Tuesday 27 October 2020 9:49 am

Infrastructure in Deep Tech

Lex Sokolin’s Fintech Blueprint newsletter last week set out the challenges for the financial services sector in 2020.  He summarised the argument saying “(1) the shift from physical to digital communities is being accelerated by the COVID environment, and (2) this has led to the acceleration in adoption of virtual worlds, events, and economic activities native to those environments, (3) and blockchain-based market systems and venues are emerging to attach these developments to financial systems.”

This sets out the commercial imperative and challenge for financial services.  Alongside it sits the requirement for businesses to have suitable technology infrastructure to be competitive. 

Buying in technology is easier than developing your own.  But it still involves making choices.  One of these is how best to access the technology for new business to thrive in a digital-first world.  As professional advisors engaged by a range of deep tech developers and users, we work to ensure tech is fit for purpose and, in particular, fit for scalability.

It’s never been easier to access Cloud infrastructure and get going.  The Hyper-scalers are user-friendly and accessible.  Smaller providers compete offering more niche solutions.

Three trends are changing this landscape, and the issues never stay the same when you scale.

Scale: There’s been a big push given to the adoption of on-line services across the board. It’s not that eCommerce, Zoom calls and Cloud infrastructure weren’t being used before, they were. On-line services are a necessity now though, and used by almost everyone in almost every area, almost all of the time. This puts much greater pressure on performance and resilience, making infrastructure capability a critical factor for tech enabled organisations. This is not going away, and is becoming more significant as on-line services penetrate ever further and deeper.

Complexity: Those on-line services are getting more rich and dynamic, as they get smarter, more complex and capable. There was a time when we just had to think of the three straightforward kinds of tech workload: Compute, Store, Network. It’s just not that simple any longer because on-line services aren’t that simple. The dynamics of demand need capability and load management that can accommodate spikes as well as steep growth in use.  Different parts of the tech stack need very different performance characteristics to deliver them, be it the traffic dynamics of user demand, or the heavy processing demands of Artificial Intelligence and Machine Learning, or the very different needs of data at rest versus data latency. IoT, autonomous devices, and OTT services are adding to these pressures and pushing platform architects to separate central services from transactional processes and move slices of the tech effort out to the edge.

Innovation: Of course innovation is a third trend.  Just as the fintechs and deep tech companies innovate, so do the hyper-scalers and the new Cloud service providers that compete for their business. More and more specialised services and capabilities for Cloud are becoming available to tech-enabled organisations.

With the world changing so quickly, more diversity and specialist services becoming available and needs shifting, decision-makers in tech-enabled business must look to choice and flexibility.  Responding to scaling demand and opportunity are driving their agendas. Being able to keep pace is the key and it’s the business considerations that should come at the top of the list in driving choices about technology and Cloud. These things should be the servant of the business, not a constraint. Tech-enabled organisations have to decide how Cloud will be their servant, not a master.

Alongside the innovation in services, new regulation requires more attention.  Policymakers and regulators are alive to the nature of IT and Cloud services.

Critical infrastructure: The National Cyber Security Centre, set up by the UK Government in October 2016 as part of GCHQ, exercises powers to assess critical industries – including finance – and make sure plans are in place to prevent cyber-attacks and computer network failure.  The Centre is building an ecosystem that includes working with start-ups in a cybersecurity innovation centre.

Essential supplies: insolvency practitioners appointed when a business fails can require providers of “essential supplies” to keep them available after an insolvency process has started and despite a termination clause in the contract.  Essential supplies are broadly defined deliberately to cover IT supplies (a “supply of goods and services… for the purpose of enabling or facilitating anything to be done by electronic means”).  The traditional market dynamics promoted by insolvency rules are adapted in this context now.

Operational resilience:  The FCA defines operational resilience as “the ability of firms and FMIs [Financial Market Infrastructures] and the financial sector as a whole to prevent, adapt, respond to, recover and learn from operational disruptions”.  Increasingly, this looks at the technology running the systems of regulated entities, whether they own it, buy it or access it some other way.  As Accenture Consulting put it in a 2019 report, operational resilience “is arguably now as important to the financial services industry as financial resilience.”

This week’s Economist notes that “Parts of the digital economy are competitive.  Look at the cloud.”  Fintechs should take advantage.

Charles Kerrigan is a Partner at CMS in London working on fintech and deep tech: charles.kerrigan@cms-cmno.com.  Peter Osborn is chairman of Flexiion, a firm of independent Cloud specialists, and has a number of other business interests: flexion.com; peter.osborn@flexiion.com

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