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Bank Systems & Technology: The Blog

« February 2007 | Main | April 2007 »

By Nancy Feig
There are no secrets at the branch of the future. As soon as customers step through your door, you’ll know they’re there. You’ll know what accounts they hold and how much is in them. You’ll know the depth of their pupils and the ridges of their fingertips.

By Maria Bruno-Britz, Bank Systems & Technology

Within the span of just a few days, my inbox has been inundated with announcements related to new mobile banking/payments initiatives. Although consumers may not be quite as ready as proponents of this banking/payments channel claim they are, banks, telecoms and others are certainly making it clear that they’ll convince people to use mobile for more than just talking one way or another.

By Art Gillis

Even though I got a degree in Accounting, I am not a CPA and Boston University didn’t offer courses in Fastow 101. I just know how to put numbers together accurately to come up with true costs. So here are some discoveries that might help bankers get a better handle on their true IT costs.

1. First, accept the fact that you don’t really know what your IT costs are. The more than 300 banks I worked for didn’t know. Some of them thought it was the bottom line of the invoice from their vendor. Others overlooked the bootlegged systems that department heads bought and coded them as “support resources.” Others didn’t know amortization from globalization. Whoever coded the expense ticket decided if it was an IT expense.
2. Annual reports of even the most sophisticated banks show a figure for technology expense. But they don’t include the IT staff because that expense is included in the total HR expense. That’s like drinking a diet Coke for lunch to cut back on your calories, and drinking three beers at dinner. It all goes in one stomach and pumps up your weight. Without people, IT halts.
3. Don’t rely on so-called industry surveys. Most of them just make you feel good, knowing you don’t stand out in a crowd. Surveys show that banks spend 10% of total operating expense on IT. It’s often double that. The highest I’ve seen is Citibank’s at 25.8%. For some community banks, it’s 6%.
4. Since there are no industry standards defining true IT costs (other than my brutally exhaustive spread sheets), force yourself to go on a witch hunt from bowels to board room in search of anything tech-looking.

Finally, don’t feel bad if you have a higher IT cost than your peers. I wasn’t a math major but the math shows that a 13% IT cost, for example, can be better than a 10% IT cost if it eliminated a host of manual functions in bank operations. The whole idea is to get to the truth so you can fix what’s broken. The General Ledger won’t do that for you. It must be a “General” problem. Even Generals at Walter Reed didn’t tell the truth.

By Maria Bruno-Britz, Bank Systems & Technology

Banks are certainly giving people something to talk about these days, at least that’s the conclusion of a study conducted by Keller Fay.

According to the market research firm’s TalkTrack survey, people talk about banks more than twice as much as any other financial service category. Whether this talk turns into positive results for banks isn’t always the case, however.

By Art Gillis

There must be hundreds of people who have fascinating stories to tell about Ken. He not only created the first company to sell packaged bank software, but he spawned at least a dozen other companies that other entrepreneurs started after leaving Florida Software Services.

I enjoyed four projects over the years involving Ken’s company. The first was when I worked for a bank and engaged in the riskiest task of my career when I bought a mortgage system. My bank accused me of using the decision to find an excuse to go to Florida in February. The $15,000 investment worked for us because it was what I called a head start. We bought the software, modified it and used it years before we would have created our own.

Ken once had me to his house for lunch, just the two of us. I liked the mood and the opportunity to talk candidly. Ken had a reputation of being a tough businessman, so I spoke my mind. I asked him how the creator of an industry didn’t keep his grip while other companies such as ITI and Jack Henry took over. Ken’s eyes glossed over. We both stopped talking. I realized Ken was not the tough guy people said he was.

By Maria Bruno-Britz

Mention the term “core systems upgrade” to some U.S. bankers and they’re liable to cover their ears and walk away. And with good reason. As antiquated as the guts of their IT infrastructures may be, for the most part, things have been working pretty nicely. So why go through the rigor and risk involved with a complete core systems upgrade?

