Compliance Guide

Technology Solutions

Worldwide IT Spending Forecast to Sustain Growth of More Than 3% Through 2020

Worldwide revenues for information technology (IT) products and services are forecast to reach nearly $2.4 trillion in 2017, an increase of 3.5% over 2016. In a newly published update to the Worldwide Semiannual IT Spending Guide: Industry and Company Size, International Data Corporation (IDC) estimates that global IT spending will grow to nearly $2.65 trillion in 2020. This represents a compound annual growth rate (CAGR) of 3.3% for the 2015-2020 forecast period.


Cut to the Core

The next-generation technology awaits, but re-investing in your current core system might be a better move.

By Trent Fleming

In spite of the hold that the larger core vendors have on the community bank market, we have recently seen a handful of companies promoting “next-generation” core systems. Generally, their sales pitch involves explaining why your current legacy core system is not right for the future, and encouraging you to change.  There are at least two problems with this approach.

First, your basic accounting needs have not changed.  The requirements for bank data processing remain the same: accurate, timely posting and reporting of customer and bank information. The surviving core vendors have proven themselves over time to be reliable partners, have invested heavily in infrastructure and staffing to support their bank customers, and yes, continue to invest in research and development to bring out new products and services.

Second, converting to a different system — any system — is far more complex than it used to be, and will have a tremendous impact on both your employees and your customers. The customer impact in particular is troubling, because they are likely using systems ranging from mobile to internet to bill pay that they’ve become comfortable with. Change will bring about apprehension, and may in fact adversely impact utilization — utilization that you’ve worked hard to promote.

There are four reasons you should consider re-investing in your current core system rather than converting to a next-generation product. To be fair, I’m making the assumption that your current software is still supported and enhanced by your vendor. If that’s not the case, a separate conversation is necessary.

First, your existing core software covers the basics very well. Your customer accounts are posted in a timely and accurate fashion, and you have access to the products and services that your customers need. To be successful, you have to cover the basics and execute on them well. This level of processing is not your end goal, it is merely the start. It builds a solid base upon which you can begin to add internal services, including financial analysis and reporting and customer-facing solutions, including mobile, distributed capture and P2P. Don’t take for granted that your core system performs as expected, day in and day out.

Second, address the underutilization of your existing systems. The result of this widespread failing is reduced productivity and higher costs. In my experience, most companies are using less than 25 percent of the available features/functions of the current software. Doubling that utilization will pay significant benefits. Underutilization is caused by several factors, including minimal training at conversion time, no follow up training and failure to keep pace with new releases. All of these factors will contribute to a growing gap between your usage and the product’s capabilities.

Training is the key, and it requires a commitment to establishing and managing a formal regimen.  Options include vendor supplied utilization assessments, web-based training and attendance at regional and national vendor conferences for education on new capabilities and training opportunities.  Frankly, I’ve seen too many banks dissatisfied with their core vendor, when a lack of training and utilization was the real cause.  Vendors and bankers must share equally in the blame, and seek to resolve these problems together.

Third, you must actively manage the relationship. While it seems trite to call the relationship a partnership, it really must be. Your commitment to the core vendor is huge, both financially and in terms of relying on them to help you meet and exceed customer expectations. Two key elements of this partnership are support and contractual issues. Support is highly dependent on a number of factors, but let me encourage you to employ these two techniques — document and escalate.  Don’t accept poor service. If your initial support experience is not good, work to escalate to someone who can help you. Consider sales and management channels if the traditional support channels don’t work.  For serious matters, especially if systems are not working at all, make sure you properly document the incident. This is not only a regulatory and management matter; it will also be of great value if the relationship turns sour, or when you begin to negotiate a renewal. I frequently hear clients relate stories of poor service, but when asked for details they haven’t kept them.

The contract with your vendor is the governing document for pricing, service levels and all other matters involving the relationship. It is important that you are familiar with it, and that you use any excuse — new contract, renewal or extension — as a time to negotiate better terms and conditions. I find many cases where banks have signed the “boilerplate” language from a vendor, and later discover that those terms and conditions are not necessarily in their favor.  Please also use the pricing section of the contract to evaluate your billings, to be sure it is accurate. Especially in outsourced situations, these are often lengthy and complex bills and only the contract can guide you in understanding if you are being properly charged.

Finally, community banks don’t need to be beta testers. Resist the urge to be the bank where a new vendor works out the kinks in their system. Your goal is to deploy reliable technology that meets the needs of your employees and customers. Testing and development environments are generally not conducive to those goals.

