Community banks need to balance business and customer needs

Northwestern Financial Review, Aug 15, 2001 by Agrawal, Anuja

Not long ago, most banking activities were conducted through branch offices. Relatively speaking, ATMs, voice response units, call centers, retail outlet "mini" branches, and Internet banking are all service delivery newcomers that provide convenience to bank customers beyond traditional branch banking. These service delivery alternatives, or channels, are essential to remain competitive in banking today. They present significant challenges, however, for community banks.

Businesses and consumers are more sophisticated than ever, and are demanding real time, 'round-the-clock access to financial products and services. The competition for customers is intensifying for community banks. Besides competing with large banks, savings and loan associations, and credit unions, non-traditional companies - from brokerage and insurance companies to retailers - have entered the fray and now offer banklike products and services.

Many financial institutions, both large and small, are in a "technology arms race" to build new product and service marketing and distribution points. They try to retain existing customers and attract new customers by using technology as a competitive advantage. At the same time, these institutions are under significant cost reduction pressure, while recognizing that they must be more responsive to customer needs.

"The quest for higher revenues and profits, plus competition for market share, will drive banks to find better ways to serve their customers," said Art Gillis, a Dallasbased consultant. "Technology alone won't provide the answer, but it is increasingly where bankers prefer to invest because of the opportunity for better automation and consistency among various delivery channels."

So, how can community banks keep up with the competition in terms of product and service offerings? How can they cope with the pressure of evaluating, purchasing and implementing technology to meet customer demands? Preparing and executing an integrated channel management strategy may be the best answer.

Community banks must develop a strategy that incorporates both existing and planned marketing and delivery channels. There are several issues to address when evaluating these channels. Community banks should:

* Carefully select the products they market. Large banks have a wider potential customer base over which to spread costs.

* Consider the importance of maintaining personal contact with customers when implementing technology into channels, and not replacing one-on-one relationships, which often provide the greatest competitive advantage against larger financial institutions.

* Weigh consumer convenience against slim revenue and efficiency gains. Community bank customers generally do not expect to pay extra for products and services rendered through new delivery channels.

* Consider expanding channels as a defensive measure in order to keep good customers from shopping elsewhere for more timely and convenient access to account information.

Community banks must also focus on core competencies rather than diluting resources. This includes evaluating whether to deliver bank products and services through channels using in-house technology or outsourcing.

Customers expect convenient banking wherever and whenever they want. They not only understand their product and service needs but the technology and delivery options available to them. The distinctions between channels are blurring and customers want consistent presentation of financial information, whether they are in a branch, at an ATM or on the Internet. Synchronizing transaction activity across channels, as well as a consistent look-and-feel across delivery mechanisms, are areas where companies such as Aurum Technology have invested heavily.

Community banks that succeed in developing and executing an integrated channel management strategy will retain and grow their base of profitable customers, find more efficient ways to provide products and services, and be more effective from an organizational standpoint. The bottom line is that an integrated channel management strategy is an essential competitive requirement.

Anuja Agrawal is an executive vice president at Aurum Technology, Piano, Texas.