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Community banks will find technology is key in growing competition to deliver convenient online services

More and more, the Internet is becoming a critical part of a bank's strategic plan for delivering financial products and services as well as a vital tool for enhancing operational efficiencies.

Much like brick and mortar branches, customer service centers and ATMs did in the past (and continue to do so today but to a slightly lesser degree), this modern-day technological marvel has quickly evolved into a legitimate traditional banking delivery channel.

As both businesses and consumers turn to the Internet for routine services such as information reporting, lending, transactional services and even investing, most major banks in the country have adopted a single Web-based platform to accommodate the efficient delivery of those services and provide important financial information to their customers.

According to a survey conducted by business consultants at Grant Thornton LLP, there is a clearly defined trend toward online or e-banking, as 58 percent of banks now have transactional Web sites that allow customers to pay bills, transfer funds and engage in customer service functions.

Adoption of these practices by consumers is driving the trend toward expanded online banking activity. Last year the survey results revealed 22 percent of U.S households used some type of online banking service.

A different study by Celent Communications indicated that an estimated 38 percent of households will be utilizing online banking services by 2010. That figure is significant when compared to the fact that 40 percent of households have Internet access.

But online banking is not exclusively the domain of larger financial institutions. According to Mike Calvelli, president of Sorrento Pacific Financial LLC, an RIA and full-service broker dealer providing investment and insurance programs to banks and financial institutions, smaller independent community banks can now play in the same arena as the big guys when it comes to offering online and e-banking services, provided they have the ability to offer the same or better technological capabilities that will allow them to effectively compete for their share of customers' assets.

"Having leading-edge technology for their online banking services and investment programs enables these smaller community banks to compete more effectively with the large banks," Calvelli explained. "Advanced technology allows them to provide a greater degree of customer convenience in a number of areas, from paying bills to applying for loans and buying investment products from their banks.

"And with newer innovations like single sign-on capabilities, they can view all of their accounts and consolidate their entire relationship with their bank in one easy step. Convenient online banking is a huge factor today in customer retention, so it's important that the bank's technology be the latest and greatest it can be."

Bill Reid, president of Memphis-based ICBA Financial Services Corporation, a subsidiary of the Independent Community Bankers of America, explains that it's important for community banks to offer cutting-edge online services because most of their larger competitors are very active in this part of the market.

"Community banks that have the capability of offering these types of services also have the ability to then take away some of their competition's business," Reid said. "By matching technology with their large competitors for online banking and brokerage services, they are protecting customer relationships they enjoy, particularly with their good borrowers."

Reid reiterated that convenience is a key factor in driving community banks to offer online services for busy customers who oftentimes are their best customers. He explained that small businesses are extremely important to community banks and because their owners are very busy, it's important that their banking be accessible and convenient.

Having online banking features like bill pay and single sign-on saves them steps, which saves them time so they can continue to earn money. That's important both to them and to the bank by extension.

"Offering online banking services and features creates what we in the industry call 'stickiness,' whereby customers become reluctant to move their accounts from one institution to another because it gets more difficult and time-consuming to do," Reid explained. "They'd prefer to stick with where they are, as long as they are satisfied with what their community bank is offering. To undo and redo all of their accounts is a big issue and as a community bank, the more you do to make their life easier and tie them to you, the better off you are."

Besides offering simple transaction services like paying credit card bills and transferring funds, Calvelli says community banks should explore the possibilities of integrating value-added features like single sign-on, investment services tools for customers and registered reps, customer retention management (CRM) functionality and online check imaging into their technology platforms.

As an example, he explained that with the evolution of check imaging, networking and web-based technologies, it's becoming increasingly easy to offer online access to check images in place of mailed statements.

Tech-savvy customers certainly are embracing this idea and it also helps the banks contain check-processing costs. Reducing costs and improving customer satisfaction is an attractive one-two punch.

"There are bank technology specialists and consultants with considerable experience and expertise who can be a big help to community banks in this effort," he said. "They understand the community bank market and can help blaze a trail to better efficiency and improved profitability using technology as a stepping stone to broaden their delivery of core products and services."

Barrett is a staff writer at Beck Ellman Heald

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