You can do a couple things now to improve the value you get from your core banking solution:

1) Seek to improve utilization through better training. Engage your vendor in this effort and put together a game plan that provides immediate help, along with a game plan for maintaining a higher level of utilization.

2) Acticely manage the vendor partnership, engaging with the vendor to understand current contract terms and conditions, ensure your pricing is accurate, and demand a satisfactory level of support.


Trent Fleming is a frequent speaker at industry meetings and serves on the faculty of the graduate banking schools at the University of Wisconsin and Penn State University. Contact him at


Paths to Prosperity

How three banks expand revenue streams: spanning borders, offering phone-charging stations, and focusing on intangibles.

By Susan Thomas Springer

What strategies kept banks successful in 2016? The paths to prosperity are as varied as the communities they serve. These three-high performing banks have stayed true to their roots while reaching new revenue streams by being innovative and harnessing technology.

Find Blue Ocean
One bank discovered a profitable niche market by reaching beyond traditional geographic borders.

Government-guaranteed lending, where the Small Business Administration, U.S. Department of Agriculture or Farm Service Agency alleviate loan risk to small business owners who may not qualify for a traditional loan, allowed Almena State Bank to expand farther than its headquarters in Almena, Kan., where 400 or so people live.

This 80-year old bank, with only 28 employees, owns two airplanes that fly several days each week to meet potential customers and conduct follow-up visits. The bank expanded its market this way about five years ago, when the economic downturn made it clear growth was needed while avoiding risk. Almena State’s leader calls it a profitable tool.

“We don’t do a lot of marketing now because word travels in the business world – it’s amazing,” says Shad Chandler, chairman and president.

Almena State, $82 million in asset size, now provides loans to hospitality, farming, ranching and commercial clients around Texas, Missouri and Oklahoma. Technology enables these far-flung customers easy access to remote capture services and quick communication. In addition, the bank serves local customers in two locations. These services are ably managed with a top-notch team of employees since the bank’s small communities are progressive small towns where young people want to raise families.

“We have a strong incentive program and great employee retention,” says Chandler. “Everyone knows we’re at a disadvantage in the whole scheme of banking because we’re small — so we have to do it better.”

Chandler says one point of differentiation is that when customers call his bank, they talk to a real person. And when they call back in two years, they’ll probably talk with the same person.

Chandler sees a bright future. He’ll continue to manage capital and growth because he has no plans to go public. His team is watching for the day interest rates rise.

“An increase in rates should have no effect to our interest margin because we don’t do long-term fixed- rate lending – and if we do we hedge our liabilities,” say Chandler.

Stay Current
Based in Brooklyn, N.Y., Dime Community Bank has operated in the New York City area since 1864. Yet it has changed with the times as the community transformed from crime-ridden in the 1970s to a hipster haven today. With $5.6 billion in assets, Dime has 25 locations with three new branches scheduled to open in 2017. Today’s customers “carry their banks around with them in their pockets,” says President Kenneth Mahon, which is why one new branch features phone-charging stations and a coffee counter.

Dime, which did more than $1.5 billion in multifamily loan originations last year, is one of the largest multifamily lenders in the New York City market. While regulators may become concerned about risk in a bank with more than 300 percent concentration in commercial real estate, Dime has been several times higher than that for almost 20 years.

“Our view is that New York City multifamily loans are not really commercial real estate,” says Mahon. “It’s a residential loan.”

The typical Dime loan is a pre-war building from 10 to 40 units, some of them rent-regulated. There may be retail on the ground floor but most of the income is from the residential portion. This asset class has been profitable niche because it takes fewer people to originate a $1.6 million loan than it does a paper-intensive single-family loan.

“The keys to Dime’s profitability are twofold. It’s low operating expenses – you’ll see our efficiency ratio is below 50 percent – and the other is low credit cost,” says Mahon, who adds non-performers are practically zero.

Dime has offset the expense of staying current with cybersecurity by avoiding lavish headquarters and maintaining a fairly flat organization chart.

Technology enabled a big boost to the bottom line when the bank launched the DimeDirect Money Market Account in 2015. Promoted online, it features fast, automated account opening. Dime has lured deposits from across the county with its annual yield of 1.1 percent, one of the highest in the United States.

