Banks don't like to go public about operational problems, security breaches or systems glitches. That's why I was surprised to see a full-page ad last month in The New York Times from TD Bank (Portland, Maine) with the headline "Thank you for your understanding." The ad, an open letter from TD's EVP and head of retail banking, Fred Graziano, offered an apology for systems issues related to the bank's conversion to a single core system following its merger with Commerce Bank. For four days in late September, there were delays in updating account balances and sporadic unavailability of online banking services. I also heard that in at least some locations, new accounts could not be opened.
"Our Employees are working tirelessly to resolve these issues. We are keeping our stores open longer and have empowered our Employees to support the unique situations of our Customers," Graziano stated in the open letter. In addition to the ad, a terse statement was posted on the company's Web site: "TD Bank Update on Transaction Issue as of 5:00 a.m., Friday, October 9, 2009: TD Bank Customer account balances are currently up to date."
This debacle shows why core systems upgrades and replacements don't happen very often. No matter how many advances are made in programming capabilities, integration tools, vendor support and workforce skills, the likelihood of something going wrong is very high -- even in a "best case" scenario (lots of planning, lots of training, lots of communication, lots of involvement from key vendor partners, etc.). TD Bank may well have done everything "right" prior to the conversion, yet it will pay the price for a conversion that did not go well.
Sooner or later, however, most banks will have to undertake some kind of core systems conversion, so before you start thinking, "Better them than us," consider this recommendation from Munir Mandviwalla, founding chairman of the management information systems department at Temple University. He was quoted recently by the Philadelphia Business Journal, suggesting that when the SEC reviews mergers among financial institutions it should incorporate IT issues into the review process. "Wall Street looks at the financials and marketing, but if there is an integration problem, it is the shareholders and consumers that lose out. Questions about integration can no longer be internal because the cost is too staggering. ... In some cases, it might be wise to not merge because the costs are too high," he said.
Of course there's also the cost of not undertaking a conversion. Just one more thing to keep you up at night.