In the late 1990s, banks vulnerable to the Y2K bug had two choices - fix their core systems or replace them. Given the patchwork nature of many of the in-house coding efforts, the banks that could replace, did. Five years later, many of those Y2K-era core systems contracts have come up for renewal. This has sparked excitement in the technology community as a potential opportunity to gain new customers.
But there's a catch: Unlike the situation in 1999, the banks that have switched core systems have not yet hit the wall with the technologies they're currently using. In fact, many bankers fail to take full advantage of the capabilities already available to them. It's similar to the way that Microsoft Word and Excel contain unexplored menu items that could increase worker productivity if only the tools were better understood by users.
Banks such as First National Bank Alaska are starting to realize that they already possess the tools to facilitate change. All they have to do now is become "power users" of their core banking software.
Prior to 1997, First National Bank Alaska (FNB Alaska, Anchorage, $2.1 billion in assets) ran core systems that were developed in-house. Then, facing Y2K concerns, it replaced those legacy systems with core banking software from Information Technology Inc. (ITI), a unit of Fiserv (Brookfield, Wis.).
The ITI core system runs on the bank's Unisys mainframe in an in-house processing model. According to Glenda Burk, vice president at FNB Alaska and a 32-year veteran at the bank, outsourcing wasn't a viable option for a business-focused Alaskan bank. That's because core banking outsourcers in the continental U.S. hadn't been prepared to service the Alaskan time zone. "We looked at processors who were three hours ahead of us," says Burk. "That means that in order to get our work done for the night, our branches would have basically had to be on a delay-day. We didn't want to have to cut the branches off at noon."
As a result of these time-zone considerations, and because of the state's immense size, FNB Alaska's commercial banking and real estate customers had unique banking requirements that called for an in-house processing model. "One of our big selling points is that we are one of the few banks in Alaska that processes in Alaska," says Burk.
What happens in Alaska, stays in Alaska. "We can run our branches up until 5 o'clock in the afternoon - or 6 o'clock in the afternoon at some branches - and still be on current day without having to send our work out to be processed," says Burk.
The in-house ITI solution hasn't slowed down the pace of innovation. Late in 2003, FNB Alaska upgraded to ITI Premier, which "takes the thick-client off of the PCs and makes it a thin-client application for the user, so that they can get all of their applications under a single log-on," says Burk. "This last upgrade took us from having to support 800 fat-client installations on the desktops to being able to roll it out on a thin-client, which means we'd only have to roll it out to two servers."
Furthermore, since the bank no longer has to wait for its IT department to work through a backlog of user requests, it can focus instead on rolling out new features. "We're getting ready to implement some new ACH procedures through online banking," according to Burk.
Also, ITI Premier includes a new transaction management module, which allows Burk to build templates for "one-click" transaction initiation, such as for reversing loan payments or for telephone transfers. "They don't have to make either paper entries or build manual entries through an online system," explains Burk. "You can just automatically click on an icon and build a transaction." After establishing processes and training users, activating these features doesn't take much effort. "They come out of the package," she adds. "All we've got to do is turn them on."
The bank intends to live with its in-sourcing choice, at least for the time being. "When we made the decision [to in-source with ITI] in '97, we said that this is at least a ten-year decision," says Burk. "We are not even at the point of starting to reconsider."
Nevertheless, image exchange has the potential to transform the economics of the back office, as there are several ways that image exchange can help FNB Alaska and its far-flung customers throughout Alaska's 570,374 square miles. "We have branches throughout the state," says Burk, who notes that items have to be flown in from remote locations to its Anchorage facilities. "Our first step is going to be getting the bulk capture in those branches."
The next milestone for FNB Alaska will be electronically exchanging checks with other local banks. "There would be a big benefit if we could exchange images and not have to ship our items out to the [Seattle] Fed," says Burk. "But two-thirds of our clearing work is handled between local banks up here."
As a result, FNB Alaska has taken a wait-and-see approach to image exchange. "Even if we were image-enabled, until the local banks here in Alaska are image-enabled, we're not going to see any benefit out of it," Burk adds.
But customers and employees already benefit from digital images. FNB Alaska was an early-adopter of imaging technology in 1994, using proof-and-capture systems from Unisys (Blue Bell, Pa.). "I can be at my desk and pull up any image that processed last night," says Burk. "Online banking is also image-enabled, so [customers] can get checks and deposit slips over the Internet."