Retail Banking Technology: Can Community Banks Compete?

By Brantley, Lamar | American Banker, October 24, 1996 | Go to article overview

Retail Banking Technology: Can Community Banks Compete?


Brantley, Lamar, American Banker


The current rush to apply technology to the delivery of financial services is not new.

Technology was proclaimed in dramatic fashion in the late 1 960s and early 1 970s to lead to a checkless society and to be a panacea for many of the nation's payment system ills. While a number of positive developments took place, the pace of change was slow.

Today, a new wave of technology innovation is engulfing the retail banking marketplace. While considerable uncertainty remains about the financial and competitive impact of many of the changes, depository institutions of all sizes -- including community banks -- should be wary of standing pat.

Today's retail banking technology developments include diverse systems and services, such as the maturation of automated teller machines; the introduction of automated loan machines; the application of artificial intelligence to loan underwriting; the expansion of programs to deliver government benefit payments electronically; the presentment of bills electronically; electronic cash; banking services on electronic networks, such as the Internet; smart cards and stored-value cards; and the rapid growth of home banking, using telephones, television and personal computers.

Is the Consumer Interested and Ready?

Consumers will almost certainly adopt new financial service technologies, provided they are more effective and secure than traditional banking methods While it may take time to educate and sell them on new concepts, the time frame is likely to be substantially shorter than in the past. Consumers are rapidly adopting computer technology in the home, many are soaring through cyberspace, increasing numbers are comfortable with stored value card services and many millions more use electronic direct deposit.

At the same fume, consumers have trepidations about new technologies for several reasons -- security, privacy, financial risk, speed (ironically) and ease of understanding. The extent to which these concerns can be allayed will be a key consideration in the pace of technology implementation.

Community bankers must communicate clearly with their customers and prospects about new technology-driven services. Communication must begin with the marketing of new services, extend to the disclosure of service requirements, and continue with regular account reporting. Clear, complete communication will lead to quicker consumer adoption, fewer complaints and less government intervention.

Is Technology a Competitive Threat?

The use of technology in the delivery of retail banking services is a substantial threat to community bankers, more so now than at any time in the past. While the temptation may be to do little or nothing in response, that course of action, while often appropriate in the past, could be risky now and potentially fatal in the future.

Two areas of technology development warrant careful attention.

Stored and smart cards, extending the functionality of current debit and credit cards, promise to reshape the way plastic cards ore used, blurring the lines between depository institutions and other financial service firms. EBT is an example of the use of stored value and smart cards to bypass traditional banking channels.

Cyberspace is the other important frontier. Home banking and customer prospecting in cyberspace will break down geographic barriers and make a community bank's customers vulnerable to many more competitors. The Internet and World Wide Web and private network coalitions promise continued growth of home banking.

These services need not always be on the leading edge, but it is essential to make incremental technology changes that can supplement the natural, home field of advantage community bankers. Particular care is needed with respect to card technology and cyberspace banking.

Will Community Bankers be Ready

While some community bankers may feel content to nothing, the preponderance of evidence suggests that most must be ready to bang heads with major financial service firms with large technology development budgets. …

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Retail Banking Technology: Can Community Banks Compete?
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