“Suddenly, a lot of people clicked through and opened accounts,” says Mahon. “It’s been a substantial part of funding our growth — more so even than bricks and mortar.”

Looking ahead, Mahon is focused on bringing the best employees into his growing organization. Human resources is identifying key characteristics for new hires to find the right fit and maintain the friendly working environment of a smaller bank.

People First
Since Choice Financial was formed in 2001, the bank has grown through mergers and acquisitions to 19 locations in North Dakota and Minnesota, with $1.15 billion in assets and 230 full-time equivalent employees. Choice’s focus is business, commercial and agriculture, although it offers a wide array of products including consumer loans.

The bank has thrived through change thanks to its strong employee culture which includes balance between work and family, plus active community support such as the recent Swipe Out Hunger debit card program, which raised $40,000 for food banks.

“We tend to focus on the intangible things that we can bring to communities and customers to make their lives better and build our business at the same time,” says Brian Johnson, CEO of Choice Financial, headquartered in Fargo, N.D.

New employees are oriented at the Choice University, a program the bank developed to instill core values and teach a common language. Choice places employees in jobs according to their strengths rather than spending time trying to improve weaknesses. And because employees are spread out across two states, Choice increased the feeling of connection by installing video conference rooms where employees “can see enthusiasm and body language.”

Johnson says mergers and acquisitions often fail to live up to expectations, partly because it’s hard to merge people with different habits. Instead, his organization has prospered by embracing change as an opportunity.

“Hire people that buy into that culture and don’t fall in love with their desk and their title because we want to be an organization that’s progressive,” says Johnson.

Choice’s growth includes bringing wealth-management advisors, commercial insurance agents and a health benefits company on board to broaden the financial products available to customers.

Johnson recently served a three-year term on a community advisory board with a regional Federal Reserve Bank, where he participated in discussions on how to defray regulatory and technology costs for banks in the Midwest where the population is sparse compared to the coasts. Technology, which “the customer expects for free,” may not play direct into profitability yet grows the brand with the customer and makes bank an attractive partner for a merger.

“These costs and burdens force us to keep getting better and building bigger,” says Johnson.


Susan Thomas Springer is a contributing writer based in Sisters, Ore.

Five Ways Traditional Banks Can Survive and Thrive in the Age of Algorithms

By Florian Douetteau

Today, the banking industry faces rising competition with tech giants such as Google and Apple entering the space as well as a slew of fintech startups and the growing prevalence of the Internet of Things — or, IoT. These challengers bring new, innovative products tailor-made for the connected and mobile world into which they were born. (more…)

Biometrics, Bots and the Future of Security in Financial Services

By Eric Crabtree

Not surprisingly, cybersecurity always ranks high on the list of chief concerns that cause bank CIOs to lose sleep at night. That’s because increasing levels of sophistication in the tech used by hackers and fraudsters is making it harder for financial institutions to defend themselves.


BankNews Honors Four Companies With Innovative Solutions Award

November 1 – BankNews magazine has recognized four vendors in the banking industry for their noteworthy products and services in the ninth annual Innovative Solutions Awards. The awards were given to companies in categories ranging from authentication/fraud/cybersecurity to management/operations/processing. (more…)

CFPB Releases Report on Fintech, Consumer Friendly Innovation

October 24 – Remarking that “novel products” are creating challenges to the “regulatory framework,” Richard Cordray, director of the Consumer Financial Protection Bureau offered highlights to attendees of the Money 20/20 conference in Las Vegas of a reporting detailing the CFPB’s Project Catalyst initiative.


U.S. Retail Banks Slow to Move on Omnichannel Tactics, Research Finds

October 18 – Today, BookingBug released its first research into how the top 10 U.S. retail banks are creating a more competitive customer experience, and which areas they are falling behind on.


It’s What’s Inside Your Coin Machine That Counts

How different technologies impact accuracy and the customer experience

By Marianne Krbec

When it comes to self-service coin machines, it’s what’s inside that counts — literally. While machines fundamentally serve the same purpose of authenticating, denominating and sorting, the way that coins are processed can vary greatly.


Blockchain and Banks

Banks of all sizes can benefit from blockchain technology.

By Michael Scheibach

As banks brace for an uncertain future rife with demographic changes and fintech competitors, blockchain has emerged as another factor contributing to the industry’s forced transition into a digital-first age. What began simply as a means to support bitcoin transactions has morphed into a digital distributed ledger enabling secure transactions through a shared, decentralized database.


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