The Role of the Board in Technology


role-of-the-board-in-technology-white-paper.pngFor most bank boards, technology is a black hole of knowledge. Although they might be perfectly capable of programing their digital televisions or surfing the Internet with their tablets, bank directors generally don’t understand technology in the broader context of how it impacts their institution’s performance and profitability. And they’re not alone, which only compounds the problem. “It’s hard for the bank’s executives to keep up with technology let alone the board,” says Terence Roche, a principal at Cornerstone Advisors in Scottsdale, Arizona.

Unfortunately, the banking industry is changing so rapidly—and technology in many cases is actually driving that change—that directors need to engage in strategic discussion around technology and make that a priority at their regular board meetings. “You can’t have a discussion about banking without having a discussion about technology,” says Bruce A. Livesay, executive vice president and chief information officer for First Horizon National Corp. in Memphis, Tennessee.

Increased Spending
Certainly directors need to have an appreciation of where their banks are making significant technology investments. Celent, a New York-based research and advisory firm, released a forecast in January 2014 that total information technology spending for North American banks, including both U.S. and Canadian institutions, would increase approximately 4.5 percent in 2014 and 4.6 percent in 2015. And what will that money be spent on? Much of it will go towards the maintenance of existing systems and operations, although Celent was encouraged that new investment spending will rise an estimated 11 percent in 2014, which means that a proportionally larger share of every dollar of technology spending will go towards new systems, applications and operational capabilities.

Retail banking initiatives like application enhancements for smart phones and tablets, and the next generation of online applications, are expected to capture some of that increased investment spending, as are commercial banking initiatives like upgrades to existing cash management and treasury solutions as many larger institutions look to deepen their relationship with core business customers. A more demanding regulatory environment, particularly in critical areas like anti-money laundering, will also lead many banks to invest in various compliance-based solutions.

Making Decisions about Technology
Not only do boards need to understand where the technology expenditures are going, they also need to have an in-depth understanding of how technology either facilitates—or impedes—the bank’s overall strategy. Livesay offers this example: The increased cost of regulatory compliance is causing some boards and management teams to consider whether they need to grow larger so they can spread those costs over a wider base. But the decision to grow larger can’t be made in a vacuum. There are other issues that must be taken into consideration, including whether the bank’s current technology platform can support a larger bank. “Can it scale to where we want to go?” says Livesay. If not, the bank could be facing a costly investment to build out its technology infrastructure to support a larger operation.

Another example of where corporate strategy and technology are beginning to intersect is the exploding popularity of smart phones and tablets and the impact this is having on retail delivery systems. In order to remain competitive, most institutions are going to have to make significant investments over the next three to five years to build out their mobile and online retail banking applications, and this also might require more scale to make those investments cost effective. If the board anticipates that it might sell the bank in that time frame, it probably won’t make those investments. But if the board is committed to growing the bank and maintaining its independence for the next three to five years, those new spending initiatives on retail delivery need to be made now so it doesn’t fall behind. “The board needs to look forward and decide where it’s going and what the bank’s technology needs are,” says Cornerstone Senior Director Sam Kilmer.

How a Bank’s Board Handles Technology
At $28-billion asset First Horizon, which has significant activities in retail and commercial banking, mortgage lending, capital markets and wealth management, the board is particularly focused on information security—or as Livesay puts it, “keeping the bank off of the front page of the newspapers.” Protecting the security of customer data is so important that it has become a board level concern at the company. “Cyber-attacks are becoming more frequent and more destructive and that’s not going to slow down, but will intensify,” he says.

The First Horizon board also pays close attention to customer preferences in the digital space and how the growing demand for “anywhere, anytime, any device” capability is forcing the company to alter its retail delivery strategy. While banking is still a relationship-focused business, the retail model is beginning to change as an increasing number of customers make greater use of remote channels like mobile. This migration from branches to mobile has placed new demands on the bank’s technology, requiring that it invest capital resources to keep pace with demand. What does the board worry about? “Where do we place our bets on innovation?” says Livesay.

If the board at First Horizon is comfortable having high level discussions that involve technology, it might be in part because in 2007 it recruited a director—Robert B. Carter, chief information officer at FedEx Corporate Services—who knows something about it. Livesay, who is a member of First Horizon’s executive management committee and reports to the company’s chief executive officer, also makes a presentation at every regularly scheduled board meeting on some aspect of technology. “Every board meeting I am on the agenda,” he says.

