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Bank Systems & Technology: The Blog

« February 2006 | Main | April 2006 »

By Art Gillis

I am currently in the process of interviewing bankers about their experiences with their tech vendors. The reason is simple. Today, smart bankers buy their technology and, therefore, vendors are a critical piece of their performance equation. So as the vendors go, so goes the performance of technology in the banks. I’m delighted to report that customers are singing the virtues of their vendors these days. And they’re doing it far better than the marketing departments of their vendors, who are still using buzz words from the eighties and ads that look like cigarette ads from the fifties. Example: “More doctors smoke Camels than any other cigarette.” Fast forward 50 years and you’ve got, “The perfect storm is forming.” One’s as bad as the other.

But listen to their customers talk, and you want to run out and buy whatever the vendor has. So here’s a cost-saving plan. Stop the stupid marketing, but use the savings to pay a nominal fee to your customers to tell it like it is. Prospects will love it, your CFO will welcome it, and your marketing department might just wake up to the fact that we now live in a world where honestagoodness stories carry more meaning than slogans, buzz words and hype.

By Art Gillis

The trend has been consistent for at least the past five years. On average, there have been 2.7% fewer banks each year. The decline would have been larger if it wasn’t for the de novos that entered in high growth states such as Texas and Florida (I haven’t been to Iowa since 9/27/1993). During the past five years, an average of 140 de novos per year were established. About fifteen years ago, prominent industry pundits were predicting there would be 2,000 banks in the U.S. So much for prominent predictions. As of 12/31/05, there were 17,823 banks, s&ls and credit unions in the U.S. Tech vendors should be happy about that many financial institutions, but what’s missing, in my opinion, are two things. U.S. tech vendors don’t sell enough business to 1) large banks and 2) high-growth areas off North America. Small U.S. banks may have just reached a point where in-place technology is good enough to get the job done, and they’ll take a breather from tech spending. That’s not good news for any tech vendor.
(Highline Data, Austin, TX, and Callahan & Associates, Washington, feed me the bank stats.)

By Art Gillis

It’s nice to be in a city (Dallas) that is populated by big technology companies - EDS, ACS, Perot Systems and even a branch of CSC. One reason is we can get prominent
execs to speak at the Institute of Management Consultants meetings conveniently. They can sleep in their own bed that night. So when I heard a most stimulating and informative presentation from one such president, I couldn’t help sending a follow-up e-mail. Too many of my esteemed colleagues had corralled the poor guy after the meeting so I waited to do my thing my way. Here is a copy of my e-mail:

Thank you for your informative presentation last Monday evening. After 32 years as an IT consultant, I have been asked why I go out of my way (even to adjust client schedules) to attend two meetings a month at IMC. The next one who asks will hear about you. If I did an ROI, I’d be in huge debt to IMC far beyond the 20 bucks I spent. I don’t even charge it to my company. It’s totally personal. I understand the economic issues and benefits of cheap labor, especially if I’m the buyer. However, I have never heard anyone talk about the awakening of highly capable Indian citizens to the injustices of slave-like wages. I expect one day a modern-day Mahatma Gandhi will appear and lead his people to a world of fast cars, seaside condos, Georgio Armani suits, and even women with less than Hindu virtues. How long will cheap labor last, where that labor far exceeds the competencies of other cultures? I’m counting months, not years. If the world is flat, and business is global, and location is virtually next door, and we’re all following one sun (to use your road map guidance), then it seems inconsistent to me that certain nationalities will not have equal rights to all the goodies.

By Art Gillis

It was about a year ago that I read a vendor’s press release about their ability to generate higher profit margins than any other competitor. Any student of P&L 101 could make a fair analysis of the cause and effect. Keep prices high and cut costs to the bone. And even though deserved from an accountant’s point of view, the press release was a stronger demonstration of boldness than Rod Tidwell screaming at Jerry Maguire - “Show me the money.” The only people I heard from after the release were a handful of customers who complained about the high cost of doing business with the vendor, and their inability to deliver new solutions to their banks. They came back months later as they were searching for a new core vendor.

For tech vendors, my advice, although not requested, is be careful of the proverbial double-edged sword. And know who you’re working for. It’s a very tough job for vendors to satisfy everyone and still perform. But the good guys do it. This year, none of the prime core vendors will impress anyone with the price increases of their stocks, and I think that’s a good sign. For bankers, the right advice starts with, “Avoid press releases, conference chatter and peer group gossip. Do your own analysis the way you would review a loan.”

