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Management Strategies

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Year-End: Joys, Ho-Hums, A Pause that Refreshes Some and Disappoints Others, An Overnight Credit Crunch and Mortgage Disaster, One Big Acquisition, A Few Surprises, and A Whole Lotta FUD

In my view, 2007 was not a Boston-Sports-Teams year for the banktech business. There were some losers in our arena, as well as lots of worries; a large number of lower stock prices for banks and techs; a ninth inning attitude among bankers who achieved a good-enough system to get the job done, and then took a rest; certainly nothing new and exciting showed up to compete with the likes of Apple Computer.

In my view, 2007 was not a Boston-Sports-Teams year for the banktech business. There were some losers in our arena, as well as lots of worries; a large number of lower stock prices for banks and techs; a ninth inning attitude among bankers who achieved a good-enough system to get the job done, and then took a rest; certainly nothing new and exciting showed up to compete with the likes of Apple Computer. But one has to recognize the good things. For example, U.S. banking transactions got posted accurately and on time during 4,308,198 posting runs in 2007. Presumably 112 million households were pleased with the processing of their accounts. And I believe business customers got the same accuracy and timeliness. The press had far more compelling events to write about than to look for banking glitches. I was interviewed for only two failures in 2007 and both were ATM related, and both were corrected within 24 hours.I don't know how your world looked, but here's how banktech looked from my perch.

  1. What the banktech business needs now is a "clear thinker with no baggage." After 50 years of addressing fragmented requirements from dutiful bankers dedicated to serving their customers, CIOs and their suppliers have now reached a level that can be described as the bicycle tire tubes on my fifties-styled newspaper delivery vehicle. "Get a new bike" is what Ray, the distributor, commanded. And the metaphor continues. I had the largest paper route in Somerville, MA - 202 families, many of them W.W.II vets who wanted their paper on time when they returned from the factory every night. Excuses and apologies didn't work for my customers. I invested in a new bike using borrowed funds from Ray. I tried my bank first, but I was considered nonprime. Ray got his three bucks a week (sans interest) every Saturday after collections. Today, bankers (especially the giants) are still using patched systems while giving away their hard-earned profits to some mortgage holders. Where's the justice in that?
  2. When I say a "clear thinker" I'm open to all manner of previously unacceptable members of the banking "Green Book" - tweenies, boomers, geeks, geezers, artists, scientists, einsteins, the ordinary, the nouveau wealthy, the multifaceted nationalities, the unbanked, the overbanked, the urbanites, suburbanites and ruralites, the gripers, and even the activists. I present that all-inclusive picture because banking is not just a business, it's a community service. The only ones excluded are the scammers, phishers, hackers, launderers, data snatchers, fraudsters and robbers.
  3. A year ago, I had identified 23 core companies as potential candidates for acquisition, only because they were independent and they were core. I zeroed in on five of them as "could happen" candidates; the others as "after all the glaciers melt." None of the 23 was acquired. "Wait till next year" as we in Red Sox Nation used to say.
  4. One giant acquisition took the spotlight from the other 22 rather uneventful ones. The Fiserv/CheckFree deal just had to happen for the good of all parties concerned. CheckFree was a very good "tail" that needed a very good "dog" to wag it. I expected it to happen two years before it did, and it should have happened then because there will be a natural gear-up phase of a couple of years before the benefits of fresh revenue start to roll. This is not an overnight sensation even when trying to sell CheckFree's EBPP to a strong Fiserv customer. Since Fiserv was not ignoring the electronic payments business, it had its own solutions to sell. I therefore believe existing EBPP Fiserv customers won't be too excited about doing another conversion just to get a "better" EBPP offering. In my opinion, if Fiserv is serious about generating $125 million in synergy revenue, it will have to get it from new sources such as the fewer than 500 small banks and credit unions that will be shopping for a new core system in 2008.
  5. Bankers have always been slow to react to new things. It took 12 years for ATMs to hit a confident stride. Internet banking is still viewed as a risky way to do business so it's taking longer than 12 years to come up to speed. Consider the following time factors: • The Internet reached the early adopters as a usable comfort tool in 1992. • Tech companies introduced their first Internet Banking solutions in 1995 and 1997. You won't know them by their original names today because they were smart enough to sell out at their peak. • Today, only about 41% of U.S. households use Internet Banking, and I suspect a lot of them just to check their balances. • If the greenhouse problem moves at the same rate as banktech innovation, we won't be swimming in glacier waters in January for some time to come. That's a good thing, Al.
  6. Bankers love "toaster technology." Where do I plug it in? Remote capture was such a technology and it took off without the usual vendor arm-twisting. As Bob Hope used to say, "If the audience had to stop and think about the punch line, it was a bad joke." My father liked Bob Hope, but I never forgot his advice on reactions. Bankers are not thinkers. They are mechanics. Here's the sales pitch: At $3.00 plus for a gallon of gas plus labor, you don't need a courier or your employee to drive to the branch. Do it yourself from the source, truncate the paper, reconcile, and get instant credit. Remote capture was the hottest new technology in 2007. There were seven others: • Anything having to do with protection - compliance, security, fraud prevention, privacy • Any transaction handled electronically - EBPP, EFT • Business Intelligence, Data Warehouse, Intuitive Retrieval (the third one is my term) • Electronic Check Clearing (aka Check 21) • Credit Quality Surveillance (who will be the bad guys) • Wealth Management (Joe 6 Pax and Couch Potatoes need not apply) • Treasury Services & Cash Management reborn
  7. While the prestigious business press love to promote the tech wisdom of large banks, we in the trenches know that the unsung little banks have the best technology in the world. 145 large banks are still using 40-year-old technology with no relief in sight other than the promises of pundits that there will be mass conversions occurring soon. But there hasn't been a core conversion in the Big 145 for years. Is this something to worry about? Only if you are a CIO at a big bank and you're 50 years old or younger. Anyone older will leave legacy systems conversions to their successors as they drift off towards the sunset.
  8. Almost overnight the U.S. banktech market has been invaded by threats of companies like i-flex solutions, Infosys, TEMENOS, Misys and Tata Consultancy. And their sights are on the giant banks. i-flex has help from its majority owner, Oracle, while TEMENOS partnered with Metavante. None of the five has made even the slightest inroads as yet. These companies have the right system architecture, but they failed to realize that bankers are still buying functionality, and the U.S. legacy systems have tons of functionality. "Legacy" may be a dirty word in the tech world, but bankers see it as a synonym for experience.
  9. What was once a vibrant revenue generator has now become an "also ran." Core systems sales are at a churn rate of only 3% a year and dropping. If one looks behind that rate, the stat gets worse. 34% are de novo banks, 22% are credit unions, and 44% are banks. Some day those three groups will have crossed the finish line, and then what.
  10. Even the dreamers can't come up with a wish list that would require drawing board activity. There are solutions, there are choices, and there are responsible vendors who can implement and support them. What more can any industry ask for?
What can you expect in 2008? Here's a clue. I'm saving this blog so next January I can just make a few updates and save me hours of work in preparing my annual blog. And that ain't all bad. We are not in the entertainment business, and I'm not a PR guy. If you see any dreamers in your travels, let me know. I'm tired of dealing with bean counters.In my view, 2007 was not a Boston-Sports-Teams year for the banktech business. There were some losers in our arena, as well as lots of worries; a large number of lower stock prices for banks and techs; a ninth inning attitude among bankers who achieved a good-enough system to get the job done, and then took a rest; certainly nothing new and exciting showed up to compete with the likes of Apple Computer.

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