Most boards do not become overly involved with technology decisions that are purely tactical, but increasingly they have become very engaged in decisions that are strategic in nature, or could pose a significant risk to the bank if not executed properly. For example, when First Horizon made a decision four years ago to in-source its data center after having used a third-party processor for a number of years, the board was very engaged because of the operational and strategic risks that undertaking entailed. The fact that building a new data center was the second largest capital expenditure in the company’s history also captured the board’s attention, Livesay says. “It was a big data project,” he laughs.

With the exception of Carter, none of the directors on First Horizon’s board is an expert on technology, but they still make it an important aspect of critical board discussions about strategy. And perhaps because they do understand the importance of technology in the overall scheme of things, they also make sure that Livesay has the necessary resources to do his job.

“When I go in with a technology issue, they’ll ask, ‘Do you have what you need?’” he says. “I don’t think that is the case in every company.”

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More than 90 Percent of Bank Directors and Officers Worry About Non-Bank Competition


5-16-14-emilys-growth14-ars.pngBanks increasingly face competition from outside the banking industry.

Facebook is already a licensed money transmitter, enabling the social media giant to process payments to application developers for virtual products. The retail juggernaut Wal-Mart Stores Inc. launched Bluebird in partnership with American Express Co. late in 2012 so users can direct deposit their paychecks, make bill payments, withdraw cash from ATMs and write checks. Customers also have access to mobile banking, which includes features like remote deposit capture and person-to-person (P2P) payments. As of August 2013, 1 million customers used Bluebird, according to Walmart Director of Communications Sarah McKinney. Wal-Mart’s Sam’s Clubs also offer small business loans through a non-bank Small Business Administration (SBA) lender. PayPal, which is owned by eBay, Inc., also has gotten into the business of P2P payments.

An audience survey of 120 bank directors and senior executives at Bank Director’s Growth Conference on May 1 found that many felt that their institutions are at least on par with their peers in the industry when it comes to innovation through technology, and just 17 percent said that their bank lags behind. However, the vast majority, at 91 percent, revealed concerns about non-banks entering financial services.

Community bankers aren’t alone in their concerns about competition from unregulated entities. Just days after the audience survey May 1, Jamie Dimon, CEO of JPMorgan Chase & Co., told the audience at the Euromoney Saudi Arabia conference in Riyadh that he sees Google and Facebook specifically as potential competition for the banking giant. Both offer services, such as P2P, that could chip away at income sources for banks. But the regulators could play a role in dampening these innovators’ ability to compete. “There’s no way that Google wants to be a regulated bank,” he said.

Perhaps Google and Facebook won’t pursue a future as regulated banks, but will partner with banks instead. CaixaBank, based in Spain, announced a partnership with Facebook on May 5 that will allow the bank’s customers to view account balances and transfers through their own Facebook profile or the bank’s Facebook page. Users can also make small donations to charities of up to 15 euros (about $20) to charities affiliated with the bank. CaixaBank plans to offer P2P payments through Facebook in the near future.

Half of the attendees surveyed at the Growth Conference said they would be open to a partnership with a financial technology firm. Wilmington, Delaware-based The Bancorp Inc., a financial services company with $4.7 billion in assets, offers private label banking to partners who sell services under the partner’s brand, including PayPal and Simple, which was recently acquired by Banco Bilbao Vizcaya Argentaria (BBVA).

Would your bank consider partnering with or acquiring a fintech firm?

growth14-ars.png

Bill Roop, CEO and president of $1.1-billion asset Alpine Bank & Trust, headquartered in Rockford, Illinois, thinks the banking industry could see an increase in these types of partnerships. “You’re going to see a growing awareness of the different ways that you can touch a customer, and I think the industry has to be very open to partnering and working together to share the wallet…while also maximizing the benefit to the customer,” he says.

Regulations are often cited as constraints on a bank’s ability to innovate, but more attendees at the Growth Conference cited technology investment, at 42 percent, or the vendor relationship, at 31 percent, as greater barriers to innovation.

A little more than one-quarter of the audience blamed regulations for the lack of innovation in the industry. Regulation is just part of a banker’s life, says Roop. “Hire the appropriate individuals as you can, be sure you’re compliant with what the laws are, but our job is to serve the customers.”