By Art Gillis

There are now 37 companies in the bank tech business that provide core applications solutions.
Twenty of the solutions are for outsource services. Seventeen are for in-house solutions. Eleven companies provide both modes, and it didn’t take a genius to figure out why. Sixty-four percent of all financial institutions use the in-house mode. Thirty-six percent outsource. That’s the way it is and that’s why smart vendors chose not to fight reality. But only 30 percent of the 37 companies offer both modes. Even though it makes business sense to increase the size of any market, the one-mode vendors are hell bent on sticking with what they were established as. Here’s another fact about how this industry has changed. In 1987 there were 113 suppliers of core applications services and only four percent of them were dual mode.

By Art Gillis

I still can’t get Spring Break off my mind, even though I am hard at work now. But I can justify the diversion because of the lessons I keep learning no matter where I am. I spent a lot of time on the beaches of South Florida last week, and after my swimming-for-joy in the blue/green water of the Atlantic, it was a good time to see what was going on. By the way, my wife and I sneaked away because I had a perfect window. If I knew it was Spring Break though, I would have waited. I hate young people because I’m old now. But watching the touch football contests taught me lots of lessons. Here’s one. Two vs. Two. They looked like ordinary 20-year-olds, except for one kid. Whenever his “team” had the ball, he would map out a play on the palm of his hand for the “rest of the team.” My initial reaction was, “Cut the crap willya, as if a play will make a difference among a 2-guy team in the sand.” If it were me, I would have left it at “go long” or “go short” or “cut to the surf” or “cut to those chicks watching us.” After about 20 plays, I ate a little crow. The kid’s plays scored about 18 times. If I were a corporate recruiter, I would have hired the kid to report for work the day after graduation. He had a plan, he took it seriously, and it worked. And he made sure the rest of his “team” got the credit. The joy he demonstrated after each score was better than watching my Red Sox win the World Series.

Have a plan, no matter how modest it might be, and don’t worry if the Harvard Business School wouldn’t approve. You’ll love the direction it sends you in and the success it can produce.

By Art Gillis

I don’t like surveys because respondents generally answer according to expectations, ego and "how fast can I get rid of this task?" In other words, survey responses are a collection of lies. But in this world of change, I decided I had to conform, so I did my first-ever survey. What influenced me most was that I knew the population. They were bankers who had sent me money for some reason and I thought for that reason they would be truthful. Five hundred and fifty something bankers were in this population, and indeed they answered as if no one was listening. Besides providing quantitative answers to a form, there were a few free-form questions for bankers to answer in short narrative structure. I selected popular keywords in their responses as if I were a Google, and I’m presenting them here. Draw your own conclusions.

In describing their culture or what makes them successful, these are the most frequently used words:
compete with the big banks, use the latest technology, provide personal service, part of the local community, excellent customer service

What they don’t like about technology:
not enough integration, too complex, too much change, unreliable, weak vendor support, password constraints, slow, insufficient training

What they liked about technology:
reliability, lots if information, friendly, efficient

Things they don’t like about their tech vendor:
slow to respond, too costly, weak support

Things they like about their tech vendor:
let’s us focus on our work, no big blowups, tightly integrated products, responsive to us, keeps up with change

If there’s one common message from this survey, it’s choose your tech vendor carefully.

By Art Gillis

I admit to being somewhat of an elitist regarding appliances. We have a toaster at home that reminds me of a 1956 Buick Roadmaster. The price was $239.95. While on Spring Break last week, I drove by a Family Dollar distribution center that could have housed every used Wang word processor ever built. It was massive. On the rest of my trip, all I kept noticing was a Family Dollar store in every strip mall. I have a feeling that toasters cost $9.98 at Family Dollar. Both machines can toast two pieces of Wonder Bread very nicely. Take your pick. The same is true for bank technology. It’s all scalable and it’s priced accordingly. Several years ago when I was teaching seminars for the ICBA, a young lad approached me at the end of the 3-day program. He hadn’t said a word during the program, but he took a lot of notes. He offered these facts:
• We’re an ag bank and we don’t have any capital to allocate to technology.
• The bank president sent me here to find out what the cheapest system is.
• We can’t outsource because their minimums are more than we can afford.
• We’re willing to concede to vendor demands if we can get a reliable system.
• Please tell me the vendor we should contact.
I almost wanted to hug the kid. But I did something better. I gave him the answer. Call the folks at Precision Computer Systems. I don’t know how this story ended, but I do know how Precision is doing. Just call them scalable. From very small to mid-tier, they serve the needs of their customers and they price according to the affordability of their customers.

By Art Gillis

Thirty years ago, banks were hurting because the basic core applications were weak and lacking in, the now famous overused brochure word, robustness. Today one DDA system is like any other. That goes for any core application save maybe commercial lending. So how do banks choose a better core system? By looking at the applications surrounding core.

