June 01, 2004

Eventually, as banks prepare to replace their telephone systems - either because their current service contracts are expiring or they discover a need to upgrade their existing systems - they will consider Internet telephony, or Voice over IP (VoIP) technology. Already, many banks are realizing the significant cost savings that VoIP can offer.

One bank reaping the rewards of its decision to switch to VoIP is SouthTrust Bank (Birmingham, Ala.; $51.7 billion in assets), which uses VoIP technology from Cisco Systems (San Jose, Calif.) at 800 of its locations. According to Stan Adams, group vice president of network services for the bank, "We have reduced our communication costs by several million dollars." He adds, "We saved a million dollars a year just by adding Cisco IT bridge conference calling on top of the IP system so our conference call expenses have dropped to next to nothing."

Premier West Bank (Medford, Ore.; approximately $750 million in assets), which utilizes a VoIP system from ShoreTel Inc. (Sunnyvale, Calif.), has also seen dramatic cost savings with Internet telephony. The bank, with 32 branches and additional financial offices serving Southern Oregon and Northern California, has reduced the costs of calling among branches, says Cameron Frasnelly, the bank's network manager. "We can dial internally for free from anywhere, from Portland to our most southern California bank."

With such clear-cut cost advantages, why aren't more banks leveraging VoIP? According to a study conducted by InformationWeek, a sibling publication of Bank Systems & Technology, the No. 1 concern of executives considering VoIP is the technology's quality of service. But increased and improved offerings in the marketplace, and increased adoption rates, seem to indicate that these fears are waning. Still, Internet telephony faces hurdles.

One obstacle preventing banks from investing in VoIP is legacy systems that have not exhausted their useful lives, according to Jim Bright, financial services industry manager, Cisco Systems. "If [banks] have a system that is on lease for another two more years," they are probably exploring VoIP, says Bright, but he explains that banks want to get every penny out of their initial telephony investments, and they will only switch to a new system when it makes sense from a business standpoint.

For banks that don't have an existing commitment to a telephony provider, however, converging data and voice networks into one can allow them to focus their management and maintenance efforts on one network, says Bright, resulting in additional cost savings - and improved customer service. The integration of voice and data networks improves call center representatives' access to customer data, adds Bright, which cuts down on call time and allows call centers to handle larger call volumes more efficiently, he explains.

VoIP technology also offers relatively easy recovery from disasters and power failures. Because VoIP hardware often has the ability to function independently, as well as in conjunction with other VoIP devices, failures in one location do not derail the entire system. And call routing flexibility can allow system administrators to bypass problem areas almost immediately. Thanks to its IP communications system, SouthTrust Bank was able to recover from a power failure at one of its locations in Georgia with a minimal service interruption, according to the bank's Adams.

"[VoIP] has provided us a disaster recovery and a flexibility that we didn't have before," he says. "We are also able to route calls anywhere we want, any time we want. So it has given us control of the numbers, where before we had to be dependent on the carrier."

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