What are banks saying about meeting technology needs?
As the financial industry gets smarter, leaner and more heavily regulated, technology’s role continues to evolve from an extravagance just a few decades ago to a financial institution’s lifeblood in many instances today. Banks and credit unions are now able to handle complex collateral relationships in a few clicks, send real-time notifications to customers across the globe and perform tasks that even just five years ago would have been considered nearly impossible. With such rapid progression of technological advancements, many bankers have found that they are not devoting enough resources to exploring how these new technologies can be of benefit to their institutions.
World-renowned consulting firm, McKinsey & Company, mentions “Technology expenses can be high, but they are relatively small compared with their potential to boost the operating performance of the business.” They cite the example of “reducing overall costs (for instance, by automating end-to-end processes) and lowering risk costs.”
“By seizing the opportunities and mitigating the threats, companies can dramatically improve their performance,” the consultants said.
Knowing that technology can benefit operational efficiency and actually putting these insights into action, however, proves to be a difficult bridge to gap. In a recent Growth Strategy Survey Summary Report, BankDirector released findings regarding banks’ stance on technology, based on a pool of more than 100 directors and senior executives of banks nationwide. One of the primary findings, as the author, Emily McCormick, paraphrases, was that respondents revealed a “need to better understand how technology can make the bank more efficient.”
Breaking down the results of the survey, BankDirector found:
• Only 30 percent of boards discuss technology at every board meeting; 47% address the issue quarterly.
• 52 percent of directors and officers want to better understand business intelligence and analytics.
• Core processors can make or break the organization’s ability to innovate, especially at community banks that depend on vendors for their technological know-how. Half reveal that their core processor is slow to respond to innovation.
• One-quarter of respondents say that their IT staff lacks the resources to support the bank’s growth plans and current operations, with many citing a need for additional or more highly trained staff.
• Less than half of the respondents believe their bank has the technology in place it needs to meet its growth goals.
As the financial industry continues to face growing competition both internally and externally, banks will need to find innovative ways to improve financial performance. Technology has long since been an outlet to facilitate operational efficiency and continues to serve as an imperative for sustained growth.
One area of the bank where technology can greatly improve efficiency is the bank’s allowance for loan and lease losses (ALLL). One of the most important estimates on an institution’s financial statements and one of the most heavily scrutinized by examiners, the ALLL calculation can take from 6 to 20 days each quarter for many banks using traditional methods, such as spreadsheets. An automated solution such as Sageworks ALLL can shorten that time period to 2 days or less per quarter.
This leaves bankers more time to analyze the loan portfolio and identify pockets of the portfolio that may be vulnerable to outside factors, such as changes in short-term interest rates, or to identify overexposures in industries, geographies or types of real estate. As a result, bank management has more time to amend credit policies, pricing or business strategy based on the desired risk profile.
To see a detailed view of how technology can greatly improve the efficiency in the ALLL, download this free infographic.