As new regulations and increased reporting requirements continue to affect the financial industry, the need for end-to-end operational and reporting systems is even more apparent. Traditionally, the industry has invested heavily in building these technologies and software platforms in-house, which originally allowed firms to maintain control, mitigate risks and provide better service to clients.
With the arrival of integrated, hosted technologies that offer those same benefits and more at a lower cost, firms are now struggling to see the return on investment of software built in-house and are looking for ways to extract value from their investments. As a solution, the industry is turning toward outsourcing in order to enhance integration, streamline processes and eliminate the resources spent on building and maintaining in-house software.
Web-based solutions – such as Software-as-a-Service providers and cloud-based platforms – that have been popular among consumer-facing companies for years are quickly gaining popularity in the financial services industry as a cost-effective technology strategy. In fact, 63 percent of businesses in that industry are utilizing cloud computing.
This trend has accelerated at an even faster pace in recent years now that businesses are realizing the high-level of security available with the cloud. Research indicates that by year-end 2016, more than 50 percent of Global 1000 companies will have stored customer-sensitive data in the cloud.
Although slower to adopt the trend, the financial industry is also placing security at the top of the cloud’s long list of benefits. According to leading IT research company Gartner, more than 60 percent of banks worldwide will process the majority of their transactions in the cloud by 2016.
Experts predict that businesses in the US will spend more than $13 billion on cloud computing in 2014. Globally, end-user spending on cloud-based services is expected to be more than $180 billion by 2015, and the global market for cloud equipment is predicted to reach $79.1 billion by 2018.
Building on this success, service providers are now taking it one step further by developing purpose built-clouds that are optimized for specific industry verticals. Also known as vertical clouds, these specialized cloud platforms offer targeted functions and options that meet an industry’s use case – for example, CRM, portfolio management and accounting software designed for alternative investment firms.
An array of vertical clouds are enabling investment firms to seamlessly integrate data and become more efficient by providing asset managers with technology and software resources on demand. Vertical clouds increase transparency and eliminate the need for significant investment in hardware platforms which, in turn, lowers capital expenditures and improves efficiency.
More importantly, vertical cloud providers are focused on solving the challenges of a specific industry, while having visibility across many clients’ operations to distill best practices and valuable system features that would likely not be conceived in the in-house IT “bubble.” Vertical cloud teams typically have many years of relevant experience to understand complex demands and often offer access to valuable industry partners. For example, some cloud-based software, purpose-built for investors can seamlessly upload information from data providers, fund administrators and custodians to streamline workflows and reduce the need for manual inputs.
This offering of hyper-focused features and specialized functionality is driving the proliferation of vertical clouds and is beginning to drastically change how niche markets, like the alternative investment industry, do business. A growing number of financial firms are realizing that outsourcing specific areas of their technology infrastructure to a vertical cloud provider allows them to focus more resources on what they do best – making investments.
Clint Coghill is CEO of Backstop Solutions. Coghill co-founded Backstop Solutions Group in 2003 as the founding chairman and has helped guide the company as Chairman of the Board for the last 10 years. Clint now leads the Backstop executive team as CEO. Prior to joining Backstop in an executive role, Clint was CIO of Coghill Capital Management, a successful Chicago-based hedge fund management company he started in 1995. Clint received his Bachelor’s Degree in Business Administration from the University of Arizona, and his Master’s Degree in Business Administration from the London Business School.