• 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

« October 2006 | Main | December 2006 »

By Art Gillis

Twenty years ago, there were 113 companies (in-house and outsource modes) offering core apps services to banks and thrifts. Today, there are 29. In 2006, there was only one transaction among core companies. RDSI (a bank-owned processor with 70 customers) acquired Diverse Computer Marketers Inc. (30 customers). So it now appears the well is dry in terms of pickings by the popular acquirers. But I believe there’s still a little play left for those who want to toss out the old models and try new approaches. Here’s how I see the future landscape. And I haven’t had anything stronger to drink than apple juice.

The top six players (Fiserv, Fidelity, Metavante, Jack Henry, Open Solutions and Harland Financial Solutions):
I’ve been saying it for the past four years, so eventually my prediction will come true. Two of these companies will merge. The possibilities are anything but obvious. Open, with its new source of abundant private equity funds, could acquire Metavante, Jack Henry and Harland FS to put itself in the cherished #3 position of the Big Three. Or Metavante could finally go public the easy way by acquiring Jack Henry. Fiserv and Fidelity won’t be players in this field. Mind you, these six companies could survive on their own, but I can’t imagine Wall Street looking the other way and leaving these companies to manage their affairs just for pure business success. Something’s got to happen here.

Of the 23 remaining companies:
5 (representing 386 customers) are reasonable candidates for acquisition if they don’t get too greedy.
7 are locked out as acquirees by their own ownership, culture or desire for independence.
8 just don’t have the appeal that a typical acquirer looks for.
3 are buyers.

If you’re wondering why I haven’t included Fiserv and Fidelity in the acquisition game now, it’s just because I have been talking about core companies and banking. I believe these two companies will be looking for opportunities in other vertical industries that still have some connection with words such as “payments,” “financial,” “market stimulation,” “health, wealth & welfare,” and “anything analytical.” If these predictions don’t excite you, how about a reverse direction with visits from Gates and Ellison, looking for ways to get vertical. Or finally, with Accenture, ACS, BearingPoint, CSC, EDS, H-P, IBM Global Services, Perot Systems, SAIC and Unisys looking for much needed growth, anything’s possible for two $4 billion-a-year plums.

By Art Gillis

Global economics says a $29 shirt at Wal-Mart was manufactured by a worker in China who was paid seven cents to make it (the coins whose copper value is worth more than the face value). After the shock wore off, I worked on a few value-add services closer to my own business. Free checking, for example, has been available for decades even when it cost a lot to produce a checking account. Now it’s really free, but not for banks. A typical outsource vendor charges a bank $1.08 per month per account for the computer processing service to produce an average (22 trans) customer account. But the cost model vendors are using is as obsolete as a free toaster for opening the account. Take a look.

Checks aren’t as much a part of the equation as they used to be, so input costs are lower. Fine sorting and storage costs are lower and in many cases have disappeared. Reject/reentry costs are lower. Workers in the statement rendering departments have become the current generation of their parents’ generation of unemployed factory workers. Processing costs are lower thanks to ongoing improvements in electronics (smaller, faster, more powerful and cheaper). Some banks that do their own processing once battled the clock to get their work done by seven the next morning. Now the posting and updating run takes about an hour. If the bank is up to date, it’s a lights-out operation, so there’s no labor cost. And some day, there won’t even be a posting and updating run because everything will have been done in real time, before a teller could finish saying, “Have a nice day.” Transporting output by courier is now a function of the Internet delivery channel and I don’t believe Internet engines are run by gasoline. Even low-cost call centers in Mumbai aren’t busy in a do-it-yourself banking world where banks are pushing customers to “go online.”

So it seems to me that the likes of Ralph Lauren or lots of middlemen between the Chinese worker and the consumer are making one heck of a huge profit because the ultimate payer in the chain hasn’t realized that the benefits of the flat world Thomas L. Friedman wrote about two years ago are actually working. I wonder why my bank is charging me 15 bucks a month for my checking account, and I’m not even getting an animated polo player logo on my bank account screen.

By Art Gillis

First, I must tell you that my wife and I are complete opposites. I call her analog. She calls me digital. She’s an artistic person seeing shape relationships that I couldn’t discover if I had the benefit of a ten-year exile at the Institute of Computer Aided Design. She looks at a house and instantly relocates the placement and scale of the windows. Ask her about a “9” and she’ll talk about its lack of symmetry and top heaviness. I’ll describe it as 1001, its binary bit configuration. There are hundreds of versions of the color white. A nine is a nine no matter where you are. So just imagine these two people trying to reach a harmonious level of understanding with regard to the Internet. For my part, I psyched up myself to adopt the persona of sweetness, a word that I never associate with men. Here’s how I will start the process before we even get within 50 yards of a PC.

