ABA:

Summit supports community banks making the transition to leverage services and infrastructure in the public cloud. The ABA made a recent investment in Summit as we were very supportive of this forward- looking solution. Our discussion today will highlight why this innovation step is important for banks and how regulators are continuing to evolve as they encounter cloud technology and innovation within the financial services sector.

Can you talk about why community banks should be embracing the migration of public cloud infrastructure solutions?

Ben Wallace:

Yes, absolutely. We at Summit believe that infrastructure and how banks are looking at modernizing their back office go hand in hand. We are a big advocate of looking at the back office systems and related infrastructure and data centers and rethinking how they should be run. Years ago you would buy large racks of servers and equipment, install it in a data center or a closet, and then run your bank infrastructure off of that. Fast forward to where we are today, we very much believe that is a legacy way of thinking. We advocate to begin to put a strategy together to move those same services from equipment in data centers to these public cloud offerings generally supported by either Microsoft or Amazon web services.

ABA:

The very first consideration for bankers when contemplating a move like this is what will the regulators say. I’m interested in any comments or advice either of you may have about the regulatory backdrop of innovation in financial services and how this relates to cloud computing.

Matthew Dyckman:

Over the past several years there’s been a change in how bank regulators view innovation and it’s become a very favorable environment. We’ve had the OCC develop its office of innovation and propose it’s fintech charter. The new chair of the FDIC Jelena McWilliams said at the ABA handle convention last year that she really wanted regulators to encourage banks innovate and help them compete and even the C. F. E. B. has developed its disclosure sandbox, so this is a very positive time. Banks should no longer be reticent about what the regulators say if they really want to jump into it. Now specifically what the regulators want to make sure of is if you get into something like cloud computing you can manage the risk properly.

You have to have your third party vendor management in place, you have to have your disaster recovery program in place, you have to have your controls and procedures in place, you have to dot your “i’s” cross your “t’s” on your contracts. The good news is, banks are already managing all of those risks and other contacts and there should be absolutely no reason they can’t do the same for cloud computing.

ABA:

That’s a great point. So why does this need to be a priority for bank executives to evaluate and how should they get started?

Ben Wallace:

I think from my perspective at Summit we believe that like any other good planning process, technology and the foundation these banks are built on needs to be a key part of any planning process.

Whether or not you have the ability to make the shift to cloud computing today, we believe as part of a three or five year plan you need to make sure you have the talent and the foresight to figure out how you’re going to get there in the future. We believe all the vendors will begin to encourage banks over time to think about innovation and to move in that space. Generally, software that is released today for banks is natively in the cloud, software as a service, and it’s just a matter of time we believe that this standard and even the regulatory standard as we look five six ten years out will be- should you be in the business as a bank of running a datacenter or should you be in the business of sort of managing these hosted services that are often more secure and more robust? Then it becomes a vendor management play if you will.

ABA:

I think that you make a really good point, Ben, and that is looking several years out about the direction that this all this is headed is becoming a really important part of a bank’s strategy. What level of interest in cloud computing are you seeing from banks?

Ben Wallace:

(We’re seeing) significant interest in cloud computing. Generally we’re helping banks begin the migration often with simple systems like email and then backup to make sure that the most critical environments are in a sort of tertiary offsite environment. Then it becomes a question of what other application services and frankly how do you virtualize even the desktop service back to the banks? So there is significant interest and it often depends on where people are on depreciating physical assets in their data centers. There are some embedded costs that people have to deal with over time but we believe that people are now beginning to embrace and are moving pretty quickly toward it. It’s just going to be a several year journey because these transitions are not are not trivial.

Matthew Dyckman:

Right, the other thing I would say is that banks tend to view technology as infrastructure and they should view it more as an opportunity. Cloud computing is not only a way to make your technology platform more efficient, it can help you design your products better and can help you deliver your products better and these are things that every bank should be focused on.

ABA:

Gentleman, for banks that make this move to the cloud how long should it take and can you speak to the ROI for such a move?

Ben Wallace:

It’s a different answer for everyone. We generally think it is one to three years depending on what you’re moving and how large your IT infrastructure is. The number we like to suggest is thirty five to forty five percent depending on how many data centers you run and what is the size your of the opportunity but that’s a good planning number. When you think about the large vendors, they’re in a business to make money and they need to make sure their offerings are competitive so Amazon and Microsoft are doing their very best to continue to drive down costs to invite business. So obviously they believe, and they can, at their scale to run data centers and infrastructure more efficiently than most community banks.

ABA:

Is there anything else you’d like our listeners to know about cloud computing, navigating regulatory views on innovation, and most importantly how can they learn more about Summit?

Matthew Dyckman:

Just a couple points in concluding, banks can make investments in companies like Summit and one of our clients has done that recently, you just need to structure it properly. The other concluding thought that I would have is that we’ve heard last week about the pending merger of BB&T and SunTrust. We’ve heard that that combined bank is going to be investing one hundred million dollars annually in technology. Smaller bankers are saying well how can I compete with that? The real question they should be asking is can I afford not to try to compete with that? When you’re faced with competitors with that level of technological investment you need every advantage you can get to make your operations more efficient and more customer friendly. We’re seeing a lot of banks looking at cloud computing as one such way to achieve that.

Ben Wallace:

Yeah, I would like to first of all thank Matt and the Goodwin team. We work with Goodwin and as they suggested the structure of the transaction between a bank and a fintech, considering ourselves a fintech, it’s not always the easiest type of structure. As Matt said, more and more people are being open to it and working through it. I would suggest if banks or credit unions are interested in figuring out how they can partner deliberately, Goodwin is an excellent law firm to work with, to make sure that that’s done well. In closing, we’re excited about what the next few years will hold. We absolutely don’t believe Summit has a corner on the cloud, there are a lot of players so whether it’s Summit or whether it’s a player like us we would encourage folks to get in to a workshop or bring in some experts to think about what the next three years look like. Begin the plan because the large players such as JP Morgan, BB&T, Citi, all full court press on trying to drive down costs, be more efficient, and innovate and we think cloud a just piece of it.

ABA:

That’s great. Well, Ben and Matt thanks so much for spending time with us today for allowing us to learn more about Summit technology.