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Fintech 1.10-052358-edited.jpgFor some years now, financial institutions (FIs) of all sizes have been tasked to leverage new technology. In many cases, integrating new solutions has come as part of larger regulatory demands—and often, obligatory ‘updates’ are the most difficult to accept. Nonetheless, those requirements are opportunities to justify spending on technology resources that offer benefits far greater than the assurance of compliance.

Your institution may be struggling to adopt emerging technologies. Your leadership may not fully understand its impact or value, implementation may open your institution to new threats, and the costs may appear to outweigh the benefits. Despite these and other hurdles, however, delays or non-adoption are the greatest risks to the longevity of your FI. We want to help you understand why.

Lead, Don’t Follow

We have seen many FIs choosing to hold off as long as possible on adopting required technologies. Presumably, a conservative approach has merit—FIs can learn from the case studies and best practices of early adopters. That approach has become risky, particularly with the looming implications of CECL on the near horizon.

Hesitation, while dangerous, is not surprising. Many software providers sell off-the-shelf packages without any guidance into implementing the new technology or any insight into how to use the data it generates to create the greatest benefit. That puts the burdens of selection, implementation, and optimization on an internal team—which may or may not already exist within the organization. It’s no wonder so many FIs feel ill-equipped to handle the new technology.

CECL May Dictate Your Timing

As we’ve covered previously, early adoption is permitted for all entities in fiscal years beginning after December 15, 2018, and then begin to go into effect one year following. For Public Business Entities (PBEs) that are SEC Registrants, the standards go into effect for fiscal years beginning after December 15, 2019. For PBEs that are not SEC Registrants, CECL must be in place for fiscal years beginning after December 15, 2020. All other institutions have until December 15, 2021.

Particularly for those smaller FIs that have a longer runway, slow adoption may seem wise—why invest valuable resources into software and models before they are required? The answer is three-fold, at least. The very same technologies that you will need to implement to satisfy requirements in the next couple of years will provide you with a host of competitive and operational advantages now:

  • A rich database of clients gives you more information for answering current and prospective client questions
  • Once established, a database will build on itself to generate richer and smarter information, so you become more knowledgeable the longer you collect data
  • You will gain a better understanding of your credit risk to be able to price your loans more effectively (i.e., you may be able to compete for loans you historically believed you could not service)

Leveling the Playing Field

Used wisely, data can be a competitive equalizer for smaller FIs. Despite the varied implementation dates, CECL requires the same guidance standards for all entities. The same technologies and models large institutions will engage are available to smaller FIs as well, and implementing them will produce more opportunities to compete for lending relationships in a highly commoditized market.

Justifying the Spend

Understanding and serving customers better is a key justification to act now when thinking through your implementation strategy. Richer data means smarter and more informed prospecting. Meeting that demand with intelligent products and services require the right insights—and that requires reliable analysis.

Along with the opportunities, address the concerns pressuring the leadership and board:

  1. Risk: New technology will put more data and information online. Every year we hear about at least one new big data leak that damages a brand. With cybersecurity training and a partner that operates with a hacker mentality, you can address potential gaps in your system. Ultimately, the risk of competitive disadvantage is greater than the technologies you engage.
  2. Cost: Technology is a necessary investment. Trying to save money by delaying purchases or updates will create regulatory headaches and possibly penalties and put you at risk of losing clients who can get a better customer experience from FIs that have access to richer analytics.
  3. Fear: Information is the best cure for fear. In such a complex, highly regulated industry, adding complications like unfamiliar technology platforms can add stress. With the right plan and partner, you can simplify and solve many of those challenges.

The HORNE Financial Institutions team is dedicated to helping you understand the incredible benefits that required new technologies can do for you now and in the near future. As you consider vital points like competitive positioning, customer experience, operational strategies, and compliance, we can make sure you’re equipped to prevent risk and pursue opportunity. Don’t delay your future.

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THIS POST WAS WRITTEN BY Phillip Branch

Phillip Branch is a senior manager in the HORNE Banking practice. With more than 9 years of proactively serving the financial institutions industry, Phillip is a specialist in areas including external and internal audit, loan reviews, regulatory compliance, mergers and acquisitions, due diligence and internal control reviews and assessments.

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