Making technology the solution, not the problem, at small banks

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A bank never wants to hack off its directors, especially when one of them was a notoriously intimidating professional baseball pitcher.

The board members of R Bank in Round Rock, Texas — who include the Hall of Fame fireballer Nolan Ryan, a co-founder of the bank — hold accounts there, and they, like most other patrons, knew its old technology made for clunky customer service.

So, says president and CEO Steve Stapp, he channeled those irksome experiences into board support for an investment in a systems overhaul at the $455 million-asset bank.

“They understood,” Stapp said of the directors. “If you don’t continue to grow, you’re not going to survive.”

For community banks in highly competitive markets, service with a personal touch can be a differentiator to win and keep customers. But when legacy technology hampers the customer experience, all the cups of coffee in the world won’t help.

R Bank started in 2008 with one branch and eight employees. Now it has eight branches and nearly 100 employees, no small feat in an area with 39 different banks and credit unions, Stapp pointed out.

“We’re in a very competitive market,” Stapp said, crediting the bank's growth largely to a focus on personalized service. But he acknowledged that progress was somewhat hindered by legacy technology installed when the bank opened a decade ago.

For example, R Bank employees were having trouble serving customers with multiple banking relationships. If a customer called with questions about a business account, a personal account and a loan, the employee would need to enter and move between three systems to find answers.

This system “made it more difficult than necessary for our employees to provide excellent service," Stapp said.

To remedy this, the bank purchased a new a core account-processing platform from Fiserv after six months of vetting vendors. The new system is scheduled to go live by the end of July. According to Stapp, it will eliminate many manual processes and provide employees all of a customer’s banking relationships in a single digital view.

The new tech will allow employees to work more efficiently, which Stapp said is key for drawing younger customers.

“Our employees will be able to react quicker and provide information in a timelier manner,” he said. “They can work faster and don’t have to spend as much time with each customer. That’s important in attracting the younger generation of customers and those following them — they don’t like to wait and want an immediate response on something.”

As the bank works through the conversion process, there are still some struggles as employees learn the new system while still serving customers on the old one, Stapp said. But any short-term pain is worth the long-term benefits of new technology, he said.

“We’re knee-deep in the conversion process, and it can be stressful,” he said. “There’s an added workload for the time being, but overall the feedback has been very positive [from employees] about the new system and the new capabilities.”

Managing entire customer relationships has long been a challenge for banks, said Ryan Myers, a director at the banking consultancy Cornerstone Advisors.

“Core banking systems are inherently better at account-level views rather than customer-level views,” he said. “Moreover, customer relationship data is typically dispersed across multiple, unintegrated platforms such as wealth management accounts and mortgage loans. This environment creates an opportunity to differentiate on service as investments are made into technology that consolidates the information and provides a single view and platform to more efficiently complete common tasks.”

But core systems are costly to replace. A number of factors go into determining the final bill for a core banking system overhaul, such as the type of integrations a bank has and the complexity of the products it offers. Industry experts estimate costs can vary from as low as a few million dollars to as high as a few billion, depending on bank size and the time needed for a project.

According to Gartner, overall bank technology spending will increase 4% this year, but 65% of spending will still go toward maintaining existing systems rather than new technology.

WSFS Bank in Wilmington, Del., says it reins in investment costs by developing its technology largely in-house.

In 2000, the unit of WSFS Financial formed its Cash Connect division, a provider of ATM vault cash and smart safe and cash logistics services. Its customer base includes 23,000 nonbank ATMs and retail safes nationwide, and it also operates 440 ATMs for WSFS Bank.

Cash Connect’s technology development team recently developed digital features such as software that helps business and merchants forecast their cash needs for their smart safes or ATM networks, which in turn lets Cash Connect employees better help clients optimize their cash needs via a digital portal that gives them charts about what their cash needs are now and in the future, said John Clatworthy, the director of client management at WSFS Bank and Cash Connect.

“We have an agnostic solution that allows merchants to continue to use whatever bank they bank with; they don’t have to bring their deposit account to WSFS,” he said.

Cash Connect also uses software to automate much of the compliance for its merchant clients and their banks, such as automatically filling out currency transaction reports whenever there is a transaction of greater than $10,000 and any suspicious activity reports when necessary.

“We allow them to leverage our infrastructure and cash logistics expertise,” Clatworthy said. “And it saves them a ton of time counting cash and worrying about compliance.”

Cash Connect has been a profitable business for the $6.9 billion-asset WSFS; it generated $9.5 million in net revenue in the fourth quarter of 2017, a 10% increase from a year earlier. Its innovation unit has also been an incubator for some handy technology, such as software that automates account reconciliation and is now used in deposit services.

“We have been looked at as a tech incubator for the entire bank,” Clatworthy said.

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