Innovation and competitiveness: Fintechs must move to the edge

Source: Finance Derivative

By Simon Michie, CTO, Pulsant

Data-driven innovation has been one of the hallmarks of fintechs, along with the ability to identify areas that banks neglect or where new capabilities will transform financial services.

Now, however, the fintechs have arrived at a crossroads as edge computing changes IT in the global financial landscape. The edge is a major advance, moving data processing closer to the end user or customer. Working in combination with 5G wireless connectivity, edge computing delivers fast, low latency processing, even with the high volumes of data needed for artificial intelligence (AI) technologies.

For financial organisations, this has obvious advantages. Customer-facing trading platforms, for example, can use edge computing to enable faster and more complex mobile execution anywhere in the UK. There is no longer any significant disadvantage in being a long way from the hubs of the major cloud providers such as AWS, Azure, or Google. Fintech mobile apps are already highly developed, but once they run on an edge infrastructure platform, they will be capable of far more. They can, for instance, offer a new range of services based on, or triggered by, the user’s location, or deploy more sophisticated security, including facial recognition, to enable larger-scale or more frequent transactions on a mobile device or PC.

Edge infrastructure will become the platform for fintech innovation, to the extent that those failing to grasp the opportunity may well lapse into irrelevance. They will lack the responsiveness and streamlining the efficiency of their competitors who, for example, will vastly accelerate approvals of loans or credit extensions, drawing on historical and current customer data.

Many AI-driven anti-fraud technologies also stand to make significant progress as real-world solutions, using low latency data processing to detect anomalies or suspicious behaviour in near-real-time. AI in combination with edge data processing is also set to ease the burden of compliance with banking regulations and data sovereignty laws. These use cases are among the reasons why market research company IDC estimates global cloud spending by banks will increase by more than 16 per cent each year up to 2024, hitting $77bn annually. It is why Mastercard, the global payment giant, is pushing forward its Next Edge network – a good example of how edge computing is entering the financial mainstream.

Fintechs need the edge to sustain innovation

As banks invest heavily in edge computing, fintechs will need to accelerate innovation. Competitiveness is about more than loan rates or current account interest – it’s about providing a great experience, whether for payday loans or niche services on trading platforms.

Fintechs also need the ability to adapt rapidly to any future pandemics, the sudden imposition of financial sanctions, interest rate rises or new laws or regulations. Since most are cloud-natives, they already have the advantage of a more flexible infrastructure than incumbents in the banking sector who still have critical applications and vast datasets that cannot function properly in the cloud.  The more wide-ranging use of AI and the integration of crypto currencies, cardless payment platforms and non-fungible tokens (NFTs) will make edge adoption a necessity. The question facing many fintechs, therefore, will be about the nature of the edge infrastructure they should adopt.

Using the edge to provide a high-quality user-experience

Because edge computing has several configurations, deciding which infrastructure to build on can be difficult. For ubiquity and low latency, any edge infrastructure platform must comprise a network of regional data centres with fast connectivity to and between the major cloud providers’ hubs in metropolitan areas. This of course must be supported by low latency 5G transmission to end users and their devices. Whichever financial services market a fintech addresses, it must provide a slick interface and total reliability. For mobile applications, this means providing the same quality of experience in northern Scotland as in the South East of England.

At the same time, the data any fintech must transmit to the hyperscalers’ compute or storage capacity must also transit in the fastest and most cost-effective way possible. In the UK, this requires a network of well-dispersed data centres and fast, seamless connectivity for all data flows.

Fintechs, along with their banking or enterprise clients, should also appreciate that digital transformation in finance outside the major metropolitan areas will also require more than fast, high-bandwidth connectivity. Solutions that apply beyond the City of London will demand true edge capabilities from a purpose-built edge infrastructure platform, so they deliver to the entirety of the country.

Making hybrid architectures work with edge

The crossroads in financial IT that banks and fintechs have reached requires them to make some decisions about direction of travel. Established banks are now considering their hybrid cloud strategies, placing data and workloads where they work best and are most cost-effective, whether on-premise, in colocation, or with hyperscalers.

Increasingly, edge computing is part of the hybrid architectures banks are adopting. Fintechs should take care not to be left behind, nor to be limited by their choice of edge infrastructure partners. They must avoid vendor lock-in or being bogged down in the complexities of managing increasingly opaque or complicated and costly hybrid deployments.

Fortunately, the next generation of cloud management platforms is on hand to maximise implementation and management across hybrid and edge infrastructures. These solutions offer the ability to gain the full flexibility and innovation of edge computing while maintaining access to the most sensitive data and workloads in secure locations, as required. These more advanced edge platforms are compliant with payment card industry (PCI) data security and encryption standards as well as the EU and UK data protection and sovereignty laws. They may also comply with US regulations such as SOC 2 and the Trans-Atlantic Data Privacy Framework, governing the confidentiality, integrity, and privacy of customer data.

As fintechs take stock and decide which way to go with their IT architecture, they must consider all these points. Fintechs that address the world outside London must at the very least ensure they have a genuinely national and resilient low-latency edge platform with rapid connectivity to the major hyperscalers’ metropolitan hubs. By making informed decisions and choosing to work with best-qualified edge partners they can continue along their fast track to innovation and widespread adoption within banking and finance.