Outsourced technology management: Weighing the benefits and challenges

While the economy is expected to improve in 2014, banks continue to face challenges regarding revenue, regulatory compliance and how to remain competitive by offering the products and services consumers demand. At the same time, keeping expenses in check and maintaining efficient processes and procedures are essential for a healthy institution. To attain these goals, more and more banks are outsourcing information technology (IT) services or investing in new technology to streamline operational procedures, improve service quality and make more efficient use of resources.

In a recent KPMG Community Banking Outlook Survey, 46 percent of respondents indicated plans to increase IT spending in 2014. According to the survey, the projects with the highest priorities included mobile banking and payments, leveraging data, social media and online banking. However, only 13 percent of the banks surveyed indicated that they had high data and analytics literacy. For institutions that do not have full-time qualified IT personnel or the internal capabilities to maintain these systems, a third-party provider or technology partner can be a vital resource for competing with larger organizations going forward.

Successful outsourcing relationships require proper management

For banks with limited internal technology resources or expertise, consider outsourcing such IT functions as data processing, online banking, debit card processing, ATM networking and item processing. Doing so will often  improve the quality and delivery of services, provide increased efficiencies and savings on hardware and software costs, and allow your bank’s personnel to concentrate  on more customer-focused initiatives. That said, choosing the right vendor and the appropriate outsourced services to meet your institution’s needs can turn into a completely new – and potentially costly – challenge if not managed properly.

To avoid risks that can far outweigh the benefits of outsourcing, due diligence at the vendor selection stage is vital. To avoid unexpected problems, ask yourself these questions before contracting with a third-party provider:

• Does the vendor have strong compliance credentials to protect the bank from regulatory scrutiny?
• Are the vendor’s systems robust enough to protect you from system failures?
• Does the vendor have strong financial resources to insure long-term service?
• Are the vendor’s practices in line with the bank’s mission?

Proper management of the relationship is essential for avoiding potential risks that can adversely affect earnings, service standards, operations and compliance. On-going monitoring of contract terms can also ensure that proper controls and contingency plans are in place to ensure that you are getting the best service at the best price, and that your vendors are able to  accommodate any operational changes the bank might experience in the future.

Are you ready for cloud computing?

While the concept of cloud technology – as it refers to web-based email systems – has become widely accepted as a form of communication, internet cloud computing options are gaining attention as an efficient, cost-effective way for banks to store and manage information on a subscription-based or pay-per use internet service. According to the KPMG survey, nearly 30 percent of bankers said they have begun using cloud computing at some level.

By storing data in one location, operational costs can be lowered and retrieval of information is simplified and accessible to multiple devices, such as PCs tablets and smartphones. However, since data stored “in the cloud” is housed on the internet, proper controls must be in place to protect the security of bank and customer information. Taking advantage of cloud computing options – without fully understanding the process involved – can lead to compliance and security issues, and put the bank at risk of operational disruptions following a natural or man-made disaster.

Failure to adequately address security issues can lead to increased regulatory scrutiny

From a regulatory perspective, the same due diligence expectations apply to cloud computing contracts as any other IT outsourcing activities that deal with customer information. Bank management must be sure that technology vendors provide security throughout the network and customer portals to ensure data privacy, data and system security, business continuity and contingency planning. In addition to disrupting business, security breaches can wreak havoc on an institution’s reputation and account holder relationships.

How do you know if you are getting what you need?

As technology becomes a more and more integral part of how financial institutions operate, IT services can account for as much as 70 percent of total spending, depending on the scope of services implemented. And as virtual systems continue to evolve, cloud computing is expected to become more and more viable as a business solution for financial institutions.

But when it comes time to increase your technology capabilities, if you don’t have someone on staff with the knowledge necessary to effectively represent the institution’s best interests, negotiating through the complexity of technology service options and contracts can seem overwhelming. An expert in IT services contract review and negotiations can help to make sure you are getting the products and services you need to meet your operational and customer service goals while maintaining compliance with all regulatory expectations.

About JMFA

JMFA is a leading provider of profitability and performance-improvement consulting. For more than 35 years, JMFA has been recognized as one of the most trusted names in the industry for earnings enhancement and expense control programs, training and development, and recruitment services, as well as product, service, pricing and technology-improvement consulting. Simply stated, JMFA’s programs and services are designed to increase income or reduce expenses.  JMFA is proud to be a preferred provider among many industry groups. To learn more about JMFA, please visit www.JMFA.com or call (800) 809-2307.