Doing business in a relatively small, rural region, Montana-based Community First's loan volume varies quite a bit, too much for a set-in-stone investment in new loan processing technology to make much sense in an environment that's challenging on both economic and regulatory fronts.

"With that volume that we do, it's cheaper to pay for use rather than spend the money for software and then pay maintenance on a yearly basis," says Lee Ann Loucks, a real estate loan officer for Community First Bank in Glendive, Montana. The bank's volume fluctuates widely, from just a few loans per year to several dozen.

To improve its cost certainty, the bank has invested in a SaaS-enabled origination platform from Xetus, one of a handful of financial institutions that plan to migrate to away from server-based software and into Xetus' system, which can be accessed through a standard Web browser. "Banks don't have to worry about upgrading their hardware for the latest version of software. As long as they have Internet connectivity, they can upgrade," says Scott Stein, a vp at Xetus, which also just signed Coloramo Federal Credit Union and Cleveland Selfreliance Federal Credit Union.

Community First, which will move to Xetus from a legacy processing solution that Harland is discontinuing, didn't say how much it will pay to process each loan [sources unconnected to Community First say such fees are typically less than $100]. But the costs are sure to be less than the approximate $10,000 upfront deployment and $1,200 in yearly maintenance fees that an average licensed solution would cost.

Agility and cost-shaving deployment methods such as SaaS and cloud computing have been percolating for a few years, but are set for serious investment in 2011 by banks anxious to right-size tech expenses based on usage while relying on hosted and shared technology for quick response. For example, State Street, which hopes to shave more than $600 million from operating costs by 2014, plans to so via the development of private processing clouds.

Gartner's Kristine Pfeiler says that while the research firm doesn't produce forecasts of specific investment in cloud computing, it does predict an increase in tech activities at banks that would result in more use of cloud computing-particularly the adoption of private clouds in which banks retain some control. "Banks will be spending money on process improvement and on the data center," Pfleiler says, adding most large institutions aren't in a position to "rip and replace [core processing systems]."

Concerns over security and controls have thus far held back cloud investments, but that may ease in the coming year given the ability of even a private cloud to shave around 30 percent of operating costs per year for the average legacy tech platform that the cloud architecture is replacing, according to sources familiar with recent bank private cloud deployments.

"We've seen a change in the appetite for virtualization and private clouds," says Philip Farah, director of the financial services practice at Cisco's internet business solutions group, adding a step between private and truly public clouds is emerging that will attract even more banks. "You'll see more 'community clouds,' in which a couple of banks will join together to place certain functions into a cloud."

Trevor Nagel, a partner at White & Case's global sourcing and technology transactions group, says an increase in cloud deployments, as well as an adoption of "pay per usage" tech payment model are also part of a trend toward migrating IT closer to business units. "The modern CIO is going to have to think of business strategy as part of the IT strategy," he says. "You can't just give the tech to the business unit and say, 'Here's what it does.'"

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