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On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

Discover the differences between cloud computing and on-premises platforms and learn which system is best for use in FinTech

April 25, 2021

8 mins read

As we delve deeper into the 21st century, technology and the way we do business is evolving and improving daily. So, what does this mean for financial technology or service providers?

Businesses from small and medium sized enterprises (SMEs)s to large financial institutions are racing to provide easy, secure and accessible payment solutions for their customers and advances in cloud development services are paving the way forward. Speed to market and scalability are crucial to the success rate of FinTech start-ups, so deliberate research must be faced before doing cloud vs on-premise comparison. Figuring out which is the most suitable option for your business should be simple once you’re aware of the pros and cons of each option.

Whether you’re a start-up trying to disrupt the industry or a large financial institution striving to improve your customer service, a few questions need to be addressed in order to choose the best solution for your business. All your critical questions are answered below in this in-depth analysis detailing the differences between on-premises and cloud solutions.

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

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What is cloud computing?

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

Cloud computing, in its simplest form, is the process of using remote servers over the internet to host resources like emails, networking, storage, data, and software. Managing, processing, and encryption of data is left in the control of a third-party operator and offers the ability to operate real-time data reporting and analytics.

Limitless in terms of computing power and storage capabilities, cloud computing allows financial start-ups to enter the financial industry and compete on the same playing field as large financial institutions. Generally used on an as-needed basis, companies only pay for what they use and can scale up or down to suit customer and market demands.

Cloud services such as payment gateways, secure online transactions, and digital wallets are some of the most common examples of what’s on offer and can be utilized to secure payments for a variety of businesses.

Pros of cloud computing

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

Costs

The key point in cloud vs on-premise cost comparison is that cloud development platform providers charge on a pay as you go, per-user basis, so the cost involved is dramatically reduced. The Capital expenditure (CAPEX) is practically non-existent, as no hardware is needed, nor any physical infrastructure to hold servers. Landline connectivity is included in many plans, bundling your connectivity into one payment. Without the need to hire IT staff to maintain the network, expenditure can be reallocated to building your business and keep down wage costs. Maintenance or upkeep costs are kept to a minimum as there is no physical hardware or infrastructure to maintain.

User experience

User experience is another important aspect in on-premise vs cloud comparison, as plays an integral role to the success of a financial company. Cloud computing allows for development and quick launching of new products and services, essential for keeping up with customer demands and changes in the market. The ability to scale up or down rapidly according to demand levels, enables businesses to change their product offerings in real time, creating customized solutions to improve customer relationships. Buyers and sellers are brought together on shared applications, with technology implemented to ease transactions between them.

Security

Highly-secure data encryption is essential for any online business and with cloud computing, it’s all included in the package. Increased security is obtained through payment tokenization and helps organizations achieve global compliance with EMV standards. Advantages in regulation and compliance can be found with cloud computing, as the vendor can choose to completely secure or give partial access to the data in question. Data is secured and backed-up at regular intervals, allowing for access to information as and when needed.

Real-time data and analytics

Real-time reporting and analysis of data that provides key metrics at the click of a button is essential for adjusting offers to suit customer demands. Take advantage of predictive analytics to be prepared for any outcome as part of your monthly payment.

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison
Read more:  How Intellias developed a solution that optimizes financial market data flows and turns them into useful insights.

Efficiency

Increased efficiency is a major difference between on-premise and cloud. Integrated automatic data back-ups and recovery come as standard. Cloud providers maintain software updates, meaning subscribers will always have the latest technology at their fingertips. Flexibility and scalability enable companies to instantly react to changing customers, markets, and technology requirements.

Cons of cloud computing

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

Costs

Although there are low CAPEX costs involved, companies may end up spending more money over the lifecycle of subscription to the cloud. Costs included in data recovery need to be considered. Also, depending on your allocated budget per month, limits can be placed on the amount of storage availability. Consider this when doing cloud computing vs on-premise cost comparison.

Security

Relinquishing control over the security of your organization’s data can be a big step to take. Though most vendors are rigorous with their security practices and conform to global regulatory standards, it takes a leap of faith to place that information in someone else’s hands. As a widely publicized threat to cloud computing, hacking is at the forefront of security issues. If proper precautions are not taken by vendors, confidential financial data can be at risk, which is why it is imperative to choose a reputable cloud platform provider.

Data Recovery

If we talk about cloud vs on-premise pros and cons, we must mention issues with the internet. As with any online service, if the internet connection fails on your or the cloud providers side, access to critical data is impossible. Full data recovery can result in a time-consuming process to the system, as you don’t have immediate access to your equipment.

Customization

Unlike an on-premises purpose-built system, customization is in the hands of the cloud provider. Depending on the service your organization provides, flexibility in the offers can be limited.

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison
Read more:  Why machine learning in FinTech and banking is becoming more popular.

What is on-premises?

On-premises, by definition, is using your own physical infrastructure to run servers, emails, network and storage facilities on your own premises. One can discuss on premise vs cloud pros and cons for hours, but in the financial industry it’s slowly fading in significance as more security issues and data-encryption problems are being solved by ever-evolving cloud services.

