Nine out of 10 community banks view technology as playing a critical role in their future, but fewer than half have formal plans for investing in it, according to a study from Grant Thornton LLP.

These and other findings from the Chicago-based consulting firm's fourth annual survey of community banks demonstrate how difficult it is for many smaller institutions to keep pace with technological change.

"I think a lot of community bankers have been watching technology unfold and sort of sitting on the fence not quite sure which direction to go with it," said Lamar Brantley, director of technical support with America's Community Bankers.

Diane Casey, Grant Thornton's national director of financial services, added that the reluctance to create strategic plans might be the result of fears that such plans "would become obsolete very quickly."

Another factor is community banking's strong ties to vendors of outsourcing and other services. Offerings by vendors often dictate the technological direction of their community banking customers, said Ms. Casey.

But even though many banks have limited clout with such vendors, "it's really important that each bank completes its own independent plan," she said.

An independent plan would help community banks "not take the blue light approach to technology. It's not what's on sale this week, but what best fits," said Ms. Casey.

Others noted that community banks with refined technology visions are better positioned to take full advantage of their relationships with vendors.

"By affiliating with one of the large national outsourcing firms, they clearly have an opportunity to access and afford technology that would only be available to larger institutions," Les Dinkin, managing principal with NBW Consulting in Westport, Conn.

Cost plays a significant part in community banks' approach to technology spending.

Given the limited financial resources of many community banks, few can afford the types of systems they would like to own, Mr. Dinkin said.

The Grant Thornton study, which is based on responses from 612 banks and thrifts, showed that 51% of responding institutions spent less than $50,000 last year on information technology. (Grant Thornton defined information technology as software, hardware, and technical consulting services.) For the coming year, this figure is expected to remain steady.

Oddly enough, those with formal technology plans intend to spend more than those without plans-$162,000 annually compared to $79,000. Ms. Casey attributed the discrepancy to the fact that banks with formal plans have a more realistic picture of what their costs will be.

Not surprisingly, "large" community banks (those with more than $100 million of assets) tend to be more sophisticated about technology planning, and tend to spend more than smaller institutions.

About 56% of these larger banks had formal technology plans, while only 37% of "midsize" banks ($51 million to $100 million of assets) and 28% of small banks created technology blueprints last year.

Large community banks spent an average of $191,000 on technology-related expenditures last year-more than twice what the midsize or small banks spent, on average.

This spending difference is expected to continue this year with large community banks spending an average of $214,000 compared to $77,000 for midsize community banks.

The survey also indicated that community banks in general aim to use the Internet to do business. The percentage of community banks with sites on the World Wide Web is expected to rise this year from 21% to 48%.

More than a quarter of these are looking to follow in the footsteps of their larger competitors by letting customers do financial transactions over the Web sometime this year.

"There has been a growing awareness that they're going to have to employ some new technology if they're going to remain competitive with larger banks and nonbanks," Mr. Brantley said.

In the next five years, 79% of community banks expect to move into the home banking arena. Only about 4% offer home banking services now, according to the study.

In addition, community banks are looking to some alternative technologies for fee revenue. About one-third of survey respondents are assessing surcharges on noncustomers using their automated teller machines, and 16% expect to begin surcharging this year.

This strategy is a dangerous one that could cost smaller banks customers, Ms. Casey warned. "You really have to weigh carefully the income potential with your competitive advantage," she said.

Another survey finding showed that community banks are not very alarmed by the prospect of year-2000 programming glitches.

Only 7% of all community banks consider the problem to be a major concern. Nearly half of the respondents viewed it as a minor concern and another 35% said it was no concern at all.

Community banks may be "relying on their vendors-their data processing vendors or software vendors-to take care of the problem for them," Mr. Dinkin said.

This strategy is probably not the most effective way to solve the potential computer nightmare.

"They have a responsibility to determine if their service bureau is capable of effecting a correction by 1999," Ms. Casey said.

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