Banking Software: Weighing The Pros And Cons Af SaaS And On-Premise Solutions

New services, powerful integrations, and lower costs that come with modern software have transformed the banking industry. Vast technological improvements have turned rigid behemoth like core banking platforms into agile systems that can add and subtract functionality in days. 

Integrating banking platforms also used to be a very complicated process. Lengthy set-up, demanding hardware infrastructure, and high operating costs have kept financial companies from entering the banking sector and banks from updating their existing software for decades.

Source: Next-gen Technology transformation in Financial Services, McKinsey

The recent alternative that allows financial organizations, both new and old, to roll out banking services in a fraction of the time has been brought in the form of the cloud banking software (or SaaS, software as a service). 

Cloud vs on-premise banking software: the definitions

What is cloud banking software?

SaaS banking software (cloud banking software) is deployed in the cloud and therefore does not require hardware infrastructure as that of a traditional banking software suite.

Google Workplace (formerly G Suite) and Microsoft Office 365 are two good examples of the SaaS model. The user receives the functionality they want by choosing a package with the corresponding fee – the same applies to SaaS banking.

Cloud banking platforms like SDK.finance help companies to roll out new banking products and services while reducing the physical infrastructure footprint. No unnecessary and unwanted features mean businesses can focus on seizing market opportunities instead of spending months configuring their infrastructure. Check this article to get more information about cloud computing. 

What is on-premise banking software?

If a bank is using on-premise software, it means that its entire instance, IT infrastructure hardware and software applications are hosted on-site, within its premises.

While there are many advantages to on-premise banking, some businesses prefer the convenience and flexibility of cloud-based solutions. Cloud computing allows users to access their data from any device or location with an internet connection. This makes it easy for employees to work from home or travel abroad without having to worry about missing important updates or files. Additionally, SaaS solutions often include features like backup and disaster recovery that are not available with on-premise banking.

Key differences between cloud-based vs on-premise banking software

When it comes to choosing cloud computing technology vs on-premise banking software, there are many factors that businesses should take into account.

Cost

For starters, cloud bank software is more cost-efficient than traditional on-premise software. In fact, in most cases, it doesn’t require any hardware infrastructure–which means less time and money spent on set-up. You will still need to pay for the service, but you won’t have to worry about updates or maintenance costs.

On-premise banking software, on the other hand, requires purchasing and maintaining the necessary hardware and software, as well as requires a trained IT team to manage and maintain it. This can be expensive, especially for an organization with a large number of employees. In addition, on-premise software can quickly become outdated, so you may need to regularly update your systems – which can also be costly.

Integrations

What’s more, the cloud-based banking software is simple to integrate with a company’s core banking platforms. Cloud-based banking platforms often come with many integrations with leading third-party service providers that unlock new revenue streams, secured by the latest standards.

This was not always the case–in the past, integrating new banking products used to be a complicated process. But now thanks to SaaS vendor, companies can roll out new services much more quickly than before.

Customisations

Of course, every product has its downsides and SaaS solutions are no exception. One such downside is that they may not be as customizable as on-premise options are. On the other hand, SaaS solutions are often updated more frequently by vendors than on-premise software, to include the latest advancements and integrations.

It is worth noting that following multiple changes to an on-premise core banking system, the service provider won’t be able to update it to a new version. With time, a customized platform may become outdated when compared to the latest version of the SaaS banking software.

Security

Cloud-based banking software is hosted off-site by the provider, whereas on-premise software is installed and run on your own servers. This might suggest that data from cloud-based software can be more vulnerable to cyber-attacks. But it’s not necessarily the case. Most established vendors invest significant resources to develop and maintain a secure and modern infrastructure because multiple clients rely on their services every day. As a result, SaaS solutions can provide a higher level of security than on-premise alternatives which are maintained by a team that might have to dedicate their time elsewhere.

Still, the security of an in-house solution depends solely on the company operating it and that includes all storage, maintenance, and other costs related to security, like backups. On-premise software requires regular backup in case of disaster. Cloud-based banking software does not require back-ups, as the provider hosts and manages all data for you.

Check this article to explore how to modernise banking legacy system via cloud migration. 

Scalability

Cloud banking platforms leverage automated processes, reporting, and compliance to enhance efficiency and reduce costs. So, as a business tool, SaaS solutions enables companies to swiftly adapt to the changing business environments and scale up or down depending on customer demand.

Predictable cost structure improves forecasting and prevents unexpected expenses in volatile business cycles. Data analysis tools provide deep insights for better operation control and security monitoring.

