IT' S NEXT TO impossible to pick up a financial publication today without reading about some newly created superbank or megamerger and its ominous implications for the future of community banks.
Even as doomsayers cite alarming evidence such as the more than 4,000 financial institutions swallowed up by mergers and acquisitions in the last five years, community banks are far from being on their deathbed. And the major force leveling the playing field is technology.
The success of community banks depends on their unique relationship to their customers and community. By their very nature, community banks are in a excellent position to render truly personal service. Two qualities which are important are flexibility and an entrepreneurial approach to business.
Technology can aid both.
For example, a Midwest holding company made a serious commitment to be more competitive with the big boys. Preparing for the onslaught of increased competition from area superregionals, the company beefed up its customer service capabilities and marketing efforts. Its primary strategy focused on keeping existing customers satisfied with increased attention to service, expanded products, and new services.
In an effort to accomplish these objectives, the company enhanced its voice response system to include bill paying, access by personal computer, and fax-back response features. The bank achieved its goal of keeping existing customers while attracting a significant share of the market for new customers. Future plans include on-line systems for mutual funds, travel services, loan, and trust services.
Duplicating this success requires a constant commitment to improving customer service, bank products, and delivery systems.
With rapid changes in technology occurring almost dally, community banks are faced with the challenge of making decisions about which new services to offer or improve in order to satisfy customer needs.
The community bank can be hard pressed to keep pace with technology and determine where its dollars and manpower can be best spent. Management must focus on areas of service that differentiate the organization from the competition, determine products and services that best meet customer needs, and anticipate industry trends.
In the past, technology and automation seemed a tool only the largest financial institutions could afford. But with third-party vendors and advances in PC-based and platform automation systems, the scales of technological advantage have, in many cases, tipped in favor of smaller institutions. For example, accessing large data bases is often easier and more economical for community banks than larger institutions.
Retail customers make up 80% of a community bank's overall customer base. In the past, customer needs were satisfied with traditional products such as checking and savings accounts along with automated teller machines and direct deposit. Today, management must focus on complementing these services to capture new customers.
For example, ATM services continue to expand with updated hardware and software that offer customers the ability to retrieve statements, cash checks, split deposits, and update changes in address. Electronic services such as ATMs will continue to build on voice response systems, expanding services into the home banking arena.
Voice response systems are used to handle routine inquiries such as the account balance, funds transfer, whether a check has cleared, and deposit verification. Home banking will combine this technology with image technology, providing customers with copies of paid checks, deposit transactions, summary statements, and loan documents via personal computers. Electronic bill paying will become an increasingly important product to deliver to the customer of tomorrow.
Optical storage technologies also present an opportunity for community banks to cut operational costs while delivering new services and products. Image technology is an important tool for reengineering workflows and reducing operational costs.
Optical storage replaces microfiche reports and statements and is accessible to multiple operators. Optical technology can convert information such as loan and trust documents including notes, wills, and customer statements - into scanned images. The information can be accessed by customers and bank personnel via local or wide area networks.
Besides paying bills by telephone and home banking, alternative payment methods such as debit cards continue to grow in popularity. The debit card enables customers to use bank services in a larger market, as well as complement existing ATM cards. In addition, debit cards are more widely accepted by merchants than their credit counterparts because of instant payment. They also lower back-office costs, reducing the bulk of check processing.
A key component in servicing the retail customer, especially as banks add more services and products, is a flexible and accurate customer information file. Such files have traditionally been the responsibility of the back room. However, with platform automation, they are now a tool for customer service representatives at the point of sale.
Community banks seeking to carve out larger niches in the marketplace as well as identify and capitalize on cross-selling opportunities will rely on platform automation. Platform automation delivers customer information file information to anyone connected to the bank's host system. The file provides quick and accurate information on a customer's financial history with the bank.
With this information, a customer service representative can make better decisions on the products that meet a customer's particular needs.
One of the more creative applications of platform automation for marketing new products is "profiling." This is being done by one of our clients who incorporated the customer information file with platform automation software that reviewed a customer' s list of products. The software highlighted outdated products and provided more beneficial options.
The system matches similar customer profiles, enabling the customer service representative to more accurately identify sales opportunities. The bank's emphasis is now directed at profiling product and service combinations, which will yield a higher level of customer satisfaction and greater profitability for the bank.
Before implementing any new technology solution, a bank must have an accurate profile of its retail customer. For example, if a bank's average retail customer is over 55 and a conservative investor, many of these services may be unnecessary and underused. Better service may simply involve improved delivery of traditional products.
Though a community bank' s bread is buttered by its retail consumers, there still remains a wealth of opportunity in keeping and attracting business customers.
Like their retail cousins, business customers are seeking electronic services and products. Services supporting cash management - such as balance reporting, funds sweep, direct deposit payroll, and cash concentration - are no longer competitive tools for just the larger corporations and companies. Cheaper computing power coupled with software advancements enable community banks to offer these services to any size business customer.
The success of marketing to business customers also relies on an accurate and complete customer information file. Such a file must contain all credit and related loan information for successful marketing. Business customers are looking for more than just lending services and products. They also seek better management of profitability and growth. In the past, community banks have split the responsibility for servicing business customers between the loan department and noncredit departments. With platform automation and a customer information file, a bank's loan officer can target products and lending strategies that best meet a business' needs.
The loan officer acts as both lender and business adviser. With quick access to a company's financial history and business plan, the loan officer can improve profitability of both the bank and its business customer.
The mistake many community banks make is relegating their platform antomation system to performing just processing functions for document preparation in opening a new account or loan. By expanding the role of platform automation as an interface to both the host system and the customer information file, a bank empowers its personnel and departments.
Optical storage can also be used to improve services for business cus- tomers. Stored information such as loan documents and other credit related data can be retrieved and reviewed by loan officers. Loan files and company credit histories can be optically stored and viewed by several departments at the same time. With dial-up capabilities, a customer can access the information as well.
A bank's investment in optical storage technology will vary based on a variety of factors, including the type of information to be stored and access requirements. However, image processing remains capital intensive. It's important to consider less expensive options such as outsourcing and service vendors when choosing an imaging solution.
Dial-up capabilities enable customers to access the bank's host system for information and services. In conjunction with automated clearing house origination and disbursement, services such as payroll and cash concentration ( accounts-receivable collection) as well as funds transfer can be initiated automatically. With the growing acceptance of direct deposit payroll, the business customer can avoid the costs of payroll check issuance and reconciliation, and the community bank can hold onto cash longer.
Dial-up services have traditionally entailed a high setup cost, causing many community banks to balk at offering the service.
However, today the demand for these services, along with an increase of automation vendors, has driven the price down to a level many community banks can afford. Again, a careful review of a bank's customer profile and market will yield which services best attract new business and keep old.
