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Separating fact from fiction in cloud computing and SaaS

There are legitimate concerns, but the advantages are many

“Software as a Service (SaaS), along with its sibling cloud computing, is one of the most used and misused terms in the IT industry.” So begins an excellent new report from Celent, “Cloud Computing and SasS: Getting the Most Leverage,” authored by Bart Narter, senior vice-president of the Banking Group at the research and advisory firm.

Though overlapping in some respects, the two terms are not synonymous. Narter defines SaaS as “when a vendor licenses an application to a client on demand, taking care of the management and maintenance of the system, in the model of a service bureau.” Cloud computing, in brief, is “the use of computing resources, typically a server or part of a server, over the internet.”

The report identifies several advantages of both SaaS and cloud, including: lower initial capital expenditure and ability to scale up or down very quickly. The second relates to ramping up server power on demand. “A good cloud computing partner will help make this happen in hours or possibly even minutes,” writes Narter. He adds that in cases of acquisitions, “using cloud or SaaS would make it seamless to the bank to double or triple in size.”

Two other advantages specific to SaaS: 1. No management or maintenance. “SaaS takes cloud computing a step further and removes almost all management and maintenance from the bank,” says Narter. 2. Automatic upgrades—users will be running the latest version of the vendor’s system.
 
Facts vs. Fiction
Narter’s report touches on five factors that tend to make banks hesitate before adopting cloud computing. In brief, these are:

• Security risk. Banks don’t think relying on cloud computing is as secure as having their own data center. Narter says this is a valid concern, and urges banks to verify that any outsourcing partner meets its standards. However, once verified, a cloud partner can actually provide greater security.

• Loss of control (i.e. becoming too dependent on one vendor). Also valid. The report mentions several ways a bank using the cloud can deal with this.

• Lack of availability.
There have been problems among major cloud vendors, and due diligence is required. Narter suggests bankers ask themselves how often their own servers go down.

• Data reliability (i.e. data loss). Another very legitimate concern. However, cloud vendors in some ways make it easier to back up data. In any case, a bank should never rely on one source for data backups.

• Latency (i.e. system running slower). Notes Narter: “With the right partner, the facilities hosting the cloud servers should be at least on par with the bank’s data center in terms of networking, if not significantly better.”

• Scalability unknowns. This is not an issue for cloud computing, says Narter, but with SaaS, it can be. A bank needs to understand what hardware is behind the service before signing for any mission-critical system.
 
Where SaaS makes sense
SaaS is a good choice for community banks to handle their core processing; larger banks much less so. The report analyzes various factors behind this distinction. Beyond core banking at small banks, SaaS is a good fit for collaborative software (applications that facilitate work among a group of people), for email, and for desktop software.

The report also includes three bank case studies.

Click here for more information and to register to see the full report.
 

Topics: Technology,

Bill Streeter

Bill Streeter has been a full-time business journalist for 40 years, 34 of them with ABA Banking Journal. During his time with the magazine, he rose from Assistant Managing Editor to Editor-in-Chief. He has guided the magazine’s editorial direction since 1985 and has been an observer of momentous changes in banking, from the introduction of ATMs to the 2008 financial crisis and passage of the Dodd-Frank Act. In 2012 Streeter became Editor & Publisher, responsible for the Banking Group overall including the magazine, ababj.com, and related e-newsletters.

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