A small bank that opened in Portland, Ore., about a year ago has an advantage over most of its competitors in the race to understand and adopt new technology.
Northern Bank of Commerce, with $20 million of assets, has a director who happens to run a software development firm that caters in part to banks, providing an extra level of board understanding that is unusual at many small banks.
"That background can be very helpful to a bank," said Matt Chapman, a director at Northern and the chief executive of CFI Proservices Inc. of Portland. "It's valuable in terms of bringing in new business - and technology is big business - plus in terms of the bank's decision-making process."
But sometimes even an expert like Mr. Chapman isn't enough. Northern Bank must scrap a specialized mortgage system because it can't be converted to run under Windows.
"It's been a little frustrating," Mr. Chapman said.
Nowadays, complicated decisions about technology issues no longer rest strictly with bank management and highly trained senior officers. Community banks in the past couple of years have acknowledged that their future is largely dependent on how they answer the technology question.
"In some bankers' minds, it's a matter of 'Do I get into this and remain independent and viable, or do I not get into this and put my bank up to be sold,'" said David Koto, director of business development for Brintech Inc., a banking technology firm in New Smyrna, Fla. "It's almost like a line has been drawn in the sand."
As a result, bank boards have had to take a much more active role in addressing these questions and making their banks technologically current.
Community bank directors - usually local figures such as lawyers, doctors, and small-business owners - often cannot be expected to be knowledgeable enough to decide which software program is best for loan documentation, for example, consultants said.
But directors should be able to ask the right questions, consultants say.
First, Mr. Chapman said, directors should ask how "open," or compatible, is the proposed core data-processing system with other electronic banking programs. If the core system is relatively "closed," the bank becomes highly dependent on one software company - a potentinally risky strategy.
Next, directors must consider long-term issues. Given rapid changes in technology, can the bank in several years make a cheap transition into new technology from the proposed system, or will it have to scrap the system entirely and possibly forfeit its investment?
To help with these issues, national and state trade groups have made technology one of the main focuses of their annual conventions, which many directors attend. In addition, the American Association of Bank Directors recently formed a technology assessment division, which will be headed by consultant Harold Brewer, chairman of Brintech.
"Our sense is that the boards are not as familiar with technology as they should be," said David H. Baris, executive director of the association. "And we don't want them relying completely on management for their information. That's why we thought we should bring an independent voice in."