Online account-opening applications offer a low-cost way to increase deposits, according to community and regional bankers.
The technology acts like "almost a stand-alone branch without overhead," said Stratton Huggins, a vice president of marketing for the $4 billion-asset Renasant Bank in Tupelo, Miss.
The Renasant Corp. unit opened accounts with $1 million of funds in a five-month span starting late last year, after it outsourced the function to Goldleaf Financial Solutions Inc.
The bank achieved those results with a minimal increase to call center staffing and no branch expansion, Huggins said. "It costs a lot less than the $25,000 per month it would cost us to open, provide staff and pay for one new brick-and-mortar branch."
Small banks have started outsourcing electronic account openings to Andera Inc., Metavante Technologies Inc., Goldleaf and others on a pay-per-transaction basis.
Much of the technology is a couple of years old, and most large banking companies already offer online account openings.
Nevertheless, executives say there is significant growth potential for the technology among middle-market and community banks for several reasons.
Economic pressures are making the kind of results observed by Renasant a competitive must-have, the executives say, and open architecture makes the software more affordable for small banks. At the same time, many banking companies are evolving their Internet strategies to include a broader set of products and services.
"The push in this segment had traditionally been to increase fee income through online banking," said Todd Shiver, Goldleaf's executive vice president of sales and marketing. "But the banks realize they're getting hits on their Web sites, so why not use that presence to let consumers in the door for new accounts and new deposits?"
Consumer adoption is also expected to drive this trend.
Javelin Strategy and Research said 45% of all consumers have attempted to open a checking account online, and 30% of Generation Y consumers have attempted to do so in the past year.
Mark Schwanhausser, a research analyst for the Pleasanton, Calif., firm, said there have been some innovations in online account openings over the past year, such as a partnership between Andera and the aggregation vendor Yodlee Inc. that provides real-time verification.
However, the primary trigger for small banks to use this technology will be an economy-driven need to curry favor with customers by allowing easy access to account openings while avoiding branches and call centers, he said.
Market sources say there have been about 600 implementations among the roughly 16,000 small and midsize financial companies, including community banks, regional banks and credit unions.
"A paper-based account opening costs about $65 per account, whereas doing it electronically costs about 15 cents per account," said Charlie Kroll, Andera's chief executive. His Providence, R.I., vendor has about 260 small and midtier bank customers.
Executives also see a potential customer relationship management play with automated account-opening tools; by making funds easy to transfer from internal or external accounts, banks can provide customers an accessible financial management tool.
"Consumers want to save more in this current economy, and this gives them the opportunity to easily move funds into an account that they want to save," said Matt Kennedy, manager of alternative banking services for the $2.5 billion-asset Seacoast National Bank in Stuart, Fla.