Institution Waves Aloha to Core Costs

Bank of Hawaii inks money-saving processing deal with Metavante

Bank of Hawaii's seven-year technology services agreement with Metavante promises hefty savings. The Honolulu-based bank will spend $35 million on the conversion, but expects to save more than $17 million annually in technology and operating costs.

Metavante will provide core processing, including deposits, loans, corporate and consumer Internet products, card management, and data warehouse. In addition, its consultants are working with the bank to reengineer its back-office processes.

Two years ago, the bank's new senior management developed a strategic plan to improve its credit portfolio and pull back from expansion in the Pacific Rim. With it came many divestitures, a new credit policy and a focus on increasing shareholder value.

The bank's previous strategy of expansion required sophisticated systems to handle different time zones. By concentrating on Hawaii, the bank was able to switch to a less expensive in-house system and consider outsourcing its core processing.

In 2001, it hired a consultant to analyze the expected cost savings. "The results were compelling," said Gretchen Mohen, vice chair of technology and operations at $9.8 billion Bank of Hawaii.

After seeking a second opinion, the bank hired KPMG to assist in the RFP/RFI process. The bank focused on marquee names: Metavante, Alltel, and Fiserv, the latter of which was considered from both an outsource and in-house scenario.

While the project was largely cost driven, the bank began its vendor search from a product perspective. "A big driver was increasing shareholder value by improving the efficiency ratio, but we also wanted to enhance customer service," said Mohen. "We didn't want to disrupt our existing customer base, so finding a partner or platform with the best product fit was very important."

The bank is a Hogan shop for deposits and a Shaw shop for loans. Both systems had to undergo customization to support the bank's products. "Finding the right partner from a product perspective was not going to be trivial, because we had done a fair amount of customization," said Mohen. Though none of the players had a complete product fit, Metavante came closest. It also didn't hurt that the bank was already using the Brokat corporate Internet banking product, which had been acquired by Metavante.

Simultaneously, the bank began looking at savings in its back room operations. The scope of the project was expanded to include back room reengineering, which also influenced vendor selection. "One of the things we looked for in a partner was somebody who could not only bring us the right platform, but somebody who could bring the expertise to work with us to do that process reengineering," said Mohen. "Both Fiserv and Metavante offered that assistance. In the case of Metavante, it's clearly part of their core competency."

Preparations for conversion to the new system, which is scheduled for the weekend of July 4th, include developing system enhancements and building interfaces to the bank's other systems. The bank has also been diligently working to minimize customer impact; a marketing firm has been brought on board to help develop customer communications in anticipation of the conversion.

"We have a whole team dedicated to understanding the product differences," said Mohen. "Whether it's product mapping, understanding how the processes are going to change, or understanding how the collateral is going to change, the team collects all of that information. That then gets culled to figure out what requires communication, and if it does, what kind of communication."

The bank anticipates increased revenues as a result of improved efficiencies at the front line and back room. "That will free up our customer-facing staff to spend more time in a quality way with a customer," said Mohen. "On the assumption that you maintain your current capacity, you have more time to spend in a value-add way, which should generate increased revenue."

However, the bank has remained realistic, said Mohen. "We were as conservative as we could be in doing the ROI. This is a big undertaking. You want to make sure you've painted the most negative picture and go into this with eyes wide open."