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Bank Systems & Technology: The Blog

« July 2006 | Main | September 2006 »

By Art Gillis

Just two days after I posted last week’s blog here, Mitch Betts, Executive Editor at Computerworld, performed a cerebral correlation and concluded that another article sounded familiar. In her recent story, a CW reporter called banking IT “boring.” I had called it “dull.” Did someone commit plagiarism? Did we collaborate? I couldn’t even tell you the reporter’s name. And unlike reporters covering Iraq where there is one main event, technology has at least thousands of events to cover. So just maybe there is some truth in our view that banking technology is perhaps leveling off.

If you work in IT for a bank, maybe this is a good time to plan your sabbatical. You earned a break, but you better come back with some new ideas. It’s un-American to think that there are no new technologies in the pipeline. Eventually the Indians are going to feel insulted that they are the cheap alternative. Maybe they’ve got better technologies than Fiserv, FNIS, Metavante, Jack Henry, Open Solutions, Harland Financial Solutions and 22 other companies.

If you’re a vendor of bank tech solutions, you’re ready for rehab. When you come out, you’ll feel like you’re 30, you’re hungry, you want a net worth that will go from zero million to 60 million in five years and you think the year is 2011.

My sympathies are with the vendors. In truth, technology is not over. Tech vendors just don’t know where the gold is and instead of pick and shovel, they’re carrying a sack full of products that by now are really stale. The new game in town is how to make the folks at the workstations of banks more effective. You figure out the rest while you’re away.

By Maria Bruno-Britz

Michael Ashworth, Managing Director & CIO, Investment Bank, JPMorgan

JPMorgan’s investment bank managing director & CIO, Michael Ashworth, discusses how technological flexibility and agility has allowed the $1.3 trillion financial institution to weather significant acquisitions and ultimately come out on top at the end. He also relates the importance of leveraging existing technology infrastructure across the enterprise to get a leg up on the competition.

By Nancy Feig

Mark La Penta, CTO and COO for Insurance giant MetLife’s new bank, talks about his role in MetLife Bank’s quick success. He also speaks of the role “strategic incrementalism” will play in the future of financial services IT.

By Maria Bruno-Britz

Patrick Ruckh, EVP & CIO, First Horizon

First Horizon EVP & CIO Patrick Ruckh talks to BS&T about the role IT plays in enabling others at the bank to better serve the customers. He also reflects on First Horizon’s runaway success in the remote deposit capture space, along with how he thinks the future of U.S. banking will be shaped by mobile and self-service technology.

By Maria Bruno-Britz

Kevin L. Shearan, EVP & CIO, Mellon Financial

As Kevin Shearan, EVP & CIO with Mellon Financial, nears his one-year anniversary as the top technology executive at the Pittsburgh-based financial services firm, he shares with BS&T his reflections on transitioning to such a key role. He also talks about the growing importance of market confidence and client integrity in a security-conscious world.

By Nancy Feig

Brian Stanfill, SVP of operations at Delaware County Bank & Trust, brings his love for challenges to his IT department. In this podcast, Stanfill discusses his key project at Delaware County, “Smart Deposit Solutions,” which takes advantage of Check 21 legislation. Stanfill also speaks to the values that guide his life and his business philosophy.

By Maria Bruno-Britz

Kurt D. Woetzel, CIO & Senior Executive Vice President, The Bank of New York

For Kurt Woetzel, CIO & senior EVP with The Bank of New York, financial services IT is a dynamic being, and the only way to stay ahead of the curve is to constantly adapt. He explains how technology is exposing banks even more to their customers, further emphasizing the import of taking a proactive stance to IT within the organization.
Woetzel leverages learning from manufacturing industry to create a well-oiled IT department at the bank.

By Art Gillis
There’s nothing really new, hot, or compelling enough for bankers to jump into the tech marketplace and engage in shopping sprees. Here are some milestones of previous good times in order to provide a basis for comparison with today. We’re now in a decade of single-digit annual budget increases (7%), and this for the first time in four decades. I hope Yogi was right when he said it ain’t over till it’s over.

