Software as a Service (SaaS) is growing in popularity in the financial industry, overcoming outdated concerns around data security. And with firms now predominantly working from home, the benefits of SaaS are even greater.
By Carly McLay, Head of Pre-Sales – APAC
Back in 2014, our co-founder and CEO, Christian Nentwich met with a group of representatives from 14 of the world’s major banks to pitch a new SaaS (Software as a Service) solution called Duco. A solution he believed would become a true disruptor in the data integrity and reconciliation market.
He demonstrated the service and outlined the benefits over traditional on-premise offerings. However, the consensus was that SaaS would never work for reconciliation as firms would refuse to send their data to the cloud. The door was politely shut.
Now, just a few years later, 15 of the world’s top 50 banks by total assets are Duco customers, including 8 members of that initial group. So what dynamics are at work that have caused a 180-degree change in those institutions in such a relatively short time?
The origins of SaaS
Centralised hosting of business applications dates back to the 1960s where business services such as database storage were offered to banks from huge data centres, like those at IBM.
In the 90s it was the era of ASP, which was mostly focused on managing and hosting third-party ISV software. Then in the 2000s, SaaS products such as Salesforce started to appear, enabling users to access services directly through a web browser, without having to install anything on their own infrastructure.
This evolution has been driven by dynamics in how we work and operate – for instance, the increase in standard internet connectivity speeds have made more complex SaaS applications possible.
But it has also been driven by the vendors themselves who can see the inherent benefits of standardisation of technology, and how common protocols make it easier to share, integrate and scale cloud-based services – as well as provide a better user experience.
And herein lies one of the common objections to SaaS. There is a perception that the vendor holds all the cards – working to an 80/20 ‘fit’ model and pushing out updates to their own schedule and timeframes.
What is actually the case is that SaaS solutions, like Duco, are treated like a consumer application.
Yes – updates are pushed out containing new functionality but there is huge care taken to ensure that no functionality is ever taken away, removed or broken as a result. There is an understanding that customers use the service in many different ways and therefore UAT and testing is rigorous, and customers are notified well ahead of time about any major new changes.
Those that adopt SaaS quickly realise the benefit of the model – for instance avoiding the need to ‘upgrade’ (as you would with an on-premise solution) and the cost and time that involves.
Another benefit is that the solution is far more scalable. Need to add volume or launch a new wealth management product? With the SaaS vendor responsible for the underlying hardware you can launch or scale up quickly – meaning your business can be agile and respond to new markets much more quickly.
Your success is our success
What the SaaS model also means is that vendor success is inextricably bound to customer success. With no installation or infrastructure (and typically a short-term subscription-based pricing model) customers can switch vendors relatively easily.
For SaaS vendors, prioritising customer satisfaction and the user experience is of the utmost importance. This is particularly true at Duco where we focus relentlessly on our NPS scores to ensure they are best in class.
By focusing on a quantitative measure of customer success the balance of power swings back to the customer as a result.
On a more practical level – SaaS offers more flexibility in payment options, giving more control to the customer. Because it is a subscription model and there is no requirement for upfront hardware purchases, it can be classed as an operating expense, rather than a capital expense which can help for accounting and tax purposes.
In addition, most SaaS pricing structures are based on actual usage, which can go up and down. You’re not paying for a transaction processing volume prediction that might or might not become reality.
One step ahead
But how do you counter the perception that the vendor holds all the cards? At Duco, we address this by focusing on being one step ahead of customer needs. This is unusual with on-premise vendors who have too many instances and customisations to be able to do that – generally they are tied up responding to customer needs.
At Duco we put resources into initiatives like strategic-level Product Councils made up of industry veterans (for example advisory board members like Cristobal Conde and Spencer Lake) who predict where the market is going and ensure that the product direction and release schedule is in line with what the market wants and needs.
Perhaps not all the new functionality will be used by everyone, but it is useful to a high percentage of customers and addresses best practices and where the industry is going.
A great example of this is Duco Alpha, an advanced machine learning platform launched earlier this year and fully integrated in the Duco service. This demonstrates the advantage of SaaS over on-premise in a couple of ways:
- Firstly, If machine learning software is deployed on-premise, it can only learn from the information it has access to in that organisation. However, without compromising customer segregation, Duco Alpha can train on over a billion new records every week, using the learnings from that data to come up with better suggestions and recommendations based on industry best practice – not just the data from one customer. Think of it as similar to having a traffic app on your phone. The SaaS version can give you traffic information based on data from all users on the road, while the on-premise version can only give you information based on your journeys alone.
- Secondly, as Duco is SaaS, we are able to provide regular releases to our customers. With each release, Duco Alpha keeps getting better, learning from more data, and able to provide more accurate recommendations when required. This is simply not an option with an on-premise solution and one which, with the rise in machine learning and the competitive advantage it can give, is a compelling reason to invest in SaaS.
A connected world
The world is an increasingly connected place. In the same way that the rise of internet usage and increased internet speeds made SaaS a viable option in the market, so the interconnectivity of the global marketplace drives an ever-greater need for SaaS technologies.
Gone are the days when connectivity to another system was expensive. SaaS applications are built to embrace an interconnected future with APIs that enable easy integration with best-of-breed applications such as reporting, analytics or RPA tools without the associated overhead.
Security and control
For financial institutions security and control are absolutely paramount. A data breach can have severe repercussions on company value and reputation. And it is these concerns that traditionally gave institutions pause for thought when assessing SaaS.
But the perception that SaaS is less secure is just not true. Perhaps in the initial days there was merit to this argument, but today SaaS vendors overcompensate on security, and concerns about the cloud are outdated. Most SaaS models today are known for their enterprise security and there is an argument to say that on-premise solutions can be more open to attack and compromise in their individual states.
Because of the implications of working in the banking sector, SaaS reconciliation vendors undergo rigorous due diligence. For instance, as part of the regular due diligence within any contract process, Duco must assure regulators that the necessary controls and safeguards against data breaches are in place as standard, and that processes and controls in the product satisfy regulatory requirements.
Given the number of times a system like Duco has been through this due diligence (with each new global financial institution that has been brought on board) it’s safe to say that the system has passed scrutiny on numerous occasions and this will hopefully give reassurance to those considering buying into SaaS.
The majority of organisations have been working exclusively in BCP (Business Continuity Plan) mode now for a few months. And while BCPs of course exist for on-premise solutions, it’s not difficult to see how SaaS solutions that can be accessed from anywhere – with existing and extremely rigorous disaster recovery protocols – are extremely attractive. Plus, there is usually no additional cost for accessing a SaaS solution from different locations.
In a world where everyone is working from home, SaaS promotes collaboration. For the most part everyone can log in and work on the same project with the appropriate checks and measures in place immediately.
Anecdotally, customers have told us that they have had a much easier time switching to BCP because of SaaS systems like Duco.
Duco is a SaaS data integrity and reconciliation solution that was born in the cloud. In this way we are fortunate. We are not an on-premise vendor playing catch up. Though we understand that there are concerns and barriers (whether real or perceived) in moving to a SaaS model.
Our mission is to make managing data easy. We want to make sure that organisations can properly process and control mission-critical transactional, operational and reference data – so they can operate better and grow more easily.
When weighing up how to best enable our customers to do this, we believe, for all the reasons above, that SaaS is the way forward. We hope you do too!