Banker’s View: How Technology is Making the Bank More Efficient


10-30-technology.pngLast July, Glenn Wilson, chief executive officer of AmeriServ Financial, Inc., a financial holding company with $1 billion in assets based in Johnstown, Pennsylvania, challenged employees to come up with ideas to generate $1 million in cost savings that would go into effect for 2014. Banks always place a priority on cutting costs, but he gives two reasons for making efficiency a key objective for the coming year.

At 87 percent for the year as of September 30, AmeriServ Financial’s efficiency ratio is higher than its peers, negatively impacting the company’s profitability and stock price. In addition, “given the interest rate environment and the margin squeeze that the industry has had, and we’ve all been thinking it’s going to change; it just became pretty obvious [that] it’s here to stay,” says Wilson. “We just had to get a little more serious about cost savings.”

AmeriServ has already met its cost-cutting goal, finding $1.1 million in cuts so far. The company outsourced several functions to the bank’s core system provider, Jacksonville, Florida-based technology firm Fidelity National Information Services Inc. (FIS). AmeriServ avoided the cost of replacing outdated equipment by outsourcing statement rendering, for example. Moves like those will lead the bank to save $300,000 to $400,000 during the next five years.

Last summer, the Bank Board & Executive Survey, conducted by Bank Director and sponsored by consulting firm Grant Thornton LLP, found that 84 percent of bankers plan investments in new technologies to make their institutions more efficient. How banks use technology to generate efficiencies varies. Bank boards and management should “make sure they’re spending their technology money appropriately, depending on their strategic plan, as to where they’re going product-wise, market-wise and customer-wise,” says Jack Finley, banking industry senior advisor at Grant Thornton.

“There’s almost an unlimited amount you can spend on technology and enabling customer interaction, and certainly there are a lot of ‘like to haves’ that we wouldn’t mind having,” says William Pasenelli, president of Waldorf, Maryland-based Community Bank of the Chesapeake, with $979 million in assets. The bank prioritizes its technology investment on relevant services for its customer base of small businesses and professionals, and plans to launch mobile banking by the end of October.

Community bank boards do face obstacles. Banks must balance automation while still maintaining a level of service that keeps customers satisfied. Slow economic growth will likely remain a challenge, forcing bankers to be even more selective in the investments they make. And while community banks don’t have to be early adopters, they can’t afford to lag when it comes to innovation. “Taking your time and not jumping at every little thing that’s presented is probably a good strategy,” says Finley.

Selective investment means that the technology budget at Community Bank of the Chesapeake hasn’t mushroomed. The budget has grown, but “not as fast as you would think,” says Pasenelli. The cost of providing core banking services continues to decline. Online banking, data storage, cyber security and compliance with regulations like the Bank Secrecy Act are significant drivers of technology costs.

Mark Field, president of Farmers Bank of Liberty, an institution with just $85 million in assets based in small town Liberty, Illinois, faced a dilemma earlier this year when the bank’s core system provider, Waldorf Computer Systems, based in West Des Moines, Iowa, decided to sell. Field spearheaded a move that some may consider a bit unusual: his bank, along with others based in Alabama, Nebraska, Iowa, Virginia and Ohio, decided to buy the software themselves.

Community Bankers Cooperative, a non-profit cooperative of banks with between $15 million and $200 million in assets, will share and support the software, which is called Bancado. The sale of Bancado would have forced the banks to a more expensive core banking system, which Field estimates would add $45,000 in costs to his bank during a five-year period. The six-member board of the cooperative, which includes Field, will represent the interests of member banks and set the direction for the program. BSI Computer Solutions, a technology provider for the banking industry based in Gardendale, Alabama, will provide technical support for member banks, and San Francisco-based Pacific Code Works will do the programming to update the software.

The cooperative should complete the purchase of Bancado in early January. Field declined to reveal how many banks plan to join.

“If community banks would band together and help one another, we could do so much more,” says Field. “We could help each other and save quite a bit of money in the long run.”