STEPHEN K. RYAN – Message is simple

Nearly every bank in the state has a Web presence or is planning one. But if a customer walked up to a branch manager and asked what the bank’s Internet strategy was, how many would be able to answer that question?

Not many, according to Stephen K. Ryan, vice president of The BISYS Group, a Little Falls, N.J.-based technology consulting group. Technology is the most overlooked portion of bank planning but still eats up a substantial portion – normally 30 percent – of the budget, he said.

Ryan spoke at the recent BankWorld 2001 conference in Cromwell, Conn.

“The message is real simple: You’re spending a lot of money, and I think you should be doing some planning,” he told the group of about 60 bankers.

Having an Internet presence is recognized by most as a necessity of business. According to Phoenix-based consulting firm M One, e-services will be a $65 billion market in just two years. That is reflected by the fact that Dell Computers sells $30 million in computer equipment per day on its Web site, said Ryan. Therefore, the future predicted by M One is near.

“But there are some harsh realities that go with this,” Ryan said. For instance, there is the fact that 80 percent of technology projects come in late and over budget. Additionally, 70 percent of software projects fail when they are initially deployed, according to M One.

However, while banking professionals may take comfort in the fact that their peers are all facing the same challenges, they need to take action because non-bank challengers have not hesitated to spend large amounts of money to perfect client-seducing technology.

Entities such as brokerage firms have much greater funds to draw upon most successful small community banks and use their advantage, said Ryan.

“The reason I cite these non-bank players … is because they’re incredibly aggressive, they have deep pockets and they want your space,” he said.

Quicken Mortgage and E*Trade are two examples of non-banks entering the banking arena. Quicken was developed by just two people with no financial experience who were able to sign up 20 major lenders in under a year.

“The entire project took nine months and they do 100 loans a day,” said Ryan. Even credit unions are using technology better and faster than banking entities, he said.

Credit unions are also doing a better job at how to invest in technology, Ryan noted, and they implement projects much more quickly as well.

Credit unions have traditionally led the way in innovations, said Robert B. Kimmett, senior vice president of the Massachusetts Credit Union League. He listed services that stretch back 20 years, such as truncating checks or the use of automated response units, as examples of his membership leading the way – in addition to being among the first to offer Internet banking.

Credit unions aren’t as focused on brick-and-mortar for operation, he said. Instead, they have sought out ways to transact business remotely such as payroll deduction and direct deposit.

“So we’ve focused on convenience and efficiency and technology is really an extension, a means of achieving that,” said Kimmett.

“Probably the best thing that’s happened in the community banking industry in the last couple of years was the whole issue of Y2K preparation. I think what that has done is focused everyone from an IT strategy perspective as to where are we today and where do we need to be, where do we need to be five years from now,” said Daniel J. Forte, president of the Massachusetts Bankers Association. While the large non-bank entities -investment firms, for example – will always have deeper pockets, the attention and regulatory requirements created from the Y2K bug fear helped small community banks as well, he said, especially in combining high-tech with high-touch, what customers want from their local bank.

Quick Followers
In this era of shrinking margins, it becomes even more important for banks to tighten their focus on how they invest in technology. One question a bank may want to ask itself is why it wants to invest.

“It’s keeping up with the Joneses in my experience. Rarely as a vendor do we walk in and the banks says, ‘Well, this is what our customers want.'”

Forte said there is a “bit” of that type of reasoning out there, but added that community banks can use the Joneses’ philosophy to their advantage.

“The smaller community banks do not have to be the ones that develop the technology. They don’t have to put the capital in to reinvent the wheel and see what works and what doesn’t. But they do need to be quick followers,” said Forte.

Whatever the reason behind it, the issue is increasingly important to most banks. According to a survey by the American Bankers Association Journal and the ABA Community Bankers Council, 66 percent of community banks in the country have Web sites. That’s up significantly from just five years ago, when only 22 percent had sites. Since technology is obviously important to banks, Ryan asks, “Why don’t you have a technology plan?” What passes for a technology plan in most banks is a small section devoted to technology in the larger strategic plan. That isn’t enough, he said.

Recognizing that relatively few banks have the funds to devote a staff to just technology planning, Ryan said a good way to start is to take even just an hour to get organized.

Next, a good way to decide a course of action is to find out what your customers want, he said.

“When’s the last time you did a survey of your customers? It’s pretty inexpensive. Talk to them. This will help to make sure you’re going to be profitable,” he said.

Secondly, he asked, when’s the last time employees were consulted about what technology is needed?

Sometimes, however, plans fail. According to Ryan, failure can be attributed to three reasons. The biggest is not ensuring the plan is in sync with the rest of the business. “Lack of execution,” meaning not devoting enough time or resources to make the project successful, is the second reason. Thirdly, “implementing new technology without changing the existing business and operating environment can never be better than that environment,” he said.

While banks may not have the luxury of staff members devoted solely to technology, Forte said they do have the expertise.

“You’d be surprised at how many banks today have someone inside that is pretty adept in these areas,” he said.

For small banks, the way to get a handle on the multiple points to consider when designing a technology plan is simple: hire a consultant.

“An architect [costs] 7 percent of building cost. I’d feel a whole lot better about that roof staying up over my head,” said Ryan. Similarly, a good consultant can keep a plan on track

Forte agreed, saying many banks in the commonwealth use consultants for a portion of their technology planning, and it may become more of the MBA’s role in the future.

“We’ve definitely elevated … our role in the technology area from an education perspective, a seminar perspective, to get our members up to speed in these areas,” he said.

Even with a sound technology plan in place, it will be difficult to get the customers you want, said Ryan. Currently, consumers have relationships with an average of six financial institutions, and most have 14 total account relationships with three or fewer banks, he said. Ryan also pointed out that it is five times more expensive to attract a new customer than to retain an existing one.

“You don’t have to do it all at once … As you wrestle with technology and technology planning, you’ve got to be prepared to throw out some of the old bathwater,” said Ryan.

But locally, one example of a smaller community bank that did well with its Internet strategy vision is Salem Five Cents Savings Bank.

“In many ways, they are not the norm,” said Forte, referring to Salem’s Directbanking.com Internet bank. “They have been cutting edge.”