Small Banks See Green in Technology

Good-bye, bankers’ hours. Spending on new computer programs will make small bank services more accessible to clients. Safer, too.

By Renuka Rayasam, Associate Editor, The Kiplinger Letter

August 21, 2009

Look for small banks to beef up investments in technology in coming years. They’ll bolster security, allow for more banking via smart phones and make Web sites friendlier to use -- all in a bid to drum up more business.

Tech upgrades give small players “an opportunity to compete with large banks,” says Jacob Jegher, a senior analyst with consulting firm Celent’s banking group. Moreover, “it’s something they can bring to the market quickly.”

To improve security, banks are exploring new ways to authenticate users of their services. Fraud is rampant -- particularly in these bad economic times with joblessness at high levels, says Cary Whaley, associate director of payments and technology at the Independent Community Bankers of America. Two recent high profile security breaches -- at Heartland Payment Systems and the Royal Bank of Scotland -- underscore the importance of tighter hatches on Web sites and databases. To counter thieves, some banks are giving electronic password generators to clients, especially their small business clients. Another tactic: paying hackers to attempt friendly breaches to spot weak links.

The push into mobile banking includes giving clients the ability to deposit checks electronically via a smart phone. Business owners can use their BlackBerrys, iPhones or other devices to take a picture of a check and send it along to their local bank. “I think the challenge going forward is how to transcend bankers’ hours and get rid of the stigma of being a nine-to-five institution,” says Whaley.

A new focus will be on managing family finances, with programs to aggregate reports from various accounts, such as loans, credit cards and checking accounts, and real-time alerts when balances risk bounced checks.

Such services will no longer require customers to manually input new spending and deposits as they had to with older personal financial software such as Quicken. That previous generation of software “only drew in a certain fraction of market because it was too much work,” says Mark Schwanhausser, a research analyst at Javelin Strategy & Research.

Now, companies such as Mint, Wesabe, Jwaala and Geezeo are simplifying the process, requiring only user names and passwords to continuously access various data. “Consumers want to know where their money comes in so they can be smarter shoppers and get advice or feedback on whether they are on the right track,” Schwanhausser says.

For years, many banks resisted new approaches, figuring they made more money on rubber-check fees. “I think that’s turned out to be a shortsighted view if you are a banker,” says Schwanhausser. But now, more desperate for deposits, banks are eager to embrace a slew of customer friendly offerings.

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