Landmark Decisioning: Using Vendor Consolidation, Cloud Computing, and Artificial Intelligence to Improve Operational Efficiency

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As information technology advances, three strategies can have a direct positive impact on a financial institution’s operational efficiency: vendor consolidation, cloud computing, and AI, or machine learning. Employing such improvements represent opportunities for very real cost savings for community banks and credit unions.

Yet an inordinate amount of the operational effort of a bank or credit union, by some counts as much as 80% of the total IT budget, is spent just supporting existing systems by maintaining the existing data network, keeping platform hardware and software patches up to date, maintaining the corresponding software systems that run on those platforms,  keeping all of these software solutions properly integrated even as software and network connectivity is upgraded and keeping all of this secure and reliable. 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.

To put this into perspective, Mercator Advisory Group estimates 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.