Fortifying Fintech: Mitigating the risks of cloud downtime and CDN outages

Learn about the unique exposure Fintech has to cloud outages and cloud downtime - how it can impact business, and how to mitigate the risk.

When Intuit sold their largest data center in 2018, they did something every fintech company already understood – innovation and operational efficiency are critical to success in a fierce market landscape.

According to Gartner, 85% of organizations will embrace a cloud-first strategy by 2025. In terms of new businesses, 95% of new digital workloads are deployed on cloud-native platforms (up from 30% in 2021).

Leveraging cloud technology makes it easier for Fintech companies to focus on their core competencies - developing innovative features and delivering the best user experience. Not having to build and maintain giant server farms frees up time and resources to execute on more strategic goals.

The Cloud: a logical global trend

Migrating, or building a business on the public cloud is not unique to fintech. The cloud has been enthusiastically embraced by all businesses over the past decade.

  • The cloud computing bill ranks as the third-largest expense for many internet software firms, behind payroll and office space.
  • IDC forecasts worldwide spending on cloud services (hardware and software supporting the cloud supply chain, and managed services around cloud services) will surpass $1.3T by 2025, sustaining a 16.9% CAGR.

The logic behind moving data and services to the likes of AWS, Azure, GCP or Oracle is clear. The new differentiators within the fintech industry are the ability to deliver more efficiency, flexibility and innovation faster. That’s all hard to do when you need to manage and operate huge infrastructural projects that are not a selling point for your end users.

But wait a minute...

Like any paradigm shift, reliance on third party cloud providers means you are beholden to them. If they go down, you go down. Operating in the public cloud brings strong benefits, but it’s still a risk. In December 2021, AWS experienced a series of outages that impacted many businesses globally.

When you crash as a result of an AWS, Azure, GCP or Oracle, you pay a heavy price through no fault of your own. You can only anxiously wait for your provider to fix the problem. But, you’re left alone to contend with the damage and fallout.

When a fintech website, app or platform crashes, customers can’t access their accounts, they can’t access their own funds and they can’t transact. Consumers and businesses may miss opportunities to trade or miss a deadline to transfer funds. Whatever the case may be, they’re left with a sour experience that reflects poorly on your brand and technology.

The damages from outages are clear and expensive

  • You lose direct revenue from lost transactions
  • You may be exposed to legal action for failing to meet SLAs
  • You suffer operational losses when employees can’t access vital work tools and services
  • Your brand reputation takes a blow

Down the road - the damages may intensify, as outages can quickly turn into PR nightmares. Worse, they can lead to customer churn, and keep new customers away as word of the crash travels across social media.

A heavy price to pay

According to a Gartner survey, 98% of companies stated the cost of IT downtime ranged from $100,000 to $540,000 per hour.

For enterprises, the costs can be much higher, where a single hour of downtime can cost more than $1 million – exclusive of any legal fees, fines or penalties, according to Information Technology Intelligence Consulting (ITIC).

Whoever you survey, there’s no question that lost sales, lost productivity, disappointed customers and churn all add up and the cost of tech downtime is a force to be reckoned with. But acknowledging the risk is the first step to mitigating it and protecting your business.

Downtime happens all the time

Parametrix detects outages in real time. In 2021 we identified a service interruption every week-and-a-half, on average. These included latencies, interruptions and full out outages – all having some impact on business. The longest lasted 11 hours, while the shortest measured well under 1 hour.

Cloud outages are comparable to earthquakes, which also occur all the time. They’re not always felt by everybody, and the degree of damage directly relates to the magnitude of the event. But with earthquakes, some geographies are more prone to damages, while with cloud outages everybody is within range.

Revisit your risk strategy

Fintech firms have plenty to lose from cloud outages or CDN downtime events. Whether publicly traded or backed by investors - all relevant stakeholders need to feel reassured that all risks are accounted for and mitigated. Fiduciary responsibility mandates that officers and directors provide full disclosure of all material risks and make informed decisions.

With downtime, there are several ways to properly assess and manage the risk.

Companies can build redundancy into their systems. It’s a costly but effective way to promote uptime. It means increasing cloud spend to maintain data and systems across regions or providers.

While redundancy promotes resilience, there are no full guarantees against outages. But downtime insurance can help you prepare and preempt damages. The concept is very simple.

  1. Pre-assess the hourly cost of an outage by calculating the damages from lost revenue, unmet SLAs, compensation for impacted customers, fixing brand reputation, etc.
  2. Insure yourself for that sum.
  3. If your cloud services you rely on crash, you’ll get a fast payout to cover the damages.

Parametrix downtime policies are parametric. Payouts are pre-specified and automatically triggered by an outage. After a downtime event, insured businesses don’t need to go through a tedious claims process. They just sign a declaration of damages and receive a payout within 15 business days. They also don’t need to account for the way they use the funds, saving time, resources and energy.

See also: What is Parametric Insurance?

Don’t let outages derail your hard work

Technological advances enables by cloud services are a blessing. Outsourcing 3rd-party tech lets businesses focus on their missions. But the benefits often usher in a fair amount of new risk. Mainly - heavy reliance on data centers managed by other companies hundreds of miles away. When there’s a failure - there’s little you can do to fix it.

Addressing tech outages in advance helps your business prepare for unpleasant surprises. Identifying risks and devising a plan will help overcome the financial perils - lost revenue and a damaged reputation - and will promote trust amongst your customers.

Rick Wong
Rick Wong is Head of Insurance at Parametrix in the USA, after holding prominent positions at AIG and Hiscox in areas including D&O, cyber, and professional liability.
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June 13, 2022