Pub. 2 2011 Issue 4

winter 2011 19 E veryone’s talking about the cloud these days. Thanks largely to Apple, Amazon and others, the cloud has become the latest technology phenomenon. Consumers are grasp- ing the benefits and transitioning to a cloud-based environment to share their files, host their email, and store their backups, and some financial institu- tions are doing the same. While many companies debate the merits of cloud- based services, community banks and credit unions should engage in a conversation about their benefits. The best place to begin is with a simple question: How should we define cloud? According to Information Week, cloud computing is on-demand access to virtualized IT resources housed outside of your own datacenter, shared by others, simple to use, paid for via subscription and accessed over the Internet. Many banks have been operating in a cloud-like environment for years; it’s just that the term “cloud” has only recently been coined. Understanding the cloud concept leads to a discussion on how banks can find value in moving to a cloud-based envi- ronment. Banks are facing enormous pressure to cut costs, offer the latest technology and do more with less, so the cloud offers an opportunity to ad- dress many of these challenges. In fact, Gartner recognizes the need for cloud computing for financial institutions to remain competitive and included it as one of its top 10 strategic technologies for 2012. One may ask then, what are the ben- efits of the cloud? Clearly it is about cost savings. The cloud gives banks on-demand access to software and services, reducing the cost of main- taining software licenses and physical hardware in-house. Technology expen- ditures are typically the second largest budget line item for most financial institutions, and 70 percent of that spend is on maintenance. Through the cloud, banks can reduce these costs because it allows them utilize only A Cloudy Conversation: Understanding How Financial Institutions Can Benefit from Cloud-based Services By Jeff Simpler, Director of Business Development, HEIT, a CSI Company those resources they need, while also eliminating the cost of maintaining onsite hardware and software. Another benefit is relevancy. Con- sumers want the newest technology now, but banks don’t always have the resources to deliver them instantly or efficiently at peak periods. That’s where the cloud comes into play. Through cloud-based services, banks can tap into the cloud provider’s re- sources for research and development, testing, upgrades and maintenance for their hosted applications. Not only does this alleviate traditional IT cost burdens of hosting applications in the bank, but it also provides them with a competitive edge in today’s rapidly changing technology landscape. But as banks discuss the benefits, they must also consider the dynamics between a cloud-based environment and secure delivery of their products and services.