December 09, 2003

Microsoft is angling for retail banks' business with technology products aimed at achieving a 360-degree view of customers, but will the banks line up to buy its offerings?

The retail-banking segment is a core component of Microsoft's vertical-market strategy. It's coupling its .Net Web-services technology with industry-specific products such as an add-on to its BizTalk messaging server that lets banks connect to Swift, an international network through which banks route high-dollar transactions. The vendor is also partnering with independent software vendors to address particular needs in retail banking, such as Web and branch-systems banking. And it's collaborating with Hewlett-Packard to provide a single source of connectivity for customer activities across major distribution channels.

Banks are looking for ways to reduce inefficiencies and improve integration to keep up with changing market demands. Wachovia Corp., with $389 billion in assets, has a retail network of 2,600 branches up and down the East Coast. Four hundred of these use a customer-information system based on software from Microsoft and Argo Data Resource Corp., which specializes in branch-systems banking.

The system, code-named Pegasis, uses Windows-based servers at Wachovia's data center to extract data from multiple mainframes, aggregate and augment the information, and provide branch personnel with a consolidated view of customer-transaction history. Rollout of Pegasis began in September 2002 and is scheduled to be done in March. To pave the way for Pegasis, between 2001 and 2002 Wachovia replaced text-based terminals with PCs running Windows 2000 at 13,000 nonteller desktops in its branches. Some 7,000 to 8,000 teller workstations were upgraded.

After flirting with the idea of moving all retail transactions to the Internet in the early 2000s, banks have come to realize the need for integrated delivery. "The branch system was supposed to become obsolete," says Warren Lewis, Microsoft's managing director for banking. "That didn't happen; the industry has come full circle and is focusing on customer-centricity."

But not every bank is buying new technology to accomplish these ends. Research firm Financial Insights says banks are projected to increase spending on retail technology at a compound annual growth rate of 5% through 2007, but little of that spending will go toward new technology. The bulk will maintain or enhance existing systems, says Richard Bell, a Financial Insights analyst.

"Microsoft is a little frustrated that things aren't moving faster" with the independent software vendors it's partnering with to address the retail-banking industry, says Jim Beams, also a Financial Insights analyst.

Still, banks with deep pockets have earmarked spending for the retail channel. Bank of America Corp. recently deployed a new mortgage-lending system nationwide, though some other pilots haven't fared as well. It had been testing the use of wireless tablets that let tellers roam the lobbies to conduct transactions. Though a success with customers, that effort "was ahead of its time from a cost perspective," says Bank of America innovations and development executive Amy Brady.

Recent regulations such as the USA Patriot Act and the Sarbanes-Oxley Act, coupled with a pickup in merger activity, may lead more banks to upgrade their retail technology, presenting Microsoft with an opportunity to gain mindshare in the space it's been eyeing since 1997.

Originally appeared in InformationWeek, Dec. 8, 2003.