• Give up everything human, logical, mother’s teachings and Emily Post. The Internet is made up of billions of “robots” that can’t react to the statement, “You know what I mean.”
• What normally works when a human is involved gets rejected when the Internet governs. I filled out a form online recently and provided “M.” as my first name. After completing the entire form, it was rejected with a note in red saying, “enter a correct first name.”
• Don’t waste your time communicating with a Web Master or “info@.” You’d be as foolish as if you wanted to speak to a highway billboard. No one will answer.
• Be absolute. Just like when you tell me to pick you up at 6:00. Not 6:00ish or around 6:00. Computer technology is very absolute. A 9 is a 9, not 8.99999999.
• When asked your mother’s maiden name, just give it to them, and pray that even when you get old, you’ll never forget it.
• 98% of the e-mails you receive will be junk or scams. After a while you’ll be able to spot them. For now, beware of anything with the words “friend, congratulations, account, paypal, ebay, diet, health, low-cost, plural representations of some words such as informations, and anything having to do with the stock market.” And don’t waste your time with anything from a bank. Banks don’t use e-mail except the quintessential marketeer of all time - Citibank.
• When you send text, especially to family, write it as a document first so you can edit the heck out of it. Then paste it as an e-mail and send it. Writing online is hazardous. You can’t fix misinterpreted words once the e-mail is sent.
• There will come a time when someone tells you they didn’t get an e-mail you sent. Don’t believe it. The Internet has spawned an entirely new compendium of excuses to cover up blame. Just take it in stride.
• Booking reservations can be risky. Spending two hours surfing for the cheapest hotel rate might save you 10 bucks, but the third party will take your deposit in a microsecond. Remember when you booked directly at the Roosevelt Hotel in NYC and had to cancel due to the flu? The nice lady not only canceled but wished you a speedy recovery.
• Search engines are electronic encyclopedias and then some. The more words you give them the better your search results will be. And this is one time you can believe the word “free.” And don’t worry about how Google makes money. If you had invested your funds in Google when it IPO’d, you’d be one rich chick today, about five times the $85 price I advised you to use your funds to buy it.
• Learn to curb your emotions. The Internet is technically less than 20 years old. Eliminate the first five years as experimental, and you are now dealing with a 14-year-old technology. Did you know everything there was to know when you were 14? Don’t answer that.
• Finally, use the Internet as an information source and as a message transporter. Do not use it to move money. This is from your loving husband, even though my loved clients would consider this advice a form of professional suicide. Bankers want the Internet to do all their dirty work so they can just focus on “Have a nice day.”

Catch ya’ later when the first step will be: How to turn on the computer.
What’s that book in your hand? A primer on the Internet. Burn it. I’m all the technology education you’ll ever need.

By Art Gillis

I really believe in expert services, so rather than a visit to a Web site that offers do-it-yourself healthcare, I make the huge effort of going to my doctor - twice a year whether I need to or not.

The first question in the usual examination process was, “So how is the banking business?”
Caught a bit off guard, my quick answer was, “Banks are making more money and handling risks well, but the tech companies aren’t so well off.” I hardly finished when the good doctor rattled off a most eloquent statement as to why he believed the leveling off scenario in new tech offerings. “Everything is electronic now, and with the Internet, we as customers get our banking done easily, quickly, conveniently and accurately. Bankers found the cure. Healthcare should be that successful.”

In recent months, I have been hired by other kinds of experts: those who invest in bank tech companies. They’re not convinced that the bank tech business has leveled off. You can see concrete examples of walking the walk, not just talking the talk. The acquisition of Open Solutions Inc. by investors. The total emersion of the biggest title insurance company (FNF), and now the tech company’s (FIS) takeover of its acquirer. A small startup (GFSI), which has had more Wall Street activity than business activity, with an oversubscribed secondary offering. Software giants such as Oracle whose database systems didn’t know a deposit from a loan now own a majority interest in an Indian bank tech company with an intent to overwhelm the U.S. With $100 million to invest in acquisitions, TEMENOS is waking up to Fiserv’s 21-year old strategy of acquire the competition. And when all else fails, bring in a new CEO. That’s what Misys did, and I presume they’ll be overcrowding the U.S. market also.

It’s very clear that investment money is looking for a place to land, and the vendors are lining up. The next phase will be: Are the financial institutions buying? That’s when the final score will be tallied. The doctor and I know where we stand. What do you think?

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