An example of that presented itself during my program called, “Makin’ the Rounds.” Some people call it, “Ya gotta get out more.” My job is to get out and look at what’s new in the vendor offerings department. This year’s season opener took place at Jack Henry & Associates. JHA has introduced a new piece to their technology pie. They call it ProfitStars. I call it the brain behind all the good stuff JHA has been building for the past 30 years. In a previous blog, I referred to this kind of capability as the penthouse. You can’t get there unless you built a strong foundation and added several stories of functionality. For the past two years, JHA has been making acquisitions of another kind, but with a game plan. They packaged these systems under an umbrella of Service-Oriented Architecture (SOA) for smoother integration with the core. Included are Asset/Liability Management, Profitability, Risk Management, Database, Compliance, Fraud Detection, and All Kinds of Retrieval Opportunities that any thinking person in a bank can use. No custom programming, thank you. Data and transaction factories at banks have been doing the job pretty well for a couple of decades. The “engineering” piece now let’s a banker investigate performance to get the best return for the resources used. For those nagging bankers in my life who have been asking, “Are we there yet?” I think I can finally say YES.

By Art Gillis

......But it is quite rare for a professional IT executive to cross the line into the arena of diplomatic service or politically correct behavior. And there’s a very good reason for that. The worst thing any serious and responsible IT person can do is sugar coat the truth about any tech-based solution, and that’s why the typical IT guy couldn’t make it in politics. Even the most successful and financially powerful IT entrepreneurs would never make it in the world of politics. For example, imagine Bill Gates running for governor of Washington. Or Larry Ellison trying to unseat Barbara Boxer or Dianne Feinstein. Or Steve Jobs as mayor of Cupertino.

There is no such thing as an all-good-news tech solution, and that’s OK if the keepers of the purse strings and the managers of human resources know the whole story up front, especially the bad news. Imagine how far a politician would get if he told the bad news first. Wouldn’t you rather have heard this statement instead of the slam dunk one? “We’re not 100% sure there are WMDs in Iraq today, but we can’t risk the loss of American lives by waiting to find out. So we have to take a bold initiative for the safety and security of our people.”

To set the record straight, folks, we do have a U.S. senator from New Jersey who came from the IT world. Frank Lautenberg was the former CEO of the largest payroll processor in the world, ADP.

By Art Gillis

There are a lot of good core systems in banks now and on the shelves of a few good tech vendors. I know of 300 banks that have good core systems because when I worked for them I said, “This is the last core conversion you will ever make, so enjoy it.” But what about the banks that don’t have a solid core system? For them, the migration is way over due. The first step, when I do it, is to find out what’s really broken. The second step is to take those 200 gripes from the working people who see the torture every day, and figure out what the gripes mean. I sort them into the following 7 buckets.

1. A capability is missing from the present system
2. It’s in the system, but it doesn’t work, or it doesn’t work the way the user manual says
3. Available in the present system, but too awkward or difficult to use
4. Available as a peripheral application, but the bank doesn’t have it
5. Available as an option in the core system, but the bank hasn’t purchased it
6. Cannot be implemented because of technical incompatibilities in the operating system
7. Available, but employees don’t know how to use it

In truth, there is another reason banks should convert to a new core system, but it doesn’t need a bucket. The vendor is terminating support of the system. They usually put a nice spin on the announcement by saying they are sunsetting the system. Who could get angry about a sunset?

The next step in selecting a new core system is to exercise good judgment. The bucket, which is spilling over, will pretty much tell an analyst where to go for the right solution (I didn’t say vendor). For example, on my last 13 assignments, I told four of my clients to stick with their present system because bucket #7 was the biggest problem. Because of high turnover in the teller lines, customer service and back rooms, most of their employees were rookies and they never had the benefit of a good training program. So for them the job was like baseball teams showing up for opening day without the benefit of spring training.

Do you know how weak your present core system is? Your workers know, and they’ll tell as long as you don’t treat them like whistle-blowers.

By Art Gillis

Dear Ross,
First, please forgive me for addressing you as if we knew each other, but back in 1962, I read about your gutsy move to build a service bureau company, and I worried about your judgment. I thought, “Why would a successful IBM sales rep leave such a good job to make such a risky move.” Ever since that day, you proved why, because I’ve been reading about the good work you have done. When you rescued my friend and client, Bill Gaylord, from Iran, I knew you were a man I would follow anywhere. When Bill came home he described to me your promise to him and how you backed up every word. That’s what us little guys call leadership.

