Across the country, community banks are defying the stereotype of small institutions as technological laggards, sometimes introducing useful digital features well ahead of the better-resourced and purportedly savvier big banks.
Take Wintrust Financial in the Chicago area, for example. It is the first U.S. bank to let customers use a mobile banking app rather than a physical card to get cash at the ATM. It's also one of the few examples of a bank taking channel integration beyond the pilot stage.
Radius Bank in Boston is leading the charge in letting people use their smartphones' cameras to input data for account opening at a time when branch transactions continue to decline. And fellow Bostonian Eastern Bank launched its own innovation lab and continues to experiment with technology that could shake up underwriting, branch formats, marketing and other facets of banking in need of makeovers.
The imperative for bankers to become tech aficionados is mounting regardless of an institution's size. Consumers, after all, have spoken.
"The reason technology matters to our company is that our customers are looking for technology," said Thomas Ormseth, senior vice president of noncredit services at Wintrust in Rosemont, Ill. "So it's just what we have evolved into our culture."
Taking action, however, requires overcoming the confines specific to smaller institutions' plight: they are dependent on their vendors and lack the resources of big-bank rivals to jump to the front of the feature-request waiting list or brew up their own software fixes.
Most community banks are working on catch-up rather than carving out resources to experiment for numerous reasons, including their infrastructure, said JP Nicols, president and chief operating officer of Innovation Café and cofounder of the Bank Innovators Council. "Small banks are much at the mercy of core vendors," he said.
Adding to the conundrum of trying to stand out in tech is the fact that institutions often rely on the same vendors, which may not always respond quickly to customization requests.
David Gerbino, a former community banker in the New York area, said he ran into roadblocks when trying to layer application program interfaces into his bank's app so that he could get more analytics intel, for example.
"All I was getting back is 'we don't do that,'" said Gerbino, now a digital and database marketing consultant for financial services companies.
Still, even with the added complications, banks with the appetite to innovate can do so including for unsexy but important back-office and client-facing projects.
"They are boring and mundane projects but for the problems they are solving or the bank clients they are solving for, they are wonderful," said Gerbino.
Smaller institutions usually can't call the shots on the next big thing.
"They live in a world where a certain amount of innovation will happen to them, not because of them," said Terence Roche, a co-founder and principal of Cornerstone Advisors, who cites Apple Pay as one example.
Roche advocates the firms find areas of innovation that big banks have ignored usually it's something local and involving a niche product and a blend of product and delivery.
Certainly the need to do something different is growing in order to survive in a digital world and at a time when small institutions are already losing some of their bread and butter. Indeed, a recent Harvard Business school working paper found that community banks face declining market share in several lending areas, including small business loans. Making matters grimmer, the paper said community banks are more vulnerable to disruption because their earnings stream is also less diverse.
To battle the mounting threats and ongoing challenges, community banks across the country are co-developing intriguing digital features and strengthening their cybersecurity and analytics initiatives.
Breaking Out of the Box
Many of the institutions American Banker recognized on this year's Top 10 Community Bank IT Initiatives list shared at least one approach in common: they forged intimate relationships with their vendors to help pull off recent edgier tech projects some of which marked banking firsts.
Attending user conferences, establishing good relationships with top tech execs and participating in pilots are among the other methods that help community banks be progressive.
"We are evangelists for our vendors," said Michael Bryan, chief information officer at Bank of North Carolina. "If they are a partner for us, we will be a partner for them." The bank will be a reference, for example.
Cultivating relationships with technology company executives has helped Radius Bank, formerly First Trade Union Bank.
"I know the ropes and CEOs of companies and am not afraid to reach out to them," said Robert Landstein, executive vice president and chief information officer at Radius. "We will continue to push them on innovative ideas."
One area of interest among community banks like CBW Bank and Bank of North Carolina is better data crunching.
Suresh Ramamurthi, chairman of CBW Bank, said the Kansas institution is working on improving customer and risk analytics. "Eventually we want to give consumers access to their own data," he said.
Stepping Up Security
In recent months, community banks have been stepping up security measures as high-profile data breaches continue to make headlines.
"Criminals are always looking for new ways in," said Radius' Landstein.
In addition to Radius, Naugatuck Valley Savings and Loan in Naugatuck, Conn. and Bank of North Carolina identified cybersecurity as topping their IT priority lists.
Naugatuck Valley Savings and Loan created a full-time position for information security, including monitoring cybersecurity, for example. And Orrstown Bank in Shippensburg, Pa., has begun using Splunk Cloud, a service that helps the institution more quickly detect anomalous behavior that could suggest a breach.
These certainly won't be the last efforts undertaken by smaller institutions at a time when ever more cybercrime is expected.
"The most telling thing is you really truly don't know what is around the corner," said James Cotter, chief operating officer at Naugatuck Valley Savings. "You have no way of knowing what the next issue will be from a technology standpoint. You have to be nimble and quick to react and forward thinking when you have this level of hackers and fraudsters. They are just as sophisticated as the most competent IT person."