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Techaisle Blog

Insightful research, flexible data, and deep analysis by a global SMB IT Market Research and Industry Analyst organization dedicated to tracking the Future of SMBs and Channels.

Big Data in the Cloud - an ideal solution for SMB banks

Wall Street Journal carried an article on how regulatory burdens had made community banks “too small to succeed” despite performing better than larger banks regardless of being better capitalized and having lower default rates.

The advent of cloud technologies has the potential to change WSJ’s dire prognosis.

Cloud may have first been introduced as a means of reducing CAPEX and/or overall IT costs, but today, it is viewed by small and midmarket businesses as a means of increasing business agility and of introducing capabilities that would have been cost or time-prohibitive to deploy on traditional technology. Complementary to cloud, big data analytics presents the possibilities of connecting together a variety of data sets from disconnected sources to produce business insights whether for increasing sales, improving products or detecting fraud. SMB banks are a specific segment of SMBs who can derive the benefits of customer insight while meeting their mandatory regulatory requirements.

Techaisle classifies SMB banks as those below $10B in assets and medium sized banks as those between $10-100B in assets. SMB banks below $10B in assets often called “community banks” play a very important role in the ecosystem of SMB businesses. Although FDIC, OCC and FRB have different definitions of community banks, it is important to note that these smaller banks not only accounted for nearly half of the total of about $600B outstanding small business loans at the end of 2014 but also play a disproportionately major role in the $1.8 trillion residential mortgage origination market.

Unlike large banks, SMB banks are characterized by George Bailey in “It’s a Wonderful Life”. These banks usually have keen insights on their customers based on personal relationships and carry a tremendous amount of tribal knowledge about their customers which they use to make business decisions. While this corpus of knowledge may not be codified it does make a difference in their business operations. But is that enough in today’s hyper-competitive economy where the relationship is being increasingly controlled and dictated by customers?

Then there is another question, are these smaller banks doing enough to detect fraud? High-risk businesses that have been denied services by large banks tend to move their business to smaller banks who are less equipped to analyze these risks. These smaller banks are unknowingly exposing themselves to fraud as well as compliance risk. Regulations are agnostic to bank size and equally unforgiving of SMB banks as they are of large banks. A cloud-based analytics solution may just be the recipe for success for the smaller banks. In fact, these banks are no different than midmarket businesses (or even small businesses) in their objectives of adopting big data.

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Monitoring, analyzing and reporting very large volumes of data are typically the largest components of regulatory costs for SMB banks. Many often use antiquated technology and manual processes to manage their compliance requirements. Banks that are able to automate the process of managing data for regulatory requirements can have the added benefit of getting a unique view of their customers through one single technology solution.

According to Shirish Netke CEO, Amberoon, a provider of Big Data solutions for banks, “A lot of the data that is required for regulatory compliance can also be easily parlayed into getting insights on the banks customers and improving business”. Amberoon has built a banking solution for SMB banks provisioned on the IBM SoftLayer cloud.

Security & privacy (especially FFIEC requirements), traditional inhibitors of cloud adoption, are a legitimate concern for banks. After all, banks are the custodians of individual’s money, facilitators of trade and commerce and life-line of businesses. However, it may be argued that these inhibitors have already been successfully addressed by service bureaus. A very large percent of SMB banks outsource their core banking system to service providers such as Fiserv and FIS Global who have built very large scalable service bureaus with the economies of scale afforded by centralizing technology resources.

Aptly put by Noor Menai, CEO of CTBC Bank. “Outsourced technology services are nothing new in the banking industry. There is a compelling reason to use big data technologies in banks if they are available at an affordable cost in a secure manner. Cloud has the potential to provide both”.

Big data analytics in the cloud can be an execution advantage, and may even propel the SMB banks to leap ahead of larger banks on solutions that address both regulatory necessities as well as gain competitive edge from customer analytics. Historically, Siebel, an on-premise solution, was usually deployed in large enterprises and was out of reach for smaller businesses. Salesforce, a cloud solution, changed the perception, adoption, usage, affordability and provided immediate business outcomes. Today Salesforce is used by both SMBs as well as large enterprises.

Combining the benefits of cloud with the advantages of big data analytics may just be the prescription that SMB banks need for business growth (cross-selling, upselling services), meeting regulatory requirements such as KYC/AML/BSA and deep-diving into fraud detection.

One should also not forget that big data implementations require a unique combination of technical, operational and business skills to be used in a sustained manner. Needless to say, these skills are in short-supply but affordable by deep-pocketed larger banks. While some smaller banks including community banks can spend the money to experiment with big data pilots, they do not have the capacity to go through expensive iterations to get it right. While larger banks have the luxury of choosing between on-premise big data versus cloud big data, for smaller banks the choice could very well be between either doing big data on the cloud or perhaps not doing it at all. The remaining question therefore is – which big data cloud supplier will take the lead in educating, evangelizing and then executing on the needs of SMB banks.

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SMB and midmarket Cloud adoption driving increased IT services outsourcing

Techaisle’s SMB cloud computing adoption survey shows that 90% of US SMBs and 77% of SMBs at worldwide level are either using or planning to engage with external professionals for cloud assessment and/or cloud implementation.

Both small and midmarket firms are using outsourcing, but they are doing so in different ways. In many small businesses (and most micro-businesses with fewer than 20 employees), outsourced IT services take the place of internal staff. In midmarket organizations, outsourcing provides specialized skills to augment in-house capabilities, and/or delivers additional bandwidth to address staff shortages.

Drilling down into the US market, data shows that in both small and midmarket businesses these outsourced resources are deployed across a wide range of areas and that cloud is prominent in this mix. There are several reasons why SMBs engage with external professionals and consultants. At least within midmarket businesses, 42% use external providers for cloud implementation whereas 31% of small businesses use consulting organizations for cloud readiness assessment and strategy development. Data further goes on to show that 35% of SMBs usually decide to use the supplier that helps them in formulating cloud strategy. Overall, data finds that 39% of SMBs are planning to outsource cloud migration services within the next one year. Looking at the same data from a regional geography lens, it is found that the trend of outsourcing cloud services is higher than the US in Asia/Pacific, similar in Europe and somewhat lower in Latin America.

There is an important learning in the survey data for channel partners and IT services organizations. Simply reselling cloud solutions (SaaS, IaaS, PaaS) is not a long-term and sustainable strategy. They must be the trusted cloud advisor for the SMB end-customer. Fully 80% of midmarket firms planning new cloud initiatives are evaluating cloud options with only 7% focused on evaluating suppliers. Combining this data with the fact that 94% of SMBs are already using some form of cloud solution, one gets a picture of a midsized enterprise market that is in the process of assessing where and how the use of cloud should expand through the enterprise. Small businesses, on the other hand, have a roughly normal distribution across different stages of cloud expansion with 24% reporting that they are gathering information and 30% evaluating suppliers.

It is interesting to note the difference in scale between the two market segments. The midmarket results reflect a more strategic approach to outsourcing focused on the skills that are most important to meeting high-priority, emerging business requirements. This starts with cloud migration and SaaS services, and testing of these applications; advanced software systems like ERP and CRM come next and the other capabilities follow from there. The top three areas that midmarket businesses are planning to outsource are implementation of cloud packages such as ERP/CRM, cloud migration services, and mobility/mobile app development. Small businesses are giving equal importance to many different outsourcing initiatives, such as, cloud infrastructure rollout and support, cloud migration/SaaS services, mobility/mobile app development as well as custom software development.

 

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Technology sprawl driving SMB and Midmarket IT Staff increases

Techaisle’s SMB and Midmarket Managed Services Adoption Trends research shows that contrary to popular belief IT Staffing within SMBs is growing and the percent of businesses with full-time IT staff has increased for 50-999 employee size businesses and even the average no. of IT staff has tripled for midmarket businesses in 2015 from 2010.

Today’s SMBs are heavily invested in an ever-widening portfolio of technology initiatives. For example, on average, US SMBs have current active initiatives in 5.1 technology areas, and midmarket businesses are working in an average of 10.3 different areas – each of which (like cloud or mobility) involve multiple discrete activities.

Techaisle’s SMB survey trend illustrates the IT staffing impact of this expanding IT solution activity. Figure below presents statistics on full-time IT staff from 2010 and 2015. It demonstrates that small and midmarket businesses have sharply different approaches to coping with IT solution sprawl. In businesses with 50 or more employees staffing levels are increasing dramatically. In this segment, not only percent of businesses with full-time internal IT staff has increased in the last five years but the average number IT staff has tripled.

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In microbusinesses with 1-19 employees, the trend is exactly the reverse: these firms are unable to keep pace with IT expansion through internal IT staff, and have moved to other approaches to cope with sprawl and complexity. Data indicates that only 4% of microbusinesses have full-time internal IT staff. In the next tier of small businesses (20-99 employees), 28% of firms have outsourced IT, vs. just 23% relying on full-time internal IT staff; the balance report that they depend on part-time internal IT staff (18%), internal non-IT staff (14%), or that “nobody manages IT” (17%). It is easy to say that this last group is courting disaster in an increasingly IT-centric world, and there is certainly truth to that assertion – but the findings are reflective of the cost and complexity associated with delivering a corporate service that is proving to be very cost- and labor-intensive.

