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2014 Forecast: Many Community Banks to Increase IT Investment Next Year

Many community banks are planning to increase investment in IT and new products and services like mobile banking and payments.

Community bank executives expect their revenue to increase in the year ahead and plan to invest more of that revenue into IT, according to the 2013 KPMG Community Banking Outlook Survey. With 85% of the survey respondents reporting they expect their bank’s revenue to increase in the next year, 61% of them planned to increase capital spending.

The most popular areas that bank plan to increase spending were IT (46%), new products and services (37%) and regulatory controls (24%), the survey found.

The most important IT projects cited in the report revolved around mobile banking and payments (40%), leveraging data (22%), social media (15%) and online banking (15%), according to the survey.

“Last year executives were telling us that mobile costs too much money to implement and they would wait on implementing it. This year branch traffic is down and customer demands are evolving,” says John Depman, KPMG’s national leader for regional and community banking.

Few of the banks involved in the survey (13%) said they had high data and analytics literacy. “I think community banks need to understand the power and usefulness of dat and analytics. Once that’s understood culturally they’ll invest in it,” Depman notes. “If you think about how community banks can compete with big banks, they can find a way to outsource data and analytics. If they know how they will use it, they will find a vendor or partner.”

Cyber security is also an area that community banks will focus on in the next year, the survey found. Nearly half (48%) of the respondents said they are moderately concerned about cyber security, with another 15% saying that it was an extreme concern for them. Although big banks are facing more sophisticated cyber threats than smaller institutions, community banks are still under constant threat from fraudsters, Depman points out.

Regulatory Focus and Increased M&A Interest

Many of the respondents (65%) said that they think it likely their bank would be involved in a merger or acquisition. Forty percent said they expect their bank to be on the buying side of a transaction, and 25% said they expect their institution to be on the selling side.

The increased interest in M&A among community banks is tied to the growing cost of regulatory compliance, KPMG’s Depman says. “Compliance costs are up and it’s expensive to be a bank right now. It’s logical to spread that compliance cost over a bigger revenue base,” he explains.

And with increased regulatory focus on capital levels with new Basel III and Dodd-Frank requirements taking effect, some community banks in need of new capital might find that it’s easier to simply sell the bank, he adds.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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