Much like small businesses, small banks can't take on huge IT projects and rely more on targeted deployments to build a user base for future technology.

For Southern Bank — a Mount Olive, N.C.-based bank with $2 billion in assets and 60 locations — that base has come from photo bill pay. In about a year, photo bill pay has driven an overall increase of 20% in digital payments, including 38% in money movement through digital channels.

Southern Bank

That success led the bank to add P-to-P payments at the end of 2017, and is a steppingstone to same-day ACH and a possible mobile wallet this year. The bank also plans to support mobile deposits for commercial clients as an alternative to the desktop scanners that it supports now.

Southern Bank's use of desktop scanners for remote deposit may make it seem far behind large banks, but Southern has offered some features—such as remote card locks—much longer than its larger peers. The bank picks and chooses its payments technology decisions based on localized customer requirements, and it uses mobile-focused online software designed for community banks to mitigate the overhead for IT projects.

"We offer technology as it serves specific relationships," said Sondra McCorquodale, senior vice president and alternative delivery channel manager at Southern Bank. "That is how we separate from larger banks and other competitors. While our clients want to make their lives easier, they do understand that we're not a large bank."

Southern Bank began offering mobile banking and payments technology through Malauzai about three years ago, starting with remote deposit capture for checks.

Malauzai, which often works directly with community banks and third-party technology partners to provide services through cloud-delivered software upgrades, specialized in serving smaller banks at scale. The technology partner for Southern's picture pay is Allied Payment Network and P-to-P deployment is Payveris. The bank has boosted its usage of digital payments technology as adoption has increased.

"We've had success in adoption in our more metro markets with digital," McCorquodale said. "But we're also getting traction from out agricultural clients, they're picking it up faster than they previously did. It's everywhere and people are getting more comfortable with it."

The key is the mobile camera, which can be a gateway to many financial services that encourage greater use of mobile in the future, according to Robb Gaynor, chief product officer for Malauzai.

"If you look at picture pay and combine that with mobile remote deposit capture, those are highly active and engaged mobile users," Gaynor said.

The bank's next challenge is to tackle Same Day ACH. Faster payments follows the marketwide trend toward expediting processing to accommodate mobile payments and other digital transactions. There is pressure to add faster payments, though McCorquodale said Malauzai's model will allow the bank to properly size its use of enabling technology rather than take on a larger project.

"With faster payments it depends on the market segment," McCorquodale said. "Some of the clients have a tight cash flow and sending money out later may be important to them than larger clients where cash flow isn't as constrained."

Smaller banks have long had a hard time competing against larger banks to offer new technology for payments and other financial services. By using a niche provider, Southern Bank is tapped into one of three general options available to smaller banks, according to Sarah Grotta, director of the debit and alternative products advisory service at Mercator Advisory Group.

Community banks use their core processor, APIs or a niche provider, which is Southern's choice. "Often smaller institutions will wait for a particular product or capability to become a competitive imperative before jumping in," Grotta said.

Regardless of size, financial institutions will have challenges integrating faster payments, Grotta said, adding the Federal Reserve is calling for ubiquitous access to faster payments, but that has not been fully defined.

"Will a good P-to-P solution with real-time or near-real-time messaging suffice?," Grotta said. "If not, how will a robust real-time payment solution become accessible in a way that banks and credit unions of all types and sizes will be able to offer it to their customers and members?"

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