Mark P. Reinemann First vice president, Firstar Corp., Milwaukee
Community banks have certain advantages over larger banks and vice versa. In general, community banks offer a less bureaucratic decision- making process and better customer access to bank management. Larger banks have the advantage of scale. Investments in technology are easier to justify with larger customer and employee bases. Larger banks can also better afford to employ specialists to focus on selling and servicing certain market segments and products.
One way for small banks to compete on a level playing field with larger banks and nonbanks is to form strong alliances with larger correspondent banks. Larger banks that remain committed to correspondent banking often sell products and services, including technology-based ones, to community banks. At Firstar, we have a strategy of sharing all of our products with our community bank customers, including those developed by our information services group. Community banks are also finding some off-the-shelf technology they can use to assist their customers. In these ways, it is quite possible for smaller banks to compete effectively with larger ones.
Ed Hauck Senior vice president, S&T Bank, Indiana, Pa.
Absolutely not. In fact, if small banks wisely choose their technology partners, there may be a distinct advantage for smaller banks. Assuming that a bank's core systems are relatively well integrated across all major applications (loans, deposits, C.I.S. general ledger, etc.), the real key is the ability to be able to efficiently and effectively integrate other third-party applications such as a truly effective sales platform, credit scoring, a budgeting and profitability modeling system, loan origination platform, as well as the entire suite of home banking products. All of these products are affordable to even smaller institutions if great care is taken to ensure that the product and vendor selected will provide the anticipated value to the customer, reduce operating expenses, and/or generate revenue.
The bank must also be able to execute a well-defined plan for implementation. And this is where a smaller bank may have a distinct advantage over larger institutions. Often, smaller banks can agree on a strategy, move through the decision-making process, and execute a plan more quickly than a larger institution.
Donald R. Hollis President, DRH Strategic Consulting Inc., Chicago
I don't think it's a matter of size, but a matter of priority. Those institutions that are truly strategically driven and have come to realize the discontinuity that is occurring technologically will adopt radically different strategies than the rest of the industry. They will be able to find partners to help them build attractive technologically based services for their customers. In fact, even the largest banks now realize they can't be totally self-sufficient, that they must have partners in bringing comprehensive and current technologically based offerings to customers.
The only advantage the larger banks have is probably in the fact that they have a formal strategic planning process that helps them take more of a long-term view. But there are some small banks that do an outstanding job in this regard as well.
With today's technology there are still some facets of economy of scale. But there is also economy of scope. Across industries the consumer is being treated more as a segment of one. The more that characteristic is adopted in the marketing of financial services, the more receptivity there will be to differentiated services even if they are not from the largest institution.
It's partly a product issue and partly a service and relationship issue. And an institution that is technologically fantastic but weak on the relationship and service front will not optimize its return. Similarly, an institution that's fantastic at relationships and service and doesn't keep up technologically will see a decline in customers over time. Robert G. Stemper Marketing consultant, New York
It seems to me the answer is yes and no. If you look at simply the issue of taking a fixed cost, as technology can be, and spreading it over a large versus a small number of branches, banks, or whatever, the unit cost would go down so it becomes cheaper. But if you look at the trend that technology has been taking over a long period of time - the individual pieces of hardware and software are very inexpensive - it counterbalances that.
If there are any up-front development costs related to specific things that a bank would want to do, it would be helpful to spread it over a larger base.
But if you are talking about off-the-shelf software, it's not that obvious that Bank of America or Citibank has the advantage. It depends a lot on the specific application that you are talking about. And if indeed you have more and more people selling software packages, the advantage for large banks becomes less obvious. Owen Sullivan Senior vice president, M&I Data Services, Milwaukee
Clearly, from a concentration of critical resource and investment dollars, the large banks have an R&D leverage much greater than the smaller banks. But even large banks are finding it really difficult given the entrants from the nonbanks market, and the investments that some of those players have put into technology. Even large banks are saying, "We need to figure a way to be more collaborative in our investment opportunities."
But I would suggest that the smaller banks are quicker on the deployment of technologies because of the lack of bureaucracy. A small bank like a Cardinal Bancshares (which decided to launch an Internet bank) found the dollars - which is always the tough part - and clearly broke through a lot of barriers that sometimes large banks just can't get through quickly enough.
But in the initial thrust, the large banks clearly have an advantage. James J. Giancola President, CNB Bancshares, Evansville, Ind.
With the advent of facilities management, medium-sized companies can participate in the development of new technologies by sharing development costs with an outsourcer. So we get many of the same software feature- function capabilities larger banks have through our affiliation with an outsourcer that also provides services to very large banks.
We look for a lot of new product development and systems enhancements through our relationship with an outsourcer that also provides service to the nation's largest banks.
The other area that we're looking to for feature-function capability is MAC. As MAC develops products like smart card technology, enhanced point of sale, and enhanced-function ATMs, we are able to share in those capabilities.
