Balancing customer contact and high-tech delivery

Technology elicits feelings of anticipation and anxiety on the part of bankers and their customers. For the community banker, technology offers the tantalizing opportunity to compete with the largest financial institutions on equal footing. With the price and complexity of most technology dropping rapidly, community bankers can offer imaging, the Internet, and more. But what do your customers think about the changing role of technology in banking? We'll get to that in a minute.

Current and future technology
What was, just a few years ago, once considered out of the realm of possibility for most small banks is now commonplace. An overwhelming majority of banks surveyed in KPMG's Project Excellence study have or will have within the next three years their platform and tellers on PC networks and will be using imaging for everything from statements to loan documents and signature cards. Most of these high-performance banks also use sales tracking, relational databases, and sales-assistance software for marketing. The only hedging is in the area of credit scoring. Most, 52%, have no immediate plans for automated credit scoring.

But this is standard stuff. Networked tellers and automated backoffice operations is old news. The future is in product delivery and, particularly, in being able to match the appropriate delivery methods to the right customer. Here is where the model of successful community banking begins to emerge.

For the record, most successful bankers are currently using telephone banking and will have point-of-sale and PC banking in place within the next three years. Most are just beginning to install ATMs which print statements, but are not planning to use ATMs to dispense loan applications or to purchase other products. Kiosk banking? Not anytime soon.

When it comes to embracing untested technologies even the most successful community bankers take a very careful and deliberate approach which has served them well. As a president of one southern bank said, "Our philosophy is...to let the big guy spend the millions to promote the product...and make the mistakes...we'll follow." The Project Excellence bankers are not afraid of technology. They will invest if they see a need in their community and it fits with their business or vision.

Throughout our research on successful community banks we saw the strong connection between the banks and their community. These bankers, from the CEO to the tellers, felt they were better able to stay close to their customer and more clearly understood their customer's needs than big banks. Early results from a recent KPMG consumer research study seem to validate their belief.

Customers respond
KPMG recently sponsored primary consumer research conducted by Yankelovich Partners to understand consumer attitudes, preferences, and behavior relative to financial services. Key findings emerged in the area of technology. Over 1,000 consumers from across the U.S. were surveyed. This study attempted to answer some very important questions such as: To what degree are consumers willing to incorporate technology in their financial lives? How will the skills of the financial services professional need to change? To what extent will consumer demand for financial products drive change in the future?

Their responses should be heartwarming for community bankers. A large majority of consumers believe that smaller banks are just as capable of offering the same technology access as big banks. More promising is the notion that two thirds of people ages 30 and over believe that a decline in customer service follows when financial institutions become too big (see chart on previous page).

This research also seems to confirm a general love/hate relationship with technology. Most consumers grudgingly accept the inevitability of technology, but they don't necessarily like it. As might be expected, the young embrace it more fervently than those who are older. Also, residents of rural areas are more apt to see technology as a way to easily connect them to their banker. While most consumers accept technological solutions, they don't necessarily want everything to be electronic.

Having immediate access to account balances seems to be a minimum requirement. Less accepted are debit and stored-valued cards, as well as conducting transactions, making investments, or completing applications electronically. Or are they? Eighty percent of the same respondents said that they want access to up-to-the-minute account information and to be able to conduct transactions, "anytime, anywhere," although 75% also said that they prefer a small bank to a large one because it is friendlier (see chart at right).

Does this mean that the American consumer is hopelessly confused? Perhaps not. One interpretation is that the consumer and the small community banker share a healthy skepticism. Where the banker is wary about investing large sums in untested technology, consumers are concerned about safety and privacy. More than 87% of the respondents agreed that it is too easy for businesses to access personal financial information, and 77% would describe themselves as being concerned about maintaining their right to privacy.

Another interpretation may be more ominous for the small banker. This is a turbulent period with regards to technology and banking. Many new applications are just beginning their final testing and the rate of new product introduction (really the application of technology to product delivery) seems to increase each day. Consumers could be waiting on the sidelines to see which product proves worthy before embracing the winner.

The recent testing of the Visa cash card at the 1996 Olympic Games in Atlanta was declared a huge success, far exceeding expectations. The community banker's penchant for being a quick follower has worked well in the past, but the rapid progress of technology-based products may outpace all but the nimblest small banker.

The community bank model--a delicate balance
High-performing community banks have the ability to find the right balance in customer relationships and operations. They carefully measure and manage those items which count the most, and effectively combine seat-of-the-pants marketing with customer research and sales databases. Most notable in these institutions were the CEOs who exemplified the idea of community banking. They were actively involved in all aspects of their businesses and built a team of managers and employees who understood and embraced their corporate vision.

Our view of the future of community banking is one of cautious optimism. Community banks have consistently offered the best customer service in their communities while offering a variety of products and services to meet their customers' needs. But community bankers face four challenges. The first is the changing face of competition. Whether it is AT&T offering credit cards or mutual fund companies vying for savings and investment dollars, the competition today is no longer just the bank across the street. In fact, the competition may not even have a physical location but exist only in cyberspace. Where community banks can succeed is by continuing to match their attractive service offerings within the context of a long term, mutually beneficial, stable relationship.

Banks also are facing an increasingly sophisticated consumer. In addition to better financial disclosures and extensive product marketing campaigns by large product providers, the introduction of technology has brought instant stock quotes, on-line databases, and web sites for every kind of financial service provider and their products. Banks, particularly community banks, continue to hold the highest level of trust among financial service providers. Community banks can profitably leverage that trust.

Changing delivery economics poses the most interesting test of the community bank's ability to maintain the balance. The megaplayers are using technology to drive down their delivery costs. Community banks will have to continue their focus on costs while making the right technology investments. The future will be "high tech" and "high touch."

Finally, the greatest challenge for community banks may be to create a boundary around their customers. The entrance of AT&T, GE, GM (and other companies whose primary business is other than financial services) into the financial services arena has hastened the fall of the protective walls banks had around their customers. Every bank's customers are now easily reached by telephone, by mail, and by computer. The challenge is to protect the banks' most profitable customers. That will require being better informed about customer segments and knowing the best product delivery options for your customers in your markets.

The best community banks have been successful by adapting to the changing environment while staying true to their mission. As the CEO of one Project Excellence bank said, "The community bank model is always appealing, but we have to recognize what the customer needs and provide it. People will always want face-to-face banking, but we need to understand what...customers want from their bank. Technology will be playing a bigger and bigger role."