• NEWS
  • Topics
  • July 2008
  • June 2008
  • May 2008
  • More
• FEATURES
  • Podcasts
  • Banking in Healthcare
  • Anti-Money Laundering
  • Retail Delivery
  • More
• OPINIONS
  • Art Gillis
  • Editor
  • Perspectives
  • Executive Q&A
  • BS&T Blog
• EVENTS
  • Upcoming Live Events
  • Upcoming Web Events
  • Recent Events
  • On-Demand Web Events
• TOOLS
  • Buyer's Guides
  • Digital Library
  • Career Center
  • Education
  • Internet Banking Systems
  • Online Mortgages
• CAREERS
• RESOURCE CENTERS
  • IT Management Strategies
  • Payments
  • Outsourcing
  • Retail Strategies
  • CIO Strategy Center
  • Mobile Banking

Bank Systems & Technology: The Blog

« January 2006 | Main | March 2006 »

Art Gillis

info@ is not just a business concern of mine. I need it for more important matters, such as proving to my sweet wife that I can do anything on the Internet. Somehow she lives happily, relying on the New York Times and the New Yorker. Recently she complained that her favorite honey was no longer on the shelves of her favorite gourmet grocery stores. Typical of a know-it-all consultant, I responded with, “Go to Whole Foods, they’ll have it.” That went over like a scene from Curb Your Enthusiasm, as Larry David sticks his foot in his mouth one more time. “That’s where it isn’t”, my wife said. So I went to google.com and sure enough a search of key words such as Tasmanian, Leatherwood, honey and New Zealand delivered actual names of stores where the honey was sold. I went to info@ for one of the stores that just had a most inviting name - Garden of Eden. I’m still waiting for a response, and I’m not talking days, weeks or months. My inquiry ended up in the black hole. But the bright side of this story is that the honey sells for $12 a jar. Sue Bee goes for less than two bucks. Thanks, info@, I’m glad I met ya.

There’s a real problem that exists in my ranting and raving. Ten years from now, people will be reading about the crudeness of the Internet and they won’t believe it. Right now, we are observing an Internet which works technically, but not humanly. When the two connect, then we’ll have something.

To say that I surf the Internet would be a lie. I prefer to say I seek information from the Internet for worthwhile business purposes. And besides, whenever I go to the beach in Florida or California (there’s no surf at my cottage on the north shore of Cape Cod) I never feel as though I relate to the lean, young, blond, WASPish teenagers who practically walk on water. And besides, they’re having fun. When I’m on the Internet, I’m working. So now I hope I have set the stage of one grumpy old man whose experience says that info@ is a fraud.

I go to info@ in order to learn more about bank tech companies that I might want to include in my annual research report. There are only 110 companies in this report because I hand pick them. The first step is to get some basic information. Since no one answers their phone anymore, an e-mail is a good way to get into their system because it also serves as a record. I realize that info@s probably attract a lot of jerks and tire kickers. So I explain the reason for my query and provide credibility data in an attempt that maybe the recipient should notice my request. Now I hope I have convinced you that I am a legitimate player in the system.

Although I have not kept an exact record of responses to info@, I’ll offer with confidence that I’m running at about 2%. In other words, 98% of my queries went into the black hole. If you think that I’m exaggerating, let me invite you to try just one that I selected at random.

info@mavent.com. Now please don’t act like a jerk. Ask a legitimate question. This is a compliance company so make your query pertinent. If you get a response please tell me so I can adjust my approach, or change my name, or find a good shrink to tell me what’s wrong with me.

Demographics is destiny, and in this article, my colleague Marianne Kolbasuk McGee from InformationWeek lays out the undeniable facts: we're all getting older.

I believe that those of us in the information technology business tend to have a keener sense of our own mortality. We're constantly dealing with "end-of-life" software and hardware. We struggle to support legacy systems that creak along until they're put to pasture, replaced by the latest and greatest tools that are no sooner installed than they become legacy systems in their own right. We watch as our once-proud hardware runs out of memory and struggles to perform the most basic tasks. And we also conceive of new systems, nurture them along until they're sustainable, and send them out into the world to earn a living.

