Processing Your Payment

Please do not leave this page until complete. This can take a few moments.

December 11, 2006

The power of networking | While their technology strategies differ, community banks still need some online muscle to stay competitive

By Jeffrey Bouley
Before Kennebunk-based Rivergreen Bank opened its doors in 2002, its founders consciously decided to make it a community bank not just in name, but in practice. The executives and employee-owners of the bank opted for a more customer-centric strategy ˆ— a friendly, open, face-to-face approach to banking to set Rivergreen apart from its competition, many of which relied on a wide offering of slickly marketed banking products and other institutional services to attract customers.

That attitude extended to its online presence, where the bank opted for a website without all the bells and whistles other big-name banks were adding to their sites. Rivergreen avoided offerings like online applications for loans or accounts, instead positioning the site as a branding vehicle ˆ— a way to advertise the bank's services, a method for announcing special feature promotions and an avenue to announce new branches, post press releases or deliver other kinds of news. "Our website is not what I would call interactive, really," says Terrance L. Beers, Rivergreen's executive vice president and chief operating officer.

Rivergreen has the capacity to offer such advanced functions, says Beers, but they opt not to, and don't expect to add such features in the future. The reason? Beers says it's to keep Rivergreen from becoming a virtual bank, where customer interactions happen over a Web connection. "We prefer a face-to-face experience with our customers," he says.

So far, the strategy of using the Web as a branding tool rather than trying to keep up with the online firepower of the large regional and national banks has worked well for Rivergreen, says Beers. The bank's assets recently passed the $100 million mark ˆ— a milestone for smaller financial institutions ˆ— and in August Rivergreen opened a second branch in Saco. By year's end, a third branch is expected to open in York. "We started out with nothing three-and-a-half years ago," says Beers. "In our defined market area [in Kennebunk], we have outstripped and outgrown any and all of our competitors in terms of growth the past two years, including the super-regionals and nationals."

That said, Beers and his colleagues realized that Maine's newest commercial bank couldn't completely exist in brick and mortar, and that customers still need some at-home access to their account. So while Rivergreen may not offer the most advanced online banking functions, the bank's website does give customers access to an Internet-based banking product that allows them to perform tasks like checking balances, transferring funds and paying bills online.

And while Rivergreen customers have a fairly basic set of online banking options, those who bank with many other small- and mid-sized banks in Maine ˆ— from Ellsworth-based Union Trust to Biddeford Savings Bank ˆ— have access to a much wider range of offerings. And from the banks' perspectives, adding technology isn't only a draw for customers, but also a way to boost efficiency at the corporate level. After all, large banks have found that electronic banking and other technologies have allowed them to reduce staff and cut overhead, according to Jon Henderson, director of sales at Mid-Maine Communications, a Bangor-based telecommunications company that counts Union Trust and Rivergreen among its financial institution clients.

The question is, however, how can smaller banks afford a technology overhaul that will let them compete with bigger banks? And, at the same time, how do the community banks use technology to stay competitive while still maintaining their community flavor? "That's a big challenge," says Henderson, "and one of the things that they need to stay focused on to remain competitive."

More power for less money
Union Trust executives have known for some time that the bank needed to keep its telecommunications infrastructure up to par. But a recent push to improve that setup came a few years ago, when the bank's executives realized they needed to rework Union Trust's entire data and communications structure, particularly from a pricing standpoint, says Peter Greene, senior vice president and chief administrative officer for Union Trust. "We weren't sure we were getting the best bang for our buck with our setup and with our telecommunications provider at the time," Greene says. "In addition, it's only been in the past three years, give or take, that high-speed data circuits have really come down in price so that we could run them out to rural branches, so it was time to consider a change."

Union Trust chose Mid-Maine to design and build its new telecommunications network, which involved bringing high-speed connections to its 13 branches ˆ— a big upgrade from the low-bandwidth connections that were the equivalent of dial-up Internet access.

Among the other benefits of going with Mid-Maine were that the bank went from having separate telecom bills for each of its branches to having just one itemized bill, and network performance improved. "They gave us more horsepower for less money," Greene says.

Union Trust did not disclose the cost of their network upgrades, in part because it's been an ongoing process and not simply a sudden jump to a new system. But Greene says switching to Mid-Maine has been a good move financially. Community banks don't have the same financial muscle as regional and national ones, he notes, so cost-consciousness always has to be a high priority.