'70s

• ATMs, MasterCard, BankAmericard and EFT Networks
  
• Mini computers that provided the reason for software companies such as ITI (now Fiserv), Jack Henry (still Jack Henry), Precision (now Fiserv), Horizon (now Fidelity), and Kirchman (now Metavante) to develop turnkey systems so bankers could exercise their control and operate their own backroom support, without a meter ticking.
  
• CIF - Central Information File (a.k.a. Customer Information File).
  
• Interfaces - A necessary evil. Sorta like, if ya wanna get on the plane, ya gotta go thru security.
  
• COBOL - a programming language that was supposed to be as easy as writing sentences in English. Later to become a Y2K hurdle because experienced COBOL programmers were either drawing pensions or pushing up daisies, while legacy systems had discovered the Fountain of Youth.
  
• Mainframe software - a reel of tape and thousands of programmers if you want it to work.
  

'80s

• The PC. In 1985, my book, Micros in Banking, profiled 21 new companies that created applications software that could run on a $5,000 computer. Every bank bought a PC, even though the shrink wrap hadn’t come off right away. Wouldn’t Dell love that kind of carefree buying attitude right about now.
  
• Continued implementation of in-house turnkey systems - 1984 and 1985 had peak sales of turnkey systems, never to be reached again - 1,000 per year, and that didn’t include the tech-weak credit unions who were more interested in the price of kielbasa than the license fee for a core system.
  
• A reawakening of service bureau vendors who noticed the threat of newbies with better solutions. Enter the IBM/Kodak deal creating legitimacy with a new word - outsourcing.
  
• Online banking (not the Internet type) which replaced some batch processing and day- delay postings. A very few were even real time.
  
• Telecommunications systems. Goodbye courier excuses like my van broke down, what traffic, the snow drifts were eight feet high. When Check 21 arrived, it put another nail in the airborne courier’s coffin as well as new excuses - The fog was thicker than pea soup.
  
• Document imaging to replace hardcopy and microfiche.
  
• An early attempt at the idea of integration, mostly in sales brochures.
  

'90s

• Y2K
  
• Intelligence-based workstations (a.k.a. PCs) to replace dumb CRT terminals.
  
• Branch Automation (a.k.a. Platform Automation)
  
• Internet banking
  
• A first attempt at check imaging that proved to be too expensive because it wasn’t scalable.
  
• Anything with the word “mortgage” in it.
  
• Relational DataBase Management Systems that were supposed to do marketing and mining, but they were too generic and too difficult to structure into banking apps.
  

Early '00s

• Check imaging becomes ubiquitous. Image exchange - we’ll get to it one of these years
  
• Customer Relationship Management - It sounds great, but try to implement it.
  
• Attention to all kinds of “what if” situations associated with bank technology (terrorism, natural disasters, smart kids, scam artists, the Congress, regulatory agencies). Wow! Two- password authentication is like Willie Sutton handing two notes to a teller.
  
• Slow gear-up for electronic presentment and payments, once called eCommerce.
  
• Treasury services (a.k.a. cash management), but this time using the Internet.
  
• India, Philippines, China, Eastern Europe and places cheap. Any way to save a buck.
  

Today

• Additional Check 21 implementation.
  
• A historically low level of new core system implementations (4.2% of all FIs).
  
• Maintenance, tweaking, fine tuning, cost cutting. Nothing here for vendors.
  
• Using the Web to offer a pseudo open architecture, but with virtual results.
  
• Electronic payments continue at a snail’s pace and will forever.
  

In my opinion, until new solutions appear, buying sprees will occur when tech companies buy tech companies. The only organic thing these companies will see is what’s in a Whole Foods store. This negative outlook might change if solutions providers could figure out how to make their customers more competitive than another vendor’s customers. They’re all selling commodities that after 40 years have become a bit stale. Can I interest you in a bushel of Grade AAA corn (a.k.a. my DDA system)?

By Art Gillis

This is the third blog in a series of things bankers should know as they search for a new core system. The following events occurred in the '80s and '90s when a slick-Willie salesman could convince a banker that a dead pigeon under a mixing bowl was really pheasant under glass. The good news is that most snake oil salesmen and scam vendors are gone now. Pay attention to the word “most.”

1. A core system startup had two good things going for it. It’s name, USA, and its location, Orlando. The thing it didn’t have was software. But it still got bankers to sign contracts. Reality and shock set in very quickly. Software development and implementation should not occur simultaneously. Twenty-three bankers gave new meaning to the horrors of a conversion.

2. A bankruptcy court in Colorado held an auction to get some money from a defunct bank software company. A tech company in Charlotte liked what it saw and was delighted when its bid of a cool $1 million won the contest. The demo screens were impressive enough to convince six Georgia banks to sign contracts. The only problem was there was no coding behind the screens. Except for a few red faces, and some red ink, the situation ended peacefully. The Charlotte company returned all deposits with apologies and returned to its Trust Accounting business, having gained an entirely new understanding of the word “trust.”

3. Houston must be the capital for CPA firm irregularities as was observed in the Enron failure. Another Big Eight firm’s experience in their Houston office was not so global and disastrous. They were recommending the same core software company to all their bank clients, but realized they were leaving a lot of revenue on the table after their “selection study” was completed. So they acquired the software company and continued to recommend it while looking forward to picking up license and implementation fees. But implementing software required a whole set of different talents that the CPA firm didn’t have. The firm quietly closed the operation, “sold” the software company back to its original owner, and went back to counting beans.

4. A startup software company made its first appearance in all the bank trade journals with full-page ads. The exposure worked. Soon everyone was talking about the company. I had trouble figuring out what ducks on a pond had to do with bank software, but ads don’t do much for me anyway. The company’s sales approach was to bash the then mid-range-based hardware systems by promising one PC was all that a bank needed to process its work. The company failed, but a prominent systems integration company acquired the product as their entry into banking. That failed and they dumped the system onto a small bank service bureau. That didn’t work either. If at first you don’t succeed.........

5. Systems from Nigeria probably won’t play in Peoria and a few other heartland locations where the bulk of independent banks reside. But one very popular banking company decided to pour millions into the americanization of a client/server system only to find out, after five years, it didn’t work.

6, 7 & 8. Motives play an important part in failures. Three startups entered the bank core marketplace, not because they had a better “mousetrap,” which I believe is the most noble reason to start a business, but because they had selfish reasons. One company owned a relational database management system and wanted to sell it to banks. It dug up a core system, “glued” it to the RDBMS and tried to sell it. But bankers don’t buy database systems to process banking transactions, and they don’t buy dead banking systems. Another company entered the business by way of chest-beating and press releases. It was the shortest lived company ever - six months. A third company wanted to be different. In the Banking Club of America, different is like missing three loan payments in a row. The company failed twice. Once when the vendor bellied up, and second, when the customers, who took over the company and did their own thing for a while, abandoned it.

Be careful, folks. It’s safer these days, but the challenge is to select the “most right system” for your bank and second choice will come back to haunt you sometime within eighteen months after the conversion.

By Art Gillis

Trying to find the best system is indeed a mistake. Best system according to whom? Is the best system for Citibank the best system for a de novo? Is the best system in California the best system in Maine? Don’t be too quick to answer that one. The answer may be yes. Is the system with the largest number of users the best system? Every bank deserves the best fit, not the best system. And the process begins with what I call, “Know thyself.”

There are 71 marketable core solutions available in the U.S. marketplace. The list consists of solutions for commercial banks, thrifts and credit unions. Some solutions operate as in-house mode only, outsource mode only, and both-ways mode. A few operate in the large banks arena only, and many operate very well for small and mid-tier banks (de novo to banks with a few billion dollars in assets). Some solutions are so good that the competitors of the solution’s creator use it to drive their own business. Some solutions are not so great, but other vendors want to drive them for banks that outsource. A license to run the Hogan System is like having first draft picks on Ted Williams, should he ever come alive from his cryogenic state. Some solutions are used by thousands of banks; others are used by less than 50. Some vendors own as many as 18 core solutions; others own just one. Some solutions are locked into one hardware platform; others will run on several.

It’s like the auto industry. There’s a right car for everyone, and it’s not the Bentley. Take the time to examine the bank and maybe a dozen of the 71. When you come up with the right FIT, then you’ll know you made the right choice. In-the-lab assessments of the “best” system can be left to marketing departments, salesmen and research firms.

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