With the retirement of the Baby Boomers, the first generation to manage the integration of global business and information technology will no longer act as caretakers to the national IT infrastructure. Instead, they'll be booking times at the local golf course. This poses an unique challenge for financial services organizations that depend upon these people, not just because they possess a certain skill set, but because they share -- and helped to define -- the industry's goals and values.

Fortunately, there are ways that the older generation can transmit knowledge to the younger generation, and Bank Systems & Technology can be part of that process. Specifically, what are all the retired bankers going to do after they're done gardening and golfing? They're going to surf the Web, and they're going to want to hold forth on whatever they know, to whomever will listen. And we're here to provide that forum.

Personally, in my role as commentator on banking technology, I see retirees as my number one competitive threat. Let's face it: I have a good command of the English language, I'm fairly prolific and I understand how the financial system works, but I've never worked for a bank and my hands-on tech experience has been limited to helping run a medium-size business, not a megabank. Soon, people in my position will be competing for bylines with a bunch of bored pensioners having 40 years of experience at big banks.

It's time for me to move along and make room for the "next generation."

This has been my last month on the editorial staff of Bank Systems & Technology. I have accepted a position as Technical Analyst with BS&T's parent company, CMP Media, acting as a liaison between the business users and the IT group. This is a chance to apply the lessons I've learned from writing about financial services: finding efficiencies in manufacturing, creating multi-channel distribution, implementing know-your-customer practices throughout the organization, and achieving competitive advantage through the successful management of technology.

I've learned from the best. Thank you.

by Art Gillis

It’s that time again (every other year) when I conduct interviews with bankers so I can produce real-world impressions of what technology is doing for banks. These guys are on the job every day and they know what works and what doesn’t. So they tell the truth. Naturally, they want to tell their stories and that’s why the list is biased. I haven’t heard anyone start off with, “Oh man, did I screw up badly.” Here are some of the common characteristics from these success stories that I think you should know:

• All of them had top management approval, support, involvement and coaching.
• All projects were directed by an “owner” who solicited appropriate user involvement.
• Not a single prima donna in the bunch.
• Every case study included cost as a consideration. In the old days, cost didn’t play into recovery from “disasters.”
• Staff considerations were part of every tech decision. Cutting staff was fine, but adding staff was good too if it delivered desired results.
• Vendor support (timely, competent, willing, and delivered with joy) was critical in the success of projects.
• Every case study supports the idea that technology never ends and needs care and feeding.
• A new discovery that now gets more play - Let technology do the mechanical work while people focus on exceptions and thoughtful work.
• The word “partner” is now beginning to mean something as opposed to previous times when it appeared only as a buzz word in vendor brochures.
• Another new discovery. Post implementation used to be like a hangover. Fun last night but do I feel awful now. Bankers are finding value-add benefits that vendors never told them about during the “romancing” phase.

There were some interesting unique parts to these stories, but I wanted you to know what’s common these days. And the unique parts support my preaching. All banks aren’t the same and even a 10% uniqueness is why I recommend one vendor over another. On my most recent 13 assignments, I recommended 8 different solutions and told four banks to stick with their present vendor. I call it the proper fit, not best vendor.

Isn’t it nice to hear from the trenches instead of the ivory towers?

by Art Gillis

That was the title of last night’s meeting at the Dallas chapter of the Institute of Management Consultants. And what a great job Tim Mazur did. He’s the VP of Ethics at Countrywide Financial Corp. His presentation consisted of 29 PowerPoint slides. They were all worthy of careful study. Boiling it down to a few things that I want to keep in mind for myself, I offer this oversimplification to you:

• Be guided by the “right thing to do.” Sort of the way your mom taught you.
• Business should never make a bad thing right.
• There’s really one code all the time. Non-profits, corporations, individuals and governments have to abide by the good code.
• Personal morals, religion and law don’t necessarily establish the basis for (not the same as) ethics.
• Ethics is now a popular concern. Companies teach it. Consultants specialize in it. Courts prosecute ethics violations. And the press embarrasses the hell out of violators.
• The good news is that awareness is having a positive effect. It’s not blind optimism to expect that we won’t see another Enron.

