Data warehousing is pushing small bank/big bank competition to a new level.

As superregionals install huge data repositories that help them know customers better, they are encroaching upon territory that community banks previously claimed as their own.

Driven by this competition, community banks are scrambling to install data warehouses to maintain an edge in personalized services.

"If you value relationship orientation and provide personal services, then you need the sophistication and technology of a big bank," said Jane Holbrook, senior vice president of marketing and technical services at Pacific One Bank, an $800 million-asset community institution in Portland, Ore.

The smaller banks are interested in putting their data to many of the same uses as superregionals: relationship management, profitability measurement, and sales tracking.

But even though larger institutions tend to have more financial and operational resources to throw at data warehousing projects, some observers said smaller banks hold the advantage.

"With a large bank, there is tremendous redundancy of information, and the difficult part for them is in figuring out the best source of information." said John Davis, chief financial officer of Trans Financial, Inc., a $1.9 billion-asset bank based in Bowling Green, Ky. "There is less data and fewer systems to deal with in smaller institutions."

Mr. Davis said Trans Financial's in-house data warehouse, which uses InformEnt software from Fiserv Inc., cost about $1.5 million, including hardware, software, and support.

But not all community banks build their systems in house. An increasing number, including Pacific One, use data warehouses constructed, owned, and run by third parties.

Pacific One outsources to M&I Data Services Inc., the data processing unit of Marshall & Ilsley Corp., Milwaukee.

The bank considered installing a version of an in-house system used by its parent, First Hawaiian Bank of Honolulu. But outsourcing made more sense.

Outsourcing "gives us a whole bunch of flexibility," said Ms. Holbrook. "We can build profiles on behavior, usage patterns, and reports. We can profile our client base for sales and marketing, for strategic planning of products, and financial planning for performance," she said.

Since the bank did not have to purchase new computer hardware, the cost is lower than with in-house warehouses. M&I charges between $10,000 and $150,000 a year to run a warehouse.

Outsourcing also keeps implementation time to a minimum and frees banks from ongoing maintenance and support.

"Data warehousing can provide parity with sophisticated competition," said Rick Roy, vice president at M&I Data.

"A lot of our customers believe that because they can outsource the solution, they have a competitive advantage."

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