Just one generation ago, people needed to go to the bank (or ATM in some cases) to deposit money to an account, transfer money to another account, encash checks, convert currencies, pay bills, and apply for loans or credit cards. Fast forward to now, and things have changed significantly. People are doing online banking more than ever — even encashing a check that involves a physical piece of paper can be done through apps that capture a photo of the check. It’s amazing how everything has gone mobile in the past several years.
This means banks lagging behind in technology aren’t going to remain competitive for long when other banks are ready to cater to the evolving needs of their increasingly mobile customer base. But for community banks in particular, the transition to technology isn’t easy. What’s standing in the way?
Simply put, legacy systems are another name for outdated systems. You’d think community banks want to let go of their legacy systems in favor of new ones, but they may hesitate to do that for many reasons. They could have invested a lot of money in these over the years and are yet to see an ROI. There could be too many legacy systems going on that getting rid of them will mean unraveling all processes — and therefore causing major disruption in service. Maybe components are too tightly integrated to take apart that there’s no other choice but to start over from scratch. Or maybe their legacy systems are still working perfectly fine, even if it’s not accomplishing the task in the most efficient way possible.
Community banks have taken a disproportionate regulatory burden on their shoulders with the enactment of the Dodd-Frank Act in 2010. The Act was a swift response to the financial crisis of that time, but it also turned out to be the kryptonite for community banks. For these local banks, complying with tight regulations is costly, eating into a part of the budget that could have been used otherwise for new technology. It also impedes with their ability to lend money to small businesses, which is what makes them thrive in the first place. It’s no wonder why many community banks have closed in recent years — one in four, to be exact. When community banks are already straining to keep their businesses running in spite of increasing compliance costs, it’s understandable why they wouldn’t want to spend their funds on new technology.
Mobile banking is a millennial thing. Young people are quick to embrace it, but traditionally, banking is one of the industries that are set in its ways, much like healthcare. It’s not surprising why these two industries are among the slowest to adopt technology. They both handle very sensitive information for their customers, so they stand to lose a lot if a breach happens and confidential data leaks out. They see the convenience technology can bring, but they don’t necessarily trust it enough to let it take over their respective industries. Of course, with more millennials joining the workforce — and with older generations getting savvier with tech — there may be a cultural shift sooner rather than later.
As mentioned, security is a major concern for community banks. When other people’s money is involved, they can never be too careful enough. So when major financial institutions like JPMorgan Chase and Citibank became victims of cybercrime, it’s a glaring reminder that no one is completely safe from hackers. If these big Wall Street banks were successfully infiltrated, how can community banks fare better than them?
These are all valid concerns for community banks, but they should not be seen as obstacles. Rather, they should be treated as roadblocks to overcome. But it’s not easy to go at it alone, which is why gatherings like the Community Bankers Association of Illinois (CBAI)’s 41st Annual Convention and Expo exist. For this year, experts are invited to talk on timely topics such as regulations, compliance, and technology, giving community bankers a clearer understanding of the how all these three affect one another. It also gives them the chance to network with fellow bankers, share experiences, and discuss possible solutions for the common challenges they all face.
Missed out on this event? Check out the Independent Community Bankers of America (ICBA) for a schedule of other upcoming events.