By Andrew Tilbury

There is a software delivery method that has the potential to transform the way your financial institution operates.  It can expand your customer base, allow you to offer more services faster and at a lower cost, and differentiate you from your competitors.

What is this revolutionary technology?  SaaS.

SaaS — which stands for :Software-as-a-Service” — is the biggest tech buzz term of 2010 (so far.)  Discussed behind board room doors as much as it is on convention floors, it is the topic of frequent articles in technology magazines, trade journals, and industry publications.  In fact, in a July 2009 Aite Group survey of 80 North American bank CIO’s, 45% of participants stated that increased use of SaaS would be “Somewhat to Very Important” to their institution’s cost reduction strategy over the next 24 months.  SaaS is especially attractive to large banks that have traditionally been slower to embrace this model.

What is the buzz all about?  And, more importantly, how can it benefit your institution?

Applications On Demand
SaaS is a model of software deployment whereby an application is licensed by a customer for use as a service on demand.  The application can be uploaded to the customer’s device but it is often hosted on servers controlled by the software provider.  This latter method is frequently referred to as cloud computing, since the application is hosted offsite and accessed remotely.

The SaaS method of deployment has several advantages, most notably cost savings experienced from not having to buy expensive equipment and software licenses, savings on staffing and maintenance, and real-time data backup in case of natural disaster or equipment failure.  SaaS is a departure from traditional licensing which requires financial institutions to purchase licenses for software that they are subsequently responsible for installing and maintaining.

The popularization of internet-based applications has fueled the popularity of the SaaS model.  Instead of software licenses being purchased, they are now “rented” from a vendor for a fixed period of time.  There are several benefits to a SaaS deployment that  impact financial institutions of all sizes, but due to their economies of scale, they can have a more significant impact on small to medium-sized institutions.

The Need for Speed
Launching new account holder services as fast as possible is vital to stay ahead of your competition.  It is also key to retaining existing customers and attracting new ones.  The necessity of deploying a new service quickly creates a daunting new technical project that falls upon the shoulders of your IT department.  IT departments are often understaffed, overworked, and overburdened.  Financial institutions — especially the smaller to medium sized ones — are not usually equipped with the resources required to quickly install, integrate, test and maintain a new technology.

This is the first area where a SaaS solution can have a major impact on getting a new technology up and running.  Whereas with an in-house solution you are dependent upon your IT department, with a SaaS solution this responsibility falls upon the vendor you have selected to provide the service.  This frees up your IT department to work on other projects and cuts the time required for launching your new service.

Integrating a new technology into an institution’s existing network is typically a labor-intensive and time-consuming process.  With SaaS, the vendor provides all hosting and maintenance giving the institution a working solution that requires little effort from its IT department.  This allows the institution — even one with limited IT resources — to offer more services to its customers faster and at a lower cost.

Pay-as-you-Go
The upfront cost is the single, greatest obstacle to a financial institution deploying a new technology.  With an in-house solution, the entire cost of the software and hardware is paid up front.  Depending on the application, this can represent an expenditure of tens of thousands to hundreds of thousands of dollars.  Many financial institutions are currently experiencing a shortage of capital, and such a huge expense makes initiatives for implementing new technologies difficult to financially justify.

With SaaS, the upfront expense is considerably lessened.  Instead of having a single, huge initial payment, payments are based on the amount of usage of the application, so the financial institution only pays as much as it uses the service.  This has a significant impact on the cash-flow requirements of the application, and can ease the burden of acquiring the new technology.

Mitigate Your Risk
There are so many new customer-facing technologies available to financial institutions that it is impossible to know which are worthwhile and which are a waste of time.  Home capture, mobile capture, personal financial management tools, mobile banking applications are just a few of the new technologies available.  Many of them so new that there is considerable uncertainty surrounding the adoption rate among customers.  That represents a significant risk to executives who are trying to steer clear of investing scarce capital and resources in a technology that might never get off the ground.

Herein lies the third major benefit to deploying new technology in a SaaS environment.  Since the cost of a SaaS solution is typically based on the amount of usage and is spread over the life of the technology, if your particular customer does not widely adopt a technology, the loss is relatively small compared to if you had chosen the in-house method.  The financial risk is thus greatly reduced whereas if a license was purchased upfront, the entire cost of that license would have been a waste.

The Takeaway
Freeing up IT resources within your institution, minimizing the upfront cost of deployment and ongoing maintenance, and scaling back the risk of taking a chance on a new technology are the three major benefits of choosing a cloud computing model for your next new technology.  The unique characteristics of the SaaS deployment method will allow your institution to decrease the lead time and cost of offering new services to your customers.  Additionally, a broader service offering can be a key differentiation point with competitors that allows you to attract new customers.  There will always be situations where deploying in-house makes sense, especially if there is a strong desire within your institution to own your technology.  However, if time to market, cost, and risk are important factors in your decision to implement a new technology, you should take a serious look at your SaaS options.