Tight expense controls over the last several years have led to an underinvestment in technology. Now, many financial institutions face scalability concerns as they pursue market opportunities and growth. The key to future success will be managing investments in new technology and building a scalable infrastructure.
First, let’s begin with a brief review on how we arrived at this crossroads.
M&A Activity. Many mid-size and community banks are growing via M&A activity, which has put even more pressure on scalability. Banks are not taking advantage of the scale these mergers have afforded. In fact, in many cases, banks are exacerbating the situation by not taking advantage of people and potentially better processes at the acquired bank. The answer for most has been to grow FTE versus focusing on automation.
Other Initiatives. Many opportunities for process and automation improvement have been deferred including much needed imaging, data warehouse and Web-based workflow systems in favor of the following:
Competing Projects. Competing projects, including cost cutting initiatives/profitability implementations and risk mitigation strategies, have been the focus for many in the past few years pushing process automation down the priority list. As banks seek to prioritize their projects and resources, initiatives like imaging and workflow systems will help provide a scalable infrastructure for future growth. Investing in these capabilities along with other process automation tools in the next few years with a keen focus on business process improvement must be a priority for executive management
Financials. Let’s face it – spare dollars have not been easy to come by in the last few years. As budget season nears, banks will be faced with another tough battle over spending money now to provide for long term scalability or suffer in the future from continued manual processes.
Despite this, a number of financial institutions have been able to get some much needed technology implemented over the last few years. Plenty of them have invested big dollars in platforms in hopes a big return. Many have it figured out. Others continue to commit cardinal sins when selecting and implementing technology. Below are some of the sins I’ve seen in my travels:
1. They do not formally assess if gaps can be closed with existing technology.
This is typically the case when it comes to functionality offered by a core provider that is not meeting the institution’s expectations so a best of breed product is contemplated. Most of the time, the core-provided solution will be less functional than the higher-cost and oftentimes less-integrated best of breed product. Also, more often than not, banks are not using 100% of the available functionality. For these reasons, the incumbent vendor should always be given the opportunity to retain the institution’s business and be included in a competitive bid for a new solution.
2. They don’t clearly articulate a desired process before selecting technology.
Too many times, software is purchased before desired processes are defined. This can create some challenges especially as the software is implemented. While banks usually do a pretty good job of defining functionality requirements, many don’t map desired processes or look at usability. Keep in mind that software should never be thought of as a solution to a problem, but rather as an enabler to a desired process.
3. They do not always look for a simpler alternative that may get 90% of the job done for 50% of the cost.
Cheaper and simpler alternative solutions versus a complete new product can, in some cases, be the way to go. Alternatives that do not involve a full conversion are usually much cheaper. For example, many banks struggle with the new account opening process. The natural tendency is to go out and look at third party platform systems instead of finding easy to implement workarounds like using an existing imaging product to enable electronic signature capture or working on integration of products like check order or ChexSystems. The point is, much of the required functionality can be obtained with a few minor upgrades rather than a complete conversion.
4. They don’t dig deep enough in the due diligence process during vendor selections.
RFPs and demos are very important in any selection process. However, the most important step is to understand how clients who have implemented the system feel. To start, don’t just ask a vendor for a list of references. Most of the time, you’ll get some cheerleaders whose implementation may be much different. Get as detailed as possible with any requests. For instance, ask for clients that are running some of the same ancillary systems that may tie to the application in question. Also, it’s always good to ask for a seasoned client as well as one that recently converted. The most important characteristic is size and delivery. Keep all these in mind and don’t be afraid to make calls versus doing all onsite visits.
5. They do not require a beefy ROI analysis before new investment dollars are committed.
Integral to every project should be a detailed ROI analysis. This is one step that is often skipped as quantifying return is not always an easy task. A good start is for the finance group to devise a template and drive participation. Watch out for assumptions that are unattainable or could be achieved without the technology. Just ask a vendor to put together an ROI if you don’t know what I’m talking about. The project sponsor should be held accountable for any growth assumptions that are made. These assumptions should be monitored on a quarterly basis, and timeframes to achieve any growth need to be established.
6. They do not drive new technology implementations with detailed process improvement and project management disciplines.
Lacking the necessary project management skills, many banks rely on vendors to develop the project plan and major milestones. The vendors should definitely be involved in the discussion due to their vast experience; however, it is good to have a debate of timelines and roles and responsibilities.
Bank executives are excited about expansion opportunities currently available through M&A and organic growth as the economy begins to recover. However, executives need to be aware that all is not well inside most banks today when it comes to streamlined, scalable process. Success going forward will depend on focused technology investments over the next few years coupled with a disciplined process to ensure they positively impact the business. Otherwise, today’s banks focused on growth could become tomorrow’s banks struggling with operational inefficiencies and risks.
As technology grows in both complexity and regulatory importance, organizations may find themselves lacking in the structure and tools necessary to effectively establish, manage and enforce their I.T. policies, resources and architecture.
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This article really summarizes what we are seeing in the marketplace at Genesis Banking. Many of our prospective customers realize that they need to implement imaging platforms, but really don’t want to bite off more than they can chew.
The old saying “walk before you run” is certainly in true here.
As a technology manager, I concur with the importance of investment in maintaining a robust IT infrastructure for multiple reasons: efficiencies to be gained, leading edge technology offerings serving as a point of competitive differentiation, and overall institutional security. That said, while the perception exists that Gen-Y and the Millenials will not want to come into a bank is pure and simply a result of their age, not their consumer behavior. As these younger folks age, they will “want” to come into the bank. I am not aware of many people that would want to do trust accounts, business lending, home construction mortgages etc without having a face to face meeting and solid relationship with their banker.
Right now, Gen-Y and the big M’s are in the basic accounts: car loan, checking, savings, etc. When they start doing serious investing, have major financial projects on the drawing board, they will quickly realize the benefit and quite honestly the absolute necessity of forging partnerships with their bank. Bankers are not in the commodity business. If a few Gen-Y and Millen’s want to treat banking as such,they can go ahead and do so.
You heard it hear however…the mindset will come full circle. Technology will play an increasingly important role in transactions but it will not eliminate the face to face interaction. I don’t know many bankers that would do a large commercial loan via an online ap….