Small banks adopt technology allowing 24/7 online services.

BANKS have a choice when it comes to technology: Do it yourself or have someone do it for you. But for small and medium-sized banks, it's not really a choice at all.

"A small bank may feel they need to offer Internet banking, but they don't have any Internet expertise," said Kathy

Burger, editorial director at Bank Systems & Technology, an industry publication. Without a host of programmers and IT staff to support the development of a sophisticated in-house program, smaller banks need to outsource much of their online banking and back-office operations.

"Technology is a major factor-in a bank's success," said Arbi Barseghian, senior business analyst at IndyMac Bank in Pasadena.

With $16 billion in assets, IndyMac Bancorp Inc. is far from a small community bank. But it's not quite big enough to develop its own technology. "The type of services we wanted to provide, and the types of services you need to be ahead of the game, takes up a lot of resources and is quite costly," Barseghian said.

When IndyMac launched into online-banking four years ago, it outsourced to Westlake Village-based Digital Insight Inc., one of a handful of companies that offers specialized online technologies for banks.

"For a long period of time there's been an un-level playing field," explained Jeff Stiefler, chief executive of Digital Insight. Smaller banks and credit unions could offer the local presence and customer intimacy, while the larger banks offered products and services that small banks couldn't.

"In the last five years, those traditional lines of competitive differentiation have blurred a whole lot," Stiefler said.

A host of companies offer back-office technology services and online banking platforms. Besides Digital Insight, others include Chantilly, Va.-based Online Resources and Portland, Ore.-based Corillian Corp. The Banking Administration Institute lists about 20 companies that provide online services to banks and credit unions, and another 20 to 30 that provide back-office technology.

"The technology available does make it easier for a bank to get its operations up and running," Burger said, citing software packages that can manage and host data. "It's not literally plug-and-play, but you can start fresh with the latest and greatest."

Indeed, one of the biggest challenges for older, established institutions is updating their "legacy systems"--or worse, integrating new systems into existing platforms.