Time-to-market

Cloud computing offer the most efficient way to build a banking product at the beginning stage because it is difficult to manage systems and hardware in-house, all at once. SaaS banking platforms save time and money when it comes to setting up.

However, if a company needs more functions than a service provider can offer or which are hard to develop, it is worth considering on-premise banking, which provides more flexibility and control over the resulting product. On-premise solutions take longer to get to market in comparison to SaaS solution because companies spend time and resources to personalize their product and add new features.

Functionality

The capabilities and functionality of an on-premise digital banking solution are only limited by the talent working on it. Although some providers restrict the extent to which their products can be customized, it is usually possible to develop new modules and customize front and back-end as well as add new integrations. SaaS banking platforms come mostly ready out of the box, but service providers can add more features at the client’s request. 

Businesses (enterprise level, in most cases) looking for unlimited flexibility and control over their banking software solution can purchase a financial software license and implement a banking platform on-premise if they have a dedicated on-site IT team and hardware capabilities.  

Pros and cons of SaaS vs on-premise digital banking software

What are the advantages of on-premise banking software?

On-premise banking software is the traditional choice for financial institutions, and it has a number of benefits that should not be overlooked. One important factor to consider is control over data and updates–on-premise software gives you more direct access to your information than cloud-based solutions. You also have a greater commitment when choosing on-premise software, so make sure you understand all the implications before signing up.

Other advantages include:

• Reduced risk
• Customisability
• Increased compliance
• No recurring software fees

Are there any disadvantages to on-premise banking software?

There are a few potential disadvantages to on-premise banking software.

• it can be more expensive to maintain and upgrade than cloud-based software.
• on-premise systems may be less secure than SaaS solutions, as hackers can target them more easily.
• on-premise software can be slower than software as service for banks, due to the need to download data from centralized servers.
• on-premise systems require IT staff who are familiar with the software and hardware, which may not be available in all locations.

What are the benefits of using SaaS banking software?

Scalability

These are two of the most important benefits of using cloud-based technologies over legacy on-premise infrastructure. SaaS cloud banking platform can be scaled up or down very quickly in order to meet changing needs, while on-premise systems are much more rigid and difficult to adapt.

Low maintentance cost

SaaS solution is typically less expensive than their on-premise counterparts because of the elimination of hardware costs and maintenance fees. The use of a SaaS vendor also allows for the centralization of IT infrastructure, which can reduce the costs associated with managing multiple locations and data centres.

Quick start

Cloud-based solutions are typically able to get up and run faster than on-premise solutions. However, they still have some limitations in customer experience, providing extra features on top of traditional banking software, and content management

Challenges of using cloud-based banking software

Regulatory compliance

Cloud-based banking software may have regulatory compliances that limit the residency of data in cloud-based banking software. For example, the Patriot Act in the USA restricts certain financial institutions from storing data outside of the country.

Additionally, some countries have their own unique set of regulations governing how data must be stored and accessed within SaaS provider.

Implications of using cloud-based banking software for banks and financial institutions

With cloud-based banking software, contracts are not as simple as signing and walking away. All parties involved need to be aware of their responsibilities in order to ensure that the system remains safe and secure. If something goes wrong–a breach for example–financial institutions need to be prepared to communicate with regulators and affected customers.

On the plus side, cloud-based banking software allows financial institutions to outsource some IT functions which can then be used elsewhere in the organization. Additionally, these solutions come with service level agreements which help identify any risks associated with data security. As with anything else related to security, due diligence is key when choosing a SaaS provider for cloud-based banking software.

Is cloud the future for financial services?

The cloud is becoming more popular in the financial sector as companies move away from traditional software models and towards a more digital future. In order to stay competitive, banks need to embrace change and transform their business models. There is no right or wrong way to do this, it depends on the individual needs of each bank and what’s available in the market at that given time.

There are many benefits to using SaaS in banking solutions, such as greater efficiency and innovation. Cloud computing is also required in order to keep up with the ever-changing landscape of digital transformation. The future of banking will look very different from today, so banks need to start planning now for a time in 10 years when most transactions will be done electronically.

SDK.finance offers hybrid-cloud banking and digital wallet as a service software for a quick start with an option to obtain the source code license and deploy it on-premise in the future. Our Platform helps to accelerate your time to market, thanks to its ready-made software and the profound expertise of our development team.

There are two options: you can have your product developed by our dedicated team, or take the software development into your own hands with our pre-developed Platform. Contact us for details and catch your opportunity to try yourself in the cloud banking business without significant investments.