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Big banks may make a splash out of moving to the cloud, but community financial institutions have sometimes been faster to make the move – and they stand to reap more benefits from it.

“The smaller banks and credit unions have actually been faster at moving toward the cloud because of those benefits: lower total cost of ownership, faster speed to market, less of a staffing burden. They’re not always looking to be the leaders in the market, so they’re okay with a solution in the cloud that’s maybe shared with other financial institutions,” said Christine Barry, research director at Aite Group in Boston. “We’ve seen the larger banks moving a little slower because of that desire for customization or not wanting to share the same capabilities as other banks.”

Patrick H. Whelan, director of sales and consulting for financial institutions at All Covered, said that one of the main barriers to entry is the misperception of cloud computing as scary or unfamiliar.

“Banks have been doing cloud-esque things for years,” Whelan said. “If you look at an outsourced core processing model, that’s really where they started doing cloud based computing. They didn’t call it cloud, but they’d been doing it for some time, really without noticing it.”

Some service providers agree with that sentiment. Joe Salesky, CEO of CRMNEXT, which provides cloud-based customer relationship management solutions, also noted that problem of perception.

Now, as banks continue to add products and services, moving some of those computing functions offsite helps free up resources and also makes sense as banks continue to hire and employ digital natives who have a higher degree of comfort with the cloud, he said.

Adoption of cloud-based solutions has ramped up and diversified across several IT functions in recent years, too.

Barry said that while core banking functions have been some of the slowest to move to a cloud environment, Aite had recently finished up a report that found that 65 percent of banks and 50 percent of credit unions in the United States now run their core system in the cloud. Barry compares that to Aite’s finding in 2006 that about 32 percent of banks ran their core in the cloud.

“Core was really one of the last solutions to start to move where we saw the sharp shift towards the cloud,” she said.

Centralized Command

In spite of perennial concerns about cybersecurity and vendor management, not to mention some regulatory ambiguity on the matter, moving certain functions to the cloud may make sense for community banks and credit unions for practical reasons.

Where once upon a time, banks might have to project their business growth and consequent server environment needs over the next three to five years and make an upfront capital investment, Whelan said, with most cloud-based services, banks can pay as they go.

“As community financial institutions merge and acquire, there’s a huge benefit to the consumption economics model. That is, you pay for the computing that you use. The benefit there is, your plans for future growth and acquisition are much easier,” he said.

Moreover, proponents say that moving to the cloud can actually alleviate some data security concerns.

“Your typical credit union probably has an IT staff of between five and 10 people,” said Jon Roskill, the CEO of Acumatica, which develops cloud-based enterprise resource planning tools.

And with limited time and people resources available, a small staff might let one or two security patches or updates fall through the cracks, he said.

“If you look at the Amazon or Google or Microsoft data centers, they’re run in what looks like a nuclear command center,” Roskill said. “They’re applying patches in real time and they have their own security software, their own security teams, so the chances that the average company is going to do better what these guys are doing, is basically slim to none.”

None of that is to obviate the need for due diligence and vendor management, especially as those rise to the top of regulators’ minds in an increasingly interconnected world, but Whelan noted that vendors have also been consolidating in recent years and those invested in working with the financial sector increasingly consider themselves as extensions of the institutions they serve.

Plus, keeping all of your data in one centralized location has some benefits.

“One of the fears around cloud computing is not knowing where your data is,” he said. “Now all of a sudden you actually know where your data is. You no longer have to worry about it being on multiple people’s PCs. You know where all of your data is, who has access to it and when they have access to it.”