As thousands of banks churn through their 2014 planning sessions over the next few weeks, there’s no doubt bank technology will be a big part of those conversations. Department heads will come with lists of technology projects. IT folks will come with their lists. And increasingly, directors will come with their own tech lists.
How many times have you heard these statements from your board: “We need to improve our technology to attract younger customers”; “We need to improve our use of technology to drive better efficiencies”; “We need better technology to be able to compete with the bigger players”?
Those three simple statements could lead to the bank chasing its technology tail for the next decade.
Compounding the ever-growing list of technology projects is the perception that your bank is falling further behind your competitors. If you attend industry trade shows and read the trade press, you would think every bank in the country is making huge investments in multiple mobile-payment strategies, developing new personal financial management apps, rolling out biometrics, and tweeting daily updates of those projects to thousands of customer-followers.
If everyone else has a seemingly unlimited technology budget, how in the world can you keep up?
First, a reality break. Perhaps the top 25 banks are doing all that. But the actual deal activity in community and regional banks is very different, as the nearby chart demonstrates.
Yes, you have to be aware of what the megabanks are doing, because many banks compete with them. And yes, you have to follow demographic trends to understand how today’s customers are redefining convenience. But the challenge for most banks isn’t about keeping up; it’s about determining how your tech strategy supports your bank’s business strategy and then prioritizing your tech resources appropriately.
Align bank and technology strategy
If you were a predominantly commercial bank and saw a competitor offer a splashy new mortgage product with a ridiculous rate, you wouldn’t think anything of it. Yet many commercial banks see the bank down the street roll out cool, new consumer-focused technology and scramble to match it with the justification: “We need to be relevant to Gen Y.”
If growing your Gen Y customer base is a top-five strategy for your bank, you need to build out a strategy for doing that and then determine the technologies you need to execute it. You don’t pick a one-off technology and hope that blossoms into a winning, overall Gen Y strategy.
So the first rule of tech strategy is that it must support your bank’s business strategy. As simple as that sounds, it rarely happens.
Abound Resources’ annual Insights survey highlights this problem. Heading into 2013, bank CEOs reported that their top three strategic priorities were to grow commercial loans, use technology for better efficiencies, and address growing regulatory requirements.
One would probably expect IT executives from the same survey to list their priorities as technologies to support those business strategies—for example, commercial loan origination systems, enterprise content management (ECM) with workflow, and enterprise risk management systems.
Wrong. IT executives told Abound that their top three priorities were fraud management, information security, and internet banking system upgrades. Those are also important priorities, but the lack of alignment between bank strategy and IT strategy leads to wasted technology dollars, underutilized systems and unmet expectations. The problem is not new. It has happened in each of the past five annual surveys.
So what do you do? Document your bank’s strategic plan. Then, answer these key IT questions:
• What are the top three to five IT priorities over the next three years that will support the bank’s three-year goals?
• What do you expect IT spending to be over the next three years to support those priorities?
• What are the top three to five IT initiatives for 2014 that will support the bank’s one-year and three-year goals?
• What is the 2014 IT budget to support those goals?
• What two to three key performance metrics do you want to track for IT, and what are your targets?
As you debate your IT priorities, force prioritization. Try to keep your list to the top three to five. Keep in mind, there are some tech investments where you need to be “best in class” and others where you merely need to be competitive. If your executives don’t define this, your IT team most likely will look for the best in class and end up spending 20%-50% more than if all you really needed to be was competitive.
“Low-buzz” technologies to consider
As you consider various technologies to support your business strategy, it is tempting to focus on “high-buzz” solutions (see chart, p. 29). But don’t forget about your existing tech investments or overlook new technologies that don’t often get a lot of play.
Workflow automation. One of the high-growth, low-buzz technologies in banking today is workflow automation. This is essentially a programmed series of steps that route information and documents to appropriate users. When an image of a signature card pops up on a teller’s computer because of a bank-defined rule, for example, that’s workflow. Over the years, workflow has evolved from simple applications like signature cards to new-account opening and loan origination. Increasingly, banks are looking for bankwide workflow tools. ECM, discussed next, is now the preferred application for bankwide workflow automation.
ECM. This is the next generation of what used to be referred to as document management or document imaging. Today’s ECM includes document management, document imaging, COLD/report management (computer output to laser disk), retention management, electronic forms, and workflow. It allows banks to add intelligence and automation to their paper and electronic documents.
