Community banks and credit unions frequently enjoy fewer resources for larger technology and IT teams, and as a result, they’re often viewed as "too small to handle" the onslaught of technology changes required to stay digitally competitive, the American Banker reports.
But recent competition for cloud-based services in the financial sector means that smaller banks and credit unions have a better shot today at succeeding when it comes to digital transformation.
Jerry Silva, a research director for IDC Financial Insights, says that while it’s true that roughly 90 percent of all small banks are tied into four major fintech vendors, competition from cloud-based upstarts are pushing more established vendors to offer more cloud-based services.
“Terminating services with one of those larger vendors is not a trivial decision,” Silva says. “The vendors provide managed services for the banks’ IT needs in most aspects of their business. So, switching from the established vendors to any cloud-based provider needs to be investigated thoroughly before they pull the trigger.”
Smaller banks frequently begin their cloud journey with productivity applications such as Microsoft’s Office 365 or Salesforce.com. Midsized banks may look for line-of-business applications that can run consumer, auto and small business lending capabilities in the cloud.
3 Questions Small Banks Should Ask About the Cloud
Smaller banks looking to run core accounting and general ledger applications in the cloud should focus on three main questions:
- Are you prepared to manage multiple vendors? Smaller banks are accustomed to having one of the major fintech vendors handle everything for them. But do they really have the staff and want to make the investment to manage more than one technology vendor?
- Do you know what questions to ask? Silva once talked to a bank official who wanted to know whether a major cloud vendor offered active-active backup (where each network node has access to replication). If that banker understood cloud computing technology, he would have known that companies don’t need to architect a backup solution in the cloud because it’s continuous, Silva says. Financial services officials should study the market and understand the differences between AWS, Microsoft Azure, IBM and Oracle, and whether a major provider fits into their business model.
- What kind of integration is required? Any move to the cloud for a core banking system will require integration with the bank’s existing fintech solution. Find out how much that will cost in terms of money as well as time.
Finally, bank officials should also ask a fourth question: Why do we want to switch? Is it really worth the trouble? And what will we gain from moving to the cloud? Answers in hand, banks and credit unions can start to explore cloud-based technology with a better sense of what to look for and what they will ultimately gain.