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Wells: A Model in M&As, Wachovia Deal Suggests

Posted on April 09, 2009

It‘s interesting to see how right Wells Fargo seems to have gotten it, in its dramatic acquisition of Wachovia Corp.—based on today’s surprise, record quarterly profit projection. Thanks to Wachovia, Wells said it expects to report a $3 billion profit for the quarter ended March 31.

Early last October, just days after it was announced that Citi would acquire the failed $812.4 billion-asset Charlotte, N.C., bank, Wells made a better offer to the government. The government would not have to underwrite Well’s risk (the original Citi acquisition proposal would have capped the New York bank’s losses at $42 billion) and Wells would pay about seven times more than the $2 billion-plus Citi had offered. By Oct. 10, Wells had won a legal battle with Citi (though some described it as tantamount to Citi suing the FDIC, Wachovia’s receiver) to acquire Wachovia, and with it, the nation’s largest coast-to-coast branch franchise for the West Coast victor. The combined entity, based in San Francisco, now has $1.3 trillion in assets.

It could be a different story now. It could be a story like Bank of America’s. The Charlotte, N.C. bank seems to have overpaid for Merrill Lynch & Co., in another surprise acquisition last fall. (Merrill was expected to go to Lehman Bros., another New York investment bank). Bank of America CEO Ken Lewis recently said publicly that he regrets having taken $20 billion in government aid (TARP funding) to buy Merrill.

Others think more is at stake than a loss of independence Lewis’s comments came amid talk of nationalizing banks, such as Bank of America ($1.95 trillion in assets) and Citi ($1.94 trillion in assets) as the only way to really deal with their toxic assets.

Echoing views expressed online, one analyst said Bank of America bought more bad debt than they realized in taking on Merrill. “They didn’t know what they were doing. Why did they do it? Because of a dreadful need to become a power investment bank, but Merrill wasn’t even a power investment bank”.

Bank of America, lost $15.31 billion at Merrill in the final quarter of 2008 and ended the year having lost much of its asset lead on other domestic banks. Bank of America was the top U.S. bank by assets with $2.72 trillion in assets earlier 2008, down to $1.95 trillion by yearend.

The Merrill loss prompted the government to take an additional $20-billion stake in the bank, Bank of America said in its latest financial report.

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Not All “Banksters,” Huntington Exec Shows

Posted on March 30, 2009

In banking's darkest hour bankers on the far side of The Pond have collectively been tarnished with the derisory term "bankster."

By running a marathon for a children’s cancer charity, Brandon McGee, a vice president with Huntington Bancshares, is doing his bit to redress the image of bankers and the oppressive negativity that prevails. "The news is so toxic that it can begin to poison your spirit," McGee says, in a post to his mobile banking blog, announcing his plan to run the Bank of America Chicago Marathon on Oct. 11. He invites others to run, too, or to express their support through a financial contribution.

McGee wrote to BS&T to say, "I think this is a great opportunity to:
1) Raise money for charity
2) Turn 2009 into a positive year
3) Let the world know that there are a lot of bankers that are good people."

Asked why he picked St. Jude's, the Memphis, Tenn., research hospital, as his cause, McGee says, "I learned that at St. Jude’s, no child is ever denied treatment because of the family's inability to pay. As a father blessed with two healthy children, it seemed like a natural way to give back."

As senior product manager of mobile banking for Huntington, the country’s 23rd largest bank, McGee oversaw the introduction of m-banking last August and the addition of text alerts to that service this March. Early last year, McGee formed the Bankers Alliance for the Mobile Arena (BAMA,) a group hosted on LinkedIn, which had 88 members at the end of March, 2009.

Columbus, Ohio-based Huntington has $55 billion in assets.

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Resignation by Op-Ed; AIG Bonus Recipient Bows Out

Posted on March 25, 2009

It’s kind of like “J’Accuse” in reverse. Instead of a writer using a newspaper to challenge the Establishment, as Émile Zola famously did in Paris in 1898, we have today a bonus recipient from AIG using The New York Times’ Op-Ed column to publicly resign and as a forum to criticize AIG's CEO, Edward Liddy, and the bonus payments generally as "distasteful."

The Associated Press reported on the departure of Jake DeSantis, an executive vice president at AIG's Financial Products division.

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A Bonus of Contention to be Taxed at 90 Percent

Posted on March 19, 2009

The House reacted Thursday to corporate culture that continues to act as if this crisis never occurred by
voting decisively to slap 90 percent tax on bonuses received by executives of companies bailed out by the taxpayer.

AIG, which has been argued to have been a key catalyst of the crisis, defended itself before Congress the previous day for having since paid $165 million in executive bonuses. When that story broke it caused a political outcry and prompted an unprecedented 7,000 largely outraged comments from readers of The New York Times.

Taxpayers now own 80 percent of AIG, formally American International Group.

BS&T reported earlier this week on Eliot Spitzer, former Governor of New York having weighed in on AIG. He told WNYC radio in an interview Wednesday that it was a worse disgrace than A.I.G.’s payment of executive bonuses for AIG to have repaid banks whose losses on AIG were already being covered by government bailouts.

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UBS Silent on Secret Accounts, But New Yorkers Vocal

Posted on March 03, 2009

An executive from UBS AG who addressed a conference on the risks of long-distance business partners declined to answer whether recent revelations of Americans tax-shielded UBS accounts would make U.S. firms reticent to deal with the Swiss bank.

“I can’t comment,” Suzanne Aquino, executive director of corporate sourcing, told BS&T, a week after Zurich-based UBS reached an unprecedented settlement with the U.S. government in which it agreed to provide the identities of individuals shielding approximately $20 million from the U.S. tax authorities. UBS also agreed to pay a $780-million fine. Aquino was asked for comment after she spoke at the Global Services Conference, a business offshoring event in New York last week.

While UBS remains mum, New Yorkers were vocal when interviewed by Swiss radio on whether they were aware of the case and would treat Swiss businesses differently now. Yes and no, respectively, they (including BS&T’s own) told Roman Elsener, who reported for Swiss radio.

UBS’s systems reportedly recorded individuals as numbers only (so-called “no name” accounts) and the amounts of their investments as symbols, with ducks and swans representing amounts of $100,000 and $1 million.

The UBS case is expected to have wide implications for the $7 trillion-offshore banking industry by making it harder to try to circumvent tax laws.

Elsener asked me “will you now boycott Swiss chocolate?” Ah steady on, it would have to be something really serious for that to happen…

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Throw Investment Bankers a Bonus? Troubled Assets.

Posted on February 18, 2009

The markets may not have been too impressed with Treasury Secretary Geithner's plan to deal with banks bad loans, but the audience at a recent Columbia University discussion BS&T attended on the economy loved the suggestion of one of the attendees. "Why not give the toxic assets to investment bankers as their bonuses?" financial journalist Lawrence Carrel rhetorically asked a panel partly composed of Pulitzer Prize winners.

After all, the now troubled assets were "their idea," Carrel said of the I. Bankers. "They'd be taking on the risks but there's the potential to make money too," said Carrel, who wrote a recently published book on exchange traded funds, 'ETFs For The Long Haul'.

Another interesting moment at the event—Code Red: the economic challenges facing Obama, which was co-organized with the New York Financial Writers Association -- was when the panelists were asked what was for them the scariest moment in the crisis. In response to the question, from Sheila Mullen, a senior bond reporter with Market News International, Floyd Norris, business columnist with The New York Times said the gravity of the situation him home about a month after Lehman Brothers failed. "I came home and my wife handed me our 401(k) statement and I was shocked—and I cover this stuff for a living, so you can imagine how everyone else must feel!"

Neal Soss, a managing director with Credit Suisse First Boston, another panelist, quipped at another point that, "inflation is a great way to turn a 401(k) into a 201(k)."

Norris noted we can drop a long-held assumption that "the baby-boomers are all going to retire," as laughing, he said, "I don’t know if you've looked at your 401(k) lately."

The big assumption dropped, said Soss, who formerly worked for the New York Federal Reserve, is that the markets can be counted on to regulate themselves. We have become "socialist" overnight without a philosophy to support it, he said on the stage, re-iterating what he claimed is an unspeakable truth in an interview with BS&T in a video from the event shown here, one third of the way down a lengthy blog account of proceedings.

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Others Take Bank Turf, But Banks Aren’t Finding New Markets: Observations From Wincor World

Posted on February 09, 2009

I was struck by the sense that everyone at Wincor World was finding new lines of business, but not the banks, particularly the U.S. banks (and maybe the 100 journalists! who, along with 7,000 business representatives attended the seventh , annual user conference of Wincor Nixdorf, in Paderborn, Germany, in late January).

For ease of reference, I want to call Wincor Nixdorf an ATM manufacturer, but even as it has grown share in that market it is increasingly branching into software and consultancy, applications for stores, and even, into the bizarrely entitled business of “reverse vending machines,” that is machines to recycle bottles.

Similarly, its retail customers are on the march into former bank turf. Witness the announcement at the show that Wincor Nixdorf can take over much of the processing of bankcard transactions and even card issuance for stores, so, as the release says, “retailers are no longer tied to a specific bank.” Tracy Kitten, editor of www.atmmarketplace.com, Louisville, KY, noted in conversation with BS&T that some casinos have already cut out merchant acquirers by doing there own bankcard processing.

Even more striking was the meeting with Francisco Lopez, a financial consultant from the UK, who spoke of how retailers there, such as Sainsbury’s, the supermarket chain, have displaced bank ATMs in favor of their own Branded-branded ATMs. Lopez, CEO of Intelligent Currency Solutions, London, says retailers reassessed the traditional arrangement whereby they took cash all day and supplied it to banks, which habitually give out cash. Now, the likes of Sainsbury’s saves itself the cost of securing cash in transit while getting the branding and revenue opportunities of being the direct supplier of cash to the consumer.

Banks are looking to see how they might use their branches to sell products rather than handle cash, (as in the case we reported of Banca Popolare de Milano)but few new product lines were in evidence at the show.

A basic tenet of capitalism is the need to constantly expand to new markets. One, those now unbanked, showed hope in the projects of several non-U.S. banks now offering cash dispensing service from ATMs even to those without ATM cards. In these nascent applications, by banks such as
Greece’s Piraeus Bank (Athens; $69.7 billion in assets) secure payment instructions are issued from the sender’s mobile phone to the recipient’s.

There is always a question of how far banks should stray from what we understand to be banking. In fact William Seidman, former chairman of the Resolution Trust Corp., ., the government body that bought distressed properties after the savings & loan crisis of the early nineties, said in an address at a summit on TARP last year, that part of what got thrifts into trouble during the S&L crisis of the early nineties was that regulators encouraged them to find new forms of revenue. One owned 38 golf courses when the RTC took it over, Seidman said.

Still, the pace of change of modern life makes it almost a survival requirement to reinvent oneself. For example, Wincor Nixdorf, clearly branching into new endeavors, has tripled in size since it separated from Siemens in 1999, gone from 12th to second-biggest ATM supplier in the world (in 2008) and now is that rare technology provider that is both profitable and hiring, on top of it 9,500 employees worldwide.

Was it coincidence that the theme of the big party at the user conference was fifties’ nostalgia—hankering for a simpler time when everyone knew their role? Ulrich Nolte, a Wincor Nixdorf spokesman told BS&T that the theme was not picked in reaction to the financial crisis: “It was decided a long time ago, back in the summer [2008]”. Even then, it was becoming obvious that the world we knew was quite changed, making it tempting to wish for the way we were.

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Mastercard’s Orbiscom Acquisition “Significant”: Javelin

Posted on January 07, 2009

Jim Van Dyke, the esteemed founder of Javelin Strategy & Research, a security specialist in Pleasanton, Calif., says in a blog today that he feels “compelled” to note the significance of Mastercard buying Orbiscom, news BS&T reported earlier this week.

Through custom alerts and other means Dallas-based Orbiscom will help MasterCard customers control their card transactions. That’s important, Van Dyke says, “As fraud threats just don’t go away.”

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Citi, Hiring or Firing? Corporate sponsor hard to read.

Posted on January 06, 2009

I was surprised to chance upon a recruitment ad from Citi this week, considering that the $2-trillion giant is in the process of shedding 75,000 staff, or 20 percent of its global workforce, as discussed in the latest issue of BS&T magazine.

Up popped (and promptly disappeared) an ad from Citi while I was on the web site of a daily newspaper, The Dallas Morning News. The ad proclaimed to offer, “The career you want, the benefits you would expect.”

Meanwhile, New York public radio station, WNYC began its new year broadcasting with a repeat of a recent, popular item on New York-based Citi, in which it invited listeners to rename the Mets new corporate-sponsored baseball stadium as something other than Citi Field. Citi received a $300-billion bailout from the U.S. government, since lending its name to the stadium so, the station asked, "is a renaming in order for Citi Field? Taxpayer Field?”

Debtors’ Field was one of the first suggestions received. You can hear other suggestions here.

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Fraud Hits Too Close to Home

Posted on November 07, 2008

Ironically, while preparing to moderate a BS&T webcast on data breaches this week I discovered myself to be the victim of fraud. I am one of the statistics, one of the 30 million-plus individuals whose personal data has gotten into the wrong hands this year.

I found out by chance on Oct. 30, when phoning my credit card company with a routine inquiry, that on Oct. 23 someone attempted to charge about $500 on my card and Citi refused the transaction.

How my card details came into a thief’s hands? Search me. “You’ll never know and Citi will never inform you if they find out what happened,” said one call center rep., whose honesty, at least, I appreciated.

The original rep. did not share with me that Citi had flagged my account for fraud and only let me in on the denied charge after I insisted on knowing why she kept asking me did I charge this, did I charge that? As a relatively new Citi customer I initially indulged the possibility that Citi was super security conscious.

It was strange to think of someone using—or attempting to—the credit card that was in my hand. I can only speculate on how someone might have come to possess my account numbers. My hunch is that no database was hacked; rather that someone handling my card while I was traveling noted relevant details. Still, it might help me protect myself better in the future to know more.

Somewhat similarly, the first my partner knew his J.P. Morgan Chase credit card had been flagged for suspicious activity was when it was inconveniently denied this summer—without any warning. In fact, the “suspicious” transactions were all his.

I asked Citi why it didn’t tell me my account had been flagged or share details of the fraud attempt. This was made more ironic by Citi sending me several emails pressing me to provide them with more detail in a customer satisfaction survey. It asked was I happy with how the fraud was handled and would I continue using Citi or recommend it to other prospective customers.

Spokeswoman Jeanette Volpi said she could not discuss my specific situation and provided a company statement that said: “For security reasons, we do not discuss details of potential compromises.” It added: “When we become aware of a potential compromise, we take steps—above and beyond the prevention and detection actions we normally apply to our more than 150 million cardmember accounts… (W)e reissue… cards to customers whom we believe may be subject to increased risk.”

Actually, the supervisor who promised to revoke the card failed to do so, I found out when phoning back about misinformation the call center gave me on the original, routine inquiry! That could have exposed me to further fraud. Yet, such human error still sits better with me than a policy that places me at a disadvantage.

Read more from BS&T’s
Special Report: Data Security

Protecting Customer Data Is Small Banks’ Top Tech Concern

Best Practices on Data Breaches

Fighting Fraud With Texts

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Prescient moment for Financial De-Regulator, Jim Leach

Posted on September 22, 2008

Former congressman Jim Leach must feel vindicated by this morning’s news in his recent comments to the BBC.

Just before the weekend Leach defended his role in breaking down the barriers between commercial and investment banks a decade ago. “The investment banks and Fannie Mae and Freddie Mac were poorly regulated, not the commercial banks, which are strong, especially community banks,” Leach told the BBC World News Hour radio show, Friday.

This morning we learned that the remaining two, major investment banks on Wall St.— Goldman Sachs and Morgan Stanley—have fled for the cover of a commercial bank charter. This should give them liquidity, as consumers, knowing their deposits are safe if Goldman and Morgan are commercial, FDIC-insured banks, may be willing to invest in them.

Leach, a former Iowan Republican, turned lecturer and Democrat, was one of the three sponsors of the Gramm-Leach-Bliley Financial Services Modernization Act 1999, which dismantled barriers between commercial and investment banking that had been put in place to protect consumers after the Great Depression (under the Glass Steagall Act 1933).

Last week, Lehman Bros., a once leading investment bank, dating to the 1840s, declared bankruptcy, and Merrill Lynch & Co., the world’s largest brokerage, was bought by Bank of America. This followed Bear Sterns & Co.’s takeover in spring by JP Morgan Chase.

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Banking Dirt Dished in… New York?

Posted on September 16, 2008

Readers, how about we start a venture like that
book-publishing series inspired in its simplicity, ‘Overheard in _____’ fill-the-blank capital city?

In Starbucks on Saturday night, I overheard a Lehman employee tell her friend categorically that she was out of a job on three month’s severance as of today, when Lehman would be “bought by Bank of America or someone else”. (Presumably, London’s Barclays Bank, which also backed out, but today is reportedly looking to pick up parts of the defunct firm and its “former employees”.)

Sadly, the employee wasn’t privy to what would have been really interesting news to leak: that Bank of America would, in fact, buy Merrill Lynch & Co, while Lehman, failing to find a buyer, would go broke. Now, that would have made waiting on line in the 42nd St. and 8th Ave. café worthwhile.

