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Outsourcing the Branch:
Community Banks and Mobile Banking Vendors

December 17, 2014
David F. Katz , Neil E. Grayson

Community banks rely heavily on third-party vendors to ensure that competitive products and services are made available to their customers.  This is increasingly true in regards to a community bank's relationship with its mobile banking vendor.  Unlike larger banks, community banks often lack the resources to build out the latest mobile banking technologies for service offerings such as mobile payments, remote deposit capture, and mobile account management.  Nonetheless, consumers have come to expect these mobile products and services in many of their day-to-day commercial activities, and community banks have no choice but to meet growing consumer expectations.  Pairing with a capable third-party mobile banking vendor allows community banks and smaller institutions to quickly bring mobile banking products and services to market without the cost and labor intensive demands of building their own solutions in house.  However, enlisting a third-party vendor to provide mobile banking services exposes community banks to significant new risks.  This admonition can, and likely should, be extended to all of a community bank's relationships with third-party vendors.  Just ask Target, whose well-publicized breach was facilitated in part by credentials stolen from a third-party HVAC vendor.

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