It also has become the No. 1 tool for efficiency improvements. The paperless bank is now a reality: Any piece of paper that comes into a paperless bank (mail, customer financial statements) is converted to digital form and shredded by day’s end. Any piece of paper the bank creates (notices, statements) is mailed out or shredded by day’s end. No filing cabinets. No stacks of paper. No shadow files in branches. Every document and form is available anywhere. And every document and form follows the rules exactly as stated.
Here are a few examples of what ECM with workflow can do:
• Capture electronic signatures for new accounts, including a web-based signature for a joint accountholder who can’t come into the bank.
• Scan a driver’s license, and the name, address, and license number automatically populates your new accounts and CIF system, and the customer’s picture is available for authentication.
• When a commercial customer emails its financial statements, the financials are automatically sent to the appropriate loan officer and credit analyst and removed from the “outstanding” list.
• Scan invoices, and the vendor, amount, description, and invoice number automatically populates the accounts payable system.
• Replace paper-based wire requests in branches with an electronic form. The e-form automatically routes to the appropriate manager for an e-approval. Once approved, it creates the request in the wire system. No paper. No faxing. Perfect audit trail.
Loan origination. If you aren’t ready for the paperless bank, departmental applications with workflow also can drive greater efficiency and customer service improvements. Driven by interest in faster loan turnarounds, greater efficiency, and improved risk management and compliance, loan origination systems with workflow are increasingly sought by banks.
Vendor solutions don’t yet provide a fully automated, end-to-end process for all loan types, but they’re close. Many have a single solution for consumer, small business, and commercial, though commercial loan origination is driving investments. Typically, the solutions wrap workflow automation around credit analysis, statement spreading, underwriting, decisioning, documentation, servicing, and portfolio monitoring. With the solutions, you should expect:
• To get to a paperless loan committee that reviews files on tablets.
• To catch more loan exceptions before they become an exception.
• A well-documented audit trail of how and why decisions were made.
• A simple, standardized credit analysis approach for each loan type.
• A standardized, automated workflow to “walk” your lenders through how credit analysis should be done, and how the forms need to be completed.
• To view credit requests through the entire process and be notified as the request moves through each stage. You can even notify customers through the stages to preempt status calls and emails.
• Single data entry as well as tight integration with core, credit reporting agencies, vehicle valuation services, etc.
Don’t forget about core
Let us also not forget about your core system. In general, core typically accounts for 25%-40% of total tech spending, and banks typically only use about 40% of core functionality. So often the best return on your tech budget is to simply invest some time in improving use of your core.
Often, a series of small utilization improvements can lead to measurable efficiency gains.
If a CSR does ten basic transaction or inquiry types every day, why not create one screen that allows her to do all those without 15 mouse clicks and endless scrolling? Most core systems allow you to customize screens and navigation for each user type or for individual employees, yet few banks use this feature. Simply eliminating 20 minutes a day of hunting and clicking frees up nine workdays a year.
Eliminating paper-based tickets in your bank by using the online entry system in cores can often eliminate one full-time position.
Paying $15,000 for an interface between core and a third party system that eliminates 1,500 hours of data entry over the next five years is a no-brainer. Yet many banks don’t pay for third-party integration.
Just using the auto balancing and auto reconciliation features of your general ledger or your account reconciliation module for official check reconciliation, and setting your prepaids and accruals to run automatically in your general ledger can eliminate 400 hours of data entry in your accounting department.
Using the collateral management systems within your core to automatically generate letters and age exceptions, and build the checklist when you book new loans secured by collateral can save time, improve compliance, and eliminate errors.
Likewise, most banks don’t need to make investments in big data. Instead they should use their core report writer more effectively. The custom report writer eliminates all the spreadsheets created for logging, tracking, and reconciling. Connect both directly and indirectly related accounts in the CIF module, and then use your bank’s report writer for householding and marketing analytics and to generate lists for direct mail and email.
Further, some core systems detect where a customer’s transactions are taking place and reassign the customer’s branch identifier to the appropriate branch or cost center, giving the bank a truer picture of profitability.
Upgrade IT governance
In addition to adding or merely turning on unused functionality, it’s important to put governance practices in place to address the reasons for underutilization issues.
The two primary reasons banks suffer from poor core utilization are:
1. Not knowing what features are available. Since most core products have thousands of features and most banks rely solely on a product demonstration or training session to initially learn them, it’s not surprising that so few bankers know what their core systems can do. Plus most core vendors have at least one major update a year and several periodic fixes, so feature lists grow.