By Nancy Feig

"If Paris Hilton can have her Sidekick hacked, how safe am I?" This comes from my (highly educated) friend when asked if she would try mobile banking. Another response: "I'm not that rich that I need to keep track of my accounts every minute. I'd rather play Tetris."

By Maria Bruno-Britz

I have always felt that a bit more automation on the account opening side at banks could go a long way. After my ordeal at a midsize, New York-based bank last weekend, I couldn’t feel more strongly about this idea.

By Art Gillis

I recall six good memories out of the hundreds of calls I received from my boss at the bank. One occurred when my wife’s picture appeared in the paper for her community work. “Tell her to use the name of the holding company, which is what is listed on the NYSE, not the name of the bank.” I can confess now after 35 years and the CEO’s death, I never passed the message on to my wife, but I understood the relationship very well.

Another call was about a very good bank customer who owned a string of funeral homes. The owner’s kid wasn’t happy in the business, but he had a thing for computers and Dad wanted the kid to pursue his true love. We hired him and thought he would adapt to the graveyard shift at our computer center. He thrived in the environment and performed excellent work, earning several promotions. We were happy. The kid was happy. Dad was happy. And most important, our CEO was happy. Contrary to popular belief, including Bob Hope’s often told joke that if he ever needed a heart transplant he’d like to get it from a banker because it wouldn’t have been used much. I’m here to tell you that bankers have a heart and they use it.

A story about online banking appeared in the Washington Post about the reporter’s grandma, aka Big Mama. Big Mama loved to go to the bank to conduct her business. She would dress up for the occasion, and she probably stayed there long after the business was done. Her bank tried to convert her to online banking, but she dug in and proceeded to give everyone a turnaround lecture on the virtues of people-based service. The bank never asked Big Mama again. We all know that banks would love to save the money that free online banking provides. But their heart gets in the way, so customers can get the banking mode of their choice.

Even this technophile who spent his entire working life trying to make technology perfect, and has yet to succeed, loves the fact that there are two men and one woman in the second largest bank in the U.S. who he can call once or twice a year to get something special. Harry, Joshua and Kathy know who I am even though they deal with lots of billionaires in Dallas. Technology is always working in the background, but it sure is nice to know a banker.

U.S. debit card-issuing financial institutions experienced debit card transaction growth of 18 percent in 2006 and expect continued strong growth in 2007, according to a new study commissioned by PULSE EFT Association.

By Maria Bruno-Britz

Well, Americans might not get enough sleep, but at least we can take solace in the fact that we’re a productive country. JPMorgan Chase and gtnews decided to ask the world’s treasury executives and bankers what kept them awake at night. The findings provide an interesting window into the minds of banks’ treasury clients.

By Nancy Feig

Today, in the second meeting of Bank Systems & Technology's Payments Strategies Executive Roundtable series, several payments executives came together in New York to discuss remote deposit capture. The morning session, which was sponsored by Unisys, gave bankers the opportunity to speak freely about the issues associated with remote deposit capture since the passage of Check 21 three years ago.
One topic that was discussed in detail in this morning's session was thick clients vs. thin clients. Most banks with already established remote deposit capture programs are using thick clients with plans for thin client migration in the near future. However, that can be problematic, with some banks noting that the migration has taken longer than expected. Forced migration is one way to solve the problem, but banks really have to examine the functionality of the thin client for remote deposit capture. Banks coming in later in the game tend to have an advantage with this issue, namely that new customer on boarding for remote deposit capture is accelerated with a thin vs. thick client.
Another major issue discussed was the quality of images scanned using remote deposit capture. Unisys said that adequate training is imperative for high image quality and that training for the operators, who have high turnover rates, is necessary.
Fulfillment, service and support also seem to be areas in which banks face some challenges. Should the bank turn to a third-party for its remote deposit capture needs, such as scanner sales, repair and maintenance? Some banks that have not outsourced the fulfillment function are finding the logistics cumbersome and are looking to ways to wash their hands of the task.
The group was very vocal about several other issues, including paper storage, back office conversion (BOC) vs. accounts receivable entry (ARC), changes to float rules, footprint expansion, and finding the bottom-line benefits in RDC.
Because BS&T's roundtables are small, targeted and off-the record, participants are willing to share both their successes and failures with their peers in the industry. They present a rare opportunity for collaboration, commiseration, and even camaraderie, as opposed to traditional feelings of competition these executives often feel for each other. Several executives left the meeting saying that they could have talked for several more hours. But the discussion will have to be saved until the next Payments Roundtable early this summer.

