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Community banks may have the upper hand

This article appears in the issue April 1999 [Volume 8, Issue 4]

For those of us who blindly assume community banks have archaic information systems-that they haven’t enough money to afford good solutions, that they should consider closing up shop because they can’t hope to compete in today’s merging, converging and increasing virtual industry-think again!

True, there has been tremendous consolidation in the banking industry. Mega-mergers have dominated the headlines. The assets of the top 20 banks now equal the combined assets of the next 9,100+.

But in the process of consolidating their facilities, products and services, many of the larger banks have lost the personal touch-you’ve heard about banks that now charge you for speaking with the teller?

While there are 35% fewer banks than 10 years ago, there continues to be growth in the number of new banks chartered-smaller, specialty firms that are carving out niche markets and services. They aren’t planning to be the biggest, but are planning to be the best and acceptably profitable at what they choose to do.

Community banks customize services for the small business owner; they’re increasingly selling insurance and investment products; they’re looking to the Internet as a means to stay close to their customer and to create a "portal" for the local community. Customer service is where they will compete, and technology will be their tool.

While large banks have been buried with Y2K challenges, smaller institutions have fewer products, hence fewer systems supporting them, and they tend to buy vs. build. In short, they’re in a good position to invest in technology, and it appears they have every intention of doing so. In fact, in a recent survey by Grant Thornton (www.gt.com), 92% of community bank executives cite "employing technology" as the most important issue for their continued success.

Increasingly smaller banks are beginning to bring their processing back in house. In 1998, 65% of banks with $250 million of assets or less were processing their data through in-house systems, up from 47% in 1992, according to Computer Based Solutions (www.cbsi.com). One of the fastest growing segments is client-server-based core banking systems, which represented 16% of all new sales in 1998.

So where is the opportunity for COLD, document management, imaging, workflow and knowledge management?

The traditional solutions

Is it any surprise that financial services led all other industries in the adoption of document management and workflow technologies? It’s competitive and extraordinarily regulated.

U.S. banking laws have done nothing but increase documentation and the associated need to track and report activity. Struggling under the increased workload while needing to improve service levels drove banks to invest. Initial deployments typically supported retail banking operations where processes were standardized, volumes high and the back office was centralized.

Applications included:

  • Statements and report management using COLD to eliminate costly third-party agreements for paper and microfiche printing of customer statements and bank reports.
  • Credit card, auto finance, personal lines of credit, home equity loans, etc.-using electronic forms or a combination of scanning, fax input, character recognition and workflow to automate credit review and approval.
  • Loan services-using workflow and document management for post funding audit of loan file and migration to active servicing. That is the window of time when the bank is most likely to get questions from the customer and it’s typically a time when the bank is least equipped to answer.
  • Customer service-providing controlled routing and processing of service requests and eliminating costly follow-up by providing immediate and shared access to information. In areas where there are mandated processing windows, such as handling a dispute within the credit card business, workflow adds tremendous value by ensuring that critical deadlines are met.

Image-based check processing comes of age

While the imaging and workflow vendors were busy delivering solutions for the overburdened back office and file room, the check-processing vendors were introducing their own suite of solutions. The United States still writes and processes over 65 billion checks per year. So much for the checkless society!

The first system introductions took place at the high end of the market led by Unisys (www.unisys.com) and IBM (www.ibm.com). By placing an image camera in the high-speed transport they captured at phenomenal speeds the images of checks that had previously been microfilmed. If the bank was really aggressive and had significant funds to invest, the entire proof of deposit workflow was changed. Checks went through the sorter first-the amounts were data entered at image workstations rather than individual proof encoders-and the checks were sent to "power encoders" that automatically encoded the amount field.

It appears image technology and check processing are here to stay, and the community banking sector is the fastest growing segment of the market.

Cost-effective "mid-speed" solutions are available using transports from BancTec (www.banctec.com) and NCR (www.ncr.com).

Table-top check scanners are available for lower volumes. Smaller institutions can even receive a tape or CD of their check images from their third party to facilitate use in other applications.

One of the first and more popular new services was image-based statement printing. We all remember that first American Express statement we got? Same concept, but downsized. Banks can save time and money otherwise spent sorting checks in check number sequence within account-not to mention saving the associated postage and, ideally, storage costs. Mentis, a Gartner Group company (www.gartner.com), projects that by 2000, more than a third of financial institutions will use imaging for check processing and statement rendition. And with the check image on file, it’s possible to design a new suite of products and services-some of which generate fees for the bank.

But you don’t need to be a large provider of corporate banking and cash management services to benefit.

Community banks are offering image statements, they’re creating CDs with check images for their small business customers. Some banks are even offering basic lockbox services. Just do a search on the Web-include image, item and bank-you’ll find community banks with six branches promoting their use of imaging in the check processing area and extolling the virtues of image statements.

Providing the "look" of the big guys, the "touch" of the small guys is the key to survival.

Community banks- moving beyond survival

Today, the pressure to offer products and service via the Web and call centers is enormous, as are the delivery challenges. To have an effective servicing strategy that leverages the Web and call center you need to solve the customer’s problem, ideally on the inbound request. You need access to information.

Macrosoft (www.macrosoft.com) offers a solution with COLD, check, electronic and image document features, in addition to Internet connectivity and E-commerce capabilities.

Imagine eliminating calls to the back office for simple check requests? Those result in microfilm and photocopy retrieval volumes ranging from about 4,000 checks per month for a community bank with about $1 billion in assets, to an average of about 60,000 checks per month for banks with more than $15 billion in assets, according to The Tower Group (www.towergroup.com). You can’t satisfy that request without connectivity from the Web and call center to an image repository. With connectivity you could satisfy that request through IVR with a fax-back number. Hands free operation for the bank. Statement copies could be handled the same way.

There are production examples of community banks and credit unions importing check/draft images from Federal Reserve tapes to build a repository that is accessible through Internet home banking solutions.

There are community banks with a service to create CDs containing records typically destined for the safe-deposit box (stock certificates, wills, legal documents).

There are credit union and community bank Web sites that offer full transaction capability, including online credit application and approval for simple loan products.

So, while the big guys deal with the effects of mergers and consolidation, while they define which systems and processes to adopt, and while they re-architect custom systems under the guise of Y2K projects-community banks are quietly carving out their niche, defining their product set, and they’re using technology as a competitive weapon.

Their systems are better integrated, they’re on the platforms used by the leading document management and workflow suppliers, and they’re well positioned to deploy a new banking architecture-one which provides TRUE enterprise information management-across all available channels.

So the next time you suspect a community bank’s information technology is archaic, think again. They’re the most aggressive adopter of check imaging; they’re investing in check image archives; they’re outpacing all other segments of the market in deployment of call center agents, and they’re deploying in-house systems based on the same hardware, operating system and database standards that support COLD, document imaging, document management and workflow.

But perhaps the best news is that it’s a market where customer service has always been the mantra. They don’t have countless committees involved in the decision process, and you can still sit down with the bank president over a cup of coffee to talk about what makes sense for the bank’s business and yours.


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