Bank Technology: How Does your Bank Stack Up?

Technologically speaking, how does your bank stack up? Are you ahead of your competitors, following closely in their footsteps, or falling behind? Or, does any of that really matter? At the recent BAI Retail Delivery Conference in Atlanta, Bank Director posed these and related questions to several technology experts. Their answers may surprise you.

Bank Director first approached James R. Eckenrode, group research director in consumer banking for TowerGroup, and asked him to supply a short list of bank technology leaders. Rather than rattling off the names of leading banks, Eckenrode came back with a question of his own: “Are you talking about leaders in Internet services, branch renewal, customer analytics and segmentation, or integrated product sales?” So we asked him to name banks that are outstanding in each of those areas along with the leaders in overall technology strategy. Some of his top performers include CIBC, Bank of America, Washington Mutual, and Wells Fargo (see sidebar for a full account of which banks rated most highly and why).

When similarly approached, John E. O’Malley, president of Harland Financial Solutions, declined to name specific industry leaders, instead asserting that the banks best served by their technology expenditures are those that focus on three elements: improving service to customers, reducing costs while providing service, and managing spread. By zeroing in on these three issues, O’Malley says, banks can justify technology return on investment (ROI). Though banks are sometimes accused of jumping into technology for technology’s sake, O’Malley is the first to admit that customers don’t come to a bank because of its technology. “They come because of service,” he says. Making technology investments that improve that service is just good business. “Acknowledge who your customers are, anticipate their needs, and fill them quickly. Failure to do that means you are selling a commodity. Customers who come to your bank because you have the lowest mortgage rates or the highest CD rates won’t be customers for long.”

According to O’Malley, determining technology investments based on how well they help your bank keep profitable customers and bring in new ones is a far better idea than measuring yourself against your competitors. He suggests that board members making decisions about technology ask themselves, “What would cause me to deposit a larger percentage of my net worth in this institution?” Then, he says they should look at how technology could support that. Customers do not want to know what goes on in the background, only that their needs are being met and that they are getting good service. The CEO or bank president is in charge of making sure that gets accomplished.

Steve Ely, senior vice president of worldwide marketing at S1, agrees with that delineation of who ultimately is in charge of carrying out technology mandates, but would add CFOs and heads of lines of business to the equation. The staff members who drive revenues for the institution should be responsible for whether or not technology objectives are met, he explains, adding that these people use technology to create the analytics necessary to bring in new accounts and increase revenue.

Generating new customers and revenue, retaining profitable customers, and reducing operational costs may be the agreed-upon determinants for technology investments, but that is not where the money is being spent. According to Ely, 60% to 70% of bank technology budgets are funneled into maintaining existing systems. An inherent problem in the banking industry is outdated, multi-unit systems that don’t work together to create the desired results. Mid-market banks, Ely says, have an average of seven different systems; in large banks, the average is 22. In many instances, the systems aren’t interfaced and behind-the-scenes operations become out-front problems that can cause loss of customers. Ely suggests that banks should gradually replace outdated multi-unit systems with new, integrated systems designed to enhance customer service. While some large banks effectively use technology to maintain customer service, community banks tend to rely on their people. The technology that supports those people will be most effective if it helps keep profitable customers and attract new ones.

All this tech talk boils down to one main point: Technology investments should support your firm’s overall strategy for generating new customers and retaining profitable ones. Admitting that he wouldn’t like to be overheard by his hardworking sales force, Harland’s O’Malley says, “Some of the firms that spend the least on technology are the fastest-growing.” |BD|

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