The Path to The Cloud

Cloud computing isn’t without risk. But the improved efficiencies and lower costs the cloud creates point toward a bright future.

September 9, 2013

Romir Bosu likens the advent of cloud computing to changes made decades ago in how factories got their power. In the past, manufacturers needed their own power plants to generate electricity. Each factory had its own power generator.

“As power-generation evolved, utility companies built power grids and ran power lines to factories,” says Bosu, founder/CEO of Compushare, a CUNA Strategic Services alliance provider. “Factories and consumers now pay for what they use, and it’s much more reliable than generating their own electricity.”

Likewise, he says, “the cloud turns computing into a utility.”

The term “cloud computing” has become increasingly pervasive in the financial services industry and elsewhere. Perhaps equally ubiquitous is the confusion surrounding what cloud computing is and what it means to credit unions.

The Federal Financial Institutions Examination Council (FFIEC) defines cloud computing as “a migration from owned resources to shared resources in which client users receive information technology [IT] services on demand from third-party service providers via the Internet ‘cloud.’ ”

Cloud computing is somewhat similar to using a service bureau for core processing, Bosu adds. “The difference is that a service bureau hosts and runs one single application, typically its own.”

As a cloud provider, however, Compushare offers some 200 applications on its platform—and the number keeps growing.

“Anything a credit union uses internally, we can host and have running with built-in security and business continuity,” Bosu says. “And when an application needs to be updated, we handle that.”

Small CUs jump in

Cloud computing offers the advantages of more effi- cient, cost-effective operations with redundant systems and no need for heft y hardware investments, says Michelle Shapiro, financial services industry manager for Hyland Soft ware. The company offers OnBase Online, an enterprise content management (ECM) solution in the cloud.

Yet she says credit union clients have been slow to migrate to the cloud.

“There’s still a bit of a fear on the credit union side about giving up that member data,” Shapiro says. “But the cloud is secure. We’ve had a proven solution in that space for 13 years. A lot of community banks have used it for years.”

Small credit unions are moving to the cloud more rapidly than larger ones, says Kirk Drake, president/ CEO of Ongoing Operations, a credit union service organization (CUSO) that offers business continuity and cloud computing services.

“Credit unions with less than $100 million in assets are jumping in and moving everything to the cloud,” he says. “They’re getting out of IT altogether.”


Take, for example, $70 million asset Department of Labor Credit Union in Washington, D.C. When it completes its move to the cloud later this year, “We will no longer have any servers in the credit union,” says Joan Moran, president/CEO.

Moran, who has no IT staff, began researching the cloud about two years ago when her technology vendor told her the credit union’s servers needed to be replaced. “I wanted to learn about our other options,” she says.

Seeking a better understanding of what the cloud could offer, Moran turned to Impel Consulting Group, which is part of MY CU Services, a CUSO formed by Mid-Atlantic Corporate Federal Credit Union.

From there, the decision to move to the cloud “was pretty much a no-brainer,” Moran says. And since her board members are all employees of the federal government, which uses the cloud in a big way, she had no problems selling the idea to them.

With the cloud, the credit union’s 14 staffmembers no longer will have to worry about a server going down, determine what needs to be backed up, or decide when to replace some system.

“We’ll free up our time,” Moran says, “to do what we’re supposed to do—take care of our members.”

NEXT: Moving by components

Moving by components

While economic pressures are pushing smaller credit unions into the cloud, larger credit unions tend to move to the cloud by components as telecom, email, or other systems outlive their usefulness.

The catalyst for larger credit unions typically is “expense- or problem-driven,” Drake says, “meaning their email system has been down three times and they just don’t want to hassle with it anymore.”

The search for better website redundancies drove Sunmark Federal Credit Union to move its Web infrastructure to the cloud in early 2011, says Steve Keator, new media specialist at the $395 million asset credit union in Latham, N.Y.

“We want to be sure we’re available to our members 24/7 in a Web environment,” he says. “If we ever have a problem, we have backup.”

The credit union uses Amazon Web Services, which is a public cloud—that is, it’s externally hosted and is used by the general public. This suits Sunmark Federal’s purposes because it’s putting no sensitive data in the cloud.

