While the banking industry as a whole is pulling back on technology spending, community banks are increasing their budgets, especially for payments systems.
In part, this is because they can't afford not to, community bankers say, and in part because they feel they must if they want to compete against larger rivals. And in part, they are hoping that offering new capabilities will help them win customers who are unhappy with the banking giants.
A survey published last week by the Independent Community Bankers of America said 52% of community banks increased their budgets for payments projects from 2007 to 2009, while only 11% cut spending.
Robert A. Steen, the chairman and chief executive of Bridge Community Bank in Mount Vernon, Iowa, said the economics of payments upgrades such as image exchange are too compelling to ignore.
"The payback is just easy math, compared to the paper world," Steen said, claiming that eliminating maintenance on the bank's check-sorting equipment alone more than paid for the purchase of its imaging gear. "I replaced this massive proof machine, with its thousands of moving parts, with two check scanners. They cost $4,000 in 2002, and they're still online."
Cary Whaley, the associate director of payments policy at the ICBA, said his members are buying a wide range of payments products, from remote capture of check images to online payments.
"Despite the economic downturn, community banks are continuing to invest in payments," Whaley said. "It's not only an operational necessity, it's a way of reaching the customer, of acquiring and retaining the customer."
The ICBA mailed the survey in June and got responses from 909 community banks, with assets ranging from less than $100 million to more than $500 million.
Payments spending appears to be stronger than on other technology projects; in a similar survey in June 2008, before the economic crisis reached its crescendo in September of last year, the ICBA found that 48% of respondents had increased their tech budgets from the previous year, while 9% were cutting that budget.
But many banks have cut their overall tech budgets since then. A study released last week by Aite Group LLC said that 73% of banks and credit unions are keeping this year's technology budgets at or below 2008 levels and 72% of banks' budgets in 2010 are expected to be below 2009 levels.
Some community bankers say that investing in payments is necessary to remain competitive.
"If we're going to compete in a metropolitan market, we have to have everything as good or better than the competition does," said Jeffrey W. Dick, the president and chief executive of MainStreet Bank in Herndon, Va.
Check imaging and remote capture have been central to the $206 million-asset bank's growth strategy, he said.
MainStreet Bank has 254 check scanners in customers' hands, enabling the five-year-old bank in the Washington suburbs to attract customers who would otherwise be beyond the reach of its two offices.
MainStreet Bank keeps up to a dozen salespeople on the road selling its remote deposit service, which now handles about 60% to 70% of its deposits.
In addition, rather than the one-mile radius that a typical branch serves, remote deposit capabilities give MainStreet Bank's branches an effective reach of 10 to 15 miles. Once customers "get comfortable with it they never come into the branch anyway," Dick said.
John H. Buhrmaster, the president of First National Bank of Scotia, said that community bankers are "not trying to be early adopters" of payment technologies. "They're trying to provide the services their customers want. … Consumers want the convenience. It's up to us to provide what consumers want."
