The European Banking Authority[1] defines cloud computing as “a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources”. Cloud computing delivers a blend of computer resources, including access to networks, software, hardware, and data storage through the Internet. It reduces the need for local resources and infrastructure and offers greater performance, reliability, and scalability. It has become a commonly used service due to the reduction of cost and increase in productivity and efficiency that it offers.[2]
The 2022 global cloud computing market was valued at $483.98 billion dollars, with a predicted annual growth rate of 14.1% between 2023 and 2030. The Banking, Financial Services, and Insurance (BFSI) sector accounts for almost a quarter (24.75%) of 2022’s revenue.[3] Four players dominate the industry – Amazon Web Services (AWS), Microsoft Azure, Google Cloud, and Alibaba Cloud, with AWS and Microsoft Azure taking around 55% of the market share[4].
Cloud computing brings advantages for banking and financial services, which include reduced cost, faster processing speeds, greater flexibility to scale resources with demand, and greater security with multiple layers of protection and enhanced security features. It can support the financial service provider to also be compliant with regulations, and it promotes an enhanced customer experience by offering 24.7 access to online services[5].
Cloud computing also allows greater opportunities to bring together services such as Know Your Client (KYC) and biometric authentication, as well as utilising advancements in artificial intelligence and machine learning. This increases the speed of growth and innovation, bringing enhanced products and services to the market.
These advantages are particularly useful for fintech start-ups and digital banks, who can more affordably create, deploy, and scale products and services using cloud computing. This opens the possibility for developing countries to leap-frog and utilise emerging technologies, particularly to reach the underbanked and unbanked[6]. Reaching the under and unbanked requires affordable and accessible financial services and arguably this is more achievable with the digital delivery of low-cost and easily scalable products that utilise cloud computing.
Of course, cloud computing is not without risk, security and privacy risks are two big concerns. The involvement of a third-party provider and the accessibility over the internet adds complexity, particularly when sensitive data and information, such as medical and financial records, are involved. Operational risks caused by natural disasters, internal bugs, power outages, and other unpredicted events can all pose a risk to cloud computing and impact businesses and users.[7] This can lead to both financial and reputational loss. However, it is worth noting these are also risks when maintaining your own servers and infrastructure and others say a third-party reputable provider gives greater security and failover or back-up plans than a small company could provide. The extensive scale in which global cloud providers operate, allows the harnessing of advanced automated mechanisms like Machine Learning and Artificial Intelligence to rapidly identify and resolve security or availability concerns within the cloud infrastructure. This proactive approach ensures heightened safety and resilience against cyber-attacks, making it a highly secure and robust solution for financial service provision.
Risks around cloud computing have been noted by regulators and new/adapted policies and enabling regulations are being implemented as the availability and adoption increases. A study by Genesis Analytics and Orange Business Services[8] noted that South Africa’s Central Bank has taken the most proactive approach and has issued directives on cloud computing. Some regulators are taking more of a cautionary approach, such as Central Bank of Nigeria, which have restricted the use of cloud banking platforms but have a committee in place designing a framework for its use. Others have put strict regulations in place that prevent the use of cloud computing within financial services, an example is Mozambique, where regulations require financial service providers to have their data stored in dedicated servers based only on national territory.[9] The variation in regulatory landscapes makes cross-border operations challenging for financial service providers and fintechs, where adaptations to differing regulator environments can be costly and slow the expansion of products and services.
Another challenge the industry faces with cloud computing is a lack of skills and knowledge. According to Deloitte[10], cloud computing is the most sought-after skill in, creating a talent crunch. Skilled staff are required to manage and utilise cloud services to allow benefits from efficiency and scaling to be gained; to ensure its security; and also to appropriately regulate its usage. A shortage of talent can hinder the advancement of cloud computing and exacerbate the potential risks through poor deployment and management.
With a varied regulatory landscape that ranges from embracing to prohibiting cloud computing, along with evidence to support the use of cloud computing playing an important role to increase the speed of development and innovation, we want to analyse the challenges and potential of cloud computing in Africa. We also want to include the impact on the end-user, particularly the under and unbanked, and ask whether limiting the use of cloud computing is impeding the capability to develop and distribute innovative and inclusive financial services that meet their needs and ability to contribute to the digital economy.
Alliance DFA, its members, and partners, are launching a Cloud Computing Working Group. The purpose is to develop an understanding of the current acceptance and usage of cloud computing in Africa in the financial sector, its challenges and opportunities, and recommendations for implementation. We will be conducting a landscape review by surveying our members and desktop research. We will also be interviewing key experts from across the ecosystem including regulators, fintechs, financial service providers, and identifying recommendations for the industry. We will release a paper on our findings in November and will disseminate and advocate for the implementation of recommendations. If you would like to be involved or be an advocacy partner, please contact Sarah Corley, CEO of Alliance DFA (sarah@alliancedfa.org).
The working group is led by Joao Gaspar (President of Fintech.MZ, Board Member at Alliance DFA, and Founder of Paytek); Kagisho Dichabe (Chair of Fintech Association of South Africa and Co-Founder of AfriNova Digital); and Rob Madziva (Advisor to Association of Digital Finance Practitioners Tanzania, Board Member at Alliance DFA, and Founder of Digital Mobile Africa).
[1] EBA BS 2017 XX (Final draft Recommendations on Cloud Outsourcing).docx (europa.eu)
[2] https://www.ajol.info/index.php/jfas/article/view/172066
[3] Cloud Computing Market Size, Share & Trends Report, 2030 (grandviewresearch.com)
[4] https://blog.mondato.com/cloud-and-fintech-security-gaps-emerge/
[5] The Need for Cloud Computing in Banking and Financial Services – Stefanini
[6] https://blogs.adb.org/blog/cloud-computing-can-be-key-enabler-financial-inclusion
[7] What is Cloud Computing? Pros and Cons of Different Types of Services (investopedia.com)
[8] https://genesis.imgix.net/uploads/downloads/Outlook-for-Cloud-banking-in-Africa_Genesis-Analytics_Orange-Business-Services_vf.pdf
[9] Position paper authored by João Gaspar on behalf of FSDmoç, March 2021
[10] https://www2.deloitte.com/us/en/pages/consulting/articles/cloud-computing-skills-shortage.html