Using Technology to Outperform Your Peers: Higher earnings & improved efficiency

Article by: Robert Mendez, EVP

Do you see your bank’s technology as a “negative”— something that creates a drag on earnings and eats up management’s time in dealing with constantly occurring issues? Instead, what if your bank’s technology could be a source of strength, helping your bank to achieve its strategic objectives while at the same time reducing risk, reducing regulatory burden, adding capabilities and allowing management to spend more time on other, more important goals?

Our company, BankOnIT, performed a two-year study of financial results for a nationwide peer group of community banks that had under $1 billion in assets, based on the FDIC’s December 2014 and December 2015 Quarterly Banking Profiles. We discovered that our own client banks with less than $1 billion in assets had, on average, a 33% higher ROE than the peer group in 2014, and a 25% higher ROE in 2015. Our client banks also showed better financial metrics for ROA and efficiency compared to the peer group. Client banks were also more likely to be growing / acquiring another institution vs. being on the selling side of an M&A transaction.

What drives these results?

Large technology firms (including Google, Amazon and Apple) have massive data centers and are hosting huge amounts of data. Their size gives them greatly enhanced capabilities, allowing them to develop features and to enjoy efficiencies that let them consistently outperform their competitors.
We believe the ability to leverage technology more effectively is playing a similar role for our client banks. When a bank outsources its IT network systems and support to a banking-industry-specific, efficient cloud computing provider, that bank can reduce its risks, lower its regulatory burden, better control its overall costs and reduce the amount of management time spent on IT. This can eliminate the challenges of buying and hosting servers in house, hiring technical staff, resolving technical problems and coordinating support from multiple vendors — freeing up more time for focusing on the bank’s strategic goals.

Consider this example

What if a system or application (such as a teller system, lending platform, document imaging system, Internet or data connectivity or any one of the dozens of systems your bank uses) is down or is causing an issue for your employees? At any individual bank, this usually is addressed by someone at the bank, or potentially with the help of an outside network support person, but in either case the issue is viewed within a “silo,” as a single event. At best, there may be some awareness that the same problem previously occurred at the bank recently, or is also occurring currently at other branches of the same bank. But what if you knew that the issue your employee is dealing with is also occurring, and has been successfully resolved, at dozens or more other banks in other areas of the country? Your staff would likely address the issue in a different manner or would at least be more efficient in resolving the issue, based on having more understanding of what is occurring. Our company regularly correlates and utilizes information such as this, both for application-specific issues and for security and regulatory issues. Client banks receive dividends in the form of better productivity, improved efficiency, better security and enhanced reliability.

Having a vendor that understands your business, and that can also achieve the efficiencies inherent in a banking-centric private cloud computing environment, creates key drivers — less financial risk, reduced regulatory compliance burden, less management time and improved strategic capabilities—allowing banks to outperform their peers and more effectively compete with anyone.

About the author:
Robert Mendez is executive vice president of BankOnIT. Mendez has 25 years of experience as a banker and joined BankOnIT in 2006. He holds a BBA in finance, an MBA and is a graduate of the Graduate School of Banking at Louisiana State University in Baton Rouge. Mendez previously co-founded a bank regulatory software company. As a former banker, Mendez has a unique perspective on a bank’s need to meet security, efficiency, reliability and regulatory requirements, while maximizing earnings.