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Brokers Banks Once Feared They Now Own

Posted on September 15, 2008

Ten years ago many bankers feared and envied Merrill Lynch as much as they did Charles Schwab & Co., as entities encroaching into the business of Main St. banks.

Since 1999, when Depression Era legislation that separated commercial and investment banking was repealed, ironically, some of the disintermediation commercial banks feared has gone the other way.

Merrill, the world’s largest brokerage, whose company logo was a bull, is now owned by a commercial bank. Last night’s announcement by Bank of America was a shock.

The bank was expected, rather, to take over Lehman Brothers, a once leading investment bank, dating to the 1840s. Lehman had been rumored to be a takeover candidate since the start of this year. It had found itself the owner of $60 billion in mortgage-backed securities now backed by very little.

Merrill, however, wasn’t rumored to be a takeover candidate—despite heavy subprime mortgage losses and the ensuing departure of its chief executive late last year.

No one need be reminded that JP Morgan Chase now owns Bear Sterns, following intervention by the Fed in spring. Word is that the government wanted to draw the line on taxpayer largesse and gave Lehman a deadline of Sunday night, by which time to find a buyer or go bust. Prospective commercial bank buyers (Bank of America and Barclays) backed off. Further proof that the game of ‘Who Moved My Cheese?’ is never dull.

Of course, the institutional collapses we’re now seeing are among the worst since the Great Depression, which prompted the consumer protections enshrined in the Glass Steagall Act 1933. That was repealed by the Gramm-Leach-Bliley Financial Services Modernization Act 1999, allowing commercial banks to get into the securities business.

If WAMU or other commercial banks heavily invested in unpaid mortgage loans fail, it might raise again the question of what lines of business are appropriate for insured depositaries.

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B of A is buying who? Not a total surprise, on reflection

Him: "Merrill Lynch has agreed to sell itself to Bank of America ..."

Me: "—Merrill?! You mean Lehman Brothers."

Him: "MERRILL."

So ran the conversation in my home last night as my significant other read the breaking news headline from the New York Times.

It was a shock since word was that Bank of America was likely to buy Lehman over the weekend. But on reflection, it wasn’t shocking that if any bank had the money to shop right now it was Bank of America.

Amid all the talk of a credit crunch, Bank of America has been blitzing me with credit offers. Now the bank that didn’t get so mired in mucky mortgages is in on a marketing march in Manhattan, a market it entered a few years ago where it is clearly intent on winning market share.

I recently obtained my credit report, which confirmed a hunch—pooh-poohed by a Bank of America marketing executive in a conversation earlier this year—which the bank is particularly aggressive in credit/card marketing.

In the past 12 months, since the credit crisis officially began, Bank of America has made at least 10 credit inquiries “not [my] full credit report,” but enough to extend a “firm offer” of credit, according to my triple-merged credit report.

Bank of America has made more than three times as many credit offers as anyone else. Citi came in second, at three credit-card offers, but Citi wasn’t acting purely on unsolicited hope in that I had sought credit from them during the past year.

The latest Bank of America offers have been upped to $50,000, unsecured, with seemingly no questions asked.

The implication of open coffers—at a time when every dog on the street says you can’t get credit—echoes the bank’s current print marketing campaign, inviting consumers to seek credit.

You don’t need to be an accountant or even see Bank of America’s balance sheet to tell it’s in a strong position in the industry right now.

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Obama, Banks See Joy of Text

Posted on August 25, 2008

Banks and Barack Obama have one thing in common, whatever else: they believe in the power of texting.

Senator Obama’s hugely publicized plan to announce his running mate via a text message last weekend was not just clever marketing to the media, but directly to consumers.

Everyone registered to receive the message is in a database; most recipients read the message (it seems); and they had a chance to respond directly to a solicitation, to go to Obama’s Web site and see himself and his vice-presidential candidate, Sen. Joe Biden of Delaware, celebrate.

In banking, for example, we see Mastercard and Obopay now testing a person-to-person payment system, with payments initiated by text message. Both senders and recipients must register their mobiles to participate.

It’s estimated that over 90 percent of texts messages are read, which is partly why British banks are doing more and more with text alerts. Texts also can prompt an immediate, measurable response. Imagine, for example, a loan offer where the bank could say, "If you're interested, text XYZ and we'll call you right back."

And one in four frequent mobile banking customers is, in fact, likely or very likely to respond to a text marketing message, according to a recent report by Javelin Strategy & Research (Pleasanton, Calif.).
Of course, the Obama campaign itself shows how easily the text love-fest could end. News of Obama’s ‘Veep’ pick leaked to the media, forcing a hasty dispatch of the text "announcement" at 3 a.m. Now, you’d want to be a die-hard fan to be happy with that.

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Banking Needs In-Your-Face Sales People

Posted on March 31, 2008

If you think that I'm not qualified to dish out advice about selling because I am only a technology consultant, think again. My very first business venture at age 10 went through a rude awakening that I was able to overcome for one simple reason: I learned how to sell.

The business almost fell into the popular category of "most new businesses fail within the first year." I know I didn't do the right research. I didn't have any capital. I wasn't a visionary. I had no skills, just a lotta chutzpah. But how was I to know W.W.II would end in 1945. And did I expect my war heroes to come home and compete with me, the sole provider of ice cream at Foss Park?

My first year in business, just before the war ended, was all gold. I parked my loaded pushcart under a tree, found a cushy spot to rest my thin body and waited for every kid to come to me. If I didn't have root beer popsicles, they bought pineapple. If they didn't have a dime, they resigned themselves to buy a nickel fudgesicle, while their rich buddies enjoyed an ice cream sandwich.

I was heartless. Some kids who were broke, promised to pay tomorrow. I would hand them a piece of discarded wrapper and tell them to fill out a credit application. They didn’t have a clue about what I was asking them to do, so I sent them off to Arts & Crafts a little further up the park where the high school kids were in charge of training.

At the end of the day -- which by the way was the same time every banker took off to play golf -- I went home with an empty cart and weighted down by $30 worth of nickels, dimes, quarters and those damn pennies. My net interest margin was 50% of my sales figure, if you exclude sweat equity. I was one happy puppy, especially since my board of directors (my widowed Mom) marveled at my performance. This went on day after day until Labor Day when even enterprising kids went back to school.

The next year, everything changed. War veterans came home, and they too had the entrepreneurial bug. On opening day of the new season, I was alerted to an unfamiliar sound way off in the periphery. Jingle, jingle, jingle went the bell on Nick’s Ice Cream truck all shiny and new, with slogans on the truck promising all kinds of goodies that only today would be regarded as the stuff that contributes to obesity. All my former customers flocked to Nick’s truck. He even let them pull the chain to sound the siren. I became an overnight case of toast.

Today, I would call McKinsey & Company to develop a new strategy for me, or I might have hired Bear Stearns to find a buyer for my company. But back then, not willing to risk my savings that would eventually pay for four years' tuition, I decided to noodle my way through the problem.

I was in the perfect mode. The "board" was doing her thing as a seamstress making ends meet for the family. I had a lot of peace and quiet because I had no customers. So I sat on the cart and looked out into the landscape of Foss Park. I was so cool about the whole thing I nearly dosed off.

But then I noticed something that in the past I had overlooked. My territory included more than just kids. There were other prospects that I easily determined might enjoy the benefits of an ice cream. It’s just that they were not as mobile as the kids. So it was clear that I had to get off my butt and go to them.

I wheeled my push cart to every nook and cranny of the community. When I was under their noses, they couldn’t resist. And because they were Romeos, Seniors, Nannys and Grannys, they demanded the best. Also, when the competition struck, I immediately knew I had to have a better product. So I went to my buddy Billy Ryan whose dad worked for Hood’s Milk and got him to convince his dad to load up my push cart with the best ice cream in Boston as long as I stood at the corner of McGrath Highway and Broadway to receive my commitment of ice cream, rain or shine, every day.

Billy’s dad never missed a deliver, nor did I -- even though on rainy days I experienced a day of "reserve for loan losses." But on sunny days, my new customers bought from me because I delivered quality and I offered the convenience of being right where they were. My business venture was restored. I worked harder; I was more responsive; I went where my customers were; I offered a better product; and most of all, I was more humble. That’s the kind of experience that qualifies me to tell bankers to wake up and learn how to sell.

Several years ago, I created a paper model of what I called a "Valued Prospect Scoring System." The late Jack Henry liked it so much that he told me to brand it as the "Gillis Index." I did. Think of a credit scoring system for loan applicants and you’ve got the concept of the Gillis Index (GI) -- with one difference. There are no losers in the GI. Low scores just mean greater opportunities to sell something.

In its simplest form, my system identified prospects based on common sense attributes and produced a record with just enough data (no transactions data, please) to quantify the prospect and set them up for a sales call. The records could then be parsed out to calling offices and downloaded to the appropriate "owners." The next night, a calling officer could surf 100 or more prospects, depending on the action of the game on TV, and produce a call list for the following day.

After that, success depended on the personal skills of the calling officer. Oh, and did I tell you the technology was doable? I didn’t know because I had flunked Programming 101, and Jack Henry wasn’t sure either, so he asked Mike Henry, head of development, and Jerry Hall, cofounder, what they thought. They didn’t blow trumpets and cheer, but they acknowledged that because of integration, all the data were available to fill the cells for the GI automatically during the posting run.

If anything was missing (for example, the GI includes notations, such as other generations of the prospect that have banked with the Bank), it would give the calling officer a good excuse to call the prospect. This sales approach used the power of technology and the charm of a calling officer to do what John Reed, former CEO of Citibank, said when he announced that Citibank was out to get 6 billion customers -- one customer at a time.

Banking needs in-your-face sales people. Prospects bypass ads that offer one "oatmeal" for all. Snail mail ends up in the trash, unopened. Web sites are so cluttered that pop-ups just irritate a customer who wants to get a job done. And a teller's voice sounds a bit insincere: "Is there anything else I can do for you?" "Yeah, give me a subprime mortgage at a fixed rate of 4% for 30 years, no questions asked."

By Art Gillis,
Former Ice Cream Vendor Extraordinaire

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Don't Forget the Online Channel in Cross Selling Initiatives

Posted on December 06, 2007

Any marketing consultant will tell you that one of the best ways to increase sales is to market to existing clients. They already have a relationship with you and - presumably - trust you. Consequently, they should be easy targets for cross-selling or up-selling. Call it low-hanging fruit. Financial marketers even have a fancy (if somewhat dull) name for it: increasing share of wallet.

For large banks that are approaching the cap on deposits that can be reached through mergers and acquisitions, cross-selling becomes an even more important marketing strategy. It is surprising, then, that we are seeing little use of one of the best channels to reach a captive audience: the bank's private (or customer) website.

In our latest Bank Monitor report, Private Site Cross Promotion: selling old clients something new, we looked at how the major banks are using their customer sites to promote additional products and services to their clients. Some interesting findings:

Only about half the firms currently use ads on the private homepage to promote additional banking and card products to users.

Of those that do, 20% go a step further and use banner ads, while 40% include text-based quicklinks on their private homepages for the same purpose.

Application pages are another useful way to cross-promote accounts and, again, only about half of the firms do so by alerting users to what products are currently offered by the firm and linking users directly to those applications.

In our research, we found two firms that stood out in using their customer sites to cross-sell services: Bank of America and Citibank. Both firms offer pages of special offers for users that provide specific account details, and both offer a separate Apply page to prompt users to open new accounts.

Over the years, banks have become adept at using "traditional" media to cross-sell to clients (e.g. statement inserts, bangtails, etc.). It is important not to forget the online channel in these efforts.

Comments

When David And Goliath Come To Terms, One Wonders What The Sub-Goliaths Were Doing

Posted on September 10, 2007

First, how about if I define the players:

David is ACI Worldwide at $348 million per year in revenue.

Goliath is IBM at $91 billion per year.

The sub-Goliaths are CheckFree at $973 million and Metavante at $1.5 billion.

When I read today's press release that ACI and IBM are collaborating to bring electronic payments to a current-day platform from what everyone knows is a legacy system world, I couldn't help but ask where were the giants of Electronic Payments Systems? Was Fiserv too focused on acquiring CKFR? Was Metavante too focused on going public?

With all due respect to all the players who managed to make their mark on their own, one unwritten law in the books of technology is that IBM governs. For what it's worth, if IBM got in bed with Fiserv, CheckFree or Metavante, I would have yawned. Doing it with ACI tells me there's something else going on that I missed. But I'm in good company because Fiserv, CheckFree and Metavante were taking a nap also. Whatever happens next, one thing is for sure. Fiserv, CheckFree and Metavante lost something. ACI won big time. It just proves that big is not always a guarantee for success.

Stay tuned.

- By Art Gillis
www.artgillis.com

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Journey to the Core: Four Banks and Their Replacement Stories

Posted on May 04, 2007

Celent Roundtable covers the latest trends, main drivers, and the challenges of core replacement.

By Nancy Feig

Four very different banks came together yesterday to tell four different stories about core conversion at yesterday’s Celent Banking Roundtable in New York.

Webster Bank (Waterbury, Conn.; $17 billion in assets) did a big bang replacement of many systems including core in 2005. Countrywide Bank(Alexandria, Va.; $93 billion in assets) converted its core in 2005 after acquiring a community bank and to support growth from $200 million in assets to $93 billion. National City Bank (Cleveland; $134 billion in assets) went through an “urban renewal,” where it built around core rather than replaced it. And finally, Silicon Valley Bank (Santa Clara, Calif; $5.6 billion) is in the process of replacing its core to follow its market, which is mostly online and increasingly global.

One thing that the banker panelists all agreed on was that the cultural change that goes along with a core replacement is probably the toughest variable.

“Technology is the easy part. It’s the people and processes that are tough,” said David Webb, CIO of Silicon Valley Bank.

To gasps from the audience, Fredrick, SVP and CIO of Webster Bank, related how the first training she had to give her staff was on how to use a mouse, which 20 percent of her staff didn’t know how to do.

Although the four bankers in attendance from each had recently gone through a core conversion or were in the process of doing so, the panelists were not convinced that now is the time for U.S. banks to start replacing their core systems.

Fredrick said that she couldn’t see large banks like Bank of America replacing their core systems. Like her bank, others will only replace their cores if the conversion serves a specific business need, she said.

“Investments will be in SOA and relationship-based pricing,” said Ed Page, SVP and business information officer of National City Bank.

Moderator Bart Narter summed it up best by saying, “switching core systems is not for the faint of heart."

Comments

Stock market performance reaches a high that most bank tech stocks would love to copy

Posted on October 30, 2006

By Art Gillis

There are hundreds of checks and balances I use in the selection of the best core apps solution for a client. The price of a vendor’s stock is not one of them. And what I know about the stock market is like what a pharmacist knows about brain surgery. “Whadya got for a headache?” “Let me open your skull to see what’s wrong.”

But I confess to keeping track of bank tech stocks in my report "Automation in Banking." Prices are tracked from April to April. Having noticed the Dow Jones news item last week about an all-time high, I looked at the performance since April 2006 of 17 public companies in the report whose revenue is almost entirely from bank technology. Only three companies had stock price increases. They were Open Solutions Inc., Fiserv and TSYS. OPEN scored a 31% gain during the period thanks to a private investor takeover. FISV made a gain of 19% doing just what comes naturally for this giant. And TSS got back on a recovery track with a 19% gain. The rest of the list of public companies is not breaking stock market records either because the companies have leveled off, they are a small part of a public company and thus not a factor in the price of the stock, and some are marking time while looking for acquirers. If there’s one thing the stock market and I agree on, it’s the content of my blog posted at www.banktech.com/blog on August 21, 2006 - “This is a Pretty Dull Time for Bank Technology.” Maybe I should add, “except for M&A activity.”
Disclaimer: Art Gillis relies on his bank for investment advice and portfolio management.

Comments

My 11 picks for core solutions

Posted on October 16, 2006

By Art Gillis

I am pleased to offer banktech.com/blog readers my 11 picks, along with the following explanations:

• I'd have to retrieve the work papers for the 300 client assignments in order to provide the reasons each winner scored the strongest relative to the criteria that were most important at each bank. That's not a task I want to spend months on right now.
• The 11 picks were winners the day I delivered my recommendations and they are still proving it today at those banks, unless of course, the bank was acquired.
• Some of the 11 were recommended more than once.
• I don't think I ever had a client that wanted a politically correct answer. They wanted recommendations that were backed by substance. Several bankers had their own choices before the official selection process occurred that they had to give up. They all understood why. Emotional reasons are never good reasons when making technology decisions.

That's enough consultant hedging. Here are the picks in no particular order:

1. ITI Premier in-house and outsource
2. Jack Henry CIF 20/20 in-house
3. Metavante IBS outsource
4. Computer Services, Inc. homegrown system outsource
5. Precision Computer Systems BAIS in-house
6. Metavante Bankway in-house
7. Jack Henry SilverLake in-house
8. Fiserv CBS in-house
9. Harland Financial Solutions SPARAK in-house
10. Fiserv SourceOne outsource
11. Fidelity Systematics outsource

Comments

There are 71 core solutions (in-house and outsourced) available to banks. I gave the nod to 11. Why?

