3 Tech Strategies That Will Benefit Small & Midsized FIs

Vendor consolidation, cloud delivery, and artificial intelligence can significantly help deliver cost-saving strategies for small and midsized financial institutions, according to research sponsored by Finastra and executed by Mercator Advisory Group.

The white paper, “Landmark Decisioning: Using Vendor Consolidation, Cloud Computing, and Artificial Intelligence to Improve Operational Efficiency,” is based on in-depth interviews with C-level representatives of credit unions and community banks with assets between $200 million and $5 billion.

According to the research, given the full outlay that credit unions and banks make in IT and business process execution, improvements in the three areas can produce tremendous cost savings:

• Consolidation of vendors ultimately removes the necessity to sustain and manage multiple systems, and can improve operational efficiency by 20-30%. Consolidating support might include service desk operations, management of the IT infrastructure, the IT security environment, and support for applications and data.
• Cloud delivery brings many benefits including the capability to simply scale system capacity to meet demand.
• AI, the least adopted of the three strategies to date, promises to make consumer processes smarter, faster and more personalized. However, to obtain these benefits, financial institutions must prioritize their vendor consolidation and cloud delivery road maps.

Financial institution can realize considerable benefits when support is consolidated, key operational applications are moved to the cloud, and artificial intelligence is utilized to make processes smarter, faster, and more personalized, Finastra’s Mike Dionne, senior vice president, community markets said, “Finastra is helping clients deliver on these goals by making our core banking platform, and all of our major solutions, available in the cloud and by developing a platform to enable banks of all sizes to access the latest technologies available and integrate them seamlessly into their bank offerings.”

“Mercator Advisory Group strongly believes that institutions need to develop a road map to implement these recommendations in order to save money but, more important, to become agile and ready to navigate the changes fast approaching due to AI-based intermediation,” Tim Sloane, vice president, payments innovation, and director of emerging technologies advisory service, Mercator Advisory Group, said. “We urge financial institutions, and particularly the small and midsized institutions, not to be complacent. Although the first wave of change isn’t expected to have an impact for five years, advance planning is vital.”

The paper indicated an inordinate amount of the operational effort of a credit union or bank, as much as 80% of the total IT budget, is spent just supporting current systems. This involves maintaining the existing data network, keeping platform hardware and software up to date, and maintaining the corresponding software systems running on those platforms. In addition, there is keeping software solutions and network connectivity properly integrated and secure. “Every financial institution that operates its own systems and software either has a team dedicated to these five different technologically complex operational areas or outsources them to a third-party provider or a service bureau that operates the institution’s financial processing for it.”

Mercator Advisory Group estimated that a financial institution with $1 billion in assets will budget approximately $4 million to operate its IT infrastructure. Of this IT spending, approximately $1.6 million is associated with IT headcount and $2.4 million is spent on hardware and software. Therefore a 20% improvement in operational efficiency should enable the reassignment of two to three people to tasks that will help the institution further transform the business. A reduction of 40% in platform costs through cloud computing would save almost a half million dollars annually.