It’s interesting how timing seems to add more penalty to the bad guys. The former CEO of Radio Shack was never so popular as last night.

There’s a new 29-minute jump start to my day now.

by Art Gillis

In the past couple of years, I have noticed that the bank tech business is looking more like the shape of three points. After I thought about it, I realized it’s been a triangle for a long time, it’s just that it hadn’t appeared that way in my binary, one-on-one world until recently.

Here’s some evidence of a Triangle World:

• Bankers think they run their business for their customers and stockholders, but they really run it as agents for the regulators. New regulations will burden the good guys, while the bad guys will still do the crimes. And Congressmen will be reelected because they appear to be doing good deeds for the public. One loss (banks), two wins (Congressmen and crooks).
• Tech vendors supply solutions to banks, but sometimes delivery goes by way of Bangalore. One loss (banks still pay full price), two wins (IT vendors and Indian companies).
• Employees work for companies, and they get honorable mention in every annual report, but in fact, employees work for the “czar of the P&L” whose “business commandments” include - If someone can do it cheaper than you (where cheaper is $15K vs. $80K per year), you’re gone. One loss (U.S. employees), two wins (companies and Indian employees).
• An AOL customer from the Bronx calls 1-800 to resolve a glitch, but the customer service rep is wondering why her company hadn’t taught her this strange language that not only isn’t Hindi, but it isn’t the American version of English. Yo baby, whassup? Three losses.
• More fingers have been pointed since technology was invented than ever before. A banker files a complaint about terminal response time, and the prime IT vendor points to the telecom provider. Glitches are the other guy’s problem, like the best-of-breed third party that the bank chose over the IT vendor’s offering. Or the bank’s employee who was accumulating vendor releases to do one major update to save time. Or the bank’s purchasing agent who bought refurbished PCs from the Internet rather than guaranteed factory-fresh Dells that give the IT vendor a handsome commission. Or the reader/sorter vendor in Boston who tells his customer the spare part is at their West Coast supply depot, while the vendor in Los Angeles tells his customer the spare part is at the East Coast supply depot. Three losses.
• An online consumer complains to her bank that account balances are out of sync with her book balances. The first question the bank’s customer service rep asks after 18 prompts, “Who is your Internet Service Provider?” Three losses.

It appears that the Triangle World has one common characteristic - money. How much more can we make. How much more can we keep. And how much more can we flaunt in the faces of our evaluators. Third-parties do have a value, but they add a lot more complexity which will cause reduced productivity and finally - less money. Whatever the shape of the world, it seems we’re still losing something.

by Art Gillis

I have nothing more to say on the subject, except that the processing of an average DDA account (22 transactions) is a commodity, like a gallon of gasoline. Unlike gasoline, however, tech vendors achieve economic advantages from scale, improved technologies, and a never-ending reserve of capacity.

As a result, the price of a DDA hasn’t changed (shouldn’t have changed) in years regardless of COLA increases.

by Art Gillis

Sorry founders, it’s not your fault, but I think it was destined to be. The man and the company are two different things. Today I read a press release about Perot Systems. I read several executive names, not one of which was Perot. H. Ross Perot probably deserves credit as not only the founder of EDS and Perot Systems, but the “founder” of outsourcing. Even IBM didn’t know that was a business. Now it represents over 50% of what IBM does. And even Ross’s son didn’t do much good as the CEO of Perot Systems. Little Ross owns half of the mud in Fort Worth and has earned his own credits as a successful real estate developer. Why should we think he should step into papa’s shoes and run an IT company? Here’s further proof that the boss whose name is the same as the corporate name doesn’t work. It worked for Henry way back in the 1900s, but is Bill doing anything to make The Ford Motor Company a success? Ask all the workers he just laid off. Oh, I’ll concede to a few exceptions. Mr. Perdue could sell chickens because he looked like one. And Emeril’s restaurants and TV show wouldn’t pull the crowds in if he called them Home Cookin’ Cafe. But I’ll tell you this much. If a presidential candidate steps into the arena in 2008, and his name is Joe America, I ain’t votin’ for him.

by Art Gillis

As of 11:00 AM Central Standard Time on February 15, 2006, Art Gillis updated the Number of U.S. Bank Accounts Model as shown below. But first, some caveats.