By Maria Bruno-Britz, Bank Systems & Technology

Maybe the title of that should really read: Contactless Cards--Just a Step in the Evolutionary Ladder?
Countless emails have flooded my inbox containing news about banks that have implemented contactless card technology for its customers in some form or another. The technology in itself is quite simple: take a traditional-looking plastic card or even some kind of key fob device, wave it in front of a reader, and your payment is done.
But is that really a new payment device or just another way to use an old technology--cards? Some experts I've spoken with think the latter. In fact, some even felt this was just a transitional technology that will soon go by the wayside in favor of something even more radical--mobile phones. That is mobile phones as contactless payment devices. The mobile wallet concept has been bandied about for the last decade but hasn't really come to fruition, at least in the US. The story is a little different in countries like Japan. But many feel we're on the threshold in the evolution of electronic payments in this country and that mobile will be the next new device. People's wallets would become significantly thinner as their plastic cards disappear, replaced by their more convenient cell phones. They would simply wave their phones in front of readers at the point of sale and go their merry ways.
Of course, as with anything in payments, this evolution will take cooperation from many players before it occurs. Convincing retailers to shell out the cash to upgrade their payments infrastructure will be just one obstacle standing in the way of contactless mobile payments. But some day, I am assured, this will happen. And banks better be sure to make themselves the key players in the mobile payments game. According to one expert I spoke with, FIs should at least begin looking at this technology now before being left playing catch up.

By Art Gillis

First some definitions, because you won’t find them in Webster’s. There are hundreds of companies that sell IT solutions to banks, thrifts and credit unions. I focus on 70 because they supply core processing and several critical peripheral applications. Core processing apps include all deposit systems and all loan systems. They represent about 70 percent to 80 percent of what any financial institution does, from a de novo to Citi. Because these apps are integrated, it’s necessary to include general ledger and customer database as part of core applications. So if I had to justify why I pay so much attention to core processing companies, I’d say it this way: “They can make or break a bank.”

The revenue figures show there are six companies that have prominent positions as tech providers. The 7th, 8th and 9th companies are good companies, but they don’t come close to the sixth in revenue. Achieving high revenues did not happen by organic growth alone. Acquisitions played a major role. Here are the stats for the past 12 years:

Fiserv (FISV) 88
Metavante (part of MI) 26
Jack Henry & Associates (JKHY) 26
Open Solutions Inc. (private) 15
Fidelity National Information Services (FIS) 9
Harland Financial Solutions (now part of JH with a serious proposal by MFW to acquire JH) 9

Sometimes, stats are very friendly in explaining differences. The first three companies have been in business for 22, 40 and 30 years, respectively. The second group of three companies has been in business for 15, 4 and 6 years. Fiserv has made more than 145 acquisitions in its lifetime. Even though Open Solutions is technically 15 years old, I consider it a seven-year-old company after it was reborn with the arrival of the current CEO. Fidelity reached an annual run rate of $4.2 billion in four years, relying largely on the acquisition of independent companies. Hidden in all these stats is the fact that some of the acquired companies had made their own acquisitions, so if those numbers were added to the above, the impact of acquisitions would be even greater.

For what it’s worth, I see no end to the M&A activity, and I even see activity within the six. And I didn’t get my vision from the possible merger of GM and Chrysler.

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