Are you in the cloud? That question is not uncommon these days, yet so few answer it with confidence. The truth is, most companies are in the cloud—whether they know it or not—but what exactly does that mean, and how can financial institutions make an educated decision about cloud services when so much uncertainty surrounds them?

We sat down with Sean Martin to gain some much-needed insight into the cloud and what financial institutions need to know when looking into cloud technology providers.

Why Is There So Much Confusion About The Cloud?

I think most of the misconceptions surrounding the cloud right now are perpetuated by the way solutions providers have positioned it. Let’s be clear: the cloud is nothing more than a delivery model, no different than an onsite server or virtualized environment on the premises. The only real difference between physical, onsite servers and the cloud is in how the service is delivered—it’s that simple. But there has been so much hearsay and speculation about the innate mysteriousness of the cloud that this distinction has become lost in the clutter.

How Do You Ease Some of the Uncertainly Associated with the Cloud?

I think a lot of the apprehension stems from the perception that you have to move everything to the cloud, but that’s just not true. In fact, many institutions use a hybrid system, only choosing to house some of their assets in the cloud. For example, a bank might host their email server in the cloud while keeping their core system on premises. The idea that this has to be an “all or nothing” transition deters some financial managers from even considering it. Also, many institutions that don’t fully understand what the cloud is might consider it a foreign concept, when in reality it is already a huge part of their operations. Anyone with Office 365, Salesforce or Dropbox is already in the cloud, and is therefore already somewhat familiar.

So What Are the Benefits of Cloud Services?

The three big benefits are enterprise network, enterprise security and scalability.

1. Enterprise Network: Let’s say you want to incorporate a new service for your customers. If your institution relies upon on-premise servers, you have to wait for the hardware, installation, licensing, etc. Deployment could take weeks, if not months, before the service is live. The cloud is much quicker—we’re talking hours or days—for the same service.

2. Enterprise Security: Cloud providers often have a large client base, and since a hefty chunk of their business relies on the security of their clients’ data, they have invested enormous amounts of capital in security measures that would simply be unattainable for most onsite businesses.

3. Enterprise Scalability: This is important from both a functional and cost perspective. If you rely on physical servers, you have to anticipate your future needs; essentially sizing current operations from where you are expecting to be. With the cloud, institutions can start with what is needed and scale accordingly. This yields far greater flexibility as well as potential cost savings.

Are There Any Major Risks?

I would say there are two major risks associated with transitioning to the cloud:

1. Lack of Due Diligence: When financial institutions hear “enterprise infrastructure,” they often assume this includes data backups. In most cases, however, backups for cloud services are considered add-ons. When you are talking about malware, that’s a huge deal, because the best mitigation against malware is regular backups. Redundancy must also be considered. For example, a provider may have local redundancy in a single data center, but no geo-redundancy. In that case, if one data center goes down, your business is dead in the water. Finally, from a regulatory compliance standpoint, institutions have to ensure the provider is being independently audited through SOC 1, SOC 2, and SSAE.

2. Downtime: This one cracks me up, and more often than not, it’s the one that hits the headlines: large providers like Office 365 going down. These outages are so rare that when they actually happen, it’s a big deal. A fact that’s often lost, however, is that onsite servers have downtimes that are significantly longer by comparison. Credible cloud providers maintain a 99.9% uptime, while most on-premise servers have an average of only 99.6%. So you are actually better off being in the cloud, if you go by the numbers.

Realistically, Is There Any Reason Not to Transition to the Cloud?

Actually, there are certain instances where the cloud is not the right move. For example: a bank that’s located in a very rural area might have one connectivity option. In this case, the cloud is a poor idea. Connectivity is highly important to any financial institution, and in certain rural settings, cloud providers might not have the necessary redundancy. Having redundancy allows for connectivity issues to be diverted into a different path should any outages arise, with customers unaffected.

Making the decision to use a cloud provider doesn’t have to be shrouded in mystery. Once financial institutions understand what the cloud is and focus on what it can do, the benefits become apparent. For most banks, credit unions and money service businesses, the cloud offers the network, security and scalability for optimal growth.