Pros of on-premises

Costs

Comparing cloud vs on-premise cost for SMEs, an on-premises system can be more cost effective. Depending on the service you provide, the need to hold massive amounts of secure data or storage isn’t always a requirement. On-premises can be an ideal solution for those who only want an initial investment for the system set-up where maintenance costs can be kept to a minimum if scaling your business isn’t your goal.

Security

With an on-premises system, critical data is kept in-house and no third-party has access to your information. You literally have physical control over your back-up system and there’s no need for an internet connection to access your data. If experienced in maintaining proper security protocols, it can be an ideal solution for SME needs. Highly regulated industries with extra privacy concerns, such as the storing of medical records, can be more hesitant to use cloud facilities, as it’s an essential requirement to be in full control of all their data. In such cases the winner of on-premise vs cloud comparison is obvious.

Customization

On-Premises is where you can build purpose built, customizable hardware systems that cater exactly to your companies needs. If consumer or market demands change, you have the option to customize your offerings on site and control the solutions.

MD of Signal Peak Ventures, Ron Heinz states:

There will always be a market for on-premises applications and infrastructure.

Cons of on-premises

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

Costs

A crucial point in cloud computing vs on-premise cost comparison is an initial investment in hardware and infrastructure. It can be extensive for On-Premises systems. Not to mention the ongoing costs of maintenance, storage space, power consumption and dedicated IT support. Infrastructure also requires regular, large investment to stay up to date.

Data recovery

Due to its in-house location, on-premises systems are more susceptible to data loss during disaster situations. If not regularly backed-up, there are no recovery guarantees and the time it takes to recover data can put a serious delay in the day-to-day running of your business.

Security

Although you might think on-premises would be the safer option for protecting sensitive data, almost all of the massive data breaches we’ve had over the last decade have been from traditional on-premise IT infrastructures. Whether due to inexperience or insufficient practices in proper security protocols, it stands to reason that critical information is at risk no matter where it is stored. So, if you do cloud vs on-premise cost comparison, add the cost of a robust security system to protect your infrastructure.

Cloud vs on-premise comparison

As you can see, both cloud computing and on-premises IT systems each have their own advantages, along with a range of disadvantages. The real task begins in choosing the option that best suits your organization, while taking into account the products and services that your company offers.

Whether an initial large investment, or smaller regular payments suits your budget, the main fear factor on everyone’s minds is the security of data and how safe is it when held in the cloud vs on-premises environment. Both options offer highly-secure data encryption and tokenization to protect user and financial data. Both need regular investment, but one option is light years ahead when it comes to the ability for companies to scale and compete with larger financial institutions, which is the cloud platform. That’s probably is the main difference between on-premise and cloud.

But, if you find you can’t choose between a cloud computing and on-premise system, why not have both?

Ultimate solution for businesses is a hybrid system

On-Premises vs Cloud Computing: Pros, Cons, and Cost Comparison

Look again at on-premise vs cloud pros and cons. You can get only pros of both worlds by combining options from cloud and on-premises systems for the ultimate in security, flexibility, and scalability. No matter what size your organization is, the ability to use the internet along with in-house servers can result in an easy to use, secure and scalable system.

Control is in the hands of your organization, allowing you to pick and choose which data to outsource to a third-party vendor and what data to keep on-premises, offering greater data security.

Employees can use the cloud to access their desktops, files, applications and emails, ensuring the highest level of uptime, using software like Microsoft Exchange. At the same time, data is backed up on your servers so even if the internet fails, information is still accessible.

Renowned for their security and accessibility, hybrid-cloud providers like Microsoft Azure and Amazon Web Services provide end-to-end protection for critical, financial data and can be the ideal solution for many companies.

The choice is yours

No matter which route you choose, whether it’s on-premises, cloud, or a hybrid platform, make sure you weigh up the pros and cons for all options. Limiting your business to just one platform can have costly repercussions in the future, so an in-depth investigation is required to ensure the best results for your organization. Continuous introduction of new technology in cloud computing facilitates growth in the financial industry every day, so remember, when it comes to your business, the sky is the limit.


To learn more about how hybrid or cloud platforms can expediate growth in your business, contact Intellias to speak with our team of experts.

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FAQ

Why is cloud better than on premise?
The cloud infrastructure has several advantages over on-premise, like security, flexible costs, easy access to real-time data analytics. But the ultimate decision depends on the needs of your business.
What is the difference between on premise and cloud?
Cloud infrastructure implies using remote servers over the internet to host resources like emails, networking, storage, data, and software. When your infrastructure is on-premise, it uses your own physical infrastructure to run servers, emails, network and storage facilities on your own premises.
Is cloud safer than on premise?
While there is no certain answer, most security specialists agree that cloud can be safer than on-premise if cloud developers enable all security controls, which cloud services providers are offering.
How do I move to the cloud?
It is also key to realize you don’t have to move everything to the cloud. Maybe move a non-critical solution to the cloud and see how it goes for your business. Then continue to grow, and scale as needed.
How can I make my cloud more secure than my data center?
The cybersecurity of a cloud infrastructure requires systematic and risk-based approach for cloud security using a hierarchy of layered capabilities offered by cloud services providers.

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