Costs associated with technology — maintaining legacy systems as well as new software — represent an increasingly large portion of financial institutions’ noninterest expense. Yet, 68% of bank senior executives and board members responding to Bank Director’s 2024 Technology Survey, sponsored by Jack Henry & Associates, said their bank does not track return on investment for technology projects.
Many of the costs and benefits of tech go beyond straightforward monetary values and easily tracked key performance indicators. But measuring ROI matters; it’s a metric that can help executives know whether the tech is fulfilling its purpose, and it helps them identify where or why it may not be performing as expected.
To calculate a tech project’s ROI, executives should start with clear-cut goals and objectives, says Michael Perito, principal and head of bank strategy at the advisory firm Travillian. Is the goal of new software to reduce headcount in the call center or improve productivity? Should the loan platform compress the time from loan application to funding or improve loss rates? A broad goal like, “We will use technology to get more efficient,” he says, is too hard to measure over a reasonable timeframe.
“You’ve got to be clear with the goal of what you’re trying to do. Otherwise, you’re never going to be able to measure ROI,” he says.
Financial institution executives should resist becoming overly focused on the technology itself without thinking about how the intended teams will use it or what processes will need to change — considerations that will impact the outcome, says Mac Thompson, who managed tech projects at companies like JPMorgan Chase & Co. and Bank of America Corp. before founding White Clay, a data analytics company that works with financial institutions.
Defining and focusing on a business opportunity or problem allows the institution to measure and scope the data and information it needs to track the project’s impact before implementation. Thompson recommends focusing on a handful of key metrics that address cost, revenue, productivity, or customer or employee experience.
“I would argue that if you can’t manage your ROI — if you can’t understand why you’re doing this and aren’t able to measure it — you should avoid most of these projects,” he says.
Michigan State University Financial Credit Union, or MSU FCU, may have cracked the nut on tech ROI. The $7.7 billion credit union based in East Lansing, Michigan, has an innovation lab that partners with firms to run pilots with its staff and members. The lab uses a strategic scorecard to help prioritize potential projects, says Chief Digital Strategy and Innovation Officer Ben Maxim. The scorecard quantifies and ranks a proposed project’s strategic impact in areas such as increasing loans or deposits, cost savings, deepening the credit union’s relationship with Michigan State University or furthering its foundation’s mission in the community.
Once it selects a project, the lab tries to think of what metrics it can measure before and after a pilot to ascertain its impact and ROI. It can be difficult to quantify softer metrics, such as engagement, increased productivity or time saved, Maxim says, adding that executives should include integration and training time as costs.
During a pilot, the lab measures for “viability, feasibility and desirability,” he says — whether members or employees want a feature or product, whether the credit union’s existing systems can support it, and what modifications or upgrades they’d need to make. The lab presents this information and its findings to a management committee that decides whether to expand the pilot and whether to make any modifications as part of that.
MSU FCU’s first pilot was an internal chatbot to help customer service staff answer member questions. The lab and vendor calculated that about 2,000 of these interactions, which took about five minutes each, happened monthly, creating the pilot’s breakeven point. In the three years since expanding the pilot, Maxim says MSU FCU has automated about 3,500 interactions a month and that the technology pays for itself through time saved and employee efficiency.
Maxim thinks MSU FCU’s tech ROI has improved as the credit union has gotten more intentional about measuring and monitoring the impact of its tech. He’s now building out infrastructure and dashboards to help business lines within the institution’s digital banking team monitor these projects.
Collecting the data that goes into an ROI calculation isn’t just about answering whether the tech is making a difference. The practice can better inform an institution’s budgeting, project management and implementation, and hold the organization accountable for training and using the tech once it’s in place. It can also help executives be judicious about further investments.
Perito believes measuring and calculating tech ROI falls to the technology or finance teams, or a combination of the two. Institutions with a chief innovation or technology officer may assign that person the task with assistance from the finance function; institutions without those roles may find it makes more sense for finance to own it. He points out that this endeavor is impossible without effective internal communication between the product team using the technology and the groups tracking its cost and benefits — a responsibility and function he says the CEO should oversee.
“If you’re not tracking your expectations versus reality, you’re missing a helpful data point,” Perito says. “If you’re allocating months and dollars to a project, and you’re not tracking how it performs relative to your expectations, you’re not learning anything.”
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