Today, I’m offering you a new warning. I have been beefing about how the Internet treats us guys who use the following structure in identifying our first “name.” Yours is H. Ross. Mine is M. Arthur. It didn’t work for me when I moved to Dallas and applied for a mortgage. I didn’t warn you then because I felt that “mortgage” and H. Ross Perot didn’t seem to come together. But yesterday, I tried to establish an electronic payments account with the IRS, and there it was again. They would not accept my first name as “M.” and I had to lie by adding a second character as the prompt demanded. I am now known as Mx to the IRS and they love it. Somehow I feel like I violated the Sarbanes-Oxley regulation.

Unlike your relationship with the mortgage world, I have a feeling that the IRS considers you a major “contributor,” so this time I want to send you a heads up. If you enroll for electronic payments, be prepared to lie to your country, something I feel is against everything we believe is noble. You won’t get through unless you choose a second character after the H. You might try “Hi.” That way, in a court of law you could say you misunderstood and it was just your folksy way of greeting the IRS.
Best wishes, and the next time I see you at L’Acenstral, I hope you won’t mind if I step outside my shell and introduce myself. I won’t call myself “M.” I’ll say Art.

By Art Gillis

I should tell you that the day I graduated from college I thought the word “perfect” was going to be the basis for everything I was going to do in my work. When I reported to my first “job” as a second lieutenant at SAC Hq., ready to automate the financial services division, I began to soft peddle the word “perfect.” Today the word cannot be found in my lexicon of business language, although I can still find uses for it in other parts of my life. OK, I’ve set the stage, so what am I talking about? I am now in the data collection phase of building the 2006 Edition of my annual research report. Stuff is coming at me from everywhere. A lot of it requires me to act like Miss Kane, my kindergarten teacher. But today I got a pleasant surprise. It started with a name I never heard of - Diana Pineda from Online Resources Corp. My first reaction was, oh no, another rookie. And then I read the inputs. 14.3% increase in employment. 43% increase in revenue. 11.1% increase in customers (financial institutions). 74% increase in the number of consumers using ORCC’s Internet Banking solutions. Six new application offerings bringing the total to 14. Yes, I am impressed with the efforts of 400 ORCC employees, but how wonderful that Ms. Pineda told the story so eloquently and without excuses that typically the new kid on the block uses. I wish I had a trophy to award, but this company doesn’t need one from me. I imagine Wall Street will take care of that.

By Art Gillis

A previous blog here reported there are 130 large banks in the U.S. - the obvious commercial banks, 9 s&ls, 2 credit unions, and a few near-banks. “Large” starts with Citigroup and bottoms out at 13 $8 billion banks. What I didn’t tell you is that only 15% of that group outsources its core processing. But looking closer, a sharp eye can see a pattern. Within a group of 45 banks ($14 billion to $48 billion), 33% outsource core. Why does that group like outsourcing? I have no idea, but if that’s the best outsource group, why not go after the other 30 banks? Perhaps the best- suited vendors for these prospects are asleep at the switch. So here’s the solution - two salespeople, working for each of the top bank outsource companies. Following is my idea of a recruiting spec for these guys.

By Art Gillis

Sorry folks, but after 49 years of IT work, I have adopted a binary attitude about some things. CIOs at large banks have an enormous challenge because they don’t buy “packaged systems” and they don’t generally outsource. Everything they do is a first-time event, not a good place to be unless you’re wearing a white lab coat. So if they are getting the job done well, and determining the meaning of “well” is difficult in itself, then those CIOs should be earning a salary of $2 million a year. I remember the first time a CIO broke the $1 million cap; he made big news. But Merrill Lynch makes big news all the time. For those guys (and I mean male guys because women have more sense than to take a thankless job) who aren’t doing the job well, there’s only one answer. Go to work for a small or mid-tier bank.

Small and mid-tier banks understand a basic philosophy -- We want to exercise our banking skills, not our IT skills. What this means is that these banks rely on IT companies to do IT work. They buy packaged goods or they outsource. Without giving an elaborate explanation of what that means, I offer this. Bank technology is now known by brand names. Imagine a consultant hired by the American Bankers Association or the Bank Administration Institute to asses the adequacy of bank systems for the industry. All he’d (she’d) have to do is rattle off some brand names to get a reaction. The large banks would say “Who?” The small banks would pick one of the list. I’m not known for my public relations skills, so to give this blog some real-world substance, let me just run down the list of brand names by size of corporate revenue, and please note that each of these companies has multiple products with different brand names, so if I don’t list Fidelity’s or Fiserv’s products, it’s just because the server for this blog just doesn’t have enough storage (that was supposed to be a joke):

Fidelity National Information Services
Fiserv
Metavante
Jack Henry & Associates
Open Solutions and BISYS if they ever get to church on time
Harland Financial Solutions

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