Cloud computing can create a level playing field for new entrants, explains Paul Hunt, managing director of Phoebus Software
Back in 2010, I wrote that cloud computing was not yet ready for use in the mortgage industry. Concerns about reliability, security and the actual cost savings it makes possible convinced me the industry should wait before throwing their physical servers out the window. But as the problems I discussed then have gradually been addressed by cloud providers, the point at which the mortgage industry will embrace the cloud is moving nearer. But despite the exciting possibilities the cloud offers to businesses seeking to better manage their costs, most of the benefits offered by the cloud are already available to lenders and servicers who take their ICT systems seriously.
Using outsourced providers has for years proved a highly effective model for businesses which cannot commit to large sunk investments. An external supplier adds flexibility and reduces risk, which can prove invaluable for companies looking to grow their market share. The problem, which the growth of cloud computing has emphatically shown, is that too often outsourcers have failed to maximise their capacity to offer cost savings to their clients.
For mortgage lenders and servicers, Phoebus has been alone in offering software systems on a rental basis – which gives our clients the best possible opportunity to minimise their costs. If a lender or servicer’s books are shrinking, so do their fees, meaning they have greater leeway in tough times and are able to fund expansion in their ICT systems from growth, rather than having to make investment decisions based on predicted growth targets.
Like cloud computing, this model is essential in creating a level playing field for SMEs. Indeed, the boom in bridging finance and the increased caution among the major lenders means today there is currently real opportunity for smaller players to enter the mortgage industry and make an important contribution. By helping companies pay for their IT on an as-you-grow basis, Phoebus has been able to help companies to the market who might never otherwise have been able to fund the purchase and maintenance of a large, physical server and a upfront charge for the software it runs.
Cloud-computing is by no means the first ICT product that allows businesses to take a flexible approach to their tech investment. Innovative pricing structures have already been used to great effect by software providers and plenty of companies over the years have used them to get their foot though the door. This is particularly important in highly regulated industries with correspondingly high barriers to entry such as the lending and servicing of mortgages.
But simply helping companies through the door isn’t the end of the story. Cloud computing, like any form of outsourced IT provision, has the potential to create significant savings for established players too. The mortgage industry serves as an excellent example. The growing regulatory burden on lenders and servicers has meant many legacy systems are in need of urgent modernisation. Customer service requirements have put older systems under serious strain and this makes it harder for companies to comply with TCF.