Fast, easy, relevant and seamless — that’s what customers expect from their financial institutions. Of course, not everyone is getting that experience right now, and banks of all asset sizes are turning to technology to help them meet customer expectations. In fact, 70 percent of financial institutions surveyed by American Banker said they plan to spend more on technology in 2017.
The majority said they’ll increase spending by 10 percent or more, and a third anticipate boosting technology budgets by more than 15 percent. They’ll spend on technology that supports compliance, security, mobile device management and lending platforms, among other priorities.
American Banker’s survey polled financial institutions with assets of less than $100 million, as well as those managing more than $10 billion in assets. The results underscore the reality that technology is as much a priority for community financial institutions as it is for much larger players.
However, for all the agreement on the importance of tech, not all institutions are equally equipped to fulfill their technology aspirations for 2017.
Community Financial Institution conundrum
Community financial institutions rarely have technology budgets that can compete with the spending done by mega-banks. Nor do they have the resources to build large, agile in-house technology departments.
What’s more, striking favorable agreements with leading technology vendors can be difficult — if not impossible — for smaller institutions that lack the leverage (read: budget) of mega-banks. Smaller organizations may struggle to understand and manage complex technology vendor contracts, and find it difficult to urge vendors toward making the innovations the community FI most needs.
Yet community financial institutions are the banking industry segment most in need of a technology makeover. Multiple studies point to the segment’s overall lag in offering customer-centric technologies such as mobile apps, mobile deposit, remote capture and more.
Relationship-building as a solution
While community financial institutions may be behind in tech adoption, they continue to lead the way in one of the most fundamentally important skills of the industry — relationship-building. In fact, consumers consistently cite the personalized quality of the bank/customer relationship offered by community FIs as a leading reason to continue doing business with them.
Community financial institutions can leverage their expertise at relationship-building to establish mutually enriching relationships with technology vendors. A give-and-take relationship, in which a community FI serves as a beta tester or innovation partner with a technology vendor, can deliver value to both the bank and vendor.
American Banker noted that many of the community financial institutions ranked in it’s 2015 Top 10 Community Bank IT Initiatives had built strong relationships with technology vendors. Those relationships helped smaller banks achieve groundbreaking, innovative technology projects.
During a Banking Exchange roundtable sponsored by Deluxe, Drew McMonigle, vice president, head of product development and product marketing at NBH Bank in Kansas City, Missouri, put it this way:
“We don’t have an R&D group. As a smaller bank ($4.6 billion in assets), we’re basically saying, ‘Okay, technology vendors out there, what are you doing to innovate? We’ll help you; we’ll partner with you to give insights about our clients, and then we’ll buy that product from you.’ That’s how most banks our size should work.”
How it can work
McMonigle’s comments illustrate a potential scenario that could work for community financial institutions looking to enhance their technology capabilities cost-effectively.
A vendor may have a concept for a new product or an enhancement to an existing product. The vendor might identify a financial institution that’s already using their existing technology with a high level of proficiency. After negotiating an arrangement to confirm the need, feasibility, scope, and security of the project, the vendor and community FI could work together to test, retest and develop the product. Or, a financial institution with a specific need or idea could approach a vendor with whom they’ve worked successfully and propose to serve as a testing and development partner in exchange for discounted pricing on the finished product.
Partnership can take many forms, including a community FI providing data for a vendor to use in tests, beta testing software or hardware in branch locations or simply just providing feedback on a product under development. The partnership approach allows a community financial institution to directly influence the development of new products and services. No one knows their business better than the financial institution, so partnering in this way with technology vendors ensures the development of the most relevant, useful product possible. Vendors who proactively seek input and testing from FIs could shorten development time and put a high-quality, in-demand product to market sooner than competitors working with less cooperation from their FI clientele.
No one knows their business better than the financial institution, so partnering in this way with technology vendors ensures the development of the most relevant, useful product possible. Vendors who proactively seek input and testing from FIs could shorten development time and put a high-quality, in-demand product to market sooner than competitors working with less cooperation from their FI clientele.
Of course, this kind of relationship requires caution. Community FIs should be aware that a development relationship with a vendor will require the institution to dedicate resources to the project. If not well managed, the partnership could evolve into more of a burden than a benefit for the financial institution.
FIs should also be cognizant of how such a partnership relates to their compliance burden. Dealing with data can raise issues of information security, and community financial institutions will have to be vigilant that their vendor partnership does not compromise customer data security in any way. If the partnership requires the sharing of bank customer information or allows a vendor access to the financial institution’s customer database, the FI will need to ensure all the vendor’s management documentation and information security safeguards are in place and tested.