Big Bank Systems vs. Small Bank Systems-And The Winner Is...

The best system for even the tiniest banks can do more things better and for less money than the systems that giant banks use.The contest regarding small bank systems and big bank systems started about 25 years ago as articles appeared in the major financial journals about how technology in banking was measured by a half dozen or so top banks. Maybe it was because big banks and big journals resided in New York City and, therefore, it was easy for reporters to get the story, just a cab ride away. For example, in a WSJ special report dated June 12, 1987, banking got a C- grade for its technology. It was the lowest grade of all industries measured. Airlines got a B, Computers got a B+, Money Management got an A-, Petroleum got an A, Pharmaceuticals got a B, and Publishing got a B-.

It's only conjecture on my part, but after that special report was published, it seemed as though some of the big bankers hired pretty good PR people to paint a better picture of "Technology In The Workplace," as the WSJ labeled the special report. It looked like John McCoy, the then chairman and CEO of Banc One, became the poster boy. Whenever a reporter referred to the virtues of big bank technology, McCoy was the interviewee. I can see the connection. Banc One and Norwest had engaged EDS to build the "Future Banking System." Any person gutsy enough to take on a Herculean task such as that deserved all the press he could get. However, lots of press has a flimsy link attached to it-timing. Twelve years after the project was initiated, all three parties walked away quietly, and sans any semblance of "future," "banking," or "system." Vaporware was a term used by cynics at the time. Since then, Banc One was acquired by Chase, and Norwest was acquired by Wells Fargo. EDS didn't lose money because they just kept the meter running while the bankers were arguing about design philosophies.

There hasn't been a repeat of that type of development effort in the big bank arena in at least the past 15 years, and in my opinion, that's a good thing. There are currently enough "untech" disasters facing the big banks right now that even all the paper, ink and engravers in the U.S. can't make right. While today the big guys are hanging on to the expression, "Too Big to Fail," back then it was "Too Big to Build." If you're wondering why CIOs at big banks are concerned about their five-decades-old technology, here are just a few hints represented by words from '60s technologies: COBOL, proprietary operating systems, flat file structures, batch updating, "segregation" of apps, multivendor providers, interfaces that took a trip to hell and have never been heard of since, "uncloud computing" and dozens more limitations that a good modern-day techie could add.

Leave it to the U.S. bank tech vendors to notice this void and do something about it. Metavante has teamed up with TEMENOS to produce what I call a hybrid solution that will serve large U.S. banks. Fidelity National Information Services looked to one of its own acquisitions to build internally a next generation core offering using their Profile framework.

Today, small banks have a huge advantage. By the time small banks had gained their independence in technology ('80s), they were able to use vendor-supplied systems that had taken a quantum leap forward. Here are the key words describing their systems: integration at least among core apps; single-vendor supplied apps at least among core apps and in many cases, ancillary apps; partial real-time updating; relational database management structures; Internet-related development facilities; open architectures; and Service Oriented Architectures.

Don't assume everything is perfect in small banks that are just a few decades ahead of where the large banks are in technology.

Here's the final differentiator. Small banks typically spend 10 percent of their non-interest expense on technology. Large banks spend 18 percent and more of their non-interest expense on technology.

May I have the envelope, please?