The trend towards increased IT staffing levels also reflects the growing importance of technology within SMB operations. As Figure below illustrates, nearly 75% of businesses with 1-9 employees, and nearly 100% of those with 500-999 employees, consider technology to be “somewhat” or “very important” to their business success, and this importance is rising. 26%-47% of SMB respondents believe that their companies are more dependent on technology today than they were a year ago.

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IT is trying to move away from implementations to more strategic roles. But for that SMBs require expertise, skill-sets, time to research and identify appropriate technology. When IT vendors mention simplifying IT for SMBs they couch it as a means of helping SMBs because they lack IT staff (which data demonstrates is far from actual reality). The growing number and penetration of SMB IT staff themselves are asking for simplification of technology due to inherent sprawl and complexity of technology.

The phrase “sprawl and complexity” describes two linked problems for SMBs. Sprawl is apparent in the wide range of technologies included within current solution portfolios. The compounding issue, though, is that SMBs are not just dealing with more technology, but with more complex technology. This in turn is driving SMBs to hire more IT staff.

Consider the figure below, which reflects the attitudes of IT-responsible managers (ITDMs) within SMBs. Asked to describe their opinions regarding IT complexity, the most common response is “IT vendors should simplify technology.” Frighteningly (or embarrassingly) for suppliers, the second most common response is “we are ignoring” potentially-useful technologies, followed by observations that technology-related pain points are increasing, and current technology is more difficult to understand than previous-generation solutions.

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There is a clear set of messages for suppliers in this data.

  • There is no status quo of "lack of IT staff"
  • IT staffing within SMBs has undergone a change. “We have simplified technology because SMBs do not have IT staff” is the wrong messaging
  • Simplification is required to ensure that SMBs actually embrace new products and their growing IT staff is freed-up to focus on strategic business issues
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SMB & Midmarket IT challenges in supporting mobile workforce

If the “office” is defined by devices then “workplace” is defined by the ability to work from wherever those devices (and their users) are located. In this vein, “work” typically includes a requirement to access corporate data with mobile devices.

Data from the Techaisle 2015 SMB Mobility Adoption and Trends survey finds that more than 80% of small business employees and 55% of workers in midmarket firms require mobile access to company data. Providing this access and the applications, devices and solutions represents an enormous investment for SMBs that are typically very conservative in their IT budget allocations.

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By more than a 2:1 ratio, SMB respondents believe that mobility is a means of driving growth in the business. But mobility does not deliver business benefits painlessly. The introduction of mobility solutions has created new issues for IT management, and suppliers who can help to address these issues will gain favor in this community.

Addressing the needs of the “dual mode” user is a non-trivial issue. In the Techaisle survey, both small and midmarket firms report that users access a combination of business and personal resources via their business-connected (both corporate-owned and BYOD) mobile devices. This reinforces the importance of some of the solutions being currently used or planning to be used by SMBs. These are solutions that help manage mobile devices that deliver access to corporate information without downloading data and applications themselves (such as thin clients and Windows-as-a-Service) and methods of securing data when it is exchanged between mobile devices and external users and where users themselves move seamlessly between corporate and personal usage modes on devices that are connected to corporate networks.

Mobile devices are an essential component of mobility but mobility itself extends beyond hardware to applications, solutions and work habits. Techaisle’s 2015 SMB Mobility Adoption Trends research shows that the “dual mode” SMB user represents a specific problem for SMB IT staff and the challenges of supporting a mobile workforce go well beyond the device.

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Small and midsized businesses have different challenges in supporting the mobile workforce

Looking first at the small businesses, we see that managing TCO – which includes, in addition to typical IT expenses, service charges that are unique to mobile devices – is rated as the most significant challenge by small business respondents. These firms also struggle with the “on ramps” to mobility: finding appropriate suppliers and solutions and integrating multiple screens are also ranked in the top five challenges encountered by 1-99 employee firms in support of the mobile workforce.

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Midmarket firms also count TCO as their most significant challenge. Rather than struggling with mobility on ramps, though, midmarket firms are more concerned with security/data protection and mobile management. Network security, protecting corporate data on mobile devices and managing these devices are all top-five mobility challenges for midmarket IT – and further evidence of why mobility solutions addressing these issues are essential to this community.

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