More banking information tech departments may be looking at a cloudy future — and that's not a bad thing.
So-called "cloud computing," a technology that lets companies run key applications as-needed on a collection of low-cost servers as an Internet service, has strong appeal to businesses looking to gain more efficiency and streamline IT operations.
"Cloud computing is in its absolute infancy… most people don't even understand it," says Howard Rubin, founder of Rubin Worldwide and a consultant to Gartner Inc. "But everyone is exploring it."
While the model is still emerging, bankers, under intense pressure to cut costs, are attracted to it because capital expenditures are minimal, support costs are low, and applications, like customer relationship management, risk management, or workforce optimization (see related story) can be brought to market relatively quickly.
"We're seeing banks in a different situation than they were a year ago," says Renny Monaghan, vice president of industry solutions for Salesforce.com, a vendor that's working with a number of banks and other corporations on cloud computing.
SunTrust Banks Inc., BOK Financial Corp., and Flagstar Bank are among Salesforce.com's customers. Bank of Oklahoma, a unit of the $23 billion-asset BOK Financial, uses cloud-computing services from Salesforce.com for its customer relationship management. After a series of mergers and acquisitions a few years ago, the Tulsa bank was struggling with a variety of disparate information systems that were not integrating well into its core systems. At the same time, the bank was trying to encourage its loan officers, wealth management advisors and other front-line personnel to make more use of its customer-relationship database.
Bank of Oklahoma was able to roll out the new system in less than five months (which included five weeks of training). According to Charles Sparks, senior vice president for the Bank of Oklahoma, it removes the responsibility of installing, upgrading, and maintaining all the software from the bank. Ninety-five percent of the commercial bankers in Sparks' group use this cloud-based CRM application.
Aside from minimal upfront costs and speed of availability, Sparks says that the cloud-based application has proven to be easily customized; users can enter or track information in the database without having to learn new terminology. Indeed, before it adopted the cloud model late last year, less than 60 percent of the bank's employees were using the CRM database. Now 90 percent are using it, he says.
"This just streamlines and centralizes the whole process," Sparks says. "And it reduces our costs."
LendingCycle Inc. is focused on delivering cloud-computing services to financial institutions specifically, according to John Jackson, the company's CEO and a former executive vice president for First Bank in Louisville, Ky. While brainstorming plans for this company three years ago, Jackson said he and his team knew they wanted to deliver lender and cash-management support products based on the software as a service model; they quickly leapt on the nascent cloud concept because "it would give banks the easiest implementation and adoption," Jackson says. Tower Bank of Fort Wayne, Ind., Community First Bank in Harrison, Ark., and Landmark Bank of Memphis, Tenn. are among LendingCycle's customers.
Jackson admits that while interest is high, most of his clients are community banks with less than $1 billion of assets. For larger banks that have long run their applications in-house, the idea of running applications under a service model, and sharing resources (potentially with companies in other industries) could be a little more difficult to swallow, he says.
Some larger banks are embracing the cloud model, however, and they are seeing results. Similar to Bank of Oklahoma, SunTrust late last year rolled out a new relationship-management application to more than 2,000 employees in 77 days, according to Salesforce.com's Monaghan. A typical CRM rollout at a large bank would take six to 12 months. "We can help them deploy in weeks instead of months… and give them a user interface that is similar to a consumer Web site," Monaghan says.
Once up on the cloud, SunTrust had a better view of client data, Monaghan says, giving it a better handle on which accounts were profitable and which weren't. Armed with more information, it was able to increase its capital markets fees by 67%, treasury fees by 29%, and wealth management referrals by 31%, according to information provided to him by the bank.
Omer Trajman, director for cloud and virtualization at Vertica, counts JPMorgan Chase & Co's investment bank among his clients. He says that cloud computing is a good fit for "all applications that are load-intensive and read-intensive," such as risk management, quantitative analysis, developing trading algorithms, and managing internal compliance — because the cloud model utilizes resources only when and as much as its needed. (The model does not work as well for tasks like transaction processing, where processing needs are persistent and steady.)
Cloud-computing proponents say that concerns about security and a persistent desire to keep enterprise applications in-house could slow some larger banks' adoption of it. "Big banks keep everything too close," Rubin says. "And people are concerned with the security risks that cloud implies with sharing [resources]." As an example, he pointed out that some banks forbid their employees to use or even receive email from Google's free Gmail accounts because they're dubious about its security.
Jackson says that LendingCycle follows rigorous weekly security reviews and works with outside auditors to ensure that the company's firewalls, servers and routers are secure. Nonetheless he admits that banks need to "keep on their cloud vendors… The Achilles heel [of cloud computing] will be if the vendors are not tied into security."
For now, Jackson says, there's enough low-hanging fruit among the small to mid-sized banks that cloud vendors like his do not have to press the large banks. Trajman suggested that, ultimately, new providers or new cloud-computing services could arise that are vertically focused on the financial industry, or that allow the shared cloud to sit within a large bank itself.
There are signs that more mega-banks could be enticed by the cloud model. Andy Brown, managing director and head of strategy for architecture and optimization at Bank of America Corp., spoke recently at one of Salesforce.com's "Cloudforce" events on advocating a service-oriented architecture. While Brown didn't offer any details on Bank of America's cloud plans, he gave the model a strong endorsement by comparing it to consumers' use of the Internet.
"Consumer Web is enterprise Web… there is no difference now," he said in his speech, which can be viewed on YouTube. "It's impossible for any IT organization to say they have more scale than the Internet."