The following are excerpts from testimony, by John E. Steuri, chairman and chief executive officer of Systematics Information Services Inc., Little Rock, Ark., before the financial institutions supervision, regulation, and deposit insurance subcommittee of the House Banking Committee on Sept. 29.
Chairman Neal, it is my understanding that your subcommittee is concerned with the impact of new technology on the structure of the banking industry and the ability of smaller banks to compete against their larger counterparts.
Systematics believes that current technology, in fact, is an effective equalizer in the competition between small and large institutions. Access to proven technological solutions is no longer dependent on financial strength or asset size.
Cost Effective for All
The information I want to share with you today will, I believe, confirm that current technology and options for utilizing such technology are cost effective for institutions of all asset sizes, from community banks under $20 million in asset size to those mega-institutions that are over $220 billion in asset size.
The conclusions I have reached are based on the experience Systematics has acquired in providing technological services to the financial industry during the last 25 years.
Today, Systematics has more than 6,500 employees and over 1,000 financial institution customers in 49 states and 35 countries. These customers range in asset size from under $100 million to more than $200 billion.
Advanced Systems for All
Even with this tremendous diversity in asset size, our clients have access to essentially the same advanced technology. Because of the technology and services provided by our company, and others in our industry, financial institutions, both large and small, have experienced increased efficiency and cost effectiveness.
Most important, these financial institutions are able to concentrate more directly on their business, the business of banking, and on their customers.
Chairman Neal, it is further my understanding that your subcommittee and other committees in Congress are attempting to reach important' conclusions in the matter of interstate banking and branching.
LaWare's Testimony Cited
I fully recognize that you must weigh many factors in deciding the future of interstate banking and branching. It is not my intent to offer an opinion on the merits of an interstate banking law.
Obviously, we have banking customers who are strongly on both sides of this question, and I am not here today to take sides in this important debate.
It is my understanding that Federal Reserve Governor John LaWare provided his views on the subject of interstate banking to this subcommittee on February 28, 1991.
In his testimony, I believe he stated in part that "... institutional developments and technological change have altered the competitive environment and made obsolete the statutory and regulatory framework in which banks currently operate.
"Competition in banking has become more intense as a result of the technological revolution in information transmission and processing."
A Fact of Life
Mr. Chairman, Systematics believes that statement is not only significant but a clear statement of reality. I would urge this subcommittee to seriously consider this fact while deliberating the outcome of the issue of interstate banking.
For many years, smaller banks were at a potential disadvantage in their ability to employ the latest technology.. Large financial institutions were often able to invest huge sums of money in large computers and large staffs of programmers.
They developed software that fit their exclusive needs while giving them an advantage over their smaller counterparts.
They also had the means to invest in telecommunications infrastructure to not only transmit electronic data to and from their branches, but, in part, to and from their customers at home or elsewhere around the globe.
Meanwhile, smaller banks often relied on third parties to meet their processing needs. Their technology was provided by larger, upstream correspondent banks or service bureaus, sometimes with limited ability or incentive to meet the needs if their smaller clients.
What resulted was a system in which the largest banks produced the best software, customized and optimized to their requirements, while smaller banks often settled for "generic" solutions not always tailored to meet the needs of their institution, customers, or market.
The fact that big banks have more money to invest in technology than small banks has not changed. But what you now see are more and more companies like ours making the huge capital outlays required for developing the best software, telecommunications, and processing options, while spreading the cost over our entire market, from the largest financial institution to the smallest.
Through our remote processing technology, information management occurs at a central location away from the bank.
All of our clients realize savings due to the sharing of facilities, software, equipment, telecommunications, and staff with the other banks processed at the same location.
Our data center in San Antonio, for example, operates a system of automated teller machines located in Japan in support of our U.S. military personnel stationed there.
And from our mortgage processing center in Jacksonville, Fla., nearly 14 million single-family mortgages are processed and the data delivered by satellite to hundreds of financial institutions, large and small, across the United States.
Different sides of the world and diverse financial bases, but all are able to access the same technology.
Latest in Check Processing
As another example, the absolute state-of-the-art in check processing involves the "digitizing" of check images onto a computer, eliminating most of the manual processing steps in handling checks. Conventional economics would place this technology within the reach of only the very largest handful of banks in the country.
Last year. however, Systematics implemented a system that will make such check processing affordable to virtually any size financial institution. By combining the check processing of the approximately 130 small and midsize bank customers at one of our data centers in the Northeast, we process for them the same number of checks as a single large New York City bank.
Consumers gain from these advances as well: more responsive customer service, more useful information, and greater transaction options. Customers, as well as banks, are increasingly able to conduct business from any location, regardless of state boundaries or even country boundaries, and regardless of interstate banking regulations.
All of which points to the benefits of the sophisticated technology that companies like ours and others have brought to the entire banking system. There are innumerable examples of smaller banks making use of the modern technology in order to compete against their larger rivals.
Today. with the options that software and hardware vendors and remote processors provide, harnessing the latest technology is as much a function of an institution's management foresight, culture, and competitive instincts - as its pocketbook.
In conclusion, Mr. Chairman, I respectfully submit that technology has made it possible for all banks, both large and small, to compete more effectively, to reduce costs and to better serve their clients. Bank holding companies today, both large and small, own banks in multiple markets and multiple states.
Technology and innovation are providing all banks with a level playing field on which they can compete in bringing the best, lowest cost products to consumers.