Australian banks that adopted cloud computing early expect to secure competitive advantages in terms of cost reduction and improved agility, although they acknowledge their ability to adopt all aspects of cloud computing may be hobbled by industry watchdog APRA.Cloud computing is a pay-as-you-go approach to computing, with users being charged according to how much computing power they use. While some banks are building internal clouds - and then charging their business units according to how much  they use - computer companies are also setting up cloud services and offering them to banks on a utility basis.While the Australian Prudential Regulation Authority has reservations about cloud computing, particularly where the data centres used to store data are located offshore, the big banks are ploughing ahead with their internal cloud computing initiatives, and participating in international efforts to develop standards for the future.Delegates at an Australian Information Industry Association banking and financial services lunch, held in Sydney yesterday, heard how Commonwealth Bank, Westpac and ANZ Wealth Technology are all cloud users.Economics is still a key driver for the adoption of cloud computing. Westpac, for example, has cut from 14 days to four hours the time it takes to provide one of its development teams with a computer system to test a new program. This points to financial savings and faster product development.Westpac only has internal private clouds, but both CBA and ANZ are using external cloud systems as well. In November, APRA sent bank directors a letter about the use of cloud computing, noting that although it has no specific prudential requirements with regard to cloud use, any bank considering offshoring data must first consult with APRA.According to Greg Booker, chief information officer of ANZ Wealth Management, "We're running a couple of cloud applications with data offshore and have had some long conversations with APRA around the risk analysis associated with that. I have no doubt whatsoever this is an area which will at some point be tested. "APRA's position is that the cloud is in its infancy and represents a set of challenges that really aren't that much different from when we were... [engaged in] the early days of outsourcing or offshoring, and some of those things got tested and [we] came up with the appropriate methods and means to make sure our data was protected."The key challenges APRA sees, and we see, are: what if your vendor vanishes; what if your cloud vendor ceases to exist? How do you protect yourself; how do you protect your business?"Escrow agreements tend not to work in that space if your vendor vanishes overnight, or morphs into a completely different entity. It's that data protection and business protection that APRA is keen to follow up." Booker believes APRA will ultimately dictate the speed of uptake of cloud computing by banks.