The survey also found that one-third of attendees sit on bank boards with at least one member who has technology expertise, and almost half said that their board doesn’t have a technology expert but needs one.

As many community banks rely on core processors for customer-facing technology solutions such as mobile and online banking, the vendor can make or break an institution’s ability to innovate, and determining and investing in the right technology while still running an efficient institution can be a challenging balancing act for community banks.

“I’ve tried to weigh all these products and services out there. Yeah, I’d love to have all [of] these things but there’s a cost to that, and our cost is spread among $140 million in assets and two branches,” says Jim Marshall, CEO and president of blueharbor bank, which is based in Mooresville, North Carolina, and uses all lowercase letters in its name to convey a more contemporary approach to banking. “That’s one of the challenges of a small bank.”

Community Banks: You Don’t Have to Get Left Behind


5-12-14-naomi.pngHeartland Bank has just 11 offices in central Ohio. The holding company, Heartland BancCorp near Columbus, Ohio, has $600 million in assets. The company is not traded on any public exchange and traces its roots back more than 100 years in agricultural lending.

But that doesn’t mean Heartland is behind the curve when it comes to technology. In fact, Heartland developed its own mobile banking applications, has person-to-person bill pay, mobile bill pay, surcharge-free ATMs across the nation searchable on your smartphone, and a host of other digital products designed to serve customers’ needs.

“The technology is here and it’s affordable,’’ said Heartland Chairman, President and CEO G. Scott McComb at Bank Director’s Growth Conference in New Orleans recently. More than 120 bank directors and officers attended the two day conference May 1-2, which focused on growing the bank organically, mostly through technology, data-based marketing and sales, and niche or specialized lending.

Bank of America and JPMorgan Chase & Co. may have more resources to develop technological solutions and service them, but community banks increasingly have options as well. Technology providers such as Deluxe Corp., CSI, CDW, StrategyCorps and MoneyDesktop described how banks well below the $50-billion asset range can still gain access to sophisticated technology. For instance, community banks can now analyze credit agency data to find out which of their customers are shopping for an auto loan, and then send customized marketing materials to those customers.

Banks can help customers budget and manage their entire financial lives with online banking tools, which also give banks a trove of potential marketing data on them. Banks can generate fee income by sending coupons to their customers based on the geo-location given by their smartphones. Analytical tools also allow banks to track what customers are saying about them on social media.

First Financial Bankshares, a $5.8-billion asset bank holding company in Abilene, Texas, allows customers to take pictures of their bills with their smartphones, send the pictures to First Financial Bank, and the bank will pay their bills. Similar products are being marketed to banks much smaller than First Financial.

Jeff Casey, a senior vice president at the bank, said mobile customers use three times the number of products and services of other bank customers and are 2.5 times more likely to stay with the bank than other customers. He advised banks to think five or 10 years into the future and plan for the fact that technology will be radically different by then. A full 25 percent of First Financial’s mobile banking customers currently don’t use a laptop or desktop to do their banking. “You have to get rid of this idea that you’re always going to have online [desktop or laptop] banking,’’ he said.

This fact is creating challenges for banks trying to decide where to invest. Deluxe Corp.’ Vice President Scott Wallace cautioned banks not to try to be all things to all people. The type of customers you want and the delivery mechanisms they need will determine the technology and tools to buy.

McComb, Heartland Bank’s CEO, said that community banks actually have an advantage when it comes to data and technology. Community banks are nimble because of their size and can make decisions quickly based on their customers’ needs. They know their customers better than bigger banks do. They are the American colonists fighting the English in a war against the big banks. They can be first to market, not laggards when it comes to meeting their customers’ needs. And that could mean the difference between being relevant or not at all.

Transforming Customers into Lifelong Champions—as Quickly as Possible


3-28-14-Sutherland.pngThanks to e-commerce stars like Amazon and Zappos, consumers expect exceptional, real-time customer service every time—whether they’re buying books, boots or a mortgage.

Do it right and your customers will come back again and again, even trumpet you on social media. Disappoint them or move too slowly, and they’ll rant about you to their 10,000 Twitter followers. Even if they like you, they can be quick to abandon you to sample your competitor’s cool new app.

