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.

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