Readers of CoreStates Financial Corp.'s most recent annual report may have noticed that the company was no longer divided into three lines of business. It added a fourth, called transaction processing.
The spotlight on transaction processing, and its strategic place within CoreStates, contrasts with the banking industry trend. While CoreStates has been expanding aggressively, many other banks were quietly cutting back or dropping out of what they viewed as a "noncore" business.
Unlike loan applications or mutual fund sales, much of transaction processing involves what is not visible to the customer. It's what enables a check to clear or lockbox payment to be posted. It's the unglamorous, nitty-gritty back office of banking.
"It's not exactly the kind of thing banks do that makes a big name for themselves among customers,"' Ernst & Young consultant Brendan O' Sullivan says of transaction processing.
But it has long been a winner for Philadelphia-based CoreStates.
In 1979, the $23.6 billion-asset company founded Money Access Service, the automated teller machine network known as MAC. It became the largest single ATM transaction switch in the country, currently at a rate of more than 65 million payments a month.
Another highly efficient, highvolume service is CaskFlex, a remittance processing system used by 50 to 55 banks across the country. Seeking to build on the success of these efforts, CoreStates over the past year established Transys, a check processing subsidiary, and Synapsys, a credit card processor. Synapsys was one of the first two organizations authorized by Visa U.S.A. to support its commercial card products.
"You have to look at what we are doing in the broadest sense," said Robert N. Gilmore, CoreStates' chief technology and processing services officer.
"First," he said, "banking as an industry is at a very mature state and there is a lot of consolidation going on. The second factor to consider is disaggregation. Banks historically have done everything to meet the needs of the customer, from marketing to back office.
"Increasingly, we see signs that our industry is breaking apart and some banks are inclined to go outside their environs and buy services, whether it be software development, cafeteria services, or transaction processing."
As with MAC, which caught a wave of ATM and debit card success and had been spun out as a joint venture with several other superregional banks, CoreStates again may be in the right place at the right time.
Among smaller banks, outsourcing of check processing has become increasingly common. According to the American Bankers Association, about a fourth of banks with assets under $1 billion don't handle check processing in-house.
Among banks in the $1 billion to $5 billion range, one in 10 outsources this function. The figures are higher for credit card processing, with almost half of banks with assets under $5 billion mining to outsour(mg. A third of banks larger than $5 billion do the same in credit cards.
"All banks are aggressively looking at commodity or transactionoriented processes and trying to focus their attention on what is value-added for their customers," said Mr. O'Sullivan of Ernst & Young.
"While some banks are looking at getting rid of certain processes and, in effect, engaging in a cost-reduction exercise, other institutions have the advanced technology resources and intemal talent to become a banker's service provider," Mr. O'Sullivan said.
The CashFlex business has doubled in revenue since CoreStates acquired the business in 1992. At that time, CashFlex was based in Clifton, N.J., with supporting offices in Reston, Va., and Levittown, Pa.
Additional CashFlex offices have been opened in Tampa, Chicago, and Los Angeles. Mr. Grimore said others are likely to follow over the next year and half in Dallas, Atlanta, and San Francisco.
Synapsys, the card processing unit, is still a relative newcomer. Formally launched in October 1993, Synapsys' first customer is its parent company, CoreStates, for which it will handle credit card and merchant processing. Mr. Grimore said that Synapsys is in varying stages of contract negotiation with other banks. Synapsys will not issue cards directly but serve institutions that do.
Like Synapsys, Transys is also making initial inroads in thirdparty transaction processing. According to Mr. Gilmore, one of the most critical tasks for Transys is to put the pieces in place for a customer service infrastructure.
CoreStates put 1,100 check processing employees into the subsidiary. Management structures and work processes are changing to embrace a less hierarchical and a more team-oriented approach. On the technology side, changes are also in the offmg. Aproject is currently under way to deliver an end-to-end, image-based processing system. Working in coordination with a team representing hardware vendors, software vendors, and systems integrators, Transys has already put together the system's specifications.
By the time CoreStates publishes its 1994 annual report, there will be plenty to say about Transys. As of May, Mr. Grimore was negotiating a contract with its first banking customer, and vendors were bidding on the image project.
Mr. Gilmore added that CoreStates also expects to offer related payment services in the automated clearing house and electronic bill-paying areas.
"Our goal is to be a full-fiedged hne of business," he said. "We'll pull the businesses together, but identify them separately. We're hopeful that our chances of success are strong and that marketplace will recognize third-party processing as something different from the traditional banking business, and therefore create a greater value for CoreStates."