How can you respond to customer needs at both ends of the urgency spectrum: instantly, with transactions conducted 24/7 on mobile devices, and over the long haul, ready to respond as a customer moves from college, to home buying to retirement?

Creating Loyalty for Life
Keeping customers engaged for years and less susceptible to competitors’ pitches means offering products that sync with key milestones. Those include savings and checking accounts, student loans, debit and credit cards, auto loans, mortgages, insurance, home-equity loans, child-focused savings plans for their kids, college savings plans and retirement planning.

Consider the loyalty created with first-time homebuyer programs. One example is the First Home ClubSM, a matched savings program administered by the Federal Home Loan Bank of New York. For every dollar a pre-qualified customer saves over a 10- to 24-month period, participating lenders match $4 for a one-time payment of up to $7,500 in matching funds that may be applied toward the down payment or closing costs on a home.

Technology-Driven Competitiveness
But technology is forcing banks to do much more. Those lifestyle-sensitive products must be personalized and delivered quickly and easily, says Joseph J. Buggy, senior vice president and chief strategist at Sutherland Global Services.

Witness digital-wallet and virtual-currency solutions like Isis, Bitcoin, Square, PayPal and Google Wallet. Tech-savvy young people are quicker to snap a smartphone photo of a paper check for deposit than to visit a branch.

Banks are struggling to embrace customer expectations for mobile self-help solutions, Buggy says. And yet they must move quickly, with customers adopting mobile banking five times faster than they adopted online banking back in the 1980s.

Customers want the same experience when accessing their bank, whether via personal computer or smartphone, Buggy says, and the technology is there to allow banks to offer that. Many banks, though, immersed in replacing core systems, have hesitated to invest in syncing Internet- and mobile-based platforms into a single interaction channel.

Leveraging Social Media
With Facebook boasting a billion users and Twitter many millions, engaging with new and existing customers means moving into those spaces effectively. Banks large and small are using social media to promote services, respond to customers, recruit employees and even supplement crediting decisions. Soon, customers may check balances and conduct bank transactions via social media.

Buggy advises banks to take a clear position on social media and commit only to the channel(s) the bank can staff 24/7. A static account with outbound-only communication, where you are promoting your bank but not interacting with customers, is worse than none, he says.

“It’s more forgivable, from the customer’s perspective,” Buggy adds, “to not have a Twitter handle at all than to have one and not respond quickly to it.” Particularly with Twitter, “the demographic using it expects the interaction to be close to real-time.”

Must-Have Customer Service Qualities
Banks have little choice but to meet customer demand for:

  1. 24/7 mobile access
    Banks not “open” around the clock will lose market share to whatever entities allow customers to transact business from their devices at 3 a.m.
  2. Single dashboard/single login interfaces that show the breadth of a customer’s interactions
    Credit cards, mortgages and insurance may be separate operations inside your organization, but the customer doesn’t care. She wants to reach all of her accounts from one screen.
  3. Inquiry resolution that’s quick, accurate and painless
    When communicating with you, do your customers prefer live chat, mobile apps, online self-help or social media? Are you using traditional interactive voice response (IVR), which requires the customer to type in lots of numbers when calling you on the phone, or have you moved to voice-enabled IVR, which is easier on the customer? How do your customers prefer to have complex questions or complaints resolved? Do snail mail and personal visits still have a place in your customer service strategy?

In a follow-up article, we’ll focus on finding the best ways to listen to your customers to ensure you’re serving them expertly—both in the moment and over the long term. For more information on this topic, see Sutherland’s white paper “The New Age in Customer Service.”

The Technological Imperative: Why Banks Need to Keep Up with Changing Consumer Demands


3-14-14-ACI.pngWe live in a digital world where customers think less and less about the device they are using and more and more about the experience. Consumer technology is driving expectations. Customers are demanding real-time data, a consistent experience across all channels and a personalized relationship with their bank just as they do from their favorite shopping and online experiences like Amazon.com.

Today’s customers interact with financial institutions in a way that feels most comfortable and convenient for them, often beginning an activity in one channel, such as the branch, and moving between other channels, such as mobile phone and Internet banking, based on personal needs. According to the 2012 Google report, “The New Multi-screen World – Understanding Cross-platform Consumer Behavior,” 46 percent of people use multiple screens sequentially, by going back and forth, to manage their finances. The expectation of financial services providers is a single experience that delivers intuitive, relevant and individually tailored offerings.

