Banks across the globe are keen to use cloud services to drive down capital expenditure, reduce time to market for new products, achieve economies of scale and rationalise IT infrastructure. Recent research from IDC Financial Insights confirmed this, finding that more than two-thirds of firms in financial services have cloud in their technology roadmap.

Concerns over security and reliability had previously held banks back from investing – but these are perhaps now more of a hurdle than a showstopper. But it’s not as simple just investing in “the cloud”. There are also different types of cloud and different deployment models – all of which will serve different requirements.

The public cloud represents services that are provided across the internet – online banking portals are a classic example this. However, for many banking functions, the public cloud is simply too high risk. The private cloud, on the other hand, sits on the bank’s internal network. The added control and security offered by the private cloud is likely to appeal to banks looking for a more cost-effective way to access their core applications, such as payments or market data. The community cloud is where cloud infrastructure is shared and supports a community that has a mutual interest – increasing collaboration. CLS is a good example of such as shared service in banking that could well be accessed through a community cloud in the future.

It’s most likely that banks will eventually move to a hybrid cloud environment, which mixes and combines the private, public and community cloud approaches together with existing systems, to attain the right elements that meet each institution’s specific needs.

Over the next few years, we’ll start to see more banking functions move to the cloud – not only to drive down costs but to overcome capacity issues and avoid a data centre rebuild. However, it needs to be the right solution for the individual organisation, and this solution must be fully assessed and evaluated before implementation. First movers are likely to be the functions banks deem as commodity, rather than mission-critical or competitive differentiator. But virtualising the business is not without its complexities. Tough questions about what should move to the cloud and what should wait will need to be answered. And challenges in integrating new services with existing – and sometimes legacy – systems will need to be overcome.

The cloud – as an important component of the future IT mix – is fast proving itself as much more than just as passing fad in financial services. Not only does it unlock capital, but it is improving the way banks work with their customers and counterparties by making it easier to share, connect and take advantage of technology innovation. As such, it represents a major shift in the way that banking technology is provided.

The transformational possibilities of cloud in this sector are immense. For example, it can make M&A activity more appealing because it means less upheaval in terms of infrastructure integration, while global software implementations will see quicker and easier rollouts.

The important thing to keep in mind is to look ahead to the longer term, and shift the right systems to the right type of cloud – at the right time. By doing this you will not only maximise cost savings, but reap the greatest benefits.