.

 

So What Now?

2021 saw great innovative strides taken in the payments and fintech industry, but as we look ahead into 2022 it doesn’t look as if this cadence is likely to plateau. The industry will continue to adapt and grow to cater to the changes in consumer and business habits, and we’ll see Partnerships, Open Banking, Regulation and Digital Currency as key strategic milestones across the board. At IFX, we are constantly striving to be the best in our fields and through partnering with other brands, tightening our regulation processes, and constantly educating ourselves and others on developments in the industry, we look forward to experiencing even greater growth in 2022 and beyond.

 

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