James Whitemore Oct 19, 2011

Five Considerations for Cloud Banking

The cloud. It seems like everyone from technology pundits to mothers in TV commercials is talking about how computing is moving to the cloud – the delivery of applications to distributed users from a central location rather than putting software on individual PCs or local servers. And there’s fire behind the smoke. Gartner estimates that worldwide cloud services revenue will reach $149 billion by 2014.

Interest in the cloud is strong among bankers, who face the need for collaboration among the increasing number of remote and mobile workers, the addition of new branches, a desire to improve customer service, and the ever-present goals of improving operational excellence while driving down technology equipment and management costs. But do they need to immediately abandon their current technology investment and move to the cloud? If you don’t perform a complete rip-and-replace right now, do you risk being left behind and losing market share to more cloud-savvy competitors?

Obviously, it’s not as simple as that. Here are some issues bankers need to consider as they contemplate whether to enter the cloud or not:

Distributed vs. centralized enterprise. The first consideration should be whether your bank operates out of a single location, or has one or two primary locations and multiple branches (like most mid- to large-size banks). If all of your staff work out of one facility, and that’s all you plan to have, you may not need a cloud-based solution. But if you have multiple locations, or a significant number of mobile employees who need full, instant access to your network, moving to the cloud simplifies management of communications and applications – which, in turn, improves collaboration between employees.

With cloud-based unified communications, the technology is hosted in a single branch and services are then delivered to the others. This method eliminates the need to have IT staff in each location, or have them travel between locations to provide support. It also makes it easier to keep software and services up-to-date since the central host is being updated rather than each individual user’s equipment. Users are able to work together more efficiently through features such as Web conferencing, and manage their individual communication needs in a way that fits the work they perform.

IT staff size and capabilities. The next consideration is the size of your IT staff. In the past few years, many financial institutions have pared their IT staffs, particularly in maintenance functions. Additionally, while technology has continued to advance at an ever-accelerating pace, very little has been spent on training or upgrading skill sets. As a result, as we come out of the economic downturn, your IT staff may not be properly prepared to help you take advantage of new technologies internally – especially with the complexities and robust security requirements of today’s communications technologies.

Cloud-based computing solves that issue because the burden of keeping up with technology advances is shifted to the service provider. Your staff can continue to focus on clients and difference-making projects while commodity services (such as voice and video) are managed by outside specialists in those areas. You maintain overall control, but don’t have to expend staff time (and budget) to keep commodity services at peak levels.

Prepare the infrastructure – ditch the public Internet. Once you’ve determined that the cloud is right for your bank, it’s important to look at your network infrastructure. Networks at banks with multiple branches are often a hodgepodge of carriers and equipment that were built over a period of years, often based on expediency rather than an enterprise-level plan.

With cloud computing, an inadequate infrastructure can quickly become overwhelmed by the sudden up-tick in voice, video and data traffic. When that occurs, you will become frustrated and experience a level of service from your cloud-based applications that doesn’t meet your expectations.

But there’s more to it than bumping up bandwidth. Using the public Internet as the basis for your cloud is leaving a lot to chance. Despite improvements in recent years, it’s still not reliable enough, in large part because no one is actually managing it end-to-end. All it takes is one failure somewhere along a very long chain to bring your business to a crashing halt.

A fully managed, Multi-protocol Label Switching (MPLS) network provides a better alternative for both reliability and network performance. When configured correctly, a MPLS network will have multiple connections and redundancies built in; if the primary carrier’s network goes down for any reason, it will automatically switch over to another that is still operating, providing the high-level business continuity and disaster recovery that many financial institutions still lack today. Moving to an MPLS doesn’t necessarily mean replacing all your old carriers right away. But it does mean layering in tools to help you manage them more efficiently.

Be able to prioritize network traffic. With the Internet, all traffic looks the same. Which means if client loan documents and other paperwork arrive at the same time as last night’s highlights from ESPN, the latter may win out.

A fully managed MPLS network provides one quality of service (QOS) and routing capability over the entire network. It allows you to prioritize traffic by business case rather than simply on the type of traffic (video, voice, data, etc.) to ensure that business-related data always goes ahead of non-business data. It also provides the ability to accommodate changes in enterprise usage, expanding at peak times and contracting at lower times so you’re paying for what you actually use rather than having to over-provision to handle the highest volume.

Controlled migration or rip-and-replace? Once the infrastructure is in place, it’s time to start moving applications to the cloud. One of the prevailing myths is that this is an all-or-nothing proposition. In reality, migration to the cloud is a complex proposition, so performing a complete rip-and-replace is a bad business decision fraught with risk.

A better approach is to start with smaller, lower-risk environments such as a branch office, and implement less complex applications such as a cloud-based communications platform. Typically you won’t be housing the software at a branch, so it provides an ideal “lab” with which to work. You can work slowly, test the procedures, refine them, and ensure that they are fully integrated into your business processes. From there, you can migrate as business needs dictate.

Mr. Whitemore is executive vice president of Smoothstone IP Communications, a provider of cloud-based communications for enterprise-level companies.  He can be reached at jwhitemore@smoothstone.com.

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