A few years ago, the stats were telling me that the #1 business (new core sales) for bank tech vendors was leveling off. Not dying, mind you, just leveling off from about 8 percent of the population to about 3 percent. The sale of core apps solutions is the sweetest sale any vendor can make for these reasons: It's the biggest thing every financial institution (16,881 in the U.S.) does. All FIs do it every day. It's so critical that FIs would be subjected to huge risk if just one night's processing didn't occur. And from a vendor's standpoint, that's where the money is. For example, each of the top three banks in the U.S. spends $5.25 billion a year on core processing. If Fiserv and Fidelity National had only one of the top three banks as their only customer, each company would earn more revenue than the thousands of banks that Fiserv and Fidelity work for now.This slowdown occurred because after 40 years of building, coupled with a fear of the "root canal procedure" of all conversions, bankers said, "We're done with core systems." And this milestone had absolutely nothing to do with today's sour economy. Now that the economy is sick, however, and after Ben gave it the kiss of death with the "R-word," several pundits are proclaiming a slowdown in IT spending among banks. With all due respect for the big consulting firms that are borrowing bankers' Rolexes to tell them what time it is, it's the FUD factor, stupid, not the economy.
I found that out because I'm getting out more these days. While working in NYC, recently I contacted a Park Avenue psychiatrist to find out what causes bankers to hunker down on IT budgets when other things appear to be going south. I first thought of going to Woody Allen's shrink, but after Woody married his "daughter," I figured he wasn't receiving the best therapeutic help money can buy. The guy I chose was quite good according to all the things I learned on TV. He kept asking me, "What do YOU think of that?" So I did all the talking which is my favorite thing in the world.
When the hour was up, and I knew it was up because he said, "Our time's up now," I managed to squeeze in my last shot. For some reason I had an overwhelming urge to ask, "What's up, Doc?" but instead I asked him to give me the answer regarding banker behavior. He said, "FUD." You mean like in Elmer? No-Fear, Uncertainty and Doubt. I handed him the twelve hundred dollar fee in cash, took one more kleenex, and left. As I was leaving the antiques-furnished vestibule, his administrative assistant asked me to sign a release so they could use our most unusual session for an episode of "In Treatment." I declined, but I felt good because she was offering my cash that came to her in a tube just like the ones at drive up tellers. I realized then that this guy knew banking, and I was in the right place.
Just because bankers are scared out of their wits over the credit crunch, subprime mortgages, consumer pullbacks and an "R-word" economy, doesn't mean that they should ignore opportunities to beef-up their technology. Here's what smart bankers are buying, and have been buying for the past couple of years:
• Protecting the Bank: fraud detection/prevention, regulatory compliance, data security • Remote Deposit • Electronic Bill Presentment & Payments • ATM and Debit Card enhancements • Online (Internet) banking • Image Solutions • A wide range of Business Intelligence applications
It seems that alert bankers have recognized the need to shift their focus from "building the factory" to enhancing the value of the "system" where system means contribution to higher earnings, and in a worse case, protection of earnings earned.
Are tech vendors off the hook now? Not yet. Now they need to shake up the other half of the banking community that is still doing a Rip Van Winkle.