Four Back Office Requirements for Community FIs to Recapture Commercial Accounts, Market Share from Big Banks

By Steve Bartels

The ability for community financial institutions to recapture large commercial customer accounts from big banks has long been hampered by the strain on back-office resources. The lack of automation to serve commercial customers has seen market share among community FIs drop drastically. Community banks with fewer than $10 billion in inflation-adjusted assets held 57 percent of deposits in 1994, according to a December 2018 Harvard report on bank consolidation and financial inclusion. Today, they hold just 20 percent. It’s no surprise that the largest FIs in the country have doubled their collective market share. With larger development and back office teams, big banks have built robust offerings that address risk and fraud more comprehensively to service large business customers.

Despite the recent historical trend, executives and decision-makers at community FIs shouldn’t feel like their institutions can’t compete for commercial accounts. It simply takes a willingness to make the back-office technology changes needed to implement automated, scalable and comprehensive business services.

Fortunately, the business case is already clear. Recent research from McKinsey shows that upgrading back office technology can improve both productivity and customer service by 50 percent.

The cost of ignoring back office technology innovation is widespread and damages the bottom line. Transactional mistakes, failure to quickly spot and mitigate fraud, and the inability to efficiently maintain compliance standards are all scenarios that incite frustration in customers and employees alike. These constraints on the back office make it difficult to even maintain the status quo, much less to grow and compete for commercial accounts.

Much of the industry’s attention has been placed on consumer-facing services for so long that it might be easy to forget about upgrading your back office, but it’s just as crucial to growth. As financial institutions look to scale and acquire new customers, their back offices need technology, processes and workflows that can scale in tandem.

Apply the consumer financial experience to commercial services

As in consumer-facing services and products, improving and upgrading the back office starts with an improved experience. The predominant perception is that slick user experiences are the purview of retail banking. This is false. Commercial customers are also consumers. They are applying the same expectations they have in their “consumer lives” to their “commercial lives” as business owners, executives, decision-makers and users. Your back office employees are also craving tools and services that give them the power to graduate from spreadsheets and more easily handle the increased volume of transactions and data that your growing financial institution is generating for customers.

Scale through automation

Eliminate as many obsolete manual processes as possible. If you hope to compete for and win larger commercial accounts to scale, processes and tasks like annual risk reviews simply have to be replaced with technology that isn’t as prone to error.

Utilize a singular back office login

While no one system is likely to check all the boxes for back office simplicity, combining a wide range of functionality under a single login can streamline operations and create savings. Combined ACH and check positive pay systems can benefit enormously from integration. Account reconciliation, advanced corporate reporting, reverse positive pay, payee name matching, data mapping, and automatic email and text notification functionality should all be housed in a single platform to streamline transaction management. This will more easily facilitate fraud detection and provide the holistic functionality FIs need to compete for commercial business.

Streamline risk assessments and management

Finally, FIs need to develop comprehensive risk management processes that automate ACH and RDC risk assessments. Effective payment monitoring systems require more functionality than the rudimentary origination rules that most online banking solutions provide. Proper risk management primarily boils down to user-friendly reporting processes, including:

  • Daily or monthly activity analysis
  • High-risk originator monitoring
  • Transaction analysis by SEC code
  • Volume, exposure and exception reporting
  • Trending charts and graphs
  • Returns analysis

Fraud and risk aren’t going to magically disappear, and big banks with large commercial customers are only building faster, better and more user-friendly back office practices. Financial institutions can either maintain the status quo or invest in automating and integrating their risk management and reporting processes to create more comprehensive back office solutions. In the end, they’ll be rewarded with more commercial accounts and happier back office employees who can effectively meet the increased demand placed on them as their institutions grow.

Steve Bartels is senior director, solutions consulting at Centrix Solutions, a Q2 company.

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