But while prices continue to fall for some technologies, others simply remain out of reach for community banks because they are too new and too expensive, or because they haven't reached every market. For example, Biddeford Savings Bank would like to take advantage of an advanced Ethernet technology being touted by Verizon, but it's simply too expensive right now, says Keith Gosselin, the bank's IT officer.

Overall, though, it's increasingly more affordable for companies to take advantage of technology upgrades. According to Henderson, getting a high-speed data line, such as a T1 line, out to a branch in a remote area is a relatively straightforward affair. Depending on the location, he says, it may be easier to run out a T1 line than it is for bank employees and customers to get good cell phone reception.

The costs can still begin to grow, however, when added to security and regulatory requirements, which can easily eat up 25%-30% of a bank's IT-networking budget, says Gosselin. Those requirements include making sure sensitive customer data isn't stolen, having a disaster recovery plan, going through annual vulnerability assessments and auditing the bank's IT infrastructure.

Steering clear of fads
For most banks, however, it's money well spent. Union Trust has offered Internet banking services since 1999, and was an early adopter of online technology that allows customers to view images of their checks. The bank also offers commercial cash management to make it easier for business clients to handle payroll and other kinds of recurring electronic debits ˆ— like employees' health club fees ˆ— through the Web.

Something the bank is looking to add in 2007 is called merchant deposit capture. As Greene explains it, businesses would have a check imaging device attached to a PC that would scan checks that customers wrote that day and send digital images to the bank for deposit, rather than having to deposit the checks physically. "That's a big direction where banking is going," he says. "We have a pretty careful tech-planning process at bank. We operate on a one- to two-year plan because we feel it is very important that we keep up with technology, but we don't want to invest today in something that is a fad and will be gone in a few months or years."

For Biddeford Savings Bank, rolling out an Internet banking option for customers was a "number-one priority" to compete in the market, Gosselin says. He adds that the bank by the end of the year expects to launch a new online product that allows customers to apply for mortgages online. "The demographics are starting to change," Gosselin says. "People don't have time to come into banks to apply for mortgages anymore. We have to make it more convenient for them to stay competitive."

Other near-future online offerings will include online bank statements, online account signups and online check imaging. "When you get right down to it," says Biddeford Savings President Wayne Sherman, "a lot of what we're talking about are enhancements to existing products and services that use the Internet simply as a delivery system."

"Making sure your network and Web presence does right by your customers, partners and employees can be a lot of work," Greene admits, adding that community banks, which often lack an extensive IT staff, need a lot of external expertise and vendor support to make sure the power, cost efficiencies and security are in place. "Sometimes you cannot afford the cost or don't have the ability to juggle all your partners and you need to wait before you implement a new technology."

Still, says Greene, banks like Union Trust are likely to find it tough to compete without keeping up with new technologies. "Many new technologies are very useful to customers," he says, "and you just need to jump right in to make sure you keep those customers coming to you."

Plan A

It isn't enough for a bank to simply add online services or network improvements as they go, insists Jon Henderson, director of sales for Mid-Maine Communications. Banks, financial institutions and others who want to use the Web to more effectively reach customers and business partners need to devise a long-term strategy for growth. "Don't pick a network or telecom service provider who will provide you with what you need today," Henderson warns. "Partner with someone who has solutions to give you today and a clear growth strategy to offer for the next two to five years."

For financial institutions in particular, there's a lot of legwork in just keeping up with an ever-changing list of regulatory and security requirements. That means, of course, making sure such companies aren't caught off-guard or without money in the budget to handle necessary network changes and upgrades.

Another major concern is to consider how scalable the current network configuration is and to ensure that as applications continue to grow, the network will grow with them ˆ— whether they are Internet banking applications or more invisible functions such as firewalls and network monitoring capabilities. If you can keep your network well ahead of the bandwidth, speed and performance demands placed on it, so much the better, says Henderson.

In choosing any technology provider or partner who can do that, a key issue is to make sure the company is financially sound, adds Keith Gosselin, IT officer for Biddeford Savings Bank. "When you talk to them, make sure they are going to be around a while," he says. "Talk to their other customers and do some due diligence on their financial status."

That may seem like common sense, he says, but not all institutions think that far ahead. In fact, Gosselin recommends that companies check in on a regular basis with their network and other technology providers. "If a company you partner with is responsible for your mission-critical applications, you need to stay on top of them," he says.
Jeffrey Bouley

Sign up for Enews

Most Recent

Most Recent

Comments

Order a PDF