Top Activities Performed Sequentially Between Devices

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Source: “The New Multi-screen World – Understanding Cross-platform Consumer Behavior,” Google 2012

Compounding this issue is choice and ease of switching financial institutions. With advances in technology allowing the birth of digital banks not tied to any physical location, consumers have more choices than ever before. Consumers are more willing to use different institutions to meet specific needs, which makes the fight for share of wallet that much more important as bank channels proliferate and branch visits diminish. This means your customer experience is primarily defined now by an investment in banking technology.

Break Down Silos to Deliver a Holistic Experience that Transcends Channels

How can financial institutions adapt to meet these expectations? They can use a holistic approach to fully understand each of their customers and how they use technology. Traditionally, financial institutions built each customer touchpoint or channel in silos, often adding additional silos as new technology was introduced. Channels also frequently operate and are measured in isolation. This approach undermines the financial institution’s ability to tailor products and services to individuals, making a consistent user experience nearly impossible. Offers made in one channel (ATM), are declined by the customer only to be offered again in another channel (online) without the intelligent capability to know that the customer has turned down the offer already. Engagement and service opportunities are continually missed and customers become increasingly dissatisfied with the service and lack of personalization.

Leverage Data to Connect the Dots for Customers Across Touchpoints

The first step in laying the foundation for the omni-channel banking experience is in linking delivery channels such as bill pay, online, mobile, tablet and voice, along with the core through a common technical infrastructure. Financial institutions can then begin to leverage this valuable data to build a true customer profile, enabling more effective communications and driving loyalty through a more personalized customer experience. The technology and resources are available today to help financial institutions move in this direction. A growing number of service providers offer digital solutions tightly integrated across single platforms that deliver responsive, consistent experiences. And by using the data from these solutions coupled with the bank’s customer relationship management (CRM) tools, enabling online chat solutions, and leveraging the bank’s digital presence across the web and social media, banks are already well positioned to focus on improving the customer journey. This will not be an overnight process, but it will create tremendous opportunity as the future of banking unfolds. 

Now is the time to get started. Begin with tracking where customers spend their time (phone, tablet, voice) and how they interact—to gain a better contextual understanding of customer preferences.  By optimizing channels based on the nature of the interaction and customer preference, financial institutions will reap the benefits of the omni-channel experience.

Achieving the Omni-Channel Goal

Improving both customer experience and engagement is at the center of the omni-channel discussion. Brand loyalty will only be achieved by those that continually evolve to meet shifting customer expectations. Financial institutions must look at overall customer journeys and introduce consistent personalized interactions across all touchpoints. Continuing to operate in silos will cause significant loss as customers seek out other institutions that can provide the anytime, anyplace banking environment they demand.

Financial institutions now have viable technologies at their disposal to deliver innovative, tailored, touchpoint banking services. Community banks and credit unions or financial institutions of any size with limited resources can leverage the technology and data available to begin to apply this strategic approach. Those that respond now by working towards streamlined, integrated systems, a single customer view and optimal customer experience will ultimately get the edge over the competition and create lasting, profitable relationships with their customers.

What’s Wrong with the Sales Process at Banks?


3-7-14-Ignite-Sales.pngRetail banking is at an inflection point.

Together with the obvious pressures from regulations and low interest rates, non-financial institutions such as PayPal and Walmart are threatening banks’ bottom lines. They are under attack in areas they have felt most secure, such as business banking. Walmart’s Sam’s Clubs are offering Small Business Administration (SBA) loans and PayPal has hired a lending team under an executive vice president of business banking. At the same time, customers are also taking greater control of their banking relationships: They are switching banks, changing their behavior and demanding improvements.

Banks need to reestablish their relationships with their current customers and evolve their consultative sales process to be consistent and repeatable throughout all their channels. They need to adopt best practices in sales found in other retail industries, as well as measure results. They also need to embrace technology to survive and remain competitive.

All banking channels, including mobile, branch, and online, are struggling with sales productivity and performance. These reasons include:

Loss of fee income: Ninety-five percent of non-interest, fee generating products are opened in the branch. Due to increased regulation, banks have seen a decline in revenue from these products and need to find ways to recoup fee income that was generated prior to regulation.