Posted on October 02, 2006

By Art Gillis

I’ve often been asked by typically those who have a bias or are uninformed, “Why don’t you just save bankers from a time-consuming evaluation process and declare the best system for core processing?” I politely explain that every bank has its unique characteristics and, therefore, there’s no such thing as one best system for all. It’s sort of like different patterns of behavior when people are caught in a downtown traffic jam. We’re trying to get out of a mess, but we handle it differently.

Recently, I was stuck in downtown Boston traffic at Kneeland Street and Atlantic Avenue heading for the financial district. I looked over to my right and saw a lady doing her needlepoint. That’s Boston. In a similar scene in Dallas, a young lady was doing her eye makeup while the guy in the pickup behind her was blasting his horn. That’s Dallas. If you think I’m being unfair to women drivers, I will only say I tell true stories. If it had been men doing their needlepoint and putting on their eye makeup, I would have said “guys.”

I am so glad that we are not one homogeneous society created from one cookie cutter. Probably the best thing any bank has going for it today is its self-created culture in an industry that is so regulated that it produces commodity-like products and services. It is a bank’s unique culture that I try to preserve in order to find the tech solution that will be the best fit, not the neutralizer.

If you didn’t like my traffic jam analogy, here’s a closer one. Recently, I visited several Web sites of the top 120 banks. I had a specific business purpose and I wasn’t on a witch hunt. I believe I could describe my experience with each bank’s Web site to any seasoned observer of banks, and that person could identify the bank. You won’t believe that, so here are just two tests. (1) I submitted my inquiry to one giant bank and explained my purpose. Within 22 minutes (Wow! that’s fast technology), I got this answer, “The information you are requesting is not publicly disclosed by .....” I didn’t believe the response so I ordered their annual report. My answer is clearly disclosed on page 117, and I couldn’t resist telling the bank that annual reports are indeed public and they were wrong not to provide the information I requested. The next day, FedEx delivered another annual report from this bank, but I don’t know why since I already had mine. It might have been to wipe out their guilt. (2) The second bank was entirely different. It sounded more like my mother. “Are you sure you want....” After five e-mails and an ID number to make sure my request wouldn’t be ignored, I got what I wanted and I felt as though I made a friend. The kindness demonstrated by this bank was infectious. Even I picked up on it and thanked her. Her last e-mail said, “You are very welcome! Please let us know if we can assist you.” I was so glad she didn’t say, “And have a nice day.” Do I have to tell you this large bank is in the South?

One of these days I expect the regulators to issue some type of guidance to banks that says, “Know Thyself.” It has been the first task of my client projects. Once I know my client, then finding the right solution is a game of matching constants - my bank’s needs and vendor offerings that are a little bit like spinach. Some of it ain’t good for you.

Comments

Integration is a reality. Just make sure you know what the word means.

Posted on September 25, 2006

By Art Gillis

In a survey I conducted last year, 74 bankers were asked to complete a questionnaire. In addition to answering specific questions, I asked them to volunteer their own words describing how they felt about technology. Fifteen words kept popping up consistently among the group’s responses. Integration was one of them. But I’m not sure everyone had the same thing in mind when they referred to the word.

As with a lot of technology, one has to remove the marketing spin to get right down to the truth. When the word first appeared in the mid '80s, it was customary for vendors to pick up on the buzzword appeal, so every sales brochure described bank systems as integrated. They were not. But two decades later, it’s a safe bet that the top dozen or so core applications systems are in many ways integrated. Here is just one man’s opinion of the purest form of integration:

• Every application feeds the general ledger and the customer database automatically without human intervention.
• Every application follows a design concept that was created by one architect.
• What used to be called silos is now a universal Relational DataBase Management System.
• Tran codes follow a consistent pattern across all applications.
• Screen designs have a common look throughout.
• No duplication of data entry.
• Navigation is as clear as finding the bank’s vault.
• Prompts provide audit alerts as well as cross-selling opportunities without irritating the customer.
• Multitasking occurs smoothly without having to log off and on.
• All channels, real time or not, deliver data so that account status is the same.
• Foreign (other than the core vendor) ancillary applications lose their identity and become part of the core system, as opposed to “butted” to a portal of the core system.
• Being able to “Know the Customer” completely, not just for regulatory requirements but for the Business Development people in the bank.

Smarter technicians than me (I’m not a technician) can certainly add to my list of pure qualifications, but I’m comfortable in saying that any banker who has issues with integration today is living in a cave. Integration is available from several good vendors right now, just for the paying - paying for the system and paying for the pain of a conversion.

Comments

Make sure you understand the claims vendors make, including mine

Posted on September 18, 2006

By Art Gillis

In recent years, I’ve been saying that my insights about core processing come from two sources: 1) assignments I have completed for 300 banks. And 2) from the annual compilation of Automation in Banking. But last week a highly respected listener said, “Wow!” when he heard the 300 bank projects I had completed. I wasn’t sure if he meant skepticism or true admiration. In any event, it triggered my neurosis, so I counted the clients referenced in my 33-page c.v. and, uh oh, I came up with only 180 names.

What happened to the other 120? It’s called “industry consolidation.” But did my recommendations cause the banks to sell out? Or was it just a natural phenomenon of the industry. In the 30 plus years that I have been working for banks, the number of commercial banks shrank from 10,850 to 5,274, according to my buddy, David Soto (dsoto@highlinedata.com), the guru of bank stats. That’s a reduction rate of 49% . The reduction rate in my client base was 40%.

Then may I relax and say my clients are just representative of the industry norm? What I do know is that the 180 that still exist are using the same system I originally recommended even if it was 30 years ago. And this is why I begin the orientation meeting at each new client assignment with this remark - “We are going to select a new core system for your bank, and this will be the last conversion you will make even if you live to be a hundred.” Everyone cheers, and Excedrin sales drop in that city. As I see it, there are about 3,712 financial institutions that need to get over the denial phase and take a good look at their core system. Sooner or later, they are going to have to switch to something better. Last year, 755 bit the bullet and switched. At that rate, the entire population will be in good shape in five more years, except for the core vendors who will have to find other things to sell. That’s OK, most of them have dozens of other things to sell.

Comments

Read it and weep (if you didn’t make the cut), or draw your own conclusions

Posted on September 13, 2006

By Art Gillis

I’m not a fan of “Top xxx Lists,” except for the American Banker list of the top 25 computer consultants. This week I reviewed the Top 500 Innovators list published by InformationWeek. I wasn’t sure what the criteria were until I read the back page where the editor-in-chief made certain these weren’t just pedestrian outfits that get the “plenty hard work” done. The publication was “particularly picky about applying the innovator moniker.” Following are the names of the 25 banks (including near banks) and 9 tech vendors that serve the banking industry.

Banks:
AmSouth
Bank of America
CapitalOne
Citigroup
Countrywide
Discover
Fifth Third Bank
First Horizon
JP Morgan Chase
M&T Bank
Mellon
National City Mortgage
Navy Federal Credit Union
Northern Trust
PNC Financial Services
Regions Financial
Scotiabank
State Street Corp.
Synovus
TD Banknorth
Union Bank of California
U.S. Bancorp
Visa USA
Wachovia
Washington Mutual

Tech Vendors included in Automation in Banking that made the IW 500 cut:
ACS
CheckFree
EDS
Fidelity National Information Services
First Data Corp.
SAP America
SunGard Data Systems
TSYS
Unisys

I could have a lot of fun with the list, but one contradiction begs explanation. Northern Trust and Synovus outsource their technology to Metavante. Northern Trust and Synovus were recognized, but Metavante was not. It’s a safe bet that Metavante does M&I Bank’s work also, but M&I Bank didn’t make the cut. Will someone please explain what “innovation” really means?

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Data security, computer crime, Internet scams, terrorist attacks, natural disasters, stolen PCs, data files in the wrong hands, hackers having fun - Call it what you like, but it’s all about protecting against the unexpected.

Posted on September 06, 2006

By Art Gillis

In the early '80s, the banking industry got a wake up call. Lloyds of London was underwriting a new rider to their blanket bond coverage - computer crime insurance. To justify paying the huge premiums, bankers wanted to know if they were at risk. So I went to work and developed a program called “39 Steps to Better Security.” The process was simple. I acted out the role of the perpetrator and the bank CIO (and his team) presented installed mechanisms that would block the threat. If they blocked it, they won. If they couldn’t block it, the perpetrator won. That’s how we measured the risk so we could deliver a score card to the CEO. The process was published in several banking trade journals (they love things having to do with crime), including what was then known as Bank Systems & Equipment in November 1981 on page 103.

Exposure in the trade press created a lot of feedback, even from an inmate at the Federal Prison Camp in Lompoc, California (I still have his letter). This man had successfully stolen $10.2 million (using a terminal in the bank) from a West Coast bank (since acquired by a very large U.S. Bank). He got caught only because his envious buddy ratted on him. The bank never had a clue as to what happened, but the public announcement was something to the effect that the amount wasn’t large enough to be noticed. The perpetrator used the $10.2 million heist to buy diamonds in Switzerland, but by the time the case was solved and the bank recovered the diamonds, the booty had lost some of its value, presumably because unlike a repossessed Corvette, banks aren’t in the business of selling 115,000 Russian diamonds. And remember, there wasn’t an eBay in those days.

Back to my 39 threats, I often worried about the 40th threat that I had not anticipated, and no one tried to one-upmanship me, not even the inmate who succeeded in overcoming one of my 39 threats. The 39-step program in computer crime prevention occurred long before the Internet. It also occurred prior to the now popular concept of distributed processing where responsible CIOs abandoned sound security policies and released data files to almost any legitimate bank employee who had a need to know. This release of files was also known as “user friendly,” which bestowed to the CIO the honor of being one heckuva good guy.

Today, bankers should worry about hundreds of steps to better security not just my '80s-styled 39, and the scary part is they’ll never get to the end of the what-if list. In some banks, there’s a lot of skepticism regarding threats, as was clear to me on my first 39-step assignment in New Orleans where the culture is Laissez les bons temps rouler. The conventional wisdom at that bank was, “It’s good in theory, but it won’t happen in the real world.”

After 9/11, I went back to my 39 steps to see if I had included a suicide attack using a commercial airliner to destroy a physical structure. In 1981, I hadn’t even heard of the name al-Qaeda, or the threat of terrorists. So it wasn’t on the list as such, but the following threats seemed awfully close to what happened:

#17 Explosion caused by a bomb (can a fuel-filled jumbo jet be considered a bomb?)
#27 Explosion caused by a misguided projectile (these “projectiles” were definitely guided)
#35 Structural cave-in (where are the Twin Towers now?)

What you should know is that back in the “safe ol’ days” my 39 threats produced chuckles from many bankers, mostly CIOs, who considered the precautions absurd. I’m not blaming them. The CIA, FBI and DOD might have chuckled also even though they are in the business of snooping on potential enemies, the business of crime, and the horrors of war, rather than loans, deposits and payments.

Be careful, it’s a battlefield out there and it’s getting worse because we don’t know where the next hit will come from - Could it be grandma’s wrinkle-free lotion while flying home from a visit with the grandkids?

Comments

The smartest people have the simplest answers

Posted on September 01, 2006

By Art Gillis

Recently I enjoyed the honor of working for the #1 consulting firm in the world. I won’t embarrass them by naming them, and they certainly don’t need the publicity. A comment from the partner-in-charge of their financial services practice got my attention. “Some of the most complex issues can be resolved with simple answers.”

I’m learning things from smart people every day, so here are some simple answers. After 503 pages of knowledge in the 2006 Edition of my report, 66 blogs at banktech.com/blog, 114 published articles, and 91 presentations to sleepy audiences, here’s what every bank in the world needs in order to be at its peak performance - simply stated:

1. First and foremost, a core system that satisfies users in the conduct of their daily activities.
2. A good Platform Automation System where “good” means a lot more than a new account or loan origination module.
3. An integrated Imaging System that includes checks, documents and almost anything that was ever on a piece of paper.
4. A Customer Database that leaves the clutter behind and looks at value, history, potential, loyalty and willingness to go to bat for the bank. When I worked for a large consulting firm, we loved all our clients, but within each organization, we had a “marine.” We could always count on him to get things done. And in the sixties it was a “him.” Women were not there yet.
5. A Housekeeping System. That’s my term. It includes all the ancillary apps that operate the bank.
6. A Business Intelligence System. Think of it as the engineering department of the bank, not the factory.
7. A portal to the world, but not like our U.S. borders. Let legal interests in, send legitimate data and answers out, track and audit the activity, and protect interested parties.

I just did the simple task. Now you’ve got the tough job of finding the 169 resources that constitute the seven major pieces of the technology pie. And don’t be discouraged if you have to work with five to seven vendors to get the right solutions for your bank. If one vendor claims they are the one-stop vendor, it just means they have one very slick salesman.

Enjoy your Labor Day with labor, the cerebral kind. I’ll be at my beach, now that all the tourists are gone.

Comments

Weep or celebrate, but banking technology is in fine shape

Posted on August 28, 2006

By Art Gillis

Just two days after I posted last week’s blog here, Mitch Betts, Executive Editor at Computerworld, performed a cerebral correlation and concluded that another article sounded familiar. In her recent story, a CW reporter called banking IT “boring.” I had called it “dull.” Did someone commit plagiarism? Did we collaborate? I couldn’t even tell you the reporter’s name. And unlike reporters covering Iraq where there is one main event, technology has at least thousands of events to cover. So just maybe there is some truth in our view that banking technology is perhaps leveling off.

If you work in IT for a bank, maybe this is a good time to plan your sabbatical. You earned a break, but you better come back with some new ideas. It’s un-American to think that there are no new technologies in the pipeline. Eventually the Indians are going to feel insulted that they are the cheap alternative. Maybe they’ve got better technologies than Fiserv, FNIS, Metavante, Jack Henry, Open Solutions, Harland Financial Solutions and 22 other companies.

If you’re a vendor of bank tech solutions, you’re ready for rehab. When you come out, you’ll feel like you’re 30, you’re hungry, you want a net worth that will go from zero million to 60 million in five years and you think the year is 2011.

My sympathies are with the vendors. In truth, technology is not over. Tech vendors just don’t know where the gold is and instead of pick and shovel, they’re carrying a sack full of products that by now are really stale. The new game in town is how to make the folks at the workstations of banks more effective. You figure out the rest while you’re away.

Comments

This Is a Pretty Dull Time for Bank Technology

Posted on August 21, 2006

By Art Gillis
There’s nothing really new, hot, or compelling enough for bankers to jump into the tech marketplace and engage in shopping sprees. Here are some milestones of previous good times in order to provide a basis for comparison with today. We’re now in a decade of single-digit annual budget increases (7%), and this for the first time in four decades. I hope Yogi was right when he said it ain’t over till it’s over.

'70s

• ATMs, MasterCard, BankAmericard and EFT Networks
  
• Mini computers that provided the reason for software companies such as ITI (now Fiserv), Jack Henry (still Jack Henry), Precision (now Fiserv), Horizon (now Fidelity), and Kirchman (now Metavante) to develop turnkey systems so bankers could exercise their control and operate their own backroom support, without a meter ticking.
  
• CIF - Central Information File (a.k.a. Customer Information File).
  
• Interfaces - A necessary evil. Sorta like, if ya wanna get on the plane, ya gotta go thru security.
  
• COBOL - a programming language that was supposed to be as easy as writing sentences in English. Later to become a Y2K hurdle because experienced COBOL programmers were either drawing pensions or pushing up daisies, while legacy systems had discovered the Fountain of Youth.
  
• Mainframe software - a reel of tape and thousands of programmers if you want it to work.
  

'80s

• The PC. In 1985, my book, Micros in Banking, profiled 21 new companies that created applications software that could run on a $5,000 computer. Every bank bought a PC, even though the shrink wrap hadn’t come off right away. Wouldn’t Dell love that kind of carefree buying attitude right about now.
  
• Continued implementation of in-house turnkey systems - 1984 and 1985 had peak sales of turnkey systems, never to be reached again - 1,000 per year, and that didn’t include the tech-weak credit unions who were more interested in the price of kielbasa than the license fee for a core system.
  
• A reawakening of service bureau vendors who noticed the threat of newbies with better solutions. Enter the IBM/Kodak deal creating legitimacy with a new word - outsourcing.
  
• Online banking (not the Internet type) which replaced some batch processing and day- delay postings. A very few were even real time.
  
• Telecommunications systems. Goodbye courier excuses like my van broke down, what traffic, the snow drifts were eight feet high. When Check 21 arrived, it put another nail in the airborne courier’s coffin as well as new excuses - The fog was thicker than pea soup.
  
• Document imaging to replace hardcopy and microfiche.
  
• An early attempt at the idea of integration, mostly in sales brochures.
  

'90s

• Y2K
  
• Intelligence-based workstations (a.k.a. PCs) to replace dumb CRT terminals.
  
• Branch Automation (a.k.a. Platform Automation)
  
• Internet banking
  
• A first attempt at check imaging that proved to be too expensive because it wasn’t scalable.
  
• Anything with the word “mortgage” in it.
  
• Relational DataBase Management Systems that were supposed to do marketing and mining, but they were too generic and too difficult to structure into banking apps.
  

Early '00s

• Check imaging becomes ubiquitous. Image exchange - we’ll get to it one of these years
  
• Customer Relationship Management - It sounds great, but try to implement it.
  
