Banking for the 21st Century

Jay Spahr, Senior Vice President of E-Commerce, Salem Five Bank

Since launching one of the first Internet banking sites 10 years ago, Salem Five Bank (Salem, Mass.; $1.8 billion in assets) continually has melded technology to meet changing business requirements. Jay Spahr, the bank's senior vice president of e-commerce, has the job of providing customers with easier access to information and services. His responsibilities span traditional delivery channels, such as ATMs, as well as emerging technologies. Spahr talks about the technology upheavals that have taken place in banking over the past five years with InformationWeek's Steven Marlin.

BS&T: How has Internet banking evolved?

Spahr: Like many banks, at the time of my arrival in 2000, Salem Five had been aggressively pursuing the Internet as a new business platform - Bank One created WingspanBank, Citibank created CitiFi - everybody was creating these re-branded Internet banks. Nobody was sure whether the Internet was going to be a separate business from traditional banking or a complementary delivery channel. It soon became apparent that the Internet was going to be a channel, not a distinct business in its own right. For those banks that didn't have an established retail presence, the Internet represented a tantalizing business model. But for those that did have a presence, the costs of marketing and supporting two distinct brands outweighed any business benefits.

BS&T: Why were bankers so enamored of the idea of a separate Internet-only business?

Spahr: There was a sense of not wanting to get left behind. Back in the late '90s, we were just taking technology, slapping it together and pushing it out the door. There was so much Internet activity taking place around financial services that, in some cases, strategies weren't well thought out.

BS&T: How did Salem Five change its strategy?

Spahr: I sat down with our CEO at that time and said, "Look, let's see if we can't run these online services as complementary to the existing bank and not as businesses that compete with each other." That represented a fundamental change in direction. Instead of building a separate brand and business model around the Internet, we would embrace e-commerce technology throughout the institution. E-banking became a catalyst for changing the way we interacted with and sold products to all of our customers - consumers, small business and commercial. It also had an effect on the nature of the institution itself. Up until then, Salem Five had pretty much had a reputation as being in the thrift business - i.e., the business of selling mortgages or certificates of deposit. With the coming of e-commerce, our reputation began to change to that of a more traditional commercial bank, with a focus on checking accounts, relationships and full channel integration.

BS&T: How did you build out the platform?

Spahr: Each channel became a project in and of itself. We started looking at the ATM network and upgraded it to operate in today's world of ultra-high security needs. We're doing an entire refresh of the voice-response unit technology, which will be completed this summer. We've upgraded our teller platform. We've also upgraded to a new Internet banking platform. At one time, the Internet banking platform had its own database; we now operate a single integrated database for all retail channels. Whenever or wherever a transaction takes place, it hits the core processing system in real time. Customers expect those things.

BS&T: How do you view the different channels today?

Spahr: The primary pillars are in place. The telephone has an automated component as well as a human component. We see ATMs primarily as cash dispensers, although you can look at 7-Eleven and see how they're trying to convert the ATM into full-scale financial management centers. The Web channel is about as sophisticated as it's going to get. Once people get hooked on Web banking, they find that it's the channel of choice. The branch continues to get traffic and people. One of the most striking developments has been the decline in check processing, due primarily to debit cards, but also to things like electronic check conversion.

BS&T: Does the bank outsource any technology?

Spahr: Our core processor for the past five years has been Metavante [Milwaukee]. We have been consolidating our relationships with Metavante more and more. Most banks of our size still outsource. One of the biggest advantages of outsourcing is that the processor has the responsibility for satisfying the regulatory requirements of tracking service providers. For the bank, it's easier to manage one consolidated relationship than to have 15 strategic partners.

BS&T: How many iterations of online banking has Salem Five had?

Spahr: In the late '90s, Salem Five licensed S1's [Atlanta] technology. In 2002, we migrated to Metavante's product, which it had acquired from Brokat Technologies. Metavante will be coming out with a new-generation platform in 2006. Our decisions to continue with a provider are determined largely by where they're going with their products and how well they're staying ahead of technology.

BS&T: What's the biggest difference in banking IT between today and five years ago?

Spahr: The boom years of the early 2000s have been replaced by a much stricter regime around security and compliance. Back then, technology drove the changes that transformed banking from a traditional bricks-and-mortar business into an e-commerce business. Today, the primary focus is on security and privacy. Those two issues occupy a lot of management's attention. No one could have envisioned five years ago the importance they would have today. And the need to comply with regulations such as the Bank Secrecy Act has taken its toll in areas such as opening new accounts, where we now have to be much more cautious and deliberate. There's also more overhead in ensuring that we have appropriate policies and procedures in place to meet these more-rigorous requirements.

BS&T: Are you contemplating implementing any new authentication systems?

Spahr: The whole area of authentication is exciting for us as an industry and we need to look at better safety and security. We don't want to make it difficult for customers. As an industry, we need to be more creative - when kids instant message each other, they each have their own icon. Why not try the same with online banking? In terms of fraud detection and prevention, banks have to become more proactive in implementing technology to monitor transactions. There are a lot of options out there. When I was in the brokerage business, we required an ID and password to enter an account, plus a second password to execute trades. New laptops have fingerprint readers. I use a token to access my own personal computer; some consumers love them, but there's not a lot of broad-based adoption.

BS&T: How can technology change banking further?

Spahr: If we can authenticate you as a customer and guarantee security and safety, it opens the way to distributing money around the Web, such as by transferring money to a card. I don't think we'll ever get to a cashless society, but we're getting closer.