New Wave of Banks Are Upgrading Core Systems

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Through late August and most of September of this year, First Community Bancshares in Bluefield, Va. maintained an online "countdown" to its core conversion at www.fcbupgrade.com. (At press time, there were 23 days to go). The site features a video with soothing piano music in the background, in which CIO Steve Lilly touts some of the benefits of the new core system being adopted, Jack Henry's Silverlake. "It will allow us to provide big-bank capability in the community banking style you prefer," he says.

Lilly wasn't crazy about performing in the video. "I'll tell you what, being chief operating officer is what I need to stick to," he jokes. "I don't believe my acting career is going very far. I'm doing the best I can to get the message out."

Banks rarely offer public announcements about their technology upgrades until after they're done, for fear of glitches that could cause errors, delays and outages. But at $2.8 billion-assets First Community, "We feel like they have a right to know, particularly with the new internet banking solution that's going in," Lilly says.

"We want them to know and understand that there will be changes and that they'll have to go through a couple of steps over that conversion weekend to re-establish their security and things of that nature. We figured it would be unfair to spring it on them."

First Community Bank is part of a wave of banks that have engaged in core banking transformations over the last year or so.

"Historically, transformations in the U.S. and Europe have stood at around 1-2% - considerably lower than the rest of the world," says Celent analyst Stephen Greer. "Currently, we're seeing that number rise to around 4-5%. It's not considerably higher this year, but considering how many banks there are in the U.S., this represents a lot of banks." These numbers are based on Celent's estimates and conversations with clients, he says.

A quest for improved efficiency is one driver behind this conversion. The bank's efficiency ratio - the amount it spends to make a dollar in revenue - is currently at about 57 cents per dollar, or 57%. Industry averages hover in the high 60s. "Our goal is to get it as close to 50 as we practically can," Lilly says.

Compliance issues were another driver of this project. "Monitoring compliance, making sure we got it right and that we were able to satisfy regulators, continued to be based on manual processes rather than trying to stitch databases together to get the information in the right places at the right time," Lilly says. "It's been one of our bigger headaches. Another has been our debit card processing, there's been a lot of manual process in getting a Visa card in the hands of our customers."

Also behind the change was the fact that the bank's IT staff was spending a lot of time writing and customizing code to get external modules, such as online banking, bill payment and debit card processing software, to talk with the incumbent core system (Fiserv Signature). The bank has two developers. "They're very good and talented," Lilly says. "Our philosophy here is we don't want to run a development shop, we want to run a bank."

The just-completed conversion was conceived five years ago, when a technology assessment revealed the bank had too many manual processes. "As we started looking at that, we structured all of our major IT contracts to be coterminous in September of this year, in order to search for the best technology we could afford that provided best integration and the highest degree of automation that we could find," Lilly says.

A post-conversion feature CEO John Mendez is looking forward to is a one-signature account opening process. "Our account opening process could span 15-30 minutes depending on the type of account, sometimes longer. We're converting to a system that will populate all the necessary applications and we'll also be using electronic signatures as we image those deposit documents."

Customers will be able to sign up for an account, online banking, bill payment and mobile banking through one paperless application. There will be fewer FedEx packages between the bank's headquarters in Bluefield, Va. and its 72 branches, which are up to 350 miles away. Compliance with anti-money laundering, Regulation DD, Regulation CC, and other rules will all be handled by the software.

"We feel that's very important in this day and time to achieve compliance but not to impose it on our customers to the point where it's offensive," Lilly says.

Over time, the bank will evolve into iPad-based account openings and paperless branches. Branch staff are "elated" about the new system, Lilly says. "They've already done some testing, it will make life in the branch a lot better so that we can spend time talking to customers about important things that matter, as opposed to creating a paper chase," he says.

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