Besides the improved redundancy of its Web infrastructure, another benefit Keator points to is savings. Initially, the credit union saw a 75% decrease in its website costs.

“Now, 18 months later,” he says, “we’re at about a 60% decrease in costs because we’ve added some more services to our cloud network.”

Security questions linger

In any discussion about the benefits and drawbacks of cloud computing, security concerns “probably get 95% of the airtime,” says David Jones, Hyland Soft ware’s solution marketing manager for cloud and infrastructure (“Don’t delegate security responsibilities”).

One of the challenges with the cloud, he says, is that it means so many different things to different people. They might think of it for document archive storage, hosting an email system, running Office 365, or deploying an ECM solution, among other applications.

“So people say, ‘Hang on a minute. Are you expecting me to put all my systems and data and processes onto someone else’s machine?’ Quite rightly, that’s a scary thought,” Jones says.

He advises stepping back to examine your business. Not all of it might need to go on the cloud. A credit union might refrain from putting certain types of content, applications, or businesses processes into the cloud for whatever reason.

“It’s not a case of all or nothing,” Jones says.

NEXT: Getting Started

Getting started

So what’s a good starting point for a credit union to enter the cloud? “That’s the million-dollar question,” Jones quips.

He suggests anything that involves repeatable processes, such as accounts payable and receivable, is a cloud candidate. The human resources department is a prime area because it has numerous policies it must share and distribute, plus onboarding processes to follow.

One of the cloud’s key benefits, Jones says, is speed of deployment of a solution. The server already exists; the soft ware is preloaded. A user just has to jump on, do the configuring, and start using the solution.

“And you deploy it without paying a big up-front cost,” Jones explains. “You have a monthly operating expense as opposed to a capital expense.”

Getting back to security, Jones points out that cloud providers have top-notch security that exceeds that of any individual client on the cloud. They have to.

If cloud providers “get it wrong once,” Jones says, “they’re out of business.”

Bosu also fields plenty of questions about security. At Compushare, for instance, security measures include biometric fingerprint readers, mantraps, locked cages, 24-hour on-site guards, encrypted data, employee background checks, multifactor authentication, and more.

“If you were to tell me that a $250 million credit union has better security than a company that’s audited by FFIEC and two external firms and that’s No. 35 on the FinTech 100 list,” Bosu says, “I think I would have to challenge that.”

Avoid these missteps

One danger for credit unions is moving toward the cloud a step at a time without having a long-term vision of where they want their IT to be in five to 10 years, says Drake.

That’s why he recommends mapping out a longterm IT vision before taking any steps to the cloud. A cloud readiness assessment is another smart initial step.

Set defined goals for what you want to achieve within the next several years, such as reducing IT infrastructure expenses by 20% year over year.

Also, look at your IT agreements and the timing of end-dates to see how they align with your plan.

“You might be locked into components of your infrastructure for the next two or three years,” Drake says. “Even if you’d like to make changes today, you’re not going to pay double.”

Some credit unions consider setting up a private cloud, one the organization hosts internally, with the aim of having more control.

But private clouds are for the likes of giant companies with multiple internal IT departments that can each use space on one private cloud.

Setting up a private cloud defeats the purpose for credit unions, Drake says. “It’s like joining a carsharing program like Zipcar and then buying your own car.”

Of the four cloud types, the community cloud best suited to most credit union purposes, Drake says.

A community cloud is built to serve the needs and meet the security requirements of a specific community, in this case credit unions.

The fourth cloud type is the hybrid, which combines features of two or more of the other cloud types: private, public, and community.

Rosy forecast for clouds

Migration to cloud computing will build in the next few years as credit unions look to replace aging technology infrastructure, Bosu predicts.

That’s because replacing this infrastructure every three to five years is “a painful capital investment and a lot of work,” he says. “I can’t see credit unions going through more than one more life cycle.”

All in all, Jones believes credit unions are slowly coming around to the idea of cloud computing.

Just a couple of years ago, he says, perhaps 90% of credit unions gave an absolute “no” to cloud computing.

He detects a shift in mindset, drawing a parallel with the move away from paper.

“Ten years ago,” he says, “90% of people in business were saying, ‘There’s no way we’re getting rid of all our paper.’ And look at where we are today.