This is not a first-time exercise, thus having the benefit of corrections made in previous attempts to arrive at projections. However, extrapolations, made based on a sample size of a few hundred client banks, may not produce perfect results.
Gillis relied on his own tools and judgment. No one contributed to this exercise. Not even google.com.
Gillis had a very comfortable eight hours of sleep last night. He dreamt of cultivating his garden in the Spring, even though weather reports indicated a two-foot cover of snow in the Northeast.
Gillis had his usual breakfast of orange juice, English muffin and coffee, then drove six miles to the office.
He was in a perfect mood to address the model.

by Art Gillis

I have 13 accounts with my bank of record. I had 14, but my bank sold their merchant business to Wells Fargo. My bank never calls me, and that’s their loss. I could use a couple more accounts.
I never call my bank, and that’s to their credit. They do things right so I never have to call to correct.

The best targets for banks today are their existing customers, but I get the feeling we birds are in the bag, so banks look for other fish to fry. Wells Fargo calls me a lot and I don’t mean from Bangalore. The lady makes a very good case, and she sounds right. She even has the right surname for Dallas. She lists the incentives for me to switch, and there are some freebies included. I pause for fifteen seconds and tell her I’m already getting free this and free that. She thanks me and we end on a high note. And no one had to call 911.

by Art Gillis

Stop thinking about yourself. Think about what is on the mind of every good CEO. Here’s the list:

• Credit quality
• Earnings
• Shareholder value
• Customer loyalty
• The wrong acquirer who will put most of you in the unemployment lines
• Partial technology (all banks have some, some banks have weak, no bank has the best)
• The bank examiners are where?
• Is Ben Bernanke speaking somewhere today?

Take care of the CEO and your job will be a lot more secure.

Following is my congratulatory e-mail:

John,
I just did some clean-up work in my office and threw away some old publications that glorified the leaders of our industry. It was an amusing experience because most of them (all of them) were a proverbial flash in the pan. So it is with particular admiration and joy that I can say to you it's a lot sweeter when it is time-sensitive. Long time makes it a value add award. Enjoy it because you really earned it and because we can look up to you as a role model to try to do it your way.

Art

Check out my special News Show preview of Firewall: The Movie, which is Hollywood's take on what you do for a living.

by Art Gillis

The entire contents of Automation in Banking - 2006 (now in update mode) reside on my PC. Where else? In addition, there’s a bit of “push technology” in my schema that monitors on line activity and yells at me when it detects an alert. So today, it told me that Fiserv’s stock price dropped enough to put it in the red from April 2005’s price. By only a few cents, however, but that’s what our digital world is all about. That alerted me to look at the list of public companies included in the report. There are 23 companies listed but only 13 are 100% dedicated to bank technology. And while I’m throwing out caveats, I readily admit that I know nothing about investing, and l outsource that function to the professionals. Inclusion of the fictitious Automation in Banking Stock Fund is purely for fun. Here are the reds as of today’s prices compared to last April’s.

BroadVision -69%
TSYS -18.9%
Computer Services, Inc. -17.7%
BISYS -9.4%
Fifth Third Bank -9%
John Harland -2%
Fiserv -nil

Fidelity National Information Services is down 6.5%, but remember, that’s as of a new listing which appeared just this month. And remember, four of the above companies have very little to do with bank technology. Were there any winners? You betcha:

Digital Insight 95%
ORCC 46%
CheckFree 38%
Open Solutions 33%
Jack Henry 23%

by Art Gillis

Yesterday I attended a meeting where I knew I’d be totally out of my element. How right I was. The title was: Commercialization of Nanotechnology in Texas. It was held at the University of Texas at Dallas. Right from the get-go, I felt out of place. The campus was so vast, that it could have fit MIT, Harvard, Stanford and a few more top universities with parking space to spare. The Cowboys could have even built their new stadium there without cutting a tree or leveling the land. And the buildings all looked alike, as if they were built in one six month period. If the labs had “clean rooms” for their research, then the builders got carried away and extended it outside. I was looking for a candy wrapper in the gutter just to make me feel at home, but there weren’t even any gutters. This was not Boston as I was used to. But enough of the environment. Inside the house was packed, with mostly real players - inventors, scientists, engineers, researchers, educators, innovators, put-your-money-where-your-brains-are business men, investors, lawyers and consultants. I could tell by their questions. Knowing nothing about nanotechnology at noon, by 1:30, I had at least satisfied my curiosity.