2. Poor core system implementation. This is nearly impossible to recover from. Momentum is lost and everyone subconsciously judges the core product as a lost cause. Be sure you and the vendor get it right.
Also, vendors contribute to the idea of “paving the cowpath.” Often, banks pick a replacement core provider based on a number of features they deem better than those of their existing provider. They expect the new and improved features to be there when the vendor implements the new system. But most core vendor implementation teams encourage banks to merely copy over the bank control records from the old system to the new one. It makes testing and balancing easier. If you don’t insist otherwise, you will simply lay a new core system with improved features on top of the old, but very little will actually change.
So what governance steps can you put in place to prevent, detect, and correct underutilization?
1. Assign application owners. Bank core systems have become too big for any one person to be the expert. Today’s best practice is to assign the appropriate business line owner for most of the core modules. Someone from loan ops, for example, should own loan accounting. These application owners are responsible for knowing the capabilities of “their” systems and ensuring people are adequately trained.
When new vendor releases are announced, application owners attend webinars and read release documentation, and then come back to their departments with ideas on how to take advantage of new features. They send enhancement requests to the vendor, participate in vendor user groups, and learn about developments in their types of systems outside of your vendor.
2. Conduct an annual utilization review. This can be done internally by application owners or with the help of your vendor or outside consultants. Rotate modules around and schedule them on your IT steering committee calendar. Perhaps you’ll have a core loan accounting utilization review in the fall and a deposit accounting utilization review in the spring. Document improvement ideas, execute, and check back to make sure you don’t backslide.
3. Use a structured evaluation methodology. The next time you evaluate competing vendors, document requirements before you talk with any of them. Use this list to guide the evaluation process (RFI, RFP, demonstrations, due diligence) and implementation process, so you control the outcome of your implementation. Do not let replacement vendors pave the cowpath.
Putting it all together
As you can see, technology success is built just as much on good planning, execution, and governance disciplines as it is on the technology itself.
And when technology success comes together to support your bank’s strategy, you can do things even the megabanks banks don’t do.
So are you buying one-off technology in search of a problem? Or are you using technology to support your bank’s business strategy?
Brad Smith is president, CEO, and cofounder of Abound Resources, an advisory firm that helps community and small regional banks achieve their goals by breaking through current sales, operations, technology, risk, and compliance challenges. For more information, go to www.aboundresources.com
“Day in the life” of a tech-enabled business banker
Let’s say one of your bank strategies is to grow your small business segment. You get a team together to better understand small business owner needs and then you build a new sales model to go after that segment. You round out your product and package offerings to meet their needs, and you use technology to empower your sales people and deliver those products. If you do all that, it leads to the following 30-minute new sale:
Susan Jones, your business banker, finishes a customer meeting at the customer’s office. She has two hours before her next appointment, so she checks her iPad, which is synced to the bank’s CRM system. There are two other businesses in the building on her prospecting list.
The first one is a professional services firm. Because the bank bought a list and populated its CRM with third-party data, Jones sees that the business is an accounting and bookkeeping firm with $2 million in revenues and seven employees. Robert Smith is the owner, and he’s already pre-approved for a $25,000 line of credit or business credit card.
Jones looks up Smith’s LinkedIn profile: He is a University of Texas graduate, he used to work at KPMG, and he’s also connected to the CEO whose office she just left. She uses this information to get two minutes with Smith. After asking three great questions to understand Smith’s business, he gives Susan more time, as he’s impressed that she understands his business. He also thinks to himself that in five years, his current bank has never once been to his office.
Jones recommends a suite of deposit and payment services and mentions a great introductory offer to get started. She says that he’s pre-approved for a business credit card, and she can get him started now, without having to come into the bank. Smith loves the idea and Jones has all the forms pre-filled with his information. All he has to do is sign on her iPad. She spends five minutes showing his office manager how to use the bank’s internet banking system, including the tie-ins for ACH, business credit card, and merchant services.
In 30 minutes, Jones closed a $200,000 business checking account, a small merchant services account, and a $3,500 per month business credit card account. All forms, including the customer risk assessment, were completed without paper and are stored on the bank’s enterprise content management system. In six months, Smith has moved all his personal business over to Jones. Jones heads down the hall to meet her next prospect.