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Why banking technology makes sense – recession or not

Mary Ellen Biery
March 2, 2023
Read Time: 0 min

Banking technology decisions now affect growth tomorrow

With the possibility of a recession, community financial institutions may consider a delay or cut in technology spending. Experts say that would be a mistake. 

You might also like this whitepaper, "Best practices for purchasing bank or credit union software"



Possible recession

Shouldn’t financial institutions reduce expenses?

Don’t be Southwest Airlines.

Investing in technology now – even as experts debate when, not if, a recession will arrive – might seem counterintuitive. But as Southwest’s scheduling system crisis over the holidays showed banking and all other industries, technology shortcomings create enormous costs in the short-term and in the future.

The company has estimated that the impact of its system meltdown during bad weather will cost it as much as $825 million. Customers mocked and disparaged the airline, resulting in millions of lost ticket sales. Executives took a pay cut.

To its credit, Southwest was investing in customer-facing technology. But when a storm hit, limitations on the back end due to its insufficient operations technology hampered Southwest’s ability to handle the most basic customer service in that industry: getting customers safely where they needed to be.

Experts have highlighted numerous lessons from Southwest’s experience, many of which can benefit bank and credit union executives, regardless of their institution size, as they manage competing priorities for spending and growth initiatives on banking solutions.

Community banks and the entire banking industry face downside risks from inflation, rising market interest rates, and continued geopolitical uncertainty, the FDIC said recently in its quarterly report.

And with the possibility of a recession, executives at community financial institutions may be inclined to delay or cut spending on technology for their banks or credit unions. But experts say that would be a mistake.

Impact of technology

Banking industry lessons from Southwest Airlines

According to Forrester data, firms pursuing technology-driven innovation grow three to four times faster than industry averages.

In addition, multi-year efforts and spending to make digital technology a priority of the financial institution were likely because the institution and its leaders recognized that digital acceleration can:

  • Permanently reduce the cost of doing business
  • Improve customer and employee experience
  • Outperform competitors during a looming downturn

Seventy percent of leaders from banks, credit unions, and fintechs in late 2022 planned to increase their tech spending in 2023, according to a survey by American Banker parent Arizent.  Of that group, more than three-quarters planned to increase spending by 10% or more, with the top priorities aimed at understanding customers and clients and creating personalized experiences for them efficiently and safely, the survey said.

Banking executives undoubtedly will face pressure to downshift their digital efforts. When making decisions about new banking technology, remember the following lessons from Southwest’s experience.

A failure in back-office technology directly affects customer experiences.

Perhaps executives think delaying or cutting spending on technology to make lending more efficient will affect only their staff. Even though Southwest had been investing in technology, much of it was for “outward facing” improvements. It prioritized customer experience gains over back-end improvements, such as a digital way for flight crews to report their locations and availability. As a result, crews had to manually call in to report their locations, which meant they weren’t helping solve customers’ problems.

Systems often fail at the worst time.

Whether the credit union or banks’ systems are designed to handle complex tasks such as staffing or are Excel spreadsheets tracking loans in the pipeline, they usually buckle under stress rather than when it’s convenient for the company or financial institution. Remember the Paycheck Protection Program (PPP)? How much easier and less stressful would PPP have been if the institution had already created the ability to take and process loan requests online before being shut down due to COVID? Many institutions were able to propel growth with the technology installed before or during PPP. If the economy downshifts, executives and their staff may be so busy putting out figurative fires in credit or lending that they lack time to assess vendors and initiate technology changes that can help them manage at scale during and after any recession.

Viewing technology as a near-term cost ultimately hurts the enterprise.

Forrester notes that Southwest apparently “budgeted for technology on an ‘allocative efficiency’ basis, focusing on optimally allocating costs to meet current demand. In doing so, it appears to have largely neglected ‘productive efficiency,’ or focusing on maximizing future outcomes given current cost constraints.”

Technology for needs

Instead of cutting, focus bank tech spending

Undoubtedly, scholars will study the causes and effects of Southwest’s meltdown for years to come.

As leaders at community banks and credit unions consider technology spending in the near future amid the possibility of a weaker economy, remembering these lessons can help guide investments. Financial institutions can also focus their technology spending by making sure vendors’ solutions will meet their needs and provide the appropriate return on investment. A buyer’s guide for lending software for smaller financial institutions can be helpful.

For example, when a bank or credit union is looking to purchase loan management software to process and analyze loans, staff will run across many systems that far larger banks and credit unions use. 

But a community financial institution often has different needs related to origination than those of a giant lender. Below are some considerations that community banks should take into account when evaluating a new system to originate loans.

Learn how technology helped a financial institution during uncertain times. Unity Bank: Partnering to Provide Community Solutions in Critical Times

Technology purchase considerations in uncertain times

  • How long will implementing the loan management system take? Smaller financial institutions often have small staffs, so being able to implement new banking technology quickly is critical.
  • Does the loan system foster cross-functionality? Many staff members at smaller banks and credit unions have more generalized roles than they might at a larger institution. They often wear multiple hats, so to speak. Does the technology allow multiple people with different roles, or people with multiple roles, to view on one system the loan requests and outstanding tasks according to their function(s)?
  • Will the financial institution have to make adjustments to the technology before using it, or can they use “out-of-the-box” standard templates and reports right away to get them up and running?
  • Is the technology capable of processing the various loan types offered by the community financial institution, including agricultural loans?
  • Can the lender maintain control of the relationship throughout the lending process? Or does the software remove some of the ability to personalize each experience? For example, many community financial institutions want the ability — depending on the institution and the customer — to either start a loan request in the branch or let the customer or member enter most of the information and documentation needed at their convenience.
  • Does the loan software provide straightforward summaries of individual deals and portfolio-wide summaries to have greater visibility into the pipeline?
  • Will the community financial institution have to switch vendors if it grows the loan portfolio substantially, or can the software partner handle the transition?

Community financial institutions are vital to the communities they serve. If a recession does occur, they need to be able to respond quickly to meet the borrowing and other needs of their customers and members, who may have unique circumstances and requirements.

Continuing or pursuing technology investments regardless of the economy will ensure the community and the community financial institution thrive.


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About the Author

Mary Ellen Biery

Senior Strategist & Content Manager
Mary Ellen Biery is Senior Strategist & Content Manager at Abrigo, where she works with advisors and other experts to develop whitepapers, original research, and other resources that help financial institutions drive growth and manage risk. A former equities reporter for Dow Jones Newswires whose work has been published in

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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