• I now know what it is. Think so tiny that you can’t see it. Think of it as something added to material, such as sun screen or paper currency or khaki pants. Think of a billionth of a meter. So you know it’s small. But what does it do? Name a material or substance and nano will make it better. One panelist picked up a piece of paper and said, “paper will be better.” I can’t imagine improving the paper I use today, but what if nano can make it fireproof, or wrinkle proof, or dog proof? There goes my grandson’s homework excuse.
• I believe the panel when they answered a question about where it will be deployed. The answer was, “Where won’t it be?”
• I believe it will have practical application - low cost with significant benefits to end users.
• I believe what the panel said. It’s here now but you won’t see a billion dollar company for another 20 years. In a world that lives by “speed to market” this panel was counting decades.

Speaking of the panel, There wasn’t a single yahoo at the table. What a refreshing change. If anything was being “sold”, it was patience, participation, awareness and more of what was taking place in the SRO comfortable auditorium, which by the way, was donated by TI.

I’ll borrow the last comment offered by the head of a state agency created to help fund new ventures - stay tuned.

by Art Gillis

What does it cost to make good technology decisions? Like any consultant, my answer is, it depends. But I’ll give you some of the data elements to plug into your own algorithm. Based on standards used by any good consulting firm, a rookie consultant with an MBA from a top business school is going to bill out at $2,800 per day. The math is pretty simple, and I didn’t invent it. Although the numbers were a lot lower when I worked for the prestigious sector, the algorithm is the same. The salary is $150K. The billable value is four times his/her salary, thanks to healthcare, profit sharing, overhead and partner support. Partners sell, they don’t work, so someone has to pay their way. There are 215 billable days in a year, max. And there you have it. A $150K person has to produce $600K of revenue. Any billing rate less than $2,800 per day, and you’re looking at a guy who is between jobs and calls himself a consultant. Anything more than that, and you’re looking at a guy who already has many of the answers so he doesn’t have to work as many days as the rookie, to come up with the answers a client needs. Why do you need to know this? Because technology decisions are very difficult to make, and sometimes a consultant can ease the burden. And don’t believe everything I say just because I earned my CMC and I’ve been doing it for 35 years. A lot of people have been telling me recently that there a re a lot of good consultants in the industry, as opposed to previous years. So when the going gets tough, hire a good consultant. But don’t worry about the rate. Worry about the total amount on the invoice.

This message is a public service and it was paid for by no one.

Health Savings Accounts? Sounds innocuous enough. But what is it really?

Previously, the tax code provided preferential treatment for health insurance paid by an employer, as well as a portion of other medical expenses for those who itemize. Insurance companies get to invest these funds in return for paying for the medical care of the insured.

Now, this transfer from the employer to the insurer of tax-free funds is being divided into two separate streams. The first stream replicates the old model, compensating the insurance companies for providing high-deductible plans. The second stream goes from the employer directly to the employee, or more specifically, to the employee's Health Savings Account maintained either at a bank or specialty financial institution.

As a result, the investment decision for a portion of the total funds earmarked for healthcare spending has shifted from the insurance companies to the individual. This raises several interesting problems.

by Art Gillis

And you thought I was going to say consultant. But I do admit to a bias for editors. I like editors because they fix things objectively (they didn’t write it), and live by rules they didn’t create. They also understand logic and sequence. Have you ever read a book that didn’t have an introduction, foreword or preface? Second, I picked the age of 40 carefully - not too young to be in the same arena as the creators of Internet nerdism, and not too old to be thinking, “You gotta be kidding” all the time. Now to explain why the Internet needs this kind of help.

by Art Gillis

I encountered my first serious failure in life at the age of five, in kindergarten. I couldn't cut paper with the standard issue of blunt, dull, loosely-riveted scissors that were handed out in my school. But not to worry, for I also met my first love in that class. Maureen Kelly did all my cutting for me, and I never had to ask.

