FinTech and Public Cloud

I have been really surprised at one of the latest speeches of Bank of England (BoE). Both the BoE staff and the interviewers frequently focused on the rising influence of the public cloud far more than the currently ongoing negative impacts of COVID-19 pandemic and the anticipated future economic outlook.  Their main current concern is that many of private financial institutes rely on using the public cloud services, and their reliance is furthermore growing nowadays.  

They admitted that these private agents frequently use the public cloud service because of its convenience.  The main concern of both British and Europeans is that only a limited number of the cloud service providers outside Europe offering such a service.  Despite its convenience and accessibility, they are worried about the potential security threats of sharing the financial and personal information with the limited number of the private sector outside their country. Therefore, they implied something like reinforcing the security audit conducted by the public entities.  

The underling aspect is that FinTech (abbreviated form of Financial Technology) is rapidly growing in the world.  FinTech requires the providers to be capable with supplying the elastic loads of the service usage volume which dynamically changes across time, place, and occasion.  

The conventional use of the on-premise computer servers incurs the fixed cost for setting the servers and the maintenance cost for the servers and the operating system (OS).  By contrast, by outsourcing such as the servers (The infrastructure) and possibly the OS and the middleware (The platform) as well, and their maintenance, the usage of the public cloud service can transfer their cost from fixed to variable.  Furthermore, by outsourcing the servers, etc., the these economic agents can be concentrated on their projects without taking much time and efforts on preparing for their on-premise infrastructure (and possibly the platform too depending on the service). 

In order to understand how significant the public cloud service is for the FinTech industry, it is accessed by means of the following five forces analysis:

    Competitive rivalry: Reasonably High

What FinTech offers already varies from online money transaction to the crypto-currency based on the blockchain management. They are already in various kinds of competitions.  As long as their technology enables the duplication of their rival technology, it allows them freely join the competition.  At the same time, there is still a barrier of the entry: Information technology (IT) literacy and the efficient use of the latest available technology are the key condition to enter this market.  For example, the usage of the public cloud service is essential for the cost and operational efficiency to compete with the others. 

    Threat of substitute products: Relatively Low

Only and the biggest substitute product is the traditional conventional financial institutes such as major banks and asset management companies.  FinTech is already the most technologically advanced financial service.  Then, the older financial services are their only substitutes.  Majority of economic agents in the world feel like being familiar with the traditional financial industries and the fiat-currency based trades, and various services offered by FinTech are still relatively new to them.  Therefore, there are still people stick to the older services instead of adapting FinTech in their daily life.  However, more and more people have already started realising how convenient FinTech services are. Unless there is a revolutionary invention of any unimaginable alternative product taking place, there is a little threat from substitute products.

    Bargaining power of buyers: Relatively High

 

FinTech is one of the attempt to liberate the financial market. This aims at capturing the demand dead-weight caused by the monopolistic power of the conventional financial institutes.  

The favourable characteristic of FinTech is offering the lending money to those who are struggling to borrow money from the conventional financial institutes.  Then, FinTech lenders are assumed to often offer a lower interest rate (r(Inv.) ) than the conventional counterparts by lowering the cost of risk monitoring.  Furthermore, in order to attract more savers/investors producing their lending resources, FinTech companies inevitably offer a higher return than the conventional counterparts (represented as r(Sav.) ).   

The key for FinTech industry to survive to thrive, these companies highly rely on attracting customers who used to be unfamiliar with these newly introduced services with both the higher accessibility for borrowers and the better convenience for savers/investors.   In order to achieve this objective, the procurement side mentioned in "Bargaining power of suppliers" is highly relevant.

    Threat of new entrants: High

Not only the conventional financial institutes and traders but also those from the other industry types such as the IT media also join this market competition.  In order to attract more customers, it offers something which the conventional financial services hardly offer is the key.  For example, on the top of managing the customers' financial assets (The service outcome), it offers "enjoyment" while using this service (The service process). 

The media companies have a strong advantage of offering the "entertainment" in their offering service.  For example, they can adapt some gaming elements in financial services. Then, customers enjoy not only their monetary gain by using the service but also the entertainment while using the service. 

Both the financial transfer and the accessing entertainment incur a very elastic load of service usage.  Moreover, these entrants need to spare enough time and resources for their project of inventing their extra service elements without spending too much time, energy, and cost.  The public cloud service fits in with what is required to accomplish both requirements.

    Bargaining power of suppliers: Relatively Low

In order to offer the lower lending interest rate with the higher saving interest rate for the users, the cost efficiency is indeed the crucial factor to reduce the lending fee and the investment return.  Then, the procurement becomes an unavoidable factor to achieve this goal.  At this time, taking an advantage of the public cloud, potentially lowering various costs, is the essence of reducing the cost. 

All in all, FinTech and the Public Cloud are something tied up with each other in order to thrive in the world economy.  FinTech has a potential to liberate the entire world financial economy by offering a wider range and more convenient services.  Then, the public cloud offers a higher degree of liberating the market by assisting the new entrants of the financial market.