RSM Resources

In the past, many community banks could count on attractingcustomers because of scant local competition. These days, however,community banks face fierce competition in many forms.

Competitorsrange from corporate banking behemoths that set up shop in the localsupermarket to nontraditional financial entities large and small that —through the Internet — can be as convenient to customers in Ann Arbor,Mich., as to those in Anchorage, Alaska.

Technology hasenabled competitors to attract customers located hundreds of miles fromtheir closest brick-and-mortar facility. But such competition need notspell doom for community banks. Technology, experts say, can be a greatequalizer, helping smaller banks go toe-to-toe with industry giants.

Minnesota-basedKleinBank has been holding its own, and more, for nearly a century.This $1.3 billion community bank that operates 19 offices throughoutMinnesota owes its longevity to understanding the changing needs of thecommunities it serves and keeping pace with online banking and othertechnological advances, says Bob Amundson, chief information officerand senior vice president of KleinBank.

"The challenge is that, nowadays, we compete with the very largest organizations," Amundson says.

But,on the flip side, he says, sometimes the largest organizations —because of their scale and span — can’t deliver local decision makingand the same services as a community-based structure. "Communitybanking is more about the attitude with which you deliver your servicesthan geography," he says.

Community banks that use technologyeffectively can not only survive, but thrive in the face of such fiercecompetition, Amundson says.

"Technology plays anever-increasing role in our business," he says. "Consumers are askingfor services that don’t get delivered in our traditional model. I thinkthat’s the biggest change for community banks. From a competitiveposition, we have to be able to deliver our products in electronicfashion."

What technology will get your community bank thebiggest bang for its buck? The following information explains moreabout what it takes to maintain a successful community bank and willhelp you determine what technology might be best to sharpen yourcompetitive edge.

Check-imaging systems

The pushto pass the Check Clearing for the 21st Century Act, or "Check 21,"which took effect October 2004, received a boost from the Sept. 11,2001, terrorist attacks, which caused planes containing millions ofuncashed paper checks to remain grounded for several days, impedingcommerce for many businesses.

The act created severalopportunities for community banks to increase their efficiency andcompetitiveness: First, banks may install check-imaging systems to scanpaper checks and feed the images directly into their systems at ateller window. Reducing the need to track and transport paper checksmanually can save both time and labor. It can also make the processeasier for regulators to audit.

Many banks also offer to financeor lease check-imaging systems for their largest business clients touse on site. Retailers and other business owners who handle many checksper day find in-house check imaging more efficient. It eliminatesarriving at the bank by a certain time to drop off the day’s checks andallows them to make electronic deposits without lag-time.

Communitybankers may want to consider providing check-imaging systems tolarge-business customers at reduced — even below-profit — rates. Astrong relationship with high-volume customers can recoup the moneyinvested for the technology many times over. This practice provides thecustomer with a valuable tool and gives them a trusted partner to helpthem use it, Amundson says.

"This way, customers don’t have todeal with the confusion of whom to call if it doesn’t work," he says."They can call us with any issue."

Online banking tools

Manycommunity bankers regard online banking tools as critical to landingnew customers and retaining existing ones. Many customers — even thosewho live down the street from a local branch — opt to stay home andbank by computer. Community banks that can cater to tech-savvycustomers by offering such options as electronic banking, automaticdeposit, online bill pay and electronic statements can expand theirdefinition of "community" by offering convenient, full-service bankingto virtually anybody, regardless of location.

Enhanced reporting

Informationcan be as great an asset to community bank executives as money in thevault. But experts say few organizations fully use in-houseinformation-gathering tools.

Most banking systems come withbuilt-in reporting functions that enable the bank to identify its mostprofitable customers, examine current and future product trends, andanalyze whether the fees it charges are a long-term asset or liabilityfor retaining customers.

Experts advise banks to conduct an information audit to examine which data they collect and why, which data they should collect, and how to best use existing systems to access and analyze the information they need.

IT security and fraud detection systems

Trustis every bit as important as technological wizardry, experts say.Before offering the latest in electronic banking tools, banks shouldmake sure to do everything possible to secure customers’ data againstinternal or external misuse or attack. New technologies can identifyforged checks immediately or flag suspicious transactions.

Anynew technology carries a price tag, but careful selection andimplementation can help community banks attract new customers andsucceed against competitors of any size.