Growing up in a tough, albeit very safe, Irish/Italian neighborhood, caused me to be a bit concerned about what the macho boys would think of a girl helping me through these difficult times. One of them was so good at playing the role of tough guy, that when he grew up, he got the part of Moe Green, the Las Vegas casino owner, in The Godfather. You may know my former classmate as Alex Rocco. As we grew older, like in the fourth grade, he became a good friend and he taught me how to play pool.

Today I still can't use scissors that well, but so what? It's about as important to me as some other things I had to learn, like the value of pi. Let's face it, how many of you are really hurting today because you forgot that pi = 3.14159265+? Is it required in figuring out your taxes, or paying bills, or understanding Alan Greenspan's state of the economy?

What Maureen taught me is that it's OK if you're not great at everything. Today's technology is so vast and complex that it's impossible for me to work productively and still take time to learn all that's available. The average PC user spends five hours each week on overhead chores. Not me. I scan catalogs that contain thousands of software programs that I'll never learn to use. All I ever learned was word processing, spreadsheets, a little graphics and a database system. But someone in my repertoire of outsourcers knows how to use what I need from time to time, and I can get him or her to "do my cutting" for me for a modest fee.

This message is designed to relieve your stress and guilt about how computer-literate you should be. Don't be embarrassed if you don't know how to do everything yourself. Look for help -- the right help. There's got to be a Maureen or a Hillary or a Mother Teresa in your life who can take you through the difficult tasks. Now there's even a storefront in my neighborhood called the Geek Squad. It was once a convenience store that I personally never needed because there was one on every corner. I think I'll need the Geeks, and it's comforting just to know they are there. And if you feel intimidated by the one-on-one method, try one of the millions (at least it seems there are millions) of how-to books for dummies. If you read them under the covers with a flash-light, your peers will never know. They'll think you acquired all that knowledge yourself, because you have an affinity for overcoming very complex matters.

by Art Gillis

The 2001 Edition of Automation in Banking included 31 Internet-type vendors. The 2006 Edition has 13.

Is that a good sign? For the survivors, YES. When every wannabe was jumping into the space, I went public with this remark. “Internet banking is a project, not a company. What will the vendors do after every bank is on board?” So the reduction to 13 is logical, and it may go down even further. If you want to go down memory lane, here are some of the casualties: BroadVision, Destiny WebSolutions, Framework, InteliData, NCR, Sumx, Netzee, Home Account Network, and others. And if you get technical about the fallout, I understand. Some of these names disappeared as a result of acquisitions, but in my mind they were salvaged from failure not success.

by Art Gillis

Nine years ago when everything in banking looked like it was going to happen on the Internet, I hid in the proverbial closet. I didn’t believe it, and I was quite happy with my own banking habits, but I didn’t want Bill Gates to call me a dinosaur. So I hid in the closet. Today, I use 13 of the 14 channels in retail banking. But I won’t put my money and ID on the Internet. So when Peter Kight stated his support for telephone banking in an American Banker story on 1/26/06, I knew he had released me from the bondage of unmonetary Internet usage. And I admire Mr. Kight’s words like, “I clearly made a mistake six years ago when I looked at telephone bill payment and thought Internet payments are going to replace telephone payments.” I can think of a CEO in Houston today who won’t have the guts to use words like “I clearly made a mistake.” Thanks, Mr. Kite. Your stockholders will love your open mind.

by Art Gillis

There’s nothing sweeter than traveling by private plane. Mostly because of the camaraderie.

I first learned that as a second lieutenant at SAC Headquarters. I built systems at Offutt Air Force Base just outside of Omaha, but the only computer that I could test on was in Hawthorne, California. No problem. We had SAC planes flying to Vandenberg Air Force Base all the time. But I also had a commanding officer who was a World War II bomber pilot, so he relished the idea of flying me to the West Coast in a B-25. He earned his flight pay while I had to listen to stories about Fondulac, Wisconsin.

