By William A. Proctor, S1 Enterprise
With recent events on Wall Street and the resulting bailout logjam, asking executive management to approve a branch renewal has to feel ill-timed. However, bankers have to consider that upkeep on their legacy branch systems may be costing more in hard dollars and lost opportunity costs than a replacement system might.The High Cost of Saving Money
Running antiquated hardware is akin to driving a vintage auto-it finally becomes impossible to locate replacement parts. Likewise, components to keep a DOS or Windows 3.1 system operating eventually become scarce and expensive. The equally outdated software that still runs on the system-and the outmoded PCs needed to operate that software-are incompatible with contemporary applications that could bring you 21st Century efficiencies.
Compounding the problem for many banks is the fact that a series of acquisitions has saddled them with a mixed bag of technologies-some older, some newer, but none of which work in harmony without tremendous integration and costly manual processes.
Further, two decades ago developers had never heard the phrase Check 21, and the concept of imaging for any industry was in its infancy. Today, it's a fact of life, with financial institutions saving substantially by eliminating couriers that once transported bits of paper from point to point. Sure, banks can conceivably get there, even with aging systems-it's just likely to be much costlier.
Finally, legacy systems typically require a server in every branch, which involves the initial purchase, installation and ongoing maintenance. By contrast, today's web-launched smart client systems give institutions the option of keeping hardware out of their branches, a significant benefit that can go a long way in justifying a branch refresh.
Risk from Every Side
A bank operating a system developed in the '70s or '80s relies on technology pre-dating the advent of virtual fraud. Current technology providers are in a day-by-day battle with the criminals, with each finding new ways to outsmart the other at every turn. Without the hardware and software to support the side of good, bankers are exposed to spiraling costs associated with check fraud, identity theft and money laundering.
Certainly not all risk comes from bad guys wreaking havoc. While regulatory requirements are created to protect our economy and people, non-compliance is a very real threat to the bank-especially the executives at the top who are officially on the line. Yet, ironically, it's the least experienced front-line employees who bear the greatest weight of complying with a dizzying array of rules and guidelines. Banks with older systems often lack the flexibility to incorporate workflows that automate requirements-identity verification, check-hold timetables, the need for currency transaction reports, truth-in-lending and more. Today's branch solutions can eliminate the guesswork.
Soft Costs Add Up to Hard Dollars
Significant turnover at the teller line is always an issue. In fact, TowerGroup estimates teller turnover averages 33 percent annually across the industry, with full-time and part-time tellers turning over at a rate of 25 percent and 53 percent, respectively. (TowerGroup report: "The Role of the Bank Teller: What really needs to change?", June 2008). At these rates, training represents a substantial budgetary strain. This is especially true if inexperienced employees are struggling to navigate complicated layers of screens and decipher third-party applications that look and operate differently from the primary system. However, the cost of training is just one factor. A host of other hidden costs come into play.
Without a contemporary, intuitive solution, the teller line can slow to a crawl, igniting ill will among customers who always have the option of defecting to the bank down the street. Today, some branch solutions on the market have so simplified the teller home screen that it's almost impossible for the station to be out of balance, thus reducing costly errors. Finally, efficiencies built into current branch technologies take the emphasis off keystrokes, freeing platform representatives to focus on identifying true customer needs. The long-term payoff in terms of cross sales and customer loyalty is a viable offset to the cost of a branch renewal.
According to Tom Brogan, research director in Retail Banking for TowerGroup, "As the role of the branch teller evolves to include not only transaction processing but sales and service, the ability to have a single desktop for the 'universal teller' is a must."
Turn Bad Timing into Good Timing
The direction and details of economic rescue is just unfolding, with long-range repercussions being anyone's guess. Banks in need of a branch overhaul should avoid becoming paralyzed and instead work through the business case based on an honest appraisal of equipment and maintenance expenses, opportunities associated with 21st Century payment methods, potential losses due to fraud and non-compliance, and the cost of staff turnover and ineffectiveness.
William ("WA") Proctor serves as SVP and general manager for S1 Enterprise's branch solutions unit, overseeing the design, development and delivery of branch applications.