Services-as-a-Software (SaaS) spending shows no sign of slowing down. According to forecasts by Gartner, global public cloud spending on SaaS will jump almost 18% in 2023, from $176,622 million to $208,080 million. The rise of cloud technology has facilitated the growth of SaaS solutions; as a result, banks are increasingly partnering with SaaS providers to upgrade their core software, improve the customer experience, reduce costs and generate revenue.
Given the buoyancy of the SaaS market, we’re exploring upcoming trends and strategies for 2023, and how financial institutions can make the most of the ever-evolving technology.
Enhanced cloud security
Security remains as important as ever in banking: a high or critical priority for 70% of financial institutions, per our 2022 Future of Digital Banking study – unsurprising, given cyber threats are increasing, with more than a quarter (27%) of consumers victims of attempted identity or data theft, according to our 2022 Consumer Report.
Moreover, research by Adaptive Shield highlights that 85% of organizations are aware that SaaS misconfigurations pose one of the biggest cloud risks.
With that in mind, cloud vendors enable security by design for their SaaS customers, allowing them to build in security and compliance from the outset. For example, AWS Nitro offers enhanced security and facilitates faster innovation.
Additionally, cloud providers adhere to a “shared responsibility” model with their customers. As such, the vendor takes care of infrastructure, hardware and main services – storage, database and networking. Meanwhile, the customer is responsible for the security of their own data – ensuring access controls and firewalls are in place, data is encrypted, and applications are designed and implemented securely.
Given the SaaS layer continues to have a bigger market share than Infrastructure-as-a-Service and Platform-as-a-Service, it’s likely SaaS security objectives will become even more of a priority in cloud security strategies.
At the same time, SaaS providers take responsibility for securely delivering applications to their financial services customers, by ensuring each player is accountable for security in areas under their control.
As such, SaaS vendors must make sure their apps are secure, encrypted, patched for detected vulnerabilities, and have robust identity and access management. And customers must protect their data and monitor the security of their systems.
Rise of cloud-native applications
Alongside banking customers capitalizing on enhanced multi-layered security, they’ll have more choice in terms of cloud-native SaaS solutions. Typically built with a microservices architecture, apps are packaged separately and offer high levels of automation for building, testing and deploying. The key advantages are:
- Quick reaction and agility: deployments and updates take place individually without pausing production systems, helping banks respond quickly to customer needs and improve their experience
- Cost reductions: because most updates are localized, infrastructure provisioning is dynamic, deployment and configs are automated, scaling is horizontal and resiliency is high, large IT systems are no longer required, and outgoings fall. On top of that, SaaS is generally offered on a subscription basis, meaning banks can further reduce costs by only paying for what they use.
Those core benefits rank highly for banks. Therefore, another trend we’re likely to see is the unbundling of SaaS packages. Service-as-a-Software delivered in bundled form is often not what financial institutions need or want. As a result, SaaS providers may consider adapting pricing and personalizing packages to attract and retain customers – particularly during these turbulent economic times.
AI as a standard SaaS feature to meet banks’ needs
The global artificial intelligence market is expected to reach 422.37 billion by 2028, up from nearly 59.67 billion in 2021. AI is benefiting many industries and swiftly becoming a standard feature in the SaaS sector. By combining SaaS and AI capabilities, it’s possible for banks to:
- Personalize services
- Enhance security
- Augment human capacity
- Better understand customer needs
- Improve efficiency
- Reduce costs
- Automate threat findings.
Furthermore, as developers gather more data from users and consumers, innovations will continue to advance, helping SaaS banking customers gain a competitive advantage.
With the continuing specialization of Service-as-as-Software, vertical SaaS solutions have grown in popularity. Catering to industry-specific needs and developed by firms with in-depth knowledge and expertise, customers enjoy features designed uniquely for their niche.
Demand for vertical SaaS spans an array of industries, from healthcare and retail to government and education. But the biggest spender is financial services, accounting for 40% of the total vertical SaaS market in 2020. With that in mind, banks should make the most of businesses offering bespoke finance-related software.
APIs: the heart of SaaS innovations
Application programming interfaces (APIs) are changing the way SaaS works, enabling software solutions to connect seamlessly with other applications and enhance the original service with external data.
With the recent increase in embedded finance and Banking-as-a-Service (BaaS), there’s an opportunity for financial institutions to generate revenue by delivering those services via SaaS and capitalizing on APIs to offer even more flexibility. As such, they’ll play the role of hosting a services ecosystem.
On the flip side, if we look at financial institutions as consumers of services, they can maximize their return on investment by leveraging business capabilities offered by SaaS providers like Sopra Banking Software. By doing that they:
- Attain greater agility
- Reduce IT complexity
- Lower costs
- Comply with regulatory compliance
- Drive innovation
- Respond more effectively to changing market needs.
Indeed, according to a global survey by McKinsey:
- Banks use around 75% of their APIs for internal purposes
- They use almost 20% externally for integrations with partners and suppliers
- And about 5% externally to generate revenue.
Given banks plan to double or triple their use of APIs by 2025, the benefits and opportunities are sizable.
There’s also the environment to consider. An increasing concern for many, we’ll likely see more SaaS providers helping to combat CO2 emissions by switching to green energy, automating processes and prioritizing scaling over growth.
For example, AWS’s eco goals include using 100% renewables by 2030 and becoming zero-net by 2040. As part of that, they’re developing technologies to reduce power consumption and the carbon footprint of their data centers.
Meanwhile, with sustainability deemed a critical priority by 32% of global banking decision-makers, financial institutions will be looking for eco-friendly partners and services.
New horizon for SaaS and banking
Throughout 2023, we’ll likely see more partnerships between SaaS providers and cloud infrastructure players. Through those, financial institutions reap the benefits of enhanced multi-layered security, agile cloud-native applications that suit their industry-specific needs, and new-generation subscription models to reduce costs. At the same time, we expect banks will increasingly use SaaS and APIs to optimize internal processes, innovate, and generate revenue.