It Was a Good Year for Bank IT, But Who's Gloating?

After 25 years of publishing my bank tech report, I do not think 2009 was any different for the bank tech industry as long as one isolates it from all the other disasters that occurred in 2009. In other words, for once, technology was not to blame for anything. It didn't experience another Y2K dilemma; there was no bust in the dot-com world; the Internet didn't go down or even brown out; there were no major data thefts or incidents of cybercrime; the 6% average bank IT budget increase for the FI population was a mere sustenance feed to keep the 800-pound gorilla from starving; and I certainly don't believe technology, all of a sudden, lost its ability to deliver excellent performance or improved solutions to meet the timely changes presented by the regulators, new consumer habits, bankers alert enough to ask "what if..." and cost effective transaction processing innovations like Check 21 (You mean you still fly checks around the U.S. at wee hours of the morning?). Five exhibits in my Automation in Banking report provide solid evidence that FIS, Fiserv, Jack Henry, Oracle Financial Software Sevices and Harland Financial Solutions were building appropriately relevant new solutions to address the timely needs of banking's ailments.Technology was, however, hurt by the banking crunch, the economy, a few incompetent large bank CEOs; and crazy sounding investment instruments that even Alan Greenspan would not be able to explain to Andrea Mitchell. Those were the horror stories that touched the innocent tech community. They put a lock on new IT spending just to preserve capital for what bankers expected might come next. They could hear the rumblings of something called bank reform, and only in Washington, reform ain't a good thing. Arbitrary cost cutting, in my opinion, is the equivalent of not feeding the 800-pound gorilla for a year and hoping she'll make it on her own. Here's a typical banker behavioral characteristic - when in doubt, put on the brakes - everywhere. Don't lend, don't spend, don't mend - just tend.

But there's a new threat no one talks about. The one thing I believe every bank tech vendor should worry about now is IT complacency. Most banks have reached a comfortable spot in the 40-year task of building their tech platform, and they're not spending the big bucks anymore because they don't have to. Is it now possible that technology is no longer the darling of the banking industry? Are Vegas and Orlando going to lose convention business because bankers won't be going on boondoggles to learn about amazing new tech offerings?

Here's a quick snapshot of the 2009 bank tech scene, and I mean bank and tech. We are one IT industry that really knows the business of our customers. • 140 banks failed. Some vendors gained what other vendors lost, but the work remained. • The four giant banks were threatened by appearances of failure. Even though 75% of their CEOs were dumped, 15,700 followers were instantly inflicted with FUDitis. "What were the big boys thinking? If they couldn't do the job right, how can we be expected to succeed?" • Too many otherwise healthy banks lost money because their customers failed. That's the business of lending. • Revenues of the top tech vendors were flat for the first time in history. • None of the tech companies that have been in this report failed. Not one. • There were no tech disasters in 2009. Everything that worked in 2007 before the crunch, continued to work. I would even argue things worked better than 2007 because vendors continue to improve their stuff every year. • Product and service support was healthy as was the energy vendors expended to serve their customers. • The acquisition of Metavante caused a bit of a stir, but certainly not enough for the DOJ to block it, even though it was DOJ's first investigation in the bank tech industry. And if politics were a motivating drive why not show a switch from the previous administration that rubber stamped everything that was business friendly. The FIS and MV marriage must have been right. • Whereas the past four decades had at least one silver-bullet technology that compelled bankers to rush to market and buy, there isn't even a copper BB that will make the same thing happen today. That's a good thing for bank CFOs; it's a horrible thing for bank tech vendors. • Vendors are currently holding their own and relying on ancillary applications for organic revenue growth. Good luck on that one. That's like Mrs. Jones telling the butcher "I already have the prime rib, I'm just here to pick up the asparagus." • New core sales have declined in numbers in 2009, consistent with a pattern that started in 2001. In 2009, a paltry 1.72% of the FI population (271 FIs) acquired a new core system. • Unlike any other industry I know, bank software vendors defied the idea of planned obsolescence. Core systems last forever, thanks to vendors who fine tune them three times a year. Maybe it's time to announce the new model for the second decade of the 21st Century. At least the Congress will see it as tech's responsible reaction in support of all the hard work involved in bank reform.

Do I hear a vote for more innovation, more R&D, a look-alike vendor team of Steve Jobs (and dreamers) and the burial of what has been the backroom curse, "We've always done it that way."