Practice Strategies

The Perfect "Sandbox" – How Avaloq Innovates In The Cloud

Tom Burroughes, Group Editor, May 3, 2022

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We talk to Avaloq and one of the men driving R&D and innovation at the firm. He argues that the cloud enables wealth managers to adjust their needs and other resources flexibly – an important consideration when costs are often front of mind.

This news service recently caught up in Zurich with Dr Nils Bulling, who is the Head of Strategic Innovation, Ecosystem & Digital Asset at Avaloq, the banking software and technology firm working with many top-tier banks and wealth managers. We asked Dr Bulling about the approach he and his colleagues take to encourage innovation and explore new ideas that could prove useful to the industry. 

Q: Why does the cloud provide wealth managers with the perfect sandbox / testing environment for fintech partnerships?

A: It is much easier for wealth managers to grant fintechs access to a dedicated sandbox environment compared to a classical setup. Furthermore, a sandbox can be quickly provisioned on the cloud – ideally at the push of a button. The cloud provides easy access to self-service tools and enables rapid prototyping, testing and iteration. This approach decreases the cost of failure, which is essential for fast, impactful development and innovation. 

A cloud-based sandbox provides a low-risk environment where a wealth manager and a fintech can explore and learn about products and use APIs to integrate the solutions of each company. The advantages of innovating in this way include that it offers a standardized blueprint enabling global reach (easy roll-out to new regions), democratized access to technology (e.g. sophisticated AI algorithms), built-in security, and the ability to pay as you go, with no significant capital expenditure to bring a sandbox live. This lowers barriers to entry and fosters collaboration and innovation.

Q: How can wealth managers get the most out of cloud-based innovation partnerships?

A: All parties should have some experience with cloud and its business implications, and not just technology generally. Cloud-based innovation will appeal to wealth managers that rely on rapid innovation and are open to collaborating with financial and technology partners.

The cloud is especially interesting for data-centric applications such as AI-based systems, unlocking faster and more flexible data handling (e.g. in risk management). It enables wealth managers to leverage new innovative solutions to generate impactful client insights – at impressive speed. In general, standardized interfaces accessible via the cloud are a significant innovation driver that benefit both traditional financial institutions and fintechs. In addition, cloud can also play a key role in supporting the global scaling of new innovations. 

But besides all these benefits, corporate culture also needs to be cloud-ready, in addition to having the right skillset. Here, it is worth noting that hyperscalers often offer dedicated training programmes to improve the pool of skilled talent on the market.

Q: What solutions should wealth managers partner with fintechs in the cloud to develop?

A: This really depends on the overall IT strategy of the wealth manager in question. Generally, the solutions that offer the most potential are those that can best leverage the advantages of the cloud, such as increased security, better cost-effectiveness, scalability and flexibility as well as real-time data processing and access, which can help give wealth managers a competitive edge. Let me give two examples. 

Firstly, innovations that can be incubated locally and then gradually rolled out globally without the hassle of finding local data centre providers and network routing challenges. This simplifies global reach and facilitates the A/B testing of prototypes in different markets to prioritize those markets with the highest expected business impact. This is a win-win situation for the wealth manager and fintech company. 

Secondly, the democratization of technology access is another powerful cloud benefit. Wealth managers and technology partners can gain access to cutting-edge technologies simply via APIs – for example, pre-trained AI primitives enabling state-of-the-art speech recognition. Such technology primitives can be compounded to create powerful business applications. 

Q: What’s the best way for wealth managers to make experimental cloud partnerships ultimately successful?

A: The cloud can give solutions substantial scale and flexibility – especially if the solutions are designed to be cloud-native. It can also be advisable to start small and innovate incrementally, for example by leveraging platforms “as a service” or via serverless offerings to build a minimum viable product (MVP) with a small infrastructure footprint. This brings business value and allows validation of the business case at pace. Once this step is complete, it is time to scale. 

The cloud enables wealth managers to flexibly adjust their computational needs and other resources, for example by making use of an elastic cloud solution setup, meaning that the system can dynamically adapt to changing environmental conditions. Costs are flexible, without major capital expenditure, depending on the different types of memory and level of performance chosen.

The cloud also supports geographic scalability. Data and computation can be moved to different regions to ensure less latency and meet different compliance requirements.

Q: When designing a product in the cloud, what factors are critical to have in place from the start?

A: One of the initial considerations when designing a product is: cloud-agnostic vs. cloud native. The latter usually brings speed and scalability. It is important to choose the right design and architecture from the outset. It can therefore be helpful to also leverage expert professional services to get things right at the design phase. Cost control is also important to avoid any unpleasant surprises. This requires a thorough understanding of how changes to environmental conditions affect a given solution running in the cloud.

Q: What is the next step or evolution of wealth managers’ cloud-based fintech partnerships? What solutions might wealth managers be able to create in the future?

A: I expect the ecosystem around cloud-based partnerships to continue to mature. Therefore, to further foster innovation in a cloud setup, sandbox environments and standardized APIs will become increasingly important, as partners need to collaborate flexibly, efficiently and with low barriers to entry. Standardized interfaces in the cloud not only provide scalability with wealth managers locally, but they also unlock the potential to expand into new regions. 
This can add a whole new dimension to cloud fintech partnerships. The next logical step may be an innovation platform where fintechs can join forces to develop or re-bundle solutions to meet the specific needs of wealth managers and enhance their value propositions. 
But the potential is even broader. Wealth managers can also leverage their partnerships with fintechs, or even with non-financial firms, to reach completely new audiences by leveraging new distribution channels in the context of embedded finance.
 

 

 

 

 

 

 

 

 

 

 

 

 

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