Many years later, I met a guy who is now a VP at Fifth Third Bank who had the same surname as my CO. When I asked John Steffes if he knew a Major Sylvester Steffes, he said, “Sure, Uncle Sy is my uncle and at family gatherings he tells us stories about how you guys tried to automate SAC back in the late fifties.” John is a smart fellow. The operative word was “tried.” When Col. Steffes died, John sent me his obit. I was overwhelmed. This man was a highly decorated war hero as a B-25 bomber pilot, and none of us under his command ever knew it. While I was watching WWII movies on Saturdays, he was not acting. He was fighting. But he chose to talk about Fondulac, not his decorations.

Computing back in the late fifties was more like exploration. Things didn’t work. But something I admired about Major Steffes at the time was his ability to smile sheepishly, and encourage us to stick with it. What I didn’t know at the time was, compared to the action he saw in WWII, our work was child’s play.

It’s really nice traveling on private planes. As an independent consultant I have enjoyed the benefit from the airborne facilities at Jack Henry & Associates and the Kirchman Corp. The best part of flying private is the conversation, or should I say, education. Sit next to Kevin Marsh of JHA and you’ll learn the truth about overdraft privilege and bounce checking. Fly on Ken Kirchman’s plane and he’ll take you to the smartest bankers I ever met. Fly on American and a mom will ask you to hold the baby’s bottle while she changes his diaper.

I’m announcing a new service. Fly me private and there’s no fee.

by Art Gillis

The question has been nagging bankers since 1976 when Don Dillon (ITI/Fiserv) and Jack Henry (the man who founded the company by the same name) first introduced core software that would run on a mini computer. For you young kids, a mini computer was somewhere between a mainframe and a PC. Don chose Burroughs. Jack chose IBM. Prior to 1976, most banks relied on their upline correspondent to do their processing under the heading then of service bureau. So I would say the nagging question was born in the late seventies and it never went away.

Ask an academic how a bank decides which approach to use and you’ll get the typical pros and cons of each method. I must have written a dozen articles on the subject.

Ask a gutsy consultant today which approach is right and you’ll get the typical consultant’s answer - “It depends.” Once you hire the consultant, the rest of the answer is revealed, but after three months of analysis and several billable hours.

Today, the short answer that follows, It depends..... is “....on who’s running the show.” When Bank One was independent, the CIO favored outsource and so went the bank. When a new CIO replaced him and survived as Chase’s CIO after the merger, the bank went in-house. And I might add, it’s no coincidence that James Dimon likewise favors in-house. That’s the way large banks do it. In the rest of the world of banking, it ain’t much different, except that the main driver is the CEO. CIO’s in small banks are more like the Cashier - workers, not decision makers.

Now does this all sound like something that happened on Pennsylvania Avenue a couple of years ago, when the “CEO” got the input he wanted from the “analysts” so he could go to war? I don’t know, but in banking the decision doesn’t have to be catastrophic. First you can’t force the answer on a reluctant bank manager. He/she has to embrace the method as something they want to do. Second, there’s another “it depends.” It depends on the competence of the bank’s tech staff. If the bank doesn’t have the talent to run an in-house system, then outsource is the answer. Both will get the job done. The main difference is the quantity of Excedrin consumed by the bank’s employees. Right now, there are 18,000 financial institutions in the U.S. 65% are in-house, 35% are outsourced.

Just thought you like to see the truth for a change.

July 2008 Sun Mon Tue Wed Thu Fri Sat     1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Categories Art Gillis BS&T Contributors BS&T Podcasts Editorial Calendar Guest Column In the News Weekly Roundup M&A Mobile Banking Outsourcing Payments Privacy/Security Retail Banking Strategies What We're Doing What We're Reading What We're Thinking Archives July 2008 June 2008 May 2008 April 2008 March 2008 February 2008 January 2008 December 2007 November 2007 October 2007 September 2007 August 2007 July 2007 June 2007 May 2007 April 2007 March 2007 February 2007 January 2007 December 2006 November 2006 October 2006 September 2006 August 2006 July 2006 June 2006 May 2006 April 2006 March 2006 February 2006 January 2006 December 2005 November 2005 October 2005 September 2005 August 2005