Is Alibaba’s Finance Cloud the future of banking in China?
by Zennon Kapron for Kapron Asia
Over the past few months Alibaba’s ‘Finance Cloud’ has gained significant traction with an estimated 40+ banks subscribing to some, if not all, of the services available on the financial platform. Far from just a cloud platform, Ali Finance Cloud is the closest we have seen to ‘Bank in the Cloud.’
Kapronasia started examining the impact of Cloud computing on China’s Financial industry in 2010. At the time, the global focus of cloud was on how its nearly unlimited storage and processing power could change traditional business models. Cars could be designed more quickly and with less cost. Pharmaceutical companies could research new, more effective cures. And most importantly to us as an industry, banks and financial institutions would be able to reduce their technology footprint and costs, while increasing their business agility.
In 2010, cloud had become an industry buzz-word, but there was little FSI uptake. Like blockchain technology today, cloud then, was a great concept that companies like Amazon and Google were starting to get behind, but very few financial institutions actually used for anything beyond testing or proof-of-concepts.
Around the same time, Alibaba setup their cloud division called Ali Cloud and started to capitalize on the fact that foreign cloud providers weren’t allowed in mainland China. The platform found near instant traction as start-ups, manufacturers and retail giants all moved onto Ali Cloud. In 2013, Alibaba verticalized their cloud with the announcement of Ali Cloud for financial services.
The development of the ‘Ali Finance Cloud’ was part of a perfect storm for Ant Financial (Alibaba’s finance-focused relative). They had applied for their MyBank license and obviously needed to have a future-proofed core-banking system. Rather than look to an external provider, they decided to develop it internally.
A bank developing its core banking system internally is not unique in China, but Ant decided to go one step further: it decided to sell the cloud-based solution to other banks in China.
Thinking outside the box
If you have been in the industry awhile, you will no doubt recall an industry fixation about ‘Bank in a Box.’ The idea was to have a simple server (the box) that was preconfigured with all of the applications, databases and security that a bank would need to setup a branch. Effectively, you could take the server, plug in the power and network and be up and running.
For banks that were expanding quickly or needed mobile branches, the idea was appealing as it reduced the time to launch as well as technology costs. However, although it was pushed heavily by many IT providers and others, the Bank in a Box platform never really caught on.
Yet, if there was a torch to be passed from the ‘Bank in a Box’ efforts, it would be Ant Financial carrying it. Ali Finance Cloud has gone beyond ‘Bank in a Box’ to what we see as the first implementation of “Bank in the Cloud.” The platform’s functionality includes everything from risk management and security to basic core-system functionality. It truly is, a one stop platform.
Although the diagram below is in chinese, it provides an idea of the breadth of the solution including risk management, lending, deposits, mobile app, Infrastructure as a Service, Platform as a Service, KYC, etc..
Ali Finance Cloud Architecture
It is difficult to overstate its potential impact of Ali Finance Cloud on the Chinese banking industry or the potential implications globally. Adoption and usage of the Ali Finance Cloud in China has been swift. Although Ant declined to say, Kapronasia’s estimate is that around 40 organizations in China are using Ali Financial Cloud including, banks, payment providers and even P2P platforms.
This couldn’t come at a better time. Banks in China are facing tremendous pressure. Interest rates are loosening, hurting profitability. Third-party payment companies are increasingly capturing both online and offline payment market share and fees. P2P and other financial distribution platforms are cutting into product sales. Banks are struggling to adapt.
The value proposition of Ali Finance Cloud is all about lowering costs and increasing agility. Need a risk management system? It has that. Moving your customer relationships digital? It has that. It has nearly everything and at a certainly cheaper cost that you would be able to do yourself. Ali Finance Cloud could also be used to bridge that final gap and ‘solve’ financial inclusion, which is something that China has been struggling with for decades. Setting up a rural bank could literally involve a few keystrokes.
Today, it is clear that cloud computing is one technology that has lived up to the hype. Cloud providers like Amazon have verticalized to start driving industry solutions, but none have sought to put industry specific applications in the cloud, at least not on their own.
As Alibaba has shown through investments and expansion abroad, it is taking a very pragmatic and measured approach to international expansion, and it is clear that it is only the start. The efforts by the other large more global cloud providers to verticalize their message is admirable and seems to be enough for now, but eventually, ‘Bank in a Cloud’ needs to be the reality for these other providers to stay competitive especially as Ant Financial prepares for what will be the world’s largest fintech IPO.
We are already seeing the impact of this trend in China and it won’t be long before they take it on the road.
First appeared at KA