One of the most promising uses of cloud technology is the ability to use remotely managed infrastructure to grow financial services in regions where building brick and mortar banks or local data centers is impossible due to logistical and financial constraints.
While the use of mobile money to build financial services in countries such as Kenya via initiatives such as Safaricom's M-PESA program has been going on for some time (http://www.americanbanker.com/bulletins/-1038563-1.html), cloud computing is also proving to be an enabler of microfinance in developing markets.
Microsoft and Temenos have developed a new "go to market" model using the Windows Azure cloud and the Temenos core banking platform. The first implementations came over the past few weeks at six Mexican financial institutions, with additional activity planned for Africa and parts of South and Southeast Asia in the coming months. The goal of the firms is to enable banking for people who live on less than $2 per day, or about 2 billion people worldwide.
"The financial services industry wants to ensure that cloud computing can provide the security, reliability and functionality needed for mission-critical processing," says Bob Hunt, senior research director at TowerGroup. "Although [TowerGroup] expects that banks and vendors will transition critical functions to the cloud on a gradual basis, the journey has clearly begun."
Banks are successfully growing in some emerging markets, mostly be using mobile money. In Kenya, M-PESA has enabled the country's "banked" population to grow from 7 percent to 40 percent in the past three years, and about 70 percent of that nation's financial transactions are executed via M-PESA. While M-PESA initially received opposition from entrenched banking interests in Kenya before being embraced, the cloud structure is aimed at developing new banks — as opposed to alternative payments driven by telecoms, and thus would be less likely to face political hurdles beyond those faced by any traditional new bank.
The T24/Windows Azure platform combo is designed to allow new and existing financial institutions to move operations to a low-cost consumption-based pricing model. As such, banks no longer need to expend time and budget on provisioning and operating hardware resources, which are scarce in the targeted regions. By running T24 natively on Windows Azure, the new banks can scale resources and increase volume according to customer demand.
"These regions have less to invest in capital expenditures, like data centers, so something that offers use-based pricing makes a ton of sense for these organizations. You can't just spend $10 million on a data center," says Bernard Golden, CEO of Hyperstratus, a cloud computing consulting firm, who says it's more likely new banks in emerging markets will embrace public clouds, which Western banks have been reluctant to do thus far because of perceived security and accessibility issues. "It's different in emerging economies, they aren't looking at replacing something they are already have. Having something is almost always better than having nothing."
The two firms are hoping to enable local consumers to avoid saving in a "tangible" manner, by holding onto livestock or building materials as barter to convert to cash as a future price hedged against inflation. In a joint statement to BTN, Joe Pagano, a managing director at Microsoft and Murray Gardiner, a director at Temenos, said that these tangible savings, while historically safe, are "locked out of the broader economy and are not available when needed by the saver, by prospective entrepreneurs and farmers who can create employment and wealth, or by ordinary people who need capital for provident purposes, such as housing or education."
Golden also says the cloud, or any remote hosted environment, also makes it easier to make expertise available to local startups. "With a cloud provider, you get world-class talent operating the systems, you get people who know best practices," he says, adding IBM is among other large tech firms that are using cloud computing to introduce banking services in India and other nearby locales. He says Microsoft and Temenos won't face much competition in Africa, where there's not a lot of current cloud-based bank startups.
