BBVA's unveiling this week of a plan to deploy Google Apps to all employees as an eventual replacement to Microsoft Office could set off a new wave of banks trading traditional software for cloud-based, software-as-a-service applications. A precedent occurred in 2006, when Morgan Stanley became one of the first U.S. banks to use's hosted customer relationship management software. A slew of U.S. banks followed and the solution became almost a de facto standard in the industry.

"I know from my contacts in other banks and other sectors that almost everyone is somehow looking at this; in terms of time they are far behind us," says Jose Olalla, CIO of Bilbao, Spain-based, $709 billion-assets BBVA. "After our movement, some of them will follow quicker."

In Europe especially, the lower-cost Google option may be picked up quickly by other financial services firms. "European banks are under a lot of stress, so anything that lets them optimize and reduce costs will be welcome," says Enrico Camerinelli, senior analyst at Aite Group. "Barclays just cut 400 jobs in their IT department; European banks keep cutting resources."

Although industry observers have guessed that BBVA's is a cost-cutting move, Olalla says this is not so. In fact, the bank is not immediately replacing the Microsoft Office applications employees currently use for office productivity and communication. It is slowly migrating its 110,000 employees from Microsoft Outlook to Google Apps. "We intend to keep using Microsoft Office, we're not getting rid of it," Olalla says. "By the end of 2012, when we have everybody on Google Apps, we will have both Google Docs and Microsoft Office. We'll leave it up to people to decide which one to use. My expectation about this is that people more and more will use Google Docs, and at a certain point in time we'll be able to reduce the number of Microsoft Office licenses." In Olalla's experience, the "magic number" for cost savings through economies of scale in this kind of project is about 20,000 users. The bank has about 35,000 users each in Spain and Mexico, so the cost savings won't be great. But in other countries, BBVA does expect significant cost savings through reduced software licenses. And throughout the bank network, BBVA expects to achieve simpler management of its collaboration and communication tools, although Olalla says the bank has no plans to reduce its IT staff.

"The idea here is not cost savings, it's innovation and transformation; we want to change the way people work," Olalla says. "Imagine for example the production of a written report. Typically it means many emails back and forth with different versions of the report, and everybody adding parts to it and storing it in its own hard drive for their work in progress. At the end, nobody exactly knows which is the final version and where it is. With Google Apps everybody involved works directly (even simultaneously) with the only copy of the document stored in the cloud. No emails, no version managing, no doubt about which is the right document."

Google and BBVA are building a knowledge-sharing platform, Camerinelli says. "The real value is in being able to share documents and have a common repository," he says. This can help employees collaborate and over time, allow banks to quickly provide expert help to customers. Camerinelli suggests that over time, workflow will be added to cloud-based productivity tools that can send alerts to customer agents or loan officers when they need to step into a customer process, such as a loan request.

BBVA's Google App contract will cover its U.S. subsidiaries such as BBVA Compass.

"In the U.S., there are specific things they must do regarding local regulations, and at this time the local legal teams are working on that," Olalla shares. "I hope a couple of months from now we'll be able to sign that agreement."

The bank spent a year assessing and analyzing Google's software-as-a-service offering. "We have to be sure that all the issues are well covered," Olalla says. "Google meets all the security standards in the world, specifically the safe harbor standards, and the way they manage the storage of data is to cut information in pieces and store it in different data centers around the world, which makes it impossible to access. Besides that, there's no single vulnerability. We felt very comfortable with level of security." Although Google doesn't share the precise details of how it secures data, the company does share that information is 'chopped' (using an algorithm) and the different parts are stored separately.

Some observers feel that a large technology provider such as Google, Amazon or IBM could do a better job ensuring security than a bank could, simply through its ability to afford better resources. "That is exactly how I see it," Olalla says. "[Google has] around 600 million users of email all over the world. The economies of scale are huge and this is a critical part of their business."

The other knock on cloud-based apps sometimes made by U.S. bankers is that performance is uncertain. But according to Olalla, Google App performance has been very good. "We have a high-level service level agreement with Google that they're meeting month after month," he says. "So far, we haven't had any performance problem."

Olalla says BBVA has no external cloud computing initiatives planned beyond this Google Apps deployment. However, the bank has been building an internal cloud. "In Spain, about three years ago we virtualized all the equipment in our branches and built an internal cloud in our data centers," Olalla says. This year, the bank plans to complete its global private cloud.