Too many expense centers: Banks are facing many challenges managing profitability across their branch network, which happens to be their biggest expense. They haven’t had the insight they needed to determine potential profits from their branch network.

Sales process has not been a priority: Banks have paid little attention to the sales process, and therefore, the buying process. Banking has never had to focus on a comprehensive sales process. Because of healthy margins from loans and fees, banks have historically shied away from proven sales methods found in other industries. However, now that the market has become competitive, the lack of sales infrastructure hurts. More progressive banks have begun to hire experienced sales management from other industries that bring the expertise needed to change this culture.

Making decisions on intuition, not real data: Most banks don’t have methods in place to capture data at the point-of-sale. As a result, management is unable to accurately track what is sold, or determine whether the revenue in each channel or branch is generating fee income or interest income. They have no real data that shows which channels are profitable, and which need coaching or even closing.

Fear of technology: Technology has rapidly evolved over the past several years. It is challenging to keep pace with the rate of change. Banking’s internal culture is slow to accept these changes, giving non-traditional competitors a window to use technology to capture market share from traditional banks.

Tackling each one of these issues is a formidable challenge on its own. Collectively, they become a board level issue. Banks that do not address these issues will continue to struggle or will not be able to remain independent.

The first step is to close the gap between the buying process and the sales process. To do this, banks need to:

  1. Put successful and repeatable sales processes in place to ensure that the bank is opening profitable accounts and to ensure a consistent customer experience;
  2. Collect data at the point of sale to be able to measure productivity and profitability in real-time, so that the bank can adjust to changing market conditions;
  3. Be agile enough to embrace technologies quickly to remain competitive.

Banks that take the first steps in modernizing the sales process and embracing technology will be well on their way to compete in the new age.

Three Things Bank Boards Can Do to Improve the Use of Technology


2-26-14-emily-tech.pngThere is little doubt that technology is rapidly changing lifestyles, not to mention banking. More than half of all Americans owned a smartphone in 2013, up from 35 percent just two years prior, according to the Pew Research Center.

Jack Schultz, chairman at Effingham, Illinois-based Midland States Bancorp, which has $1.7 billion in assets, says his bank’s board and management keep an eye on the competition from both inside and outside the banking industry, and then rapidly adapt. He uses mobile banking as an example. “It’s a much quicker game than what it was 5 or 10 years ago,” he says.

Technology moves at a rapid pace, and much of that change could result in better service to potential and current clients, all while making the institution more efficient. Here are some items that bank boards can consider to avoid becoming irrelevant.

  1. Add a board member with expertise in technology or innovation.
    “Because of the way that the industry is changing so quickly, I think that having people who have a background in technology and innovation is a strong attribute for the board,” says Schultz. Not only do these board members need to understand what technology will be important to customers, but they also need to understand the impact of cyber security risk on the institution and, due to the reliance of many small institutions on third-party technology, how to oversee vendor management. “Every single bank is a consumer of technology,” says Ryan Gilbert, himself a technology expert and director at Sacramento-based River City Bank. Gilbert is chief executive officer of BetterFinance Inc. (formerly known as BillFloat), a financial technology company which helps consumers manage their bills and provides small loans to consumers and small businesses through lenders. While many banks have lawyers, real estate professionals and doctors with expertise in areas like business development or compliance, many board members do not fully understand the technology the bank relies on. “There is a significant knowledge gap that’s out there,” Gilbert says.

    But finding these directors can be a challenge. “Most people like me don’t want to be on bank boards,” Gilbert says. Aside from the liability posed by serving on a bank board, he says that the difference between the banking industry, focused on safety and soundness, and the technology sector, focused on innovative problem-solving, can result in a culture clash. “Working with banks as a financial innovator is super difficult,” he says. “Banks and regulators put the ‘no’ into innovation.”

  2. Add a technology committee to the board.
    “I think all boards should have an IT [information technology] committee” focusing on the bank’s technology needs, including external vendors, says Gilbert. Technology is a significant part of the bank’s budget, with industry spending in the U.S. expected to increase by almost 10 percent by 2015, according to research and consulting firm Celent. More than half of spending was allocated to external services and software in 2013, and Celent expects the industry’s reliance on vendors to increase.

