It is difficult to imagine a world without the internet or our mobile devices. They are indispensable to our lives and have disrupted virtually every business area, including the financial industry. Banks, credit unions, and wealth managers are increasingly relying on Fintech to advance their institution’s mission and meet public demands. COVID-19 has only increased the use and insistence of digital technology. Financial Institutions know they need Fintech, but they must ask themselves an important question; should I purchase and fully integrate on-premise solutions or utilize a third-party Software as a Service (SaaS) provider?

Five things to think about when making this decision:

1. Cost

On-premise software is just that: on your premises. This means that you usually pay an upfront fee to own the software in perpetuity. On the other hand, SaaS means that you typically pay a subscription fee to utilize the software. There is no setup or installation with SaaS. Conversely, on-premise software naturally comes with large investments in installations, increased spending on hardware, and charges for updates.

2. Ease of Change

Moving data into or out of a new system will cost time and money (and probably downtime) no matter the software platform you choose.

3. Flexibility

Conventionally, you would count on the on-premise solution to provide customization with additional costs, of course. SaaS solutions have grown wise to financial institutions’ needs and offer more development flexibility at low to no extra costs.

4. Implementation Complexities

When it comes to new software, there will always be a learning curve. Institutions will have to offer employees training to get the most out of any new technology. This might be slightly cheaper with SaaS because these programs typically use online training options and often include much of it in their pricing.

The cost of support is generally much less with SaaS since their support is typically online and included in the subscription price. In addition, with on-premise software, you might also have to pay for on-premise IT support to make sure that the software is working correctly.

5. Security/Compliance

One of the advantages of on-premise software is ownership of all data and software. However, this creates a trade-off. On-premise establishes the need for an IT structure to maintain and protect the software and internal data, and sustaining this requires ongoing investments in hardware and personnel. Another critical point is that technological security is only as good as the programming purchased. Even add-on software that runs regular scans is useful only if its internal threat database is current. Recent research reveals that data’s physical location isn't essential, but the ease of access to data is most important. Both on-premise and cloud services are targets for hackers, but that on-premise sites are attacked more than three times as often. Internal intruders can also more easily manipulate on-premise functions to avoid detection. Significant investment in security technologies may require the enterprise to defend against current and emerging security threats.

In short, SaaS solutions use the power of the existing platform the vendor has already proven in production. In comparison, on-premises solutions require manual upgrades in software and hardware and take time, human resources, and money.