• Attention to all kinds of “what if” situations associated with bank technology (terrorism, natural disasters, smart kids, scam artists, the Congress, regulatory agencies). Wow! Two- password authentication is like Willie Sutton handing two notes to a teller.
  
• Slow gear-up for electronic presentment and payments, once called eCommerce.
  
• Treasury services (a.k.a. cash management), but this time using the Internet.
  
• India, Philippines, China, Eastern Europe and places cheap. Any way to save a buck.
  

Today

• Additional Check 21 implementation.
  
• A historically low level of new core system implementations (4.2% of all FIs).
  
• Maintenance, tweaking, fine tuning, cost cutting. Nothing here for vendors.
  
• Using the Web to offer a pseudo open architecture, but with virtual results.
  
• Electronic payments continue at a snail’s pace and will forever.
  

In my opinion, until new solutions appear, buying sprees will occur when tech companies buy tech companies. The only organic thing these companies will see is what’s in a Whole Foods store. This negative outlook might change if solutions providers could figure out how to make their customers more competitive than another vendor’s customers. They’re all selling commodities that after 40 years have become a bit stale. Can I interest you in a bushel of Grade AAA corn (a.k.a. my DDA system)?

Comments

Eight vendors failed: Criminal intent? I don’t think so. Stupidity? Lots of it.

Posted on August 14, 2006

By Art Gillis

This is the third blog in a series of things bankers should know as they search for a new core system. The following events occurred in the '80s and '90s when a slick-Willie salesman could convince a banker that a dead pigeon under a mixing bowl was really pheasant under glass. The good news is that most snake oil salesmen and scam vendors are gone now. Pay attention to the word “most.”

1. A core system startup had two good things going for it. It’s name, USA, and its location, Orlando. The thing it didn’t have was software. But it still got bankers to sign contracts. Reality and shock set in very quickly. Software development and implementation should not occur simultaneously. Twenty-three bankers gave new meaning to the horrors of a conversion.

2. A bankruptcy court in Colorado held an auction to get some money from a defunct bank software company. A tech company in Charlotte liked what it saw and was delighted when its bid of a cool $1 million won the contest. The demo screens were impressive enough to convince six Georgia banks to sign contracts. The only problem was there was no coding behind the screens. Except for a few red faces, and some red ink, the situation ended peacefully. The Charlotte company returned all deposits with apologies and returned to its Trust Accounting business, having gained an entirely new understanding of the word “trust.”

3. Houston must be the capital for CPA firm irregularities as was observed in the Enron failure. Another Big Eight firm’s experience in their Houston office was not so global and disastrous. They were recommending the same core software company to all their bank clients, but realized they were leaving a lot of revenue on the table after their “selection study” was completed. So they acquired the software company and continued to recommend it while looking forward to picking up license and implementation fees. But implementing software required a whole set of different talents that the CPA firm didn’t have. The firm quietly closed the operation, “sold” the software company back to its original owner, and went back to counting beans.

4. A startup software company made its first appearance in all the bank trade journals with full-page ads. The exposure worked. Soon everyone was talking about the company. I had trouble figuring out what ducks on a pond had to do with bank software, but ads don’t do much for me anyway. The company’s sales approach was to bash the then mid-range-based hardware systems by promising one PC was all that a bank needed to process its work. The company failed, but a prominent systems integration company acquired the product as their entry into banking. That failed and they dumped the system onto a small bank service bureau. That didn’t work either. If at first you don’t succeed.........

5. Systems from Nigeria probably won’t play in Peoria and a few other heartland locations where the bulk of independent banks reside. But one very popular banking company decided to pour millions into the americanization of a client/server system only to find out, after five years, it didn’t work.

6, 7 & 8. Motives play an important part in failures. Three startups entered the bank core marketplace, not because they had a better “mousetrap,” which I believe is the most noble reason to start a business, but because they had selfish reasons. One company owned a relational database management system and wanted to sell it to banks. It dug up a core system, “glued” it to the RDBMS and tried to sell it. But bankers don’t buy database systems to process banking transactions, and they don’t buy dead banking systems. Another company entered the business by way of chest-beating and press releases. It was the shortest lived company ever - six months. A third company wanted to be different. In the Banking Club of America, different is like missing three loan payments in a row. The company failed twice. Once when the vendor bellied up, and second, when the customers, who took over the company and did their own thing for a while, abandoned it.

Be careful, folks. It’s safer these days, but the challenge is to select the “most right system” for your bank and second choice will come back to haunt you sometime within eighteen months after the conversion.

Comments

The first mistake in searching for a new core system - Finding the best system

Posted on August 07, 2006

By Art Gillis

Trying to find the best system is indeed a mistake. Best system according to whom? Is the best system for Citibank the best system for a de novo? Is the best system in California the best system in Maine? Don’t be too quick to answer that one. The answer may be yes. Is the system with the largest number of users the best system? Every bank deserves the best fit, not the best system. And the process begins with what I call, “Know thyself.”

There are 71 marketable core solutions available in the U.S. marketplace. The list consists of solutions for commercial banks, thrifts and credit unions. Some solutions operate as in-house mode only, outsource mode only, and both-ways mode. A few operate in the large banks arena only, and many operate very well for small and mid-tier banks (de novo to banks with a few billion dollars in assets). Some solutions are so good that the competitors of the solution’s creator use it to drive their own business. Some solutions are not so great, but other vendors want to drive them for banks that outsource. A license to run the Hogan System is like having first draft picks on Ted Williams, should he ever come alive from his cryogenic state. Some solutions are used by thousands of banks; others are used by less than 50. Some vendors own as many as 18 core solutions; others own just one. Some solutions are locked into one hardware platform; others will run on several.

It’s like the auto industry. There’s a right car for everyone, and it’s not the Bentley. Take the time to examine the bank and maybe a dozen of the 71. When you come up with the right FIT, then you’ll know you made the right choice. In-the-lab assessments of the “best” system can be left to marketing departments, salesmen and research firms.

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How does a banker know when it’s time to switch to a new core system?

Posted on July 28, 2006

By Art Gillis

First, here are some general rules:
1. Good systems (in-house or outsourced) have been available for the past 30 years. If you chose one of them, you probably don’t need to switch now.
2. Good vendors have kept their systems up to date, so even if the system is 30 years old, it most likely is working as if it were a 2006 system. No system works like a 2007 system, but the good ones will when we get there.
3. Culture of the current vendor is extremely important. If you chose the right system but your vendor has been acquired three or four times and now is interested in maximizing earnings, you may
be ready for a switch.
4. The best system is only as good as its vendor. If one or the other goes sour, start shopping.
5. Listen to your fingers-on employees. They are the only ones who know how your system is performing. And they are very honest, as long as you don’t intimidate them. Pay attention to phrases such as, “It sucks,” “I can do it faster manually,” “It’s too complicated,” “I’m constantly logging in and out to complete an episode,” “I have to call 1-800 twice a day,” “The user manual and the system are about five years apart,” “We still can’t put together a complete customer relationship,” “The guy who designed the loan system must have come from a deposit background. Everything is backwards,” “The interfaces are like strangers who don’t understand each other.”
6. Brand name is helpful in determining performance - sometimes. But some banks can destroy even the best system. In those cases “conversion” means fire everyone and start over, but this time upgrade your pay scale.
7. Don’t fall for the vendor expression, “Easy to use.” If it’s too easy to use, it’s not comprehensive and sophisticated. The best systems require the best employees, and lots of them. And remember, what’s easy for a guy who built the system may be enormously difficult for a high school graduate who uses the system.
8. If your last formal training session was your first formal training session, don’t blame the system or the vendor. Spend the money and train your people.
9. Don’t pay attention to what other bankers are doing. After I conducted a seminar for the BAI several years ago, I was approached by two CEOs, one from SC, the other from NC. They were obviously buddies. They asked, “How much will you charge us if we both hire you?” I got sucked in and gave them a discount thinking one job would work for both. Their closeness didn’t mean a thing when it came to making the choices. My 36 tools pointed one to ITI and the other to Jack Henry. Over the years, they became very successful, while sharing a great friendship but making independent choices.
10. Most important is to stay ahead of your vendor. When he sends you a letter with the word “sunset” in it, then you took too long to decide if you needed to switch.

Take a break. I’ll have more to say on this subject in my next blog.

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Hot topics in bank technology - seven years ago

Posted on July 24, 2006

By Art Gillis

The following list came from my regular reading of eight trade journals back in 1999. These were considered fresh and hot things on the bank tech menu. In order to give some flavor to the list, I spiced it up with one man’s opinion of how each technology evolved in seven years.

1. Migrating to client/server technology -- Everyone didn’t do it and it wasn’t the revolution most people expected.
2. Database marketing -- Lots of noise, little implementation, mostly because bankers wanted to know “Which function key do I hit to do some marketing?” It’s a lot harder than that.
3. The Internet as a medium for banking -- Not overnight, but growing at the bankers’ pace, which, like ATMs, took 12 years to mature.
4. Image technology (checks and docs) -- A home run with one man on base (faster Check 21 implementation would have made it a grand slam).
5. Profitability systems -- Like a good diet and exercise regimen. Everyone talks about it, but few
do it. Vendor offerings are probably the best at it. It’s bankers who are the problem.
6. The future of branches -- Some said it was dead, and the herd listened, but the opposite happened. Banking is still a people business even though the Internet was supposed to make banking people-less.
7. The implementation and management of LANs and WANs -- Implementation occurred for good reason, but management of them became an added burden.
8. Home banking -- It’s not called that anymore because it’s now called In-your-car banking or office banking or waiting-in-line banking, anywhere else but home where we just want to have fun.
9. Reengineering the bank -- A good title for a book, but platform automation vendors and imaging vendors did more to change workflow than any industrial engineer. If tech vendors didn’t exist, I’d love to own a feather-plucking franchise to produce quill pens for 17,823 banks.
10. Video conferencing kiosks -- A dud.
11. Converting to Asynchronous Transfer Mode network technology -- Any improvement in network technology will be a good thing for systems users.
12. Object technology -- Did anyone notice? Most bankers were buying “subject” technology.
13. Shifting routine human teller transactions to ATMs -- Let’s face it, the ATM is still a cash machine and that’s OK.
14. Increased automation support in the lending functions -- Some vendors did more than others,
and in my opinion, there can’t be too much additional work in this area.
15. Customer retention through comprehensive database activity -- A myth. Saying “Have a nice day” is just as effective.
16. Electronic Data Interchange and eCommerce -- Slow to develop enough steam to undo old systems because these are not plug-in technologies. The environment has to change first.
17. Integration of customer databases -- When reporters stop using the word “silos,” then you’ll know it happened. Or maybe I have a personal bias. The bank that has my 13 accounts still doesn’t recognize my largest account. Duh!
18. Electronic check presentment -- A great idea, but wimpy volumes. Even in the fifties, computers were screaming, “Give me your volumes, your tedious work, your brainless processing.”
19. Smart cards -- Dumb ideas. When a piece of plastic does a great job, (debit/credit) take it to the next level of uselessness.
20. Increasing technology’s ability to displace people-based activities -- Where do I start? The high volume people-reducer technologies have already done their job. Now new technologies will replace a small number of clerical people, but the technologies will need expensive support people to keep them working.
The fantasy equation: 2 hi-tech people minus 6 clerical people = 0 savings.
21. Data warehousing -- A good technology that is used only by banks who have smart people.
22. Call centers -- It worked so well in the underemployed communities of the U.S. that it is now offshored to Tom Friedman’s flat world.

I’m making my list for 2006. See ya in 2013.

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What are a few bankers and tech vendors thinking these days about their technology?

Posted on July 17, 2006

By Art Gillis

There are 30 stories in the 2006 Edition of Automation in Banking, in addition to 473 pages of stats and facts. Sixteen stories are from the mouths of bankers. Fourteen are from the keystrokes of prominent tech vendors. I served as the humble messenger.
The primary value of the stories, in my opinion, lies in the fact that the subjects were their choices.
Here are the topics they chose:

Bankers:
Core Systems as an in-house mode of processing 38%
Core Systems an an outsource mode of processing 13%
Internet banking 13%
Wire transfer 6%
Platform automation 6%
Overdraft protection 6%
Remote branch capture 6%
Integrating platform systems with core 6%
Fraud detection 6%

Tech Vendors:
Integration
Risk Management
Straight-Through Commercial Lending Workflow
Check 21 and Remote Deposit Capture
Straight-Through Processing
Extended Financial Enterprise
Shifting the Focus from the System to the Customer
Attract and Retain Deposits
Capitalizing on Electronic Payments
Investing in Your Future Technology
Disaster Recovery
Shopping for a Core Banking System
Straight-Trough Processing - Front and Back Offices pulling Together for the Customer
The Next Level of CRM

Are these the right topics? Who’s to say. They ARE the topics.

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The bank tech vendor landscape - more or less

Posted on June 30, 2006

By Art Gillis

The brevity of this message is backed by about 450 pages of details about what’s going on in the world of bank technology. Here’s just one glimpse.

This year, there are 84 companies in the report. That’s 17% fewer than last year, and the reason is a common one - mergers and acquisitions. Some of the M&A activity happens faster than the time it takes for an invesment banker to lace up his wing tips. Cyota was acquired by RSA Security this year and EMC just acquired RSA. A handful of failures (all Internet-related) accounted for a small part of the decline also.

But the number of solutions increased by 11% to 246. Most of the new solutions were in the payments arena and the compliance and security business.

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It’s true, outsourcing is gaining as a way to do core apps processing

Posted on June 26, 2006

By Art Gillis

The numbers are in, and even though in-house is still a preferred method for community banks, outsourcing has gained in popularity. In 2005, new buy decisions among banks, thrifts and credit unions were as follows:

In-house 56%
Outsource 44%

In the years before 2005, outsourcing ran at about 23%. The reasons most bankers give for this turnaround is attributed to the increased complexity of maintaining a fully compliant and secure system. Another reason is the expansion and power of present-day systems.
Here’s my take. “When the goin’ gets tough, bankers rely on strong third parties.”

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The most popular gripe about technology - It takes too long for vendors to deliver new stuff

Posted on June 20, 2006

By Art Gillis

That’s what bankers are saying, and I can’t blame them because the world is turning into a real-time environment. Everyone is living in an instant time cycle. If you think there’s a solution to a problem, you want to see it right away. But I see something else. There are two parts to how long something takes.
1. Transactions occur in nanoseconds.
2. Personnel-based work efforts take forever.

It’s the second category that gets all the gripes. For example, when has Microsoft delivered a new product on the original scheduled date? When has a major (or your own kitchen renovation) construction project been completed on the promised date? When has a war ended before people started to squawk? When did the Wright Amendment Repeal allow you to fly non-stop on a Southwest Airlines flight to San Francisco? Some things just take forever. And the culprit is people. What technology does in nanoseconds, people have to conform to Gantt charts that are plotted in years or even decades.

So relax. Back in the seventies, we knew it was unwise to burn a lot of gas. So we took to SUV’s in the nineties to burn more gas. Now we want gas for a buck a gallon and 50 miles to the gallon. It’s a long way off. The answer is: Use wisely what you already have.

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Ticonderoga #3, Eberhard Faber eraser, columnar ruled pads, hand-held calculator - Tools I can do without

Posted on June 12, 2006

By Art Gillis

One of the first banking applications to find its way onto a PC in the mid-seventies was Asset/Liability Management. And it was a perfect marriage because ALM was about modeling. “Try this and see what you get.” In the days of manual grunt work, “try this” meant only one, two or three what-ifs because it required a lot of tedious work, and bankers were too busy pushing paper from one station to another.

When I asked bankers what they liked about the PC-based solutions, they all answered - “power.” They could do hundreds of what-ifs by changing a variable, then pressing the execute key and examining the results to select the best option. Some of them enjoyed the gaming aspect of this new tool. They could roll the dice without risking the bank. And for once, they could tell an “employee” to do something and get instant completion without a gripe or a lot of attitude. Out of hundreds of what-if solutions, a banker could opt for the best one even if it just had the benefit of a few basis points. In a large bank, a few basis points means millions.

In the world of core solutions, bankers can choose from 76 vendor-supplied possibilities. But they can’t afford to examine all 76, and that’s not a problem. Getting to 12 sensible choices is relatively easy. Getting to one best fit is very difficult unless an evaluator uses 36 tools. My 36 tools are computer-based, but they need a facilitator wearing an expensive suit, aka consultant. The 36 tools always find the most-right solution, even if the second choice is 95% right. Just ask the banks that used them. Those banks are still using the system recommended by the tools, and the comfort of never having to do another conversion. I believe that signifies happiness. A nice byproduct of the process is the consultant is not worn out and still going strong, thanks to the elimination of pencils, erasers, ruled pads and calculators.

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A message for boutique-style banking: Get ready for atrophy.

Posted on June 05, 2006

By Art Gillis

Do you think you’re going to influence a business customer or consumer to do their banking your way? Even in the remotest small communities, people read a lot and they want to believe they can get what the money center banks offer their customers. Any bank that wants to compete today will need all 14 delivery channels, every account type, any product and service offering, every payment mode, and be willing to adopt whatever is coming next. I haven’t heard the term “boutique bank” for several years, but I have heard “Internet-only bank” in recent years. Neither type survived. This is the Wal-Mart era of banking and Wal-Mart is coming to banking.

