Today for community banks, there really is no more need to have technology developed in-house to execute on your bank’s digital strategy. You can easily avoid risky in-house development projects that could turn from leading edge, into what some call “bleeding edge” technology development.

A version of this article first appeared in the July/August 2017 edition of Western Banker magazine.

The relative cost of entering digital banking is reducing, with many software providers now also catering to smaller banks, even those below $100MM in size. The big core providers all have fairly comprehensive digital banking modules that are already fully integrated with their respective core systems. There are also many good non-core system linked providers, who specialize in digital banking technology components only, for when you want focused, best-in-class digital banking-specific technology components. An example scenario would be when you are looking for loan and deposit online origination systems.

At the end of the day, it is not just about how good your technology is, but rather about how well you use the technology. How well do all your pieces of technology “play together” and integrate with your end to end customer experience? And just as importantly, how flexible and accommodating is the vendor? Today, there really is no more need to have technology developed in-house to execute on your bank’s digital strategy. You can easily avoid risky in-house development projects that could turn from leading edge, into what some call “bleeding edge” technology development. There is such a wide range of existing resources and software available from the many digital banking providers out there. The systems from these providers can achieve most, if not all, of the requirements of a community bank, however unique you believe your bank is. If there are gaps, the software could be augmented by some relatively inexpensive custom fields, or additional third party API’s to your production systems. Many of these software providers will also be willing to hear about your unique needs and create some specific customizations for you. There may already be some other bank out there with a similar request, and it may already be in the provider’s development road map. There is no need to pay for customization if it is already scheduled for a soon-to-be released update. Be sure to regularly inquire from your vendor about their development roadmap.

It is more about coordinating and pulling the many disparate systems and interdepartmental functions into one coordinated direction, than about building something truly unique. How long will it be unique in today’s rapidly changing environment, anyway? I have seen too many instances where the focus is on building custom software. It is much cheaper and more cost effective to re-engineer and re-evaluate internal processes to adapt to the digital technology offerings out there, than to build your own digital systems to accommodate the existing workflow process at your bank. Workflow processes, which often “just happened” and got patched over time, were most likely designed in a different competitive environment.

Generally my advice is to leave the development of digital banking software to the expert software delivery and ‘software as a service’ providers, who offer their products to community banks. Ask yourself, even if you managed to develop technology that appears to be superior to what is available in the market today:

  •  How will you stay ahead of the pack with your 3 programmers versus their 30 or more?
  •  What if you lose a critical member of your small software development team?
  •  Are you in the business of banking, or software development?

As always, common sense should prevail by maximizing the use of existing technology and prioritizing. Most banks already have good pieces of technology and online servicing capability. However, they are not using it to its full capacity, or on a broad enough basis. Ask yourself, why are customers still calling your bank to ask for their account balance – or walking into the branch to do a transfer? Who drives digital adoption, and how? Start with a systematic evaluation of existing capabilities and apply simple and easy-to-introduce technology interventions. Examples include wider deployment of API’s, e-forms and work-flow systems, which can be rolled out relatively quickly and independent from core system interventions or changes. Sometimes, it could be as simple as making small adjustments to the workflow and letting the employees adjust, as opposed to building a system around the existing workflow. Doing that could mean the difference between just requiring a minor customization from a vendor’s product, at a relatively low expense, or going the expensive, full in-house development route.

Lastly, I have seen many times that banks don’t truly know what they already have, and they often duplicate offerings and features with additional (unnecessary) purchases. Therefore, don’t forget to regularly ask the representative of your vendor for these key questions:

  • “Are there any part(s) of your software that we are not using, or are not activated?” If the answer is yes, then make it a priority to determine why, and what, you are potentially missing out on.
  •  Are there any unique uses for the software by other banks that they can share?