Bank One Takes Control of Card Processing

In an example of its in-sourcing strategy, Bank One's card services division has selected TSYS to take over its credit card processing from First Data Corporation.

Bank One's corporate culture favors in-sourcing versus outsourcing. "During the past 18 months we have in-sourced most of our systems, hiring more than 1,700 new technology professionals," writes Jamie Dimon in the Bank One 2002 annual report. "These people are patriots - not mercenaries - who are allowing us to take control of our destiny."

To support its strategy, Bank One will also build two data processing facilities for its growing businesses. "With the volume of business and the quality of our people, we do not believe we are sacrificing any economies of scale or capability by managing the technology ourselves," adds Dimon. "In fact, we are seeing evidence to the contrary."

In the latest example of the Bank One philosophy, its card services division has selected TSYS to take over its credit card processing from First Data Corporation when its contract expires in 2004. "Current plans call for certain new account activity to be processed with TSYS as early as this summer," said Rick Ussery, chairman and CEO of TSYS, Columbus, Ga. in an analysts' call. "The conversion of all of Bank One's accounts should be completed as early as fourth quarter 2004."

But TSYS won't remain in the driver's seat for long. In mid-2006 or thereabouts, control will switch to Bank One. For the following four years, the bank will handle its own transactions as a licensee of the TSYS processing application. After that, the bank walks away free and clear, having its own card processing technology and a team of internal specialists on the payroll.

Not many banks are expected to follow in Bank One's footsteps, at least in the short term. "You would have a hard time convincing me that the majority of banks can do their own technology more efficiently than an outsourced provider," said Jeff Baker, a principal and senior research analyst at U.S. Bancorp Piper Jaffray.

But those that do may include some sizable names in the card business. "We think it is an industry-changing event," said Ussery. "The whole competition structure out there is about to change."

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