Specialization doesn’t cut it with bank customers because even though the world may be flat, it is also complex, multifaceted, networked and works in real time. That concept was evident as I viewed bank technology from the side of a very strong provider of technology. As part of an annual program I call “Makin’ the Rounds,” I walked into a presentation room at Metavante where 13 solutions experts were ready to show me the latest version of this long-established company.

When I say there were only two people in the crowd that I didn’t recognize, it’s not an attempt to demonstrate my popularity. Instead it shows how the bank tech business is changing to include shifts in consumer and business habits. One new person covered the expanding arena of payments systems and the other new person handled the broad area of business strategy, product management and lending competencies - topics that are very crisp in my mind as ways banks can enhance their capabilities and make more money. And please remember, banks are not altruistic organizations. The first thing on every bank CEOs mind every morning is how next quarter’s earnings report will look.

Having started as what we all commonly referred to as a “service bureau,” Metavante has in the past three years put together the “engine” to drive any bank toward a completeness in being able to handle the “any” of financial processing. Banks are financial super markets, and one needs only to take a look at the supply chain that serves as the source of that completeness to realize it’s here and deliverable today. The next time a bank tech salesperson calls on your bank, you should begin by telling him/her to show you ALL the company’s offerings.

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Integration is not just a word for vendor systems. Banks could use a dose of it also.

Posted on May 22, 2006

By Art Gillis

I have a feeling that I am not the only customer whose accounts my bank chose not to integrate into my customer portfolio. After all, I have been a careful and responsible customer for 10 years. And with 13 accounts assembled from personal, family members and business, it’s certainly no systems challenge (using any one of my 10 favorite core vendors) to put all accounts together.

Vendor systems claim they can handle up to 99 relationships. But here’s the rub. Only one of my accounts distinguishes me as a member of the 1% Club, and that’s my retirement plan. The other 12 are working accounts that do the job every day, but don’t do much for my bank’s P&L. So what’s the problem? They can’t connect my big account to my customer portfolio. So if ever an employee wants to see who Art Gillis is, they see only the cats and dogs.

A couple of years ago, I made a phone call to see if I could connect the big guy, and after several prompts, I finally reached Bangalore. There was a bit of a problem using the word “integration.” Apparently, in India, the word has greater significance than just the systems definition. So I gave up and prepared myself for a visit to the branch where I had opened most of the accounts. I usually get a nose bleed whenever I enter a branch, but it was OK this time. I asked for Cindy, who had opened my accounts 10 years ago, and I got the familiar blank look as if I had asked for Marilyn Monroe. Finally, when I was introduced to a man who was wearing a tie, I knew I was in good hands. When I mentioned the big account, he related instantly with, “Oh that’s out in Plano, we can’t do that.” That in itself didn’t bother me because I hardly ever go to Plano also. But when you think of a global bank, certainly 7.5 miles from Dallas shouldn’t present a serious hurdle.

Tom Friedman makes a very good case about how flat the world is now. But if Tip O’Neill were around he could have written his version of how local some things are since he was credited with the saying, “All politics is local.” I never got my big account connected, but when I last made a deposit at a drive-up teller, the tube sent back a little white tin container with several jelly beans in it. I ate them all. That’s when I knew I was in good hands at my bank. And Tom, you guessed it, the tin container was made in China. Account relationships are like the family kind. They’re very important, and if you ignore one, they’ll let you know about it, with a lot of attitude.

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Old bank systems never die, they just continue to drain earnings

Posted on May 10, 2006

By Art Gillis

In 1987, the Wall Street Journal published a study that evaluated technology in nine industries. Banking got the lowest grade, C-. Nineteen years and about 152 bank tech conventions later, technology is better. We now have GUI front ends. But the back end is still based on '60s technology. What never appeared in the evolution of bank technology was the proverbial clean sheet of paper. No one ever asked, “Why the hell are we even talking about automating this process, when we should be reinventing the process?” R&D in bank technology today is a matter of writing COBOL modifications to existing code. That’s called maintenance, not innovation.

There’s not enough room on this blog to convince everyone that we are still suffering from antiquated architecture, so I’ll refer to one chance observation that makes the point for me. There was an employment ad in a recent issue of the American Banker for an application development manager. That was the first hint that someone should be fired at that bank. Any bank that is building its own software (that’s what application development means) these days is like a bank that is still making loans on waterfront property in Arizona. The next clue listed the experience required. People over the age of 50 will recognize these: COBOL, CICS, DB2, VSAM, and who knows why JAVA.

There’s something wrong with bank technology, folks, and I’ll begin with my profession. 1) Consultants should be disturbing the status quo. 2) Bank examiners should be sending up red flags telling bankers we can’t stand another Y2K. 3) CIOs should be taking a sabbatical in India. 4) At least four vendors that I know should put 200 banks (let’s begin with the big guys) on their priority list called, “How Not to Act Like FEMA,” and 5) Bank CEOs should begin their next management meeting with, “What are we doing to get out of the '60s?” And don’t mention technology. If technology is in the '60s, the whole bank is in the '60s.

Don’t panic, folks. I just thought you might want to get started soon because the trip will take 10 years. And in defense of any possible accusations of hypocrisy, I should tell you I am not an advocate of reckless spending, thanks to my frugal, New England upbringing. I keep my cars for 14 years. I still have the same wife. My suits last forever because I don’t get a chance to wear them much and I bought Brooks Brothers everlasting style. I never pay banking fees because I know how to beat the system (sorry fee income advocates). But every three years, I throw away my technology only because a tickler file tells me to. And I do mean “throw away.” When I tried to donate my discarded PC to my favorite charity, the Dallas Children’s Advocacy Center, the lady asked how old it was and when I said three years, she politely declined. I sent my check in early that year, I was so embarrassed. Here’s a non-profit that has more wisdom than most banks.

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Oops, the dog ate the files

Posted on May 09, 2006

By Art Gillis

The next time a large bank loses customer data, it ought to come up with an excuse that the public can relate to. So far, the news reports have focused on four large banks. Those banks spend $11.6 billion a year on technology. A good padlock at Home Depot costs less than $4.00. Buy it in China or India and it’s a buck. Do the math. But if the loss occurs during the transport of data, there may even be a free solution to that problem. Thomas L. Friedman tells us the cable to India is so large, and still under-used, that I believe it could become an online data storage device. Banks could then leave the data at the bottom of the sea for free. And if a whale gets it, so what! They’re busy enough just staying alive, and probably wouldn’t have much of an appetite for consumer data.
Are data security custodians so bogged down with intellectual crime that they are overlooking the obvious “I forgot to lock it” crimes?
It’s 2006. Do you know where your data are?

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These are the best of times for some bank tech vendors, and the worst of times for others

Posted on April 28, 2006

By Art Gillis

I enjoy looking at my opinions about the bank tech arena, a year or so after I went public with them. Here’s a list (in caps) that I delivered in 2005 at a seminar for bank tech companies, followed by a 2006 update (in lowercase).

1. MAJOR CHANGES SHOULD OCCUR IN THE VENDOR COMMUNITY. EVERY ONE OF THESE COMPANIES IS SWEATING THE FUTURE.

That was true in 2005, but some vendors reacted nicely and are now well positioned to handle change. Here’s the single most important ingredient for a bank tech vendor - the ability to implement new ideas.

2. BANKS WILL INCREASE THEIR SPENDING IN 2006, AFTER A COUPLE OF YEARS OF WEAK SPENDING.

It happened. Spending is up by about 9% in 2006 from the previous year.

3. NOTHING WILL BE BUSINESS AS USUAL.

So true. Look at Fidelity National Information Services, Jack Henry and Metavante. They threw away the template. Fiserv threw away only one piece of the template and brought in a CEO from the outside. Was that enough?

4. ALL THE WINNERS OF THE PAST WON’T BE THE WINNERS OF THE FUTURE.

Ask Fiserv. Fidelity is neck and neck with Fiserv after only four years for what Fiserv took
21 years to accomplish.

5. AFTER 20 YEARS OF “FIXING” TECHNOLOGY, THERE MAY NOT BE ANY
MORE BROKEN PARTS. THAT’S BAD FOR VENDORS. IT’S LIKE MICROSOFT LOOKING FOR AN ENCORE TO A PC OPERATING SYSTEM.

That might be OK. It’s not about what’s broken anymore. It’s about what isn’t performing up to par. Technology is not your father’s Oldsmobile anymore. It’s about zero to 60 in real time. And don’t ask how we do bank processing. Ask why we do it the way we do.

6. EVERYONE’S ASKING WHAT THE NEW SILVER BULLET IS IN BANKING.
THE ANSWER MAY BE GET OUT THE SILVER POLISH AND RUB THE OLD BULLETS.

Here’s an example. Cash management has been around for decades, but, today, cash management is a hot item because the tools for deployment are hotter. It’s like going to a library to do research vs. googling in your pajamas.

7. THE TRADE PRESS IS SENDING OUT SOME FALSE MESSAGES, SUCH AS:

LARGE BANKS WILL SWITCH TO NEW CORE SYSTEMS
CRM IS THE MAJOR PRIORITY FOR NEW SYSTEMS
SMALL ONE-PRODUCT COMPANIES ARE MAKING GREAT HEADWAY

Don’t believe everything you read. Large banks are deeply rooted in their '60s technology and can’t convert. CRM is like teenage sex, just a lot of chat room noise. And single-product companies are looking for acquirers because they can’t sell the same thing over and over again.

8. IN PAST YEARS, VENDORS RESPONDED TO RFPs BECAUSE IT WAS A SELLERS’ MARKET. NOW VENDORS ARE GOING TO NEED REAL SALESPEOPLE WHO WILL IDENTIFY WEAKNESSES AT BANKS AND SELL THEM BETTER SOLUTIONS.

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At best, I got a C+ in a consulting quiz

Posted on April 25, 2006

By Art Gillis

Here I go again, as if I was still a freshman in college. My attendance twice a month at the Institute of Management Consultants meetings is what I consider required duty. With 32 years as an independent consultant and three years at Booz, Allen & Hamilton, wouldn’t that mean I should know everything by now? What would my clients think if they knew I was still in training? And last night I got a C+. Should I put that in my c.v.? Let me explain.

Our speaker was a seasoned professional consultant, and well respected by both clients and peers. The man presented a very clear picture of what clients deserve from the high priced know-it-alls that have earned almost as many jokes as lawyers. Selfishly, I was keeping track of how I performed as he went through the list. In a world of fairy tales, I’d be writing this story only if I did everything the “professor” offered. In the real world, however, I would not have earned the gold star on my forehead. Gold stars ended when Miss Kane stuck them on me in kindergarten, and I hoped it would stay on at least until I got home for mom to see it. As a freshman, I soaked up everything. As a consultant, I tend to say “Wait a minute.” Here’s how I “failed” and here’s how I am “succeeding.”

1. There’s an expectation that good consultants should be creative. “Outside the box” is the current euphemism. I work in the bank technology industry. I used to offer solutions to bankers that always included a “wild card,” which was my way of saying do something different. In over 300 assignments there wasn’t a banker who chose the wild card, even though it had lots of appeal, especially during the cocktail hour. If I were a creative consultant, I’d be at the corner of Walnut Hill and North Central in Dallas, holding my cap out for two bits or a buck. Instead, my financial consultant calls to tell me I should be taking funds out of my SEP plan and playing more golf.

2. Dealing with client antagonists. Conventional wisdom says, be sweet and get them to see what they’re doing wrong. My approach is, “You’re on a highway to hell, and I don’t want to be there with you.” That gets their attention quickly and things happen.

3. Don’t rush to judgment is another standard rule. In my world, if I’m not delivering answers on the second day of a five month project, the client CFO is checking to see if I cashed the retainer fee. A real consultant doesn’t have to borrow the client’s watch to tell him what time it is. He’s taking names and kicking butts right from the get-go.

4. Get the client involved so they feel part of the solution. Like hell! Why did they hire a consultant. Good institutions are not run by the inmates.

5. Focus on the solution, not the problem is another canned wisdom. When did a homeowner hire a plumber to talk about shiny new faucets? “I’m in three feet of water, get over here now,” is what he’s likely to command. If a consultant doesn’t really understand the problem, he’s likely to do what Bushy did. Let’s go to war!

Please be careful ladies and gentlemen. Listen to good lessons with a screen that works for you. Act on what passes through your screen. You are still a key element of the equation.

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May I have the envelope please? And the top five winners are.........

Posted on April 19, 2006

By Art Gillis

1. Digital Insight 112%
2. Online Resources Corp. 58%
3. Open Solutions Inc. 54%
4. ACI Worldwide 39%
5. CheckFree 37%

This is the only game I play in the 400+ pages of my annual research report, Automation in Banking - 2006. Because there are 24 public companies profiled out of 108 bank tech vendors, I like to show the performance of those companies in terms of the price of their stock. The period is tax day 2005 to tax day 2006. Even though there are 24 public companies, only 15 really influence the price of the stock. Here’s what I mean. Harland Financial Solutions is a bank tech company, but John Harland is a check printer. So even though JH stock went up 42%, it’s hard to make a case that HFS was the reason. To carry this example further, it’s probably even harder to figure out why a check printer should generate higher returns for its stockholders in what is rapidly becoming an electronic payments world. But as I said, that’s why this is a game.

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Do your spring cleaning, turn the soil, check your wellness, and give your technology a stress test

Posted on April 18, 2006

By Art Gillis

OK, folks, I’m not your mother, gardener, doctor or your conscience. It’s just that spring is a great time to wake up and enjoy your life more. “Waking up” means you have to do tasks you hate to perform. And “enjoying your life more” means you’ll be glad you did it. For me, the tough one is spring cleaning at the office, but I do it because I get a huge return for my effort. I must say it a dozen times. “Damn, so this is where I put it.” Here’s one example. Years ago, I created a scorecard so bankers could test their own systems. On the left side of the matrix I listed the most popular deficiencies I have uncovered during my consulting assignments. Because I don’t harp on the petty ones, my list has only 46 items on it. Then I provide four grades for assessment - great, not bad, weak, and N/A. Yes, in the real world, some banks don’t do car loans, or mortgages, or Internet banking, so N/A is appropriate. And I don’t want people to get bogged down with digital assessments because this is a friendly test of reasonableness. “Is our cash management system a 78 or a 76?” It’s not worth arguing about it -- “weak” is a good enough detector. At the end of this exercise, it’s the “weak” column that spooks me. Too many check marks means it’s time for repairs. And summer is usually the best time to do conversions, unless you’re in the vacation regions.

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Saturday’s work - The value-add for Monday thru Friday

Posted on April 10, 2006

By Art Gillis

If it rained every Saturday, I’d be a rich genius. So please understand, folks, I’m not a workaholic, and I love outdoor recreation. But when I work on rainy Saturdays, all kinds of good things happen. I hope you’ll catch a mild touch of this disease. Saturday’s work should consist of these kinds of activities:
1. Fix what you broke last week.
2. Establish a structure that will eliminate future breaks.
3. Create something.
4. Push back and criticize yourself.
5. Send a thank-you note to people you overlooked.

1. To fix last week, start with your old mail. Look at all those e-mails you didn’t have time to answer and do something about them. For those e-mails you answered in a rage, trump them with a milder version that says something like, “I was in a bad mood.” Everyone will love you for being just like them.

2. Establishing a structure starts with setting up a triage. Some things are critical and you have to stop what you’re doing to address the intrusion in real-time. For me, it’s a call from my bride of 44 years telling me to pick up a Belgian endive on my way home from work. Some things can wait a little while, but you need to resolve them before you go home. Some things can go into the circular file. The patient died and there’s not a damn thing you can do about it. If you have anything in your in basket at the end of the day, then you failed at structure building.

3. Creating something is not for everyone, but you can still do something. Look at Bill Gates. He created one thing and just milked it dry. He also created several things that died on the vine. Here’s my score. In 1974 I had one single raison d’etre - to help community banks with their technology. Today I have 16 products and services that produce revenue for my consulting practice. Doing the math, one sees that I created a new product every two years. Donald Trump would have fired me for that performance. Booz Allen & Hamilton (my former employer) would have honored me since there hadn’t been a new idea there for decades.

4. Pushing back means removing yourself from the process and looking at things with a purely objective microscope. Are you on the right track? Are you doing the right things for your client? Could someone else do your job better? Condi Rice is taking cheap shots at Donald Rumsfeld. That’s not the point. Why wasn’t Rummy taking cheap shots at himself?

5. I haven’t counted them, but I reorder thank-you notes by the hundreds. So many people have done good deeds on my behalf, that I want to tell them in my own words how much I appreciate them. You’d have to ask a shrink why I use physical cards, an envelope and a stamp. All I can tell you is I need to do it that way. In 1983, I sent a thank you note to Art Buchwald. He sent back a letter dated June 14, 1983. When I read it today, I realized he had practiced the five elements of Saturday’s work in that one brief letter.

Comments

Pay attention to your DNA, and let it drive your behavior

Posted on April 07, 2006

By Art Gillis

I have to confess, folks, that I don’t understand DNA. But when I read news accounts about a prisoner who was released as a result of DNA analysis, I feel good. If DNA is a science that means we are all unique individuals, then it supports my philosophy of “Don’t fight it, come clean.” Last month, I celebrated the 32nd anniversary of my consulting practice. I did it alone. There was no champagne. Telemarketers didn’t send canned messages of congratulations. And I never mentioned it to my wife because it scared her half to death when I told her I was leaving the bank. The celebration just meant that I knew my DNA and acted in compliance of it. Lots of rewards and no regrets.

