Bank 'Co-Opetition' Can Be A Good Thing

In the new paradigm of lower revenues, increased costs and a heavy regulatory burden, banks would be well advised to seek out more opportunities for collaboration, rather than competition, to gain efficiencies.

That was the message of a joint presentation at NACHA PAyments 2014 in Orlando given by Bobby Carney, director at Citibank and Joyce O'Connor, a vice president with State Street Corp.

Carney noted that since the financial crisis, bank revenue is downward, or flat at best, and "there's no relief on expense side, with increased costs to meet increased regulatory requirements."

"Banks are living in world where asset balances have been reduced, plus there's a credit risk appetite that’s not fully recovered from the shock [of the crisis]," he added.

Carney said one solution for banks to thrive in these times is to explore cooperative solutions between institutions, even though it may be a foreign idea in the industry.

"The flood waters have started to recede post crisis, and how changed is the landscape?" he asked. "Should we go back to beating the lights out of each other as we used to? Or should we change our behavior and the way we think about things to survive and thrive in the new reality?"

Both Carney and O'Connor said the latter is the preferable way forward. While cooperation between competitors isn't always appropriate, it is something banks should be more open to exploring, both argued. In fact, Citi and State Street did just that.

A few years ago, State Street was on the market for a new strategic partner for online banking and select service delivery functions, O'Connor noted. The bank was looking to replace it's old system to reduce expenses, replace outdated platforms and "satisfy pent up customer demand" for new online banking capabilities. The bank was also looking to streamline and standardize business processes, she said.

After conducting "the traditional build vs. buy analysis," O'Connor said State Street came to the realization that building an in-house solution was not economically feasible. After issuing a traditional RFP and eliciting many vendor responses, one proposal that came in was from Citi. Mulling over Citi's proposal "made us reflect on our roles in the industry." Eventually, State Street determined Citi's was the best proposal, and signed an agreement, which would see State Street use the CitiDirect online corporate banking system.

Of course, the integration did not go entirely smoothly, both O'Connor and Carney noted, as two institutions with valuable proprietary data and in some competition with one another. For one, the CitiDirect platform "had to be customized to our business," noted O'Connor. This entailed not just making sure the customer-facing branding was always that of State Street, but be tweaked to serve the specific needs of State Street and its customers. There was also the requirement that State Street customer data remain private and secure.

For Citi, there were also "things that kept us up at night," said Carney. For one, "we were not always in the white-labeling business" he says, and the bank did not generally have experience as a technology services or business process outsourcing provider.

But so far, things have gone smoothly, O'Connor reported. It's been less than a year since State Street has converted all its legacy platforms to the new online banking platform, she said, and no great issues have arisen.

Ultimately, said Carney to key to successful bank co-opetition is to "explore opportunities to co-operate and collaborate rather than duplicate on investments which don’t provide a compelling differentiation."

[See Also: The New Ecosystem for Mobile: Technology Alliances for M-Payments and M-Banking]

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio