Innovation in the Bank

By Evan Sparks

Ask community bankers about their single biggest technological challenge, and the answer is the same: the pace of change. But the technological change isn’t the only limiting factor. Even bankers most optimistic and excited about new technologies can find it difficult to implement new offerings. “By the time that you start seeing it, working it, training it and implementing it, something else is coming at you,” says Guillermo Diaz-Rousselot, president and CEO of Continental National Bank in Miami.

There’s also distinction between what George Hermann calls “offensive” and “defensive” technologies—those you implement to grow and those you implement just to keep up. If your bank doesn’t adopt the technology, says Hermann, president and CEO at Windsor Federal in Windsor, Conn., the customer “is going to go down the street to somebody else, and now you lose them completely.”

For community bankers, the need to keep up technologically is existential—as Deborah Cole of Nashville’s Citizens Savings Bank and Trust puts it, if they can’t keep pace, “I think very quickly customers would look at a community bank and say, ‘You can’t take care of my needs.’ I’ve got to keep up in order to keep our customer base.”

Winning investments

If you ask a younger, tech-savvy bank customer today about their favorite bank innovation, they’ll likely tell you it’s the ability to cash a check using their phones. Bankers agree and are working on new additions to mobile app performance for retail customers. At Windsor Federal, customers can turn a debit card on and off via the app and offer “fast balance” access without logging in. “That has been a big hit,” Hermann says. The use of biometrics to bypass password requirements, such as Apple’s Touch ID technology, continues to percolate through community banks, remarks Trey Maust, who co-heads Lewis and Clark Bank in Oregon City, Ore.

“For business customers, remote deposit capture is increasingly a necessity,” says Sue Brignac, the chairman, president and CEO of Washington State Bank in Washington, La. “I have a lot of commercial customers that were brought over by two merchant vendors, and remote deposit capture has really, really aided those commercial customers.”

Not all tech investments are winners, of course. Some of that effect is due to the nature of technology, which can rapidly become obsolete. “How much money was put into image ATMs?” Hermann asks. “You can do that on the phone now, so what do you need an image ATM for?”

Another visual technology—interactive teller machines, or ITMs—has bankers very excited about extending the reach of their offices. At FirstCapital Bank of Texas, the until-recently booming oil market in Midland, Texas, led to massive competition for local talent, with oil firms able to offer much higher salaries for those who traditionally would have been attracted to bank teller jobs. “The year before we implemented ITMs, we had 100 percent turnover of our tellers in Midland,” says bank president Jay Isaacs. But the video-based technology allowed the bank to offer extended service at branches but operate them with more readily available staff in Lubbock.

“We now operate from 6:00 a.m. to midnight, seven days a week,” he explains. “That’s been a huge benefit for our customer base.” It’s also a big driver of efficiency, as the bank can now operate its seven Midland branches with just 4-5 tellers total, versus 28 before.

Eye on the customer

Maust notes that the most successful innovations have focused first on improving the customer experience but that they have significant secondary benefits in bank efficiencies. (He also uses ITMs to serve a remote, central Oregon location outside of his main market, adding full branch capabilities to what is otherwise a loan office.)

Bankers can find it difficult sometimes to talk about tech with customers, but it’s essential to. “When you have the customer expectations of ease of delivery, and yet we have to protect that information, it’s a difficult balance,” says John Bothof, market president in the Omaha, Neb., area for the Iowa-based Northwest Bank. “If we wanted just to have total disregard for protecting customer information and those type of things, I think we could deliver it easier and faster.” But (obviously) bankers have high regard for customer protection, which makes them a bit slower to adapt the newest technology. So communicating with customers about why it takes a long time is a must—and, in the long run, can build customer confidence by demonstrating the deliberation with which banks treat customer data.

To help customers understand, Bothof hosts IT summits for his local business customers. The bank’s top IT and treasury management staff discuss how the bank protects the customer and what the customers’ systems need to have to remain secure. “We invite our customers in and we visit with them about what’s happening in technology and what some of the risks are in technology,” he says. “From a standpoint of cybersecurity, we actually put a global map up there and start showing the number of hits and the things that are going on worldwide. And then we just emphasize to them the importance of us being able to be responsive to those things and how we measure our success to that.”

At Zions Bancorporation, “we try to be pretty proactive” in figuring out customer needs through surveys, focus groups and other methods, says SVP Robert Spendlove, “seeing what the different trends look like—especially among the different age groups.”

Structured for success

Bank leaders employ a variety of approaches to integrating IT into their management structures. At Brignac’s and Maust’s banks—both with assets of around $159 million—the CIO reports directly to the CEO. Larger community banks, such as Isaac’s, Diaz-Rousselot’s and Hermann’s, have IT report through the CFO or chief operating officer. (Cole’s bank, at $100 million in assets, also has IT report to the COO.)

With Bothof’s bank, which is part of a two-bank holding company, IT is handled at the holding company level. The same is true at the $59 billion Zions Bancorporation, which is a holding company for several—in many cases much smaller—community banks. “We really encourage the local development of technology, although we try to share those technologies throughout the organization and try to use best practices as a way to share those developments,” Spendlove says.

But no matter how the organization chart is constructed, bankers emphasize the need for collaboration and frequent conversation. “We’re small enough we all meet together,” says Hermann. “It’s a lot of dialogue.”

The dialogue continues at the board level, with bankers reporting that they spend a lot of time educating their directors and gaining their feedback and insights on IT issues. “We’ve got our IT officer on point to prepare the annual strategic plan,” says Isaacs in a representative comment. “And that works hand-in-hand with the presentations to the board and then the board’s review of that particular plan.

When launching new technology, internal communication is key. Before you roll it out to the public, the staff need to understand the product as fully installed. “The message gets mixed from time to time, and that leaks out to customers who get a different interpretation,” Isaacs adds. “If they get little bit of information, they’ll extrapolate that into a wrong piece of information.”

Hermann advises bankers to test products extensively with their own staff first. “They’ve got to be in the forefront,” he says. “Otherwise, how are you going to sell it to people if you’re not using it?”

Bankers will continue to rely on their partners and vendors to help them navigate these changes. “We have limited bandwidth, limited resources from our financial standpoint, so which do you prioritize knowing that there’s an unknown ROI for that investment,” says Maust. “We’re really good at what we do as community banks, with face-to-face interactions and relationships. I’d love to be able to have an online experience for customers and clients that mirrors that.”

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About Evan Sparks

Evan Sparks
Evan Sparks is editor-in-chief of the ABA Banking Journal and vice president for editorial services at the American Bankers Association.