A family-run bank in Texas is using advanced cash management software and other business services to compete against larger rivals, and says other community banks should try the same approach.
First Community Bank of Harlingen started using Web Cash Manager for online business banking last month. The product is from P&H Solutions Inc., which says most of its Web Cash Manager customers are among the top 150 U.S. banks — far larger than the $115 million-asset First Community.
Robert B. Dunkin 2d, First Community’s executive vice president and chief financial officer, has been spearheading a technological overhaul of the 27-year-old bank, the operating unit of First San Benito Bancshares Corp. One of the biggest tasks was converting its core banking system last September to the Phoenix System from Harland Financial Solutions Inc.
Mr. Dunkin said staying up to speed in technology is the key to opening commercial markets previously out of First Community’s reach. He estimated that it has invested $750,000 in technology over the past three years.
“A lot of small banks are afraid to make that investment because it is a lot of money,” he said. “We’ve convinced everybody in the bank we’re not spending money, we’re investing in our future.” And “if we do it and execute on it, we can become a model for other small community banks.”
Business services such as cash management were once offered mainly by large banks. Smaller ones have started pitching these services in recent years, but Chris Williston, the president and chief executive of the Independent Bankers Association of Texas, said they have been slow to offer them online.
“Good times breed complacency,” Mr. Williston said. “Things have been so good for so long” that many smaller banks have not felt the need to invest in technology, Mr. Williston said. “Change is always painful.”
Technology “is not just nice to have, it’s a commodity,” Mr. Williston said. “Customers expect it.”
Mr. Dunkin, 34, returned to the company in 2003 after earning an MBA at Southern Methodist University and a stint as the chief investment officer of a Dallas commercial real estate firm. “When I got here, my laptop had more power than our server,” he said.
His father Robert B. Dunkin, First Community’s CEO, called cash management a natural extension of the bank’s growth plans. In the past three years the bank has opened three new branches, giving it five, and it has more than doubled its assets since 2001.
The senior Mr. Dunkin said that the industry now demands that even the smallest banks offer many of the same services as the industry’s giants. “We have to provide the services our customers are looking for,” he said. “We want to be a small bank that can do anything a big bank can do and provide a relationship that they can’t.”
First Community spent 18 months evaluating core systems to replace the Bank Management Information System, now offered by Fidelity Information Services Inc., that it had used since the elder Mr. Dunkin founded the company in 1979.
His son said First Community could not offer enough business banking services using the aging BMIS system. “I look at this core conversion as the opportunity to grow the bank for the next 10 or 15 years,” he said.
“We don’t have a true commercial base today,” he said. “In the past we’ve not been set up structurally to do those things. That’s why we want to do this. We can now service these commercial customers without the stress and strain.”
Lamar Lawson, First Community’s vice president of information technology, said the open architecture of the Phoenix System, allowed First Community to integrate Web Cash Manager and give it a shot at new markets.
“We’ve lost a lot of business in the past because we haven’t been able to offer the products that people wanted,” Mr. Lawson said. “With Web Cash Manager, we’re going to be able to meet those needs that we couldn’t do in the past and provide those products.”
Joaquin Lopez, the bank’s vice president of operations, said it started offering payroll cards at the end of 2005 and plans to begin offering remote deposit this month, so businesses can transmit digital check images to the bank.
Mr. Lopez said First Community would be first to market a remote deposit service in south Texas, and hopes to pick up business from merchants and other businesses that would not have considered it previously.
First Community serves four counties, but most of its five branches are in the Harlingen-San Benito area. Companies with operations in other communities would “immediately become potential clients for remote deposit,” Mr. Lopez said. “We’ve got customers lined up who are ready to try it out.”
Mr. Lopez said that with the new core and cash management systems First Community can offer a complete business-banking menu, including account analysis, positive pay, accounts sweeps, and automated clearing house origination.
“Those are all products that are attractive to commercial clients, but we weren’t able to offer them,” he said.
Maggie Scarborough, a senior analyst at International Data Group Inc.’s Financial Insights Inc., said it would not be easy for a $115 million bank to provide a full suite of business banking services. “At $500 million it’s tough. At $1 billion or $2 billion, it’s tough,” she said.
Nonetheless, she said, “remote deposit has the ability to be a really big equalizer, the ability to be quite disruptive.”
Brad Smith, the president of Abound Resources, a consulting firm in Austin, said he expects more small banks to use remote deposit as a way to make the leap into cash management. “Community banks can respond very quickly to product demands like merchant capture,” he said, because they “are just more nimble” than larger banks.