    “Unfortunately many banks, or bankers, do not get very involved in IT matters, and prefer to either outsource or really not lend too much attention to these issues,” says Agustin Abalo, who uses his expertise as a former chief information officer at Banco Santander International, a subsidiary of Spanish global bank Banco Santander, to chair the IT committee of BAC Florida Bank, a $1.3 billion-asset institution headquartered in Coral Gables, Florida. This board-level committee is composed of three independent directors and several officers, including the bank’s president, chief risk officer, chief operating officer and chief information officer. Abalo says that just like other committees focus on relevant risks, like large loans, IT committees can help tackle the growing issue of cyber-crime. He recommends that the IT committee keep the board informed about the bank’s technology needs and related budget requirements.

  3. Focus on technology that improves the user experience and makes the bank more efficient.
    “Usability, which is a massive focus for [financial technology] companies and Internet start-ups, really hasn’t been a focus in banking,” says Gilbert, making it critical for boards that want to set the institution apart to ensure that the customer experience—both in person and online—is positive.

    Mobile banking continues to have a big impact on the industry, and when done right, can result in satisfied customers and a more efficient institution. “Access and convenience are key to the customer,” says Dustin Luton, chief executive officer at Covina, California-based Simplicity Bank, a savings bank with $867 million in assets. “They want things on their own timeline.” If more tasks, like cancelling a debit card or stopping payment on a check, can be done through mobile or online banking, it’s convenient for customers. It can also allow branch and call center staff to better focus on customers that need more assistance or want more products and services from the bank. “These little things will make the difference in the long run from a customer perspective, all these little things that [customers] just don’t really think about,” says Luton.

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.”

The Case for Board Portals: Saving Money While Saving the Environment


5-16-13_Diligent.pngIn the past, the decision to adopt portal-based solutions for boardroom communications was often driven by efficiency. Banks sought to minimize the manual labor associated with paper-based board pack production and create a seamless flow of critical information to board members. Most directors adapted quickly to digital options. And why not? Doing so allowed them access to volumes of board materials on iPads or tablets and near real-time updates for swifter and better-informed decision-making. For the company secretary, the advantages were equally compelling: With paper-based production, the manual effort of printing, collating and delivering board packs is immense compared with electronically developing and disseminating materials.

Now, however, it is becoming increasingly clear that the greatest benefit of portal approaches goes well beyond the qualitative. Digital solutions can also significantly cut costs. Consider the case of Huntington Asset Services, a mutual fund service provider for clients with combined assets of more than $45 billion. Board meetings for Huntington’s Valued Advisers Trust generated, on average, 1,000-plus page binders that were four or five inches thick. Although the company’s primary motivation for adopting a secure board portal solution was efficiency, the money managers soon discovered that their own capital went a lot further with a portal. In fact, switching from a paper-based approach resulted in a savings of almost $10,000 a year for two funds on original costs of almost $40,000, or 24 percent. The same level of savings can be expected for each additional fund that adopts the portal solution. Beyond sheer material savings, Huntington Asset Services also notes that they save at least two days in the development and delivery process, and resources are freed up to focus on areas of more strategic importance.

Similarly, FirstRand is a leading international financial services group. FirstRand conducts a robust calendar of meetings—upwards of 600 a year between its main board and all of the subsidiaries requiring the production of more than 8,700 individual board packs for its directors. Moving from paper-based to digital production of boardroom materials was prompted at first by a need to mitigate the tremendous burden inherent in manual report processing.

After using Diligent Boardbooks for nearly a year, FirstRand measured savings obtained by moving to the solution. The bank discovered that the portal had cut their costs by nearly half. Previously, FirstRand spent almost $1.5 million per year on the production, assembly and delivery of board packs. After adopting a portal, the company achieved a saving of $748,000 in their first year alone, a reduction of an estimated 50 percent of overall costs. The majority of these savings were attributed to a 78 percent reduction in staff costs. And more than four million sheets of paper—the equivalent of 527 trees—were saved last year as a result of switching to a paperless solution, so there was measureable environmental impact as well.

A clear case for digital

While banks often initially adopt board portals to gain efficiencies, many also discover significant bottom-line savings. And they have proven that there is a clear business case for going digital. In many cases, a secure board portal solution can literally pay for itself.