As Tech Spending Spreads, Banks Need Better Coordination

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Tech spending has become so essential that some banks have stopped thinking of an IT budget as a separate pot altogether.

"Here we think about the technology portion of everything we do, it's baked into all our budgets," said Frank Sorrentino, chief executive of ConnectOne Bank of Englewood Cliffs, N.J. "We don't think of having a separate IT budget anymore; we think about the technology needs of all the different business units."

Technology spending has changed drastically over the last decade or so, said Sam Kilmer, senior director of Cornerstone Advisors. Because of things like digital transformations and mobile, areas of the bank that typically weren't involved in tech spending in years past are now spending on technology initiatives that are managed outside of IT.

"More of the technology spending at banks is happening in other areas of the bank," outside of IT, Kilmer said. "It's outside of a centrally managed area."

And as bank IT budgets continue to rise, financial institutions need to have more coordination about what each department is spending on technology to ensure that it is being done efficiently.

Nearly 70% of the 304 chief information officers from banks, credit unions and other financial institutions surveyed bank SourceMedia Researchin July said they plan to spend more on technology in 2017. The CIOs represented institutions ranging from less than $100 million in assets to more than $10 billion.

Kilmer said banks could do a better job of spending that money, perhaps even save some, if they took a more coordinated approach. Cornerstone's recent "Performance Report for Mid-Size Banks" essentially found that the difference between the banks that spend the most on technology and those that are more middle of the road is about $3 million per $1 billion in assets.

"Spending on strategic systems, digital initiatives, upgrading loan origination systems; those things are more likely to be managed outside of IT," Kilmer said. "So while it might be considered technology spending internally, the agreement for that project is attached to mortgage lending, or e-commerce. There's not enough effective oversight on this."

This is an area many banks still struggle with, agreed Alan McIntyre, the industry managing director for banking at Accenture.

McIntyre used an unnamed Accenture banking client as an example. The company is trying to take a more comprehensive approach in managing its tech spend, so they "took a step back and took a high-level look, and one thing they realized was that they had thirty different e-signature projects running across the bank."

"It used to be that IT spending was in a controlled environment; only a small number of people had control" of a tech budget, McIntyre said. "That's not the case anymore."

Beyond the need for more coordination, this situation requires chief information officers to approach their jobs differently, McIntyre said.

"The CIO needs to be more involved in the day-to-day business," he said. Ultimately, to solve this issue, he said, banks need to get to a place where "technology becomes embedded in each function in a bank and doesn't need to be called out as distinctive."

Amy Brady, the CIO of the $136 billion-asset KeyCorp, said her company has taken this approach.

"The way we view technology here is that it is integral to our business strategy; we don't think of them as separate things," she said. "While I do manage technology for the company, I do it in partnership with our business heads."

Even a decade ago, Brady said CIOs in banks, and in corporate America in general, "weren't even reporting directly to the CEO." Now, such an arrangement "is unthinkable. The CIO, and the IT department, is helping to shape strategy."

ConnectOne's Sorrentino added that this not only means the role of a CIO must change, but every executive in a bank needs to be aware of how technology affects his or her department.

"Everyone has to be vested in this area," he said. "You can't be an effective C-anything today without some technology knowledge. Almost everything in banking now has a tech component."

How far along banks are in looking at technology as an integrated part of their business as opposed to a stand-alone department often depends on their business focus, said Ron Shevlin, director of research at Cornerstone Advisors.

"There's often two different camps," he said. For banks that are dependent on building the retail side of the business, IT tends to be integrated and part of their business plans. "For banks focused on commercial lending or are more relationship-driven, they are more likely to look at IT as the support group and not a strategic part of the business."

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