Last night I was invited to speak to a new group of entrepreneurs who established new businesses, all related to different forms of technology. I talked about my practice, but I warned them not to copy my strategy because it was customized just for me. Do what works for you. When I got home that night, I couldn’t stop thinking of nine people I had just met -- all strangers, all unique, all had different skills, all had a mission. Why can’t I get to sleep, I wondered. And then it hit me. Part of my practice is to tell investment analysts what I know about companies that are listed on the NYSE and NASDAQ. My clients are prepared to invest heavily. What haunts me is that a paltry investment in nine people I just met could produce a value that could return a 30% ROI with ease. Put individuals together in a structured business environment, and you’ve got a company that will succeed in the flat world we now live in.

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But what does your son do all day long?

Posted on April 06, 2006

By Art Gillis

Business trips to Boston always meant taking time out to visit my mother. After all the family gossip was exchanged, it got down to two things. “Are you eating enough?” and “That was a good job you had at the bank, and we were all proud of you, but now, I don’t know. The ladies at the Philoptohos ask me about you and I don’t know how to explain what you do.” After listening to my mother, I realized why so many Jewish kids went to medical school. Their mothers could say, “My son the doctor,” and everyone understood. “My son, the consultant,” just doesn’t click. But the ladies don’t just ask, they offer opinions. “He could have opened a restaurant with you in the kitchen showing everyone how to prepare your fabulous meals. You know you’re the best cook in Somerville. Right now I’d give anything for your kokinisto arni and those little pastry triangles filled with feta.” That’s when I saw my opening. “Ma, picture you in the kitchen of a restaurant showing the staff how to cook and how to create masterpieces of culinary delight, so the customers out front will return for more. In a way, that’s what I do for banks. I show them how to use great technology to keep their customers happy.” I think she got it.

Today, the tech industry needs some homespun critics who will ask, “But what do you do all day?” We need to understand better what people do and what they expect us to do. In the old days, I used to say, “I see a lot of stuff that comes over the transom.” Now it comes on my screen, but it’s no better than the physical stuff. Here’s how I rank the deficiencies of most communications:

1. The physical presentation is awkward. Example: Today it was so tiny that it was unreadable and it was frozen so I couldn’t enlarge it.

2. The message begins on second base, just to use a little baseball vernacular. It’s as if someone took away the batter’s box, home plate and first base. Can’t we start at the beginning?

3. People write for their benefit. They don’t write for the reader. You know what you’re saying, but do we know?

4. There’s too much to digest. Short and sweet is an expression I have heard all my life. It fits even today in our world of massive information.

5. I gave up on the idea of “take your time.” Everyone’s moving too fast and they’re losing what I call “the essence of appreciating the value.”

This message contains 468 words. I wish I coulda given it to you in ten words.

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I did a little spring cleaning last Saturday. Here’s what I learned

Posted on April 04, 2006

By Art Gillis

In March 1989 I wrote a piece called “The Bank Automation Arena as I See It.” The reaction was strong enough to motivate me to keep doing it - my way. But this time I needed someone to pay the freight. Here’s an accounting - date, title, sponsor:

June 1989 #2 "My Mythical System for a Community Bank," ADP Banking Information Services Division (later BISYS, now Open Solutions)

September 1989 #3 "Systems Integration in a Banking Environment," Broadway & Seymour, now Jack Henry & Associates, Inc.

July 1990 #4 "Why Bankers Are Losing the Cream of the Crop," Citicorp Information Resources, now Fiserv

October 1990, "How To Work," Systematics, Inc., then Alltel Information Services, now Fidelity National Information Services

July 1991, "Who Said Choose the Software First," ACCESS Banking Systems, now Jack Henry & Associates, Inc.

October 1991, "A Cessna Citation, Three Successful Banks, and Dimension Software," The Kirchman Corporation, now Metavante

July 1992, "Why Do Small Banks Make More Money Than Big Banks?" Peerless Systems, Inc., now Jack Henry & Associates, Inc.

December 1992, "A Gourmet Recipe for Great Customer Service," M&I Data Services, name change only to Metavante

November 1995, "Outsourcing Revisited Six Years Later, Or Is It 36 Years Later?" IBM, still IBM

January 1999, "Every High School Graduate Doesn’t Have to Go to College," Jack Henry & Associates, Inc.

Draw your own conclusions. Here’s mine. “Old bank tech companies never die, they just get acquired.”

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What does $50.24 billion mean to you?

By Art Gillis

It means two things to me. The net worth of Bill Gates and the amount of money it takes for 17,823 U.S.-based financial institutions to drive their technology for one year (2005). And this is why I keep harping on tech vendors to raise their sights on the big guys. Large banks spend 73.6% of the money. Mid-tier banks spend 16.8%. And the little guys spend 9.6%. In a recent presentation by the president of a large systems integration company, the man kept referring to a message of advice to his audience - “Follow the sun.” I may be wrong, but I took that to mean what another guy kept yelling to Jerry Maguire - “Show me the money.”

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If I believed every Internet offer, I’d be richer than Bill Gates, look like Brad Pitt, travel the world for free, and get dinner invitations from Sharon Stone. Fat chance.

Posted on April 03, 2006

Art Gillis
3/31/06

Does anyone fall for these offers? Am I too skeptical? Do I really have relatives in Nigeria who bequeathed large sums of money to me? Is it possible that some day we’ll see a more ethical Internet? The answer is YES, if we can count on history to repeat itself.

My first PC was an amazingly powerful device - from purchase to use. Here’s how it happened: I drove my “father’s” Oldsmobile station wagon a half block from my office to a Computerland store. The sweet young sales lady gave me a 30-minute demonstration. I carried out four boxes and gently placed them in the Olds' cargo area. The total bill was $5,632. I took the boxes upstairs to my office and connected the components. I didn’t have a screwdriver so I used a dime to tighten the connectors. I created a WordPerfect document. I produced a VisiCalc spreadsheet. I checked out dBase. All that in about three hours, and I never broke the shrinkwrap. I then said, “Wow.” That was a word I never used in my 22 years, at the time, as a mainframe bigot. The long and short of it is that my PC experiences have always been pleasant even though I’d never make it today with that 1980s PC. So I’ll wait out the Internet. Some day, all the garbage will go away and we’ll have just the clean stuff.

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Forget offshore outsourcing. The best way for bank tech companies to improve earnings is to dump their marketing departments

Posted on March 29, 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.

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There were 2.34% fewer banks at the end of 2005, but there’s still a branch on every corner

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.)

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Fuggetabout the shape of the world - look at the people

Posted on March 28, 2006

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.

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Strong profit margins for bank tech vendors - Wall Street loves them, stockholders get richer, CFOs get a dose of job security, but customers wonder if it’s at their expense

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.”

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If you were a tech vendor, would you wish that 36 percent or 64 percent of your market would go away?

Posted on March 24, 2006

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.

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Have a plan, even if it’s on the palm of your hand

Posted on March 23, 2006

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.

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Words From the Closet. Bankers Mouth Off

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.

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From Family Dollar to Williams Sonoma, there’s a toaster for everyone. The same is true for bank technology

Posted on March 22, 2006

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.

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It ain’t about DDA systems anymore

Posted on March 16, 2006

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.

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Actors, generals, lawyers, athletes, even business tycoons have joined the ranks of political life

Posted on March 10, 2006

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.

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Adding new technologies without a modern core system is like building the penthouse before the foundation is poured

Posted on March 06, 2006

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.

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An open letter to H. Ross Perot

Posted on March 03, 2006

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.

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I’ve heard of the perfect storm, but never the perfect bank tech company

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.

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Wanted: Eight world series-type bank tech salespeople

Posted on March 02, 2006

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.

Work history:
• A former partner at Accenture, BearingPoint, KPMG or Deloitte
• A thorough hands-on person who knows banking applications as an insider
• A business-case oriented tech expert

Personal situation:
• A sensible, mature person who would never have dreamt that his successful career would end as a peddler
• A three-time loser in love and marriage
• A guy who knows the smell and insider’s look of a gym
• A guy who wants to make a last hurrah and retire at 50
• A guy whose 401K bellied up
• A self-sufficient type who doesn’t need the sales support staff of his employer
• A guy who has the unique personality of expertise and humility to overcome the absence of expertise and humility of the CIO he’s trying to sell

Terms and conditions:
• A sales territory of 15 banks, coast to coast
• A huge commission plus reimbursable expenses
• Your quota will be based on what the 30 banks now spend on IT - $1.974 billion
• Unless your name is Allan Woods, you won’t sell all 15 banks in your territory, so a realistic quota is $65.8 million per year
• A five year endurance contract with no extensions regardless of success or failure

An open note to the CEOs of FNIS, Fiserv, Metavante and Jack Henry:
Get past my sarcasm and go hire these two guys. Nothing else you do will pay off as much as this action. And your boss (Wall Street) is waiting to see at least a concerted action for that thing called organic growth.

Comments

There are 130 large banks in the U.S. Their CIOs should be paid millions, or they should be fired

Posted on March 01, 2006

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

Comments

Chapter 2 on “info@”

Posted on February 28, 2006

Art Gillis

info@ is not just a business concern of mine. I need it for more important matters, such as proving to my sweet wife that I can do anything on the Internet. Somehow she lives happily, relying on the New York Times and the New Yorker. Recently she complained that her favorite honey was no longer on the shelves of her favorite gourmet grocery stores. Typical of a know-it-all consultant, I responded with, “Go to Whole Foods, they’ll have it.” That went over like a scene from Curb Your Enthusiasm, as Larry David sticks his foot in his mouth one more time. “That’s where it isn’t”, my wife said. So I went to google.com and sure enough a search of key words such as Tasmanian, Leatherwood, honey and New Zealand delivered actual names of stores where the honey was sold. I went to info@ for one of the stores that just had a most inviting name - Garden of Eden. I’m still waiting for a response, and I’m not talking days, weeks or months. My inquiry ended up in the black hole. But the bright side of this story is that the honey sells for $12 a jar. Sue Bee goes for less than two bucks. Thanks, info@, I’m glad I met ya.

There’s a real problem that exists in my ranting and raving. Ten years from now, people will be reading about the crudeness of the Internet and they won’t believe it. Right now, we are observing an Internet which works technically, but not humanly. When the two connect, then we’ll have something.

Comments

Does “info@” work for you? It’s like the black hole of Calcutta for me.

Posted on February 27, 2006

To say that I surf the Internet would be a lie. I prefer to say I seek information from the Internet for worthwhile business purposes. And besides, whenever I go to the beach in Florida or California (there’s no surf at my cottage on the north shore of Cape Cod) I never feel as though I relate to the lean, young, blond, WASPish teenagers who practically walk on water. And besides, they’re having fun. When I’m on the Internet, I’m working. So now I hope I have set the stage of one grumpy old man whose experience says that info@ is a fraud.

I go to info@ in order to learn more about bank tech companies that I might want to include in my annual research report. There are only 110 companies in this report because I hand pick them. The first step is to get some basic information. Since no one answers their phone anymore, an e-mail is a good way to get into their system because it also serves as a record. I realize that info@s probably attract a lot of jerks and tire kickers. So I explain the reason for my query and provide credibility data in an attempt that maybe the recipient should notice my request. Now I hope I have convinced you that I am a legitimate player in the system.

Although I have not kept an exact record of responses to info@, I’ll offer with confidence that I’m running at about 2%. In other words, 98% of my queries went into the black hole. If you think that I’m exaggerating, let me invite you to try just one that I selected at random.

info@mavent.com. Now please don’t act like a jerk. Ask a legitimate question. This is a compliance company so make your query pertinent. If you get a response please tell me so I can adjust my approach, or change my name, or find a good shrink to tell me what’s wrong with me.

Comments

Thanks to the guys in the trenches of bank technology

Posted on February 24, 2006

by Art Gillis

It’s that time again (every other year) when I conduct interviews with bankers so I can produce real-world impressions of what technology is doing for banks. These guys are on the job every day and they know what works and what doesn’t. So they tell the truth. Naturally, they want to tell their stories and that’s why the list is biased. I haven’t heard anyone start off with, “Oh man, did I screw up badly.” Here are some of the common characteristics from these success stories that I think you should know:

• All of them had top management approval, support, involvement and coaching.
• All projects were directed by an “owner” who solicited appropriate user involvement.
• Not a single prima donna in the bunch.
• Every case study included cost as a consideration. In the old days, cost didn’t play into recovery from “disasters.”
• Staff considerations were part of every tech decision. Cutting staff was fine, but adding staff was good too if it delivered desired results.
• Vendor support (timely, competent, willing, and delivered with joy) was critical in the success of projects.
• Every case study supports the idea that technology never ends and needs care and feeding.
• A new discovery that now gets more play - Let technology do the mechanical work while people focus on exceptions and thoughtful work.
• The word “partner” is now beginning to mean something as opposed to previous times when it appeared only as a buzz word in vendor brochures.
• Another new discovery. Post implementation used to be like a hangover. Fun last night but do I feel awful now. Bankers are finding value-add benefits that vendors never told them about during the “romancing” phase.

There were some interesting unique parts to these stories, but I wanted you to know what’s common these days. And the unique parts support my preaching. All banks aren’t the same and even a 10% uniqueness is why I recommend one vendor over another. On my most recent 13 assignments, I recommended 8 different solutions and told four banks to stick with their present vendor. I call it the proper fit, not best vendor.

Isn’t it nice to hear from the trenches instead of the ivory towers?

Comments

The Black Hole of Little White Lies

Posted on February 21, 2006

by Art Gillis

That was the title of last night’s meeting at the Dallas chapter of the Institute of Management Consultants. And what a great job Tim Mazur did. He’s the VP of Ethics at Countrywide Financial Corp. His presentation consisted of 29 PowerPoint slides. They were all worthy of careful study. Boiling it down to a few things that I want to keep in mind for myself, I offer this oversimplification to you:

• Be guided by the “right thing to do.” Sort of the way your mom taught you.
• Business should never make a bad thing right.
• There’s really one code all the time. Non-profits, corporations, individuals and governments have to abide by the good code.
• Personal morals, religion and law don’t necessarily establish the basis for (not the same as) ethics.
• Ethics is now a popular concern. Companies teach it. Consultants specialize in it. Courts prosecute ethics violations. And the press embarrasses the hell out of violators.
• The good news is that awareness is having a positive effect. It’s not blind optimism to expect that we won’t see another Enron.

It’s interesting how timing seems to add more penalty to the bad guys. The former CEO of Radio Shack was never so popular as last night.

There’s a new 29-minute jump start to my day now.

Comments

Is it flat? Round? Would you accept, “the world is a triangle?” What happens if it becomes a trapezoid?

by Art Gillis

In the past couple of years, I have noticed that the bank tech business is looking more like the shape of three points. After I thought about it, I realized it’s been a triangle for a long time, it’s just that it hadn’t appeared that way in my binary, one-on-one world until recently.

Here’s some evidence of a Triangle World:

• Bankers think they run their business for their customers and stockholders, but they really run it as agents for the regulators. New regulations will burden the good guys, while the bad guys will still do the crimes. And Congressmen will be reelected because they appear to be doing good deeds for the public. One loss (banks), two wins (Congressmen and crooks).
• Tech vendors supply solutions to banks, but sometimes delivery goes by way of Bangalore. One loss (banks still pay full price), two wins (IT vendors and Indian companies).
• Employees work for companies, and they get honorable mention in every annual report, but in fact, employees work for the “czar of the P&L” whose “business commandments” include - If someone can do it cheaper than you (where cheaper is $15K vs. $80K per year), you’re gone. One loss (U.S. employees), two wins (companies and Indian employees).
• An AOL customer from the Bronx calls 1-800 to resolve a glitch, but the customer service rep is wondering why her company hadn’t taught her this strange language that not only isn’t Hindi, but it isn’t the American version of English. Yo baby, whassup? Three losses.
• More fingers have been pointed since technology was invented than ever before. A banker files a complaint about terminal response time, and the prime IT vendor points to the telecom provider. Glitches are the other guy’s problem, like the best-of-breed third party that the bank chose over the IT vendor’s offering. Or the bank’s employee who was accumulating vendor releases to do one major update to save time. Or the bank’s purchasing agent who bought refurbished PCs from the Internet rather than guaranteed factory-fresh Dells that give the IT vendor a handsome commission. Or the reader/sorter vendor in Boston who tells his customer the spare part is at their West Coast supply depot, while the vendor in Los Angeles tells his customer the spare part is at the East Coast supply depot. Three losses.
• An online consumer complains to her bank that account balances are out of sync with her book balances. The first question the bank’s customer service rep asks after 18 prompts, “Who is your Internet Service Provider?” Three losses.

It appears that the Triangle World has one common characteristic - money. How much more can we make. How much more can we keep. And how much more can we flaunt in the faces of our evaluators. Third-parties do have a value, but they add a lot more complexity which will cause reduced productivity and finally - less money. Whatever the shape of the world, it seems we’re still losing something.

Comments

If your IT outsource company is charging you more than $1.08 per DDA account per month, then you’re being ripped off.

by Art Gillis

I have nothing more to say on the subject, except that the processing of an average DDA account (22 transactions) is a commodity, like a gallon of gasoline. Unlike gasoline, however, tech vendors achieve economic advantages from scale, improved technologies, and a never-ending reserve of capacity.

As a result, the price of a DDA hasn’t changed (shouldn’t have changed) in years regardless of COLA increases.

Comments

If your name is on the company letterhead, take a long term sabbatical

Posted on February 16, 2006

by Art Gillis

Sorry founders, it’s not your fault, but I think it was destined to be. The man and the company are two different things. Today I read a press release about Perot Systems. I read several executive names, not one of which was Perot. H. Ross Perot probably deserves credit as not only the founder of EDS and Perot Systems, but the “founder” of outsourcing. Even IBM didn’t know that was a business. Now it represents over 50% of what IBM does. And even Ross’s son didn’t do much good as the CEO of Perot Systems. Little Ross owns half of the mud in Fort Worth and has earned his own credits as a successful real estate developer. Why should we think he should step into papa’s shoes and run an IT company? Here’s further proof that the boss whose name is the same as the corporate name doesn’t work. It worked for Henry way back in the 1900s, but is Bill doing anything to make The Ford Motor Company a success? Ask all the workers he just laid off. Oh, I’ll concede to a few exceptions. Mr. Perdue could sell chickens because he looked like one. And Emeril’s restaurants and TV show wouldn’t pull the crowds in if he called them Home Cookin’ Cafe. But I’ll tell you this much. If a presidential candidate steps into the arena in 2008, and his name is Joe America, I ain’t votin’ for him.

Comments

It’s the number of accounts vendors love, not the balances

Posted on February 15, 2006

by Art Gillis

As of 11:00 AM Central Standard Time on February 15, 2006, Art Gillis updated the Number of U.S. Bank Accounts Model as shown below. But first, some caveats.

This is not a first-time exercise, thus having the benefit of corrections made in previous attempts to arrive at projections. However, extrapolations, made based on a sample size of a few hundred client banks, may not produce perfect results.
Gillis relied on his own tools and judgment. No one contributed to this exercise. Not even google.com.
Gillis had a very comfortable eight hours of sleep last night. He dreamt of cultivating his garden in the Spring, even though weather reports indicated a two-foot cover of snow in the Northeast.
Gillis had his usual breakfast of orange juice, English muffin and coffee, then drove six miles to the office.
He was in a perfect mood to address the model.

Total number of deposit and loan accounts in the U.S.	926 million
Average number of accounts per financial institution	52,130
Number of U.S. accounts at Citibank	90 million
Number of accounts at a $1 billion thrift	97,556
Number of accounts at a $550 million urban retail bank	40,841
Number of accounts at a $133 million bank	16,146
Number of accounts at a $37 million ag bank	5,343
Number of accounts at a just-opened de novo in Florida	2,069
Average number of accounts per living human being	3.1

Comments

Reading about the sales & marketing skills of banks is like reading about Dick Cheney’s marksmanship - nice shot, wrong target.

Posted on February 14, 2006

by Art Gillis

I have 13 accounts with my bank of record. I had 14, but my bank sold their merchant business to Wells Fargo. My bank never calls me, and that’s their loss. I could use a couple more accounts.
I never call my bank, and that’s to their credit. They do things right so I never have to call to correct.

The best targets for banks today are their existing customers, but I get the feeling we birds are in the bag, so banks look for other fish to fry. Wells Fargo calls me a lot and I don’t mean from Bangalore. The lady makes a very good case, and she sounds right. She even has the right surname for Dallas. She lists the incentives for me to switch, and there are some freebies included. I pause for fifteen seconds and tell her I’m already getting free this and free that. She thanks me and we end on a high note. And no one had to call 911.

Comments

If you’re the head of IT at your bank, I’d like to introduce you to your real boss. He’s called CEO.

Posted on February 13, 2006

by Art Gillis

Stop thinking about yourself. Think about what is on the mind of every good CEO. Here’s the list:

• Credit quality
• Earnings
• Shareholder value
• Customer loyalty
• The wrong acquirer who will put most of you in the unemployment lines
• Partial technology (all banks have some, some banks have weak, no bank has the best)
• The bank examiners are where?
• Is Ben Bernanke speaking somewhere today?

Take care of the CEO and your job will be a lot more secure.

Comments

John Williams, Chairman of Computer Services, Inc. receives Kentucky’s Governor’s Technology Award.

Posted on February 10, 2006

Following is my congratulatory e-mail:

John,
I just did some clean-up work in my office and threw away some old publications that glorified the leaders of our industry. It was an amusing experience because most of them (all of them) were a proverbial flash in the pan. So it is with particular admiration and joy that I can say to you it's a lot sweeter when it is time-sensitive. Long time makes it a value add award. Enjoy it because you really earned it and because we can look up to you as a role model to try to do it your way.

Art

Comments

So ya wanna get rich quick? Buy low and sell high.

by Art Gillis

The entire contents of Automation in Banking - 2006 (now in update mode) reside on my PC. Where else? In addition, there’s a bit of “push technology” in my schema that monitors on line activity and yells at me when it detects an alert. So today, it told me that Fiserv’s stock price dropped enough to put it in the red from April 2005’s price. By only a few cents, however, but that’s what our digital world is all about. That alerted me to look at the list of public companies included in the report. There are 23 companies listed but only 13 are 100% dedicated to bank technology. And while I’m throwing out caveats, I readily admit that I know nothing about investing, and l outsource that function to the professionals. Inclusion of the fictitious Automation in Banking Stock Fund is purely for fun. Here are the reds as of today’s prices compared to last April’s.

BroadVision -69%
TSYS -18.9%
Computer Services, Inc. -17.7%
BISYS -9.4%
Fifth Third Bank -9%
John Harland -2%
Fiserv -nil

Fidelity National Information Services is down 6.5%, but remember, that’s as of a new listing which appeared just this month. And remember, four of the above companies have very little to do with bank technology. Were there any winners? You betcha:

Digital Insight 95%
ORCC 46%
CheckFree 38%
Open Solutions 33%
Jack Henry 23%

Comments

Nanotechnology - The only thing I ever knew about “nano” had to do with the execution speed of our mainframe. A cycle took a couple of billionths of a second

Posted on February 08, 2006

by Art Gillis

Yesterday I attended a meeting where I knew I’d be totally out of my element. How right I was. The title was: Commercialization of Nanotechnology in Texas. It was held at the University of Texas at Dallas. Right from the get-go, I felt out of place. The campus was so vast, that it could have fit MIT, Harvard, Stanford and a few more top universities with parking space to spare. The Cowboys could have even built their new stadium there without cutting a tree or leveling the land. And the buildings all looked alike, as if they were built in one six month period. If the labs had “clean rooms” for their research, then the builders got carried away and extended it outside. I was looking for a candy wrapper in the gutter just to make me feel at home, but there weren’t even any gutters. This was not Boston as I was used to. But enough of the environment. Inside the house was packed, with mostly real players - inventors, scientists, engineers, researchers, educators, innovators, put-your-money-where-your-brains-are business men, investors, lawyers and consultants. I could tell by their questions. Knowing nothing about nanotechnology at noon, by 1:30, I had at least satisfied my curiosity.

• I now know what it is. Think so tiny that you can’t see it. Think of it as something added to material, such as sun screen or paper currency or khaki pants. Think of a billionth of a meter. So you know it’s small. But what does it do? Name a material or substance and nano will make it better. One panelist picked up a piece of paper and said, “paper will be better.” I can’t imagine improving the paper I use today, but what if nano can make it fireproof, or wrinkle proof, or dog proof? There goes my grandson’s homework excuse.
• I believe the panel when they answered a question about where it will be deployed. The answer was, “Where won’t it be?”
• I believe it will have practical application - low cost with significant benefits to end users.
• I believe what the panel said. It’s here now but you won’t see a billion dollar company for another 20 years. In a world that lives by “speed to market” this panel was counting decades.

Speaking of the panel, There wasn’t a single yahoo at the table. What a refreshing change. If anything was being “sold”, it was patience, participation, awareness and more of what was taking place in the SRO comfortable auditorium, which by the way, was donated by TI.

I’ll borrow the last comment offered by the head of a state agency created to help fund new ventures - stay tuned.

Comments

What are you worth?

Posted on February 07, 2006

by Art Gillis

What does it cost to make good technology decisions? Like any consultant, my answer is, it depends. But I’ll give you some of the data elements to plug into your own algorithm. Based on standards used by any good consulting firm, a rookie consultant with an MBA from a top business school is going to bill out at $2,800 per day. The math is pretty simple, and I didn’t invent it. Although the numbers were a lot lower when I worked for the prestigious sector, the algorithm is the same. The salary is $150K. The billable value is four times his/her salary, thanks to healthcare, profit sharing, overhead and partner support. Partners sell, they don’t work, so someone has to pay their way. There are 215 billable days in a year, max. And there you have it. A $150K person has to produce $600K of revenue. Any billing rate less than $2,800 per day, and you’re looking at a guy who is between jobs and calls himself a consultant. Anything more than that, and you’re looking at a guy who already has many of the answers so he doesn’t have to work as many days as the rookie, to come up with the answers a client needs. Why do you need to know this? Because technology decisions are very difficult to make, and sometimes a consultant can ease the burden. And don’t believe everything I say just because I earned my CMC and I’ve been doing it for 35 years. A lot of people have been telling me recently that there a re a lot of good consultants in the industry, as opposed to previous years. So when the going gets tough, hire a good consultant. But don’t worry about the rate. Worry about the total amount on the invoice.

This message is a public service and it was paid for by no one.

Comments

What the Internet needs now is a 40-year-old editor

Posted on February 06, 2006

by Art Gillis

And you thought I was going to say consultant. But I do admit to a bias for editors. I like editors because they fix things objectively (they didn’t write it), and live by rules they didn’t create. They also understand logic and sequence. Have you ever read a book that didn’t have an introduction, foreword or preface? Second, I picked the age of 40 carefully - not too young to be in the same arena as the creators of Internet nerdism, and not too old to be thinking, “You gotta be kidding” all the time. Now to explain why the Internet needs this kind of help.

The Internet was launched too quickly as if some evil force in the world would have done it if we hadn’t. Our desire to be first might have started after Sputnik, when the Russians made it to space before us. The introduction of the Internet came so fast, it was as if an author had just typed the last dot on her Royal or Remington and the draft manuscript went directly to a printer. No alpha test. No beta test. And quality control would begin with the early adopters. We’ve had at least ten years of early adopting, and I’d like to see more reliability. Here’s what I mean.

There’s no easing into the typical web site. Everything is thrown at you on one busy screen, and while you’re trying to figure out how to get to the desired place, pop-up ads are flying at you to sell you something you have no need to buy now or in twenty years. But thanks, hotels.com, for telling me the most popular cities people go to. I won’t go there for my vacation!

I always appreciated the human greeting, “May I help you?” It’s designed to begin the process of completing your desired transaction, but it has warm and fuzzy value as well. I’ve never seen the phrase on a web site. When Citibank launched its ATM program back in the seventies they hired all kinds of consultants, including yours truly, to provide guidance. A group of psychologists was assigned the task of evaluating the screen language. They made one recommendation. Use the word “please” before each instruction. They missed the part about a Spanish version. That was learned the hard way.

Electronic forms look as if they were designed by the Soup Nazi from the Seinfeld episode. Most people would say they are not user friendly. I say they lack reality. Because my first name is technically “M.” it gets rejected with a sarcastic remark to go back and fix it. And the rejection doesn’t happen in real-time so I can answer with a lie in real-time. I have to wait until the data entry is all done before I can go back and correct all the red “swastikas”, or maybe they’re dots. I always feel good that H. Ross Perot must have the same problem. It makes me feel less weird. By the way, Lendingtree fixed the screw-up, but not until a story ran in the American Banker about my gripe. Lendingtree didn’t deliver four lenders, however, because they didn’t have a bank in their network that was lending to my zip code. And they were worried about “M.”

And then there’s the problem of the submit button, where the input spins out of control into cyberspace, but you don’t have a clue as to what went wrong. Did it get there anyway? Should I do it all over again? Can I ask someone? I recently clicked on a link in an attempt to pay my dues for a professional association, but the new link which was supposed to be secure and thus protect me, never appeared. I’ll bet even a hacker would have filed a complaint about that one. I reported the problem because I care about my association. I got three responses which by now have become standard Internet procedure. 1) Hmmm.
2) Try it again. 3) Call back if you have any more problems.

One task that I have always appreciated about computers is their ability to sort masses of data very quickly. So why can’t google.com sort responses by date of most recent appearance. If I’m studying armored vehicles what’s the chance that I would care about how horses were protected in the War of 1812?

I’m done for now, but who’s that old geezer with fuzzy eyebrows looking over my shoulder and cheering me on? It’s Sunday night. Shouldn’t he be at work?

Comments

WE NEED ALL THE HELP WE CAN GET -- THE RIGHT HELP

Posted on February 02, 2006

by Art Gillis

I encountered my first serious failure in life at the age of five, in kindergarten. I couldn't cut paper with the standard issue of blunt, dull, loosely-riveted scissors that were handed out in my school. But not to worry, for I also met my first love in that class. Maureen Kelly did all my cutting for me, and I never had to ask.

Growing up in a tough, albeit very safe, Irish/Italian neighborhood, caused me to be a bit concerned about what the macho boys would think of a girl helping me through these difficult times. One of them was so good at playing the role of tough guy, that when he grew up, he got the part of Moe Green, the Las Vegas casino owner, in The Godfather. You may know my former classmate as Alex Rocco. As we grew older, like in the fourth grade, he became a good friend and he taught me how to play pool.

Today I still can't use scissors that well, but so what? It's about as important to me as some other things I had to learn, like the value of pi. Let's face it, how many of you are really hurting today because you forgot that pi = 3.14159265+? Is it required in figuring out your taxes, or paying bills, or understanding Alan Greenspan's state of the economy?

What Maureen taught me is that it's OK if you're not great at everything. Today's technology is so vast and complex that it's impossible for me to work productively and still take time to learn all that's available. The average PC user spends five hours each week on overhead chores. Not me. I scan catalogs that contain thousands of software programs that I'll never learn to use. All I ever learned was word processing, spreadsheets, a little graphics and a database system. But someone in my repertoire of outsourcers knows how to use what I need from time to time, and I can get him or her to "do my cutting" for me for a modest fee.

This message is designed to relieve your stress and guilt about how computer-literate you should be. Don't be embarrassed if you don't know how to do everything yourself. Look for help -- the right help. There's got to be a Maureen or a Hillary or a Mother Teresa in your life who can take you through the difficult tasks. Now there's even a storefront in my neighborhood called the Geek Squad. It was once a convenience store that I personally never needed because there was one on every corner. I think I'll need the Geeks, and it's comforting just to know they are there. And if you feel intimidated by the one-on-one method, try one of the millions (at least it seems there are millions) of how-to books for dummies. If you read them under the covers with a flash-light, your peers will never know. They'll think you acquired all that knowledge yourself, because you have an affinity for overcoming very complex matters.

Comments

The dot-com bust isn’t over yet

by Art Gillis

The 2001 Edition of Automation in Banking included 31 Internet-type vendors. The 2006 Edition has 13.

Is that a good sign? For the survivors, YES. When every wannabe was jumping into the space, I went public with this remark. “Internet banking is a project, not a company. What will the vendors do after every bank is on board?” So the reduction to 13 is logical, and it may go down even further. If you want to go down memory lane, here are some of the casualties: BroadVision, Destiny WebSolutions, Framework, InteliData, NCR, Sumx, Netzee, Home Account Network, and others. And if you get technical about the fallout, I understand. Some of these names disappeared as a result of acquisitions, but in my mind they were salvaged from failure not success.

Comments

CheckFree sees the value of telephone banking - Gillis comes out of the closet.

by Art Gillis

Nine years ago when everything in banking looked like it was going to happen on the Internet, I hid in the proverbial closet. I didn’t believe it, and I was quite happy with my own banking habits, but I didn’t want Bill Gates to call me a dinosaur. So I hid in the closet. Today, I use 13 of the 14 channels in retail banking. But I won’t put my money and ID on the Internet. So when Peter Kight stated his support for telephone banking in an American Banker story on 1/26/06, I knew he had released me from the bondage of unmonetary Internet usage. And I admire Mr. Kight’s words like, “I clearly made a mistake six years ago when I looked at telephone bill payment and thought Internet payments are going to replace telephone payments.” I can think of a CEO in Houston today who won’t have the guts to use words like “I clearly made a mistake.” Thanks, Mr. Kite. Your stockholders will love your open mind.

Comments

Choose your travel partners carefully

Posted on February 01, 2006

by Art Gillis

There’s nothing sweeter than traveling by private plane. Mostly because of the camaraderie.

I first learned that as a second lieutenant at SAC Headquarters. I built systems at Offutt Air Force Base just outside of Omaha, but the only computer that I could test on was in Hawthorne, California. No problem. We had SAC planes flying to Vandenberg Air Force Base all the time. But I also had a commanding officer who was a World War II bomber pilot, so he relished the idea of flying me to the West Coast in a B-25. He earned his flight pay while I had to listen to stories about Fondulac, Wisconsin.

Many years later, I met a guy who is now a VP at Fifth Third Bank who had the same surname as my CO. When I asked John Steffes if he knew a Major Sylvester Steffes, he said, “Sure, Uncle Sy is my uncle and at family gatherings he tells us stories about how you guys tried to automate SAC back in the late fifties.” John is a smart fellow. The operative word was “tried.” When Col. Steffes died, John sent me his obit. I was overwhelmed. This man was a highly decorated war hero as a B-25 bomber pilot, and none of us under his command ever knew it. While I was watching WWII movies on Saturdays, he was not acting. He was fighting. But he chose to talk about Fondulac, not his decorations.

Computing back in the late fifties was more like exploration. Things didn’t work. But something I admired about Major Steffes at the time was his ability to smile sheepishly, and encourage us to stick with it. What I didn’t know at the time was, compared to the action he saw in WWII, our work was child’s play.

It’s really nice traveling on private planes. As an independent consultant I have enjoyed the benefit from the airborne facilities at Jack Henry & Associates and the Kirchman Corp. The best part of flying private is the conversation, or should I say, education. Sit next to Kevin Marsh of JHA and you’ll learn the truth about overdraft privilege and bounce checking. Fly on Ken Kirchman’s plane and he’ll take you to the smartest bankers I ever met. Fly on American and a mom will ask you to hold the baby’s bottle while she changes his diaper.

I’m announcing a new service. Fly me private and there’s no fee.

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In-House or Outsource - Which is it?

by Art Gillis

The question has been nagging bankers since 1976 when Don Dillon (ITI/Fiserv) and Jack Henry (the man who founded the company by the same name) first introduced core software that would run on a mini computer. For you young kids, a mini computer was somewhere between a mainframe and a PC. Don chose Burroughs. Jack chose IBM. Prior to 1976, most banks relied on their upline correspondent to do their processing under the heading then of service bureau. So I would say the nagging question was born in the late seventies and it never went away.

Ask an academic how a bank decides which approach to use and you’ll get the typical pros and cons of each method. I must have written a dozen articles on the subject.

Ask a gutsy consultant today which approach is right and you’ll get the typical consultant’s answer - “It depends.” Once you hire the consultant, the rest of the answer is revealed, but after three months of analysis and several billable hours.

Today, the short answer that follows, It depends..... is “....on who’s running the show.” When Bank One was independent, the CIO favored outsource and so went the bank. When a new CIO replaced him and survived as Chase’s CIO after the merger, the bank went in-house. And I might add, it’s no coincidence that James Dimon likewise favors in-house. That’s the way large banks do it. In the rest of the world of banking, it ain’t much different, except that the main driver is the CEO. CIO’s in small banks are more like the Cashier - workers, not decision makers.

Now does this all sound like something that happened on Pennsylvania Avenue a couple of years ago, when the “CEO” got the input he wanted from the “analysts” so he could go to war? I don’t know, but in banking the decision doesn’t have to be catastrophic. First you can’t force the answer on a reluctant bank manager. He/she has to embrace the method as something they want to do. Second, there’s another “it depends.” It depends on the competence of the bank’s tech staff. If the bank doesn’t have the talent to run an in-house system, then outsource is the answer. Both will get the job done. The main difference is the quantity of Excedrin consumed by the bank’s employees. Right now, there are 18,000 financial institutions in the U.S. 65% are in-house, 35% are outsourced.

Just thought you like to see the truth for a change.

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Just what this industry needs, another banking convention

Posted on January 31, 2006

by Art Gillis

I haven’t been to a banking convention in so many years that the homeless guys, on my way to the office, are complaining. "I need more T shirts." "Any more hats, the sun’s burnin’ me up?" It looks like I’m going to have to go shopping to clothe my "friends" but where am I going to find tight polyester T-shirts and stupid hats? Orlando and Las Vegas are the obvious answers, and right after a banking convention.

Except as a reason for low-level bank employees to get out of town, I can’t imagine why any respectable professional would find him/herself in an arena where speakers pontificate their wisdom that works well only at a podium, vendors exaggerate their greatness knowing it’s not on a contract, and bank employees lie through their teeth about their procurement plans. At the end of three days, everyone goes back to work, and all is forgotten. Until next year.

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Knowledge transfer doesn’t have to be painful or expensive.

by Art Gillis

Tomorrow, Fidelity National Information Services and Certegy will meet at the altar of mergers. So was it a coincidence that two officials from FNIS came to visit me today? Yes, and it was worth it. For this outspoken straight shooter, it was a display of “I tell it as I see it.” I wasn’t quite sure that these two companies were going to blossom all of a sudden just because they became one. My reasons were simple. Bankers just don’t abandon their incumbent vendors overnight in order to achieve some mild benefits like dealing with one company. After a very nice two-hour lunch, it was clear to me that something else is working here. Things that benefit the bank customer and productivity improvements for the banks. And when I further pressed on how fast the revenue line would notice this marriage, I got the only answer that really counts. “We’ve signed up a lot of banks already.” So from this not-so-humble consultant, I offer the following. Listen to your vendor. You might learn something as I did. And you might not have to get on an airplane to find out. And you might not have to give up a whole day, if you keep the small talk to a minimum.

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A Futurist’s Look at Technology

Posted on January 18, 2006

Twice a month I attend meetings at the Institute of Management Consultants, where I’ve been a member since 1979. Why do I go there? A quick answer is, exposure to knowledge and observing the world as something other than banking. Last night’s meeting was not only thought-provoking, it was mind-changing. I didn’t have to take notes because the points were captured in real-time and burned in to the cerebral database. David Smith was the presenter. With a name like that one has to look carefully to find him on Google. He’s not the David Smith who imports Indonesian furniture, or the sculptor, or the editor of the London Times. This David Smith is Vice President of Technology Futures, Inc., based in Austin, TX.

1. It started with a definition of technology I had never heard before. Technology is not a thing. Technology is knowledge to reach an objective.

2. Physics is over. We’re entering a world where previous laws won’t dictate solutions. Physical capacities will become obsolete. Gee, how I so loved saying, “For every action, there’s an equal and opposite reaction.”

3. The complexity of activities coming at us will mean we need automated agents to handle things for us. It’s like a Jeeves telling us there’s no way you can handle today’s Internet workload so I prioritized everything for you and trashed the 289 meaningless spam messages.

4. Maybe the human will become obsolete. Things will deal with things.

5. When Mr. Smith was asked if the real villain that caused the decent of U.S. excellence was the Government, he quickly said “No.” The CEOs of the top 100 corporations are, as are the mandates of Wall Street. Mind you, half of the Fortune 100s are Mr. Smith’s clients. Now there’s a guy you have to admire. He’ll bite the hand that feeds him when he believes something is true.

6. And has this Mr. Smith been to Washington? You betcha, and not at the staid old agencies like the Department of Labor, but at the CIA, Homeland Security, National Institutes of Health and DOD.

7. What about universities as the breeding grounds for new solutions? Universities are too busy managing budgets and protecting their turf. Collaboration is dead. Universities don’t want to collaborate with other universities. It’s like the old saying, would Macy’s tell Gimbels? One would think that universities are going to go the IPO route. There’s Wall Street again.

8. If it’s not real-time, it’s not useful. Everything is going to be real-time. Life is moving too fast to have to wait for an answer. Consumers will be tracked at the mall from one store to another and their purchases will tell volumes about their habits. Telemarketers will be calling your cell phone as you enter a competitor’s store, telling you it’s cheaper at their store, four down and to the left, and pass the ice cream vendor. You’re too fat already. Sorry, but these last remarks are my own, not Mr. Smith’s.

9. Does that sound like privacy invasion? Mr. Smith says privacy was first violated with the paper check. There is no privacy. But there is a difference between privacy and security. There are some security measures that will work in the future. For example, if an intrusion is detected, the data on a smart card can be erased in less than one nanosecond rendering it invalid to the perpetrator.

10. And speaking of real-time, forget alpha test or beta test. In pursuit of the marketshare goal, companies will be releasing new products so fast, they won’t worry about, “Do they work?” And forget about market research before product development. If you have an idea, build it. There’s no time to find out if people will buy it. That reminded me of some of the dot-coms and why they failed. Do I want someone else squeezing my lettuce?

11. If your car is less than ten years old, the computer in it is more powerful than a Cray Research Supercomputer. If you never heard of Cray, then your coming out party occurred in 1988.

12. Try to name an appliance that sells for $75 or more that doesn’t have a computer chip in it. Someone said vacuum cleaner. Mr. Smith recited so many things the chip controls in vacuum cleaners, that I decided to use ours as a backup if I lose my laptop.

13. Newly developed deterrents will prevent Internet intrusions and viruses for 19 hours. (another Smith snippet). After that, some kid will figure out how to overcome the new deterrent and break in.

14. Little snippets of data work wonders on audiences. Here are a couple. In the manufacturing and assembly process of building an airplane, Boeing does less than 8% of it. 92% is outsourced. China produces more PhDs in engineering and science than any other country. India is second. It made me think of other possibilities. Should the U.S. airline industry outsource to Boeing? If they don’t want to build them, maybe they should fly them. Should MIT outsource to IIT (India Institute of Technology)? Should the Pentagon outsource to Vietnam? Vietnam is better at fighting useless wars than we are. Should FEMA outsource to Florida? Florida had five or six hurricanes in one year and yet that state seems to work. You’re doin’ a heck of a job, Jebbie. The possibilities are endless. Maybe the Congress should be outsourced to the Parliament. After observing the clowns who were judging Judge Alito, that might just be a huge improvement. If we outsource all the tough jobs, then maybe we can sit back and enjoy the two industries we’re really good at - sports and entertainment. Wasn’t that a beautiful dress Charlize Theron was wearing at the Golden Globes? It was outsourced to rue Saint Roche, and in my opinion, that’s OK. The last time the west side of NYC took a stab at haute couture was for Eleanor Roosevelt’s appearance at the Democratic Convention in Chicago. Her speech was great, but NYC deserved to lose the fashion industry.

When the meeting ended, I noticed there was still a lot of wine left. Too bad we were all sober. And no one was handing out Prozaks. Maybe I can catch part of the game when I get home.

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What does Judge Alito know about technology?

Posted on January 17, 2006

A journalist covering legal issues asked me why Judge Alito hadn’t demonstrated any expertise regarding technology during his confirmation hearings. Following is my answer.

I have worked on 22 cases as an expert witness because of my background in technology. I know nothing about the law. A good expert witness doesn't select his cases. They come to him so I have no bias as to why I worked on these 22 cases. The conclusion I have drawn from my experience is that cases relating to technology usually fall into one category - Who screwed whom. As an appeals court justice, it seems to me that Judge Alito would have been faced with more global issues than just Screwer v. Screwee, and that's why he wouldn't have much experience in technology issues. But what do I know about the law except that Professor Everberg awarded me an A in Commercial Law in 1957 at Boston University. In doing so, his integrity forced him to tell me that I wasn't always right, but he was impressed with my analysis and logic as I argued cases during exams. A sweet man he was because I looked at what was fair, not what was legal.

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The Largest Gap in Technology

Posted on January 16, 2006

The Largest Gap in Technology - The Executive Suite and The Bank’s “Factories.”

To residents of the executive suite,

Take a couple of days off, wear your jeans and a black turtle neck (a la Steve Jobs, the Apple Computer genius) and report for work in a few of your branch lobbies and your back rooms. Result: You’ll get depressed, and then you’ll kick a few butts. How do I know? When banks hire me to do it, my canary yellow legal pad ends up with about 200 systems-related gripes from the workers. A second piece of evidence is even more meaningful because it comes from a highly respected banker. Charles Prince recently found out that Citibank can’t tie together retail customers with four accounts. At least, that’s what the American Banker reported in a story on August 26, 2005. Hello! It’s 2006, does your bank use currently available technology?

The problem is simply this. Executives don’t talk to workers. The working class knows about the deficiencies in present systems, but the resolving class doesn’t, or doesn’t want to know. And no one wants to be a whistle-blower. So the workers use their special skills to by-pass the problems even though their productivity sinks. At the executive suite, everything looks rosy because the work got done.

When I show up at a bank and make my presentation describing deficiencies, it’s anything but rosy. And even though a few hot shots in the room will challenge my findings, I manage to win, thanks to the support of the workers I speak for who are sitting in that knowledge-based part of the back of the board room.

The executive suite is a nice place to work, especially when the residents know the lobbies and back rooms are working at peak performance.

Art Gillis
Spokesman for the Workers
1/16/06

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ART GILLIS: The Best Way To Select A New Core System

Posted on January 13, 2006

The first step - Know thyself
The second step - Define thyself in writing
Then spend five months and 34 more steps doing the grunt work

I don’t wear overalls, and we don’t have any more dirty kids playing in the mud. So when it’s time to buy a new washing machine, we start at the low end of the models - plain, simple and cheap. When we leave the store, thanks to a slick salesman, we are the owners of the top of the line in programmable laundra-ware.

In the world of banking, that’s like a $200 million community bank buying the Hogan deposit system. It never happened that way, but I like the exaggeration to prove a point. Don’t ever select the “best system” for your bank. Select the “best fit.”

There are 76 brand-name core solutions in the banking industry, and there are 17,700 financial institutions in the U.S. Are all the FIs using the right system? With gut confidence, I will argue the answer is NO. And I believe that because every bank didn’t use a science-like approach in the selection process. That’s a euphemism for they didn’t hire me to do the dirty work.

The most popular approach in software selection, as performed by bankers, has to do with sheep. As the head sheep goes, so goes the herd. From an imaginary satellite, many miles up, a scanner might search all 17,700 FIs and report back that the two most popular core systems are Fiserv’s ITI Premier and Jack Henry & Associates, Inc.’s CIF 20/20. That happened because of another animal phenomenon. The horse on the inside track usually wins the race. Both Don Dillon (now Chairman of Fiserv) and Jack Henry (the man) saw the future with very clear vision and in 1976 created integrated banking systems for community banks.

Today, many observers sitting on the 50-yard line ask me, “Why don’t you just announce to the banking industry what you think the best system is, and be done with it?” My answer is this. On my last 13 assignments, I recommended 9 different solutions (only one got recommended twice) because I paid attention to the 36 tests in selecting the right fit. On three of those jobs I said, “Don’t make a move.”

The right system has more to do with the culture of the bank than the power of the vendor’s technology. For what it’s worth, to my 300 clients that did it right, it means they never suffered another conversion. And it started with the admission that they were not out to beat Citibank, Bank of America or Chase. They knew who they were.

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ART GILLIS: Show Me What's Comin' In Bank Technology

It's not about good news or bad news for 2006. It's all about different news. And what a welcomed change that will be! For this analyst, forecasting a predictable industry had become too easy, very boring, and usually contrary to what the trade journals, fed by "in-depth research reports," were reporting. Here's one example of the contrary part. CRM is supposed to be the top-priority tech project (American Banker 11/9/05). That sounds like the first resolution on every New Years list, "Lose 15 pounds." Good idea, but it ain't gonna happen. Here's another one. Large banks (125 of them) will replace their legacy core systems because they're over forty years old. Uhuh. And the strategy for the war in Iraq was "Shock and Awe." We are in shock and the World is in awe over one man's power to influence so many. What I believe is a pretty good list of things to come is based on my work in the trenches. But I should warn you, it gets muddy there, and my vision is not always sharp.

For banks

• Work performed under the heading of Safety - compliance, data security, check fraud protection, Internet-related protection, exception reporting and financial integrity


• The reselling of Internet banking, this time, performed by bank legal departments


• More Check 21 work to increase the value and benefits derived from check image exchange


• Continued systematic increase in electronic bills and payments
  
• Treasury services and cash management - the rebirth of what has always been a good application


• A moderate number of core system replacements at small and medium FIs (about 4% of 17,700)


• Best-sourcing - you do these jobs and we'll do the rest


• CIOs to Department Heads: You get the money, we'll do the work


• Budget Directors - India's low wages won't last forever. Which way to East Timor?


• At 878 FIs - To the IT staffs of the acquirers: H.R. has adopted their own definition of 24/7. To the IT staffs of the acquirees: See ya.


• OK, so you want a plug for CRM? It'll be on the list forever because it's a philosophy, not an implementation.

For tech companies

• The reinvention of Fiserv


• The proliferation of Fidelity Information Services


• The year Metavante finally goes public, without the IPO fees, as learned from the newcomer


• Open Solutions will get the shock of its short life when it realizes how valuable the architecture of its core system is compared to the mainframe monster it is acquiring from BISYS


• Jack Henry & Associates discovers the sport of leapfrog, as performed by newcomers


• OJT ends at Harland Financial Solutions after several small acquisitions. Now it's time for the big one, and funding won't be the problem; finding will.


• Five Internet banking companies will come up with a plan to please Wall Street as they attend a seminar on Riverside Avenue to learn, from a newcomer, how to put together a consortium
  
• The theme at annual sales kickoffs - The party's over and your new titles are "Miners." There's 7% organic growth in them thar hills. Go git it!


• The pool of like-companies for acquisitions is drying up, so acquirers will look at "unlike" prospects, and that means potential danger. Shopping at Wal-Mart means you might bring home a lettuce instead of the endive your spouse really wanted.


• Success will be earned by the quality of the sales organization in this "me too" society of products, support, implementation and customer care. My 36 tools, replaced by a slick salesman.
  
• Anything in Asia

Forget Happy, I wish you all an Exciting New Year

Art Gillis

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