MANILA - When Ramon Sales arrived at the Bank of the Phillipines in 1986 he found the country's second largest bank living in a technology time warp.
"We had a home-grown car loan and mortgage system; a separate home-grown system for credit and deposits, and a home-grown PC-based trade finance processing system," he said. "The old (technology) philosophy was based on doing your own thing."
The use of systems that were islands of technology was threatening the future growth of BPI. A year after arriving Mr. Sales called Steve Bova, president of Alltel Information Services' new international division.
"Steve flew in here after one of our coups," Mr. Sales remembers. "We talked about the architecture we had in mind and they helped us with (packaged) software. I'm not a builder. I buy and customize."
In a region where in-house solutions have historically been viewed as best, Mr. Sales' approach to buying technology and integrating disparate functions has become more common. As Southeast Asia opens its financial markets to increased competition, local banks are spending heavily on American-style technology to be able to compete more effectively and efficiently.
"As a result of that competition, it's forcing local players to tidy up their act," said Beki Searight, who has studied the regions information systems practices for her company, Texas-based Electronic Data Systems.
While many of the banks still trail institutions in more developed economies, observers say that by the end of the decade most of the Asian banks may well pass other parts of the world in technology application.
"Here in the U.S. we assume that technology would pervade the entire bank, but in Asia it is more focused and siloed," said Jim Walb, partner in charge of capital markets technology consulting at Ernst & Young. "But the leap-frogging is occurring very quickly. They are able to move from the 1950s to the 1990s very quickly."
But that leap-frogging comes at a price. Southeast Asian banks are expected to spend as much as $15 billion through the end of the decade on technology upgrades. Anxious for a growing piece of that multi-billion dollar pie, vendors are aggressively seeking business.
The players range from established names like IBM and Alltel (formerly Systematics) to niche players like tiny Toronto-based Footprint to newcomer EDS, which has found little demand for its core outsourcing business. Experts predict newcomers face years of costly on-the-ground work to establish customers while long-time players will have to battle upstarts willing to slash bids to take marketshare quickly.
An example is a recent fight for the system business of a major Thai bank. IBM reportedly bid just over $4 million for the major project, but a distributor for an upstart Japanese company halved the bid and offered to upgrade the system at no extra cost in one year.
"That is great news for the banks, and Asian bankers certainly understand how to play us off against one another," said a senior executive from an IBM rival. "But it is terrible for us. It means you either bid for the business with little or no profit or you lose marketshare or, more seriously, lose face in the eyes of your customers."
The threat of being undercut by upstarts is perhaps greatest for IBM, which has been in the Asian market for 50 years and has technology in virtually every bank. But being that visible has also left Big Blue susceptible to professional snipping.
"IBM is everybody's favorite punching bag," said Kent Price, who heads financial institutions technology for IBM in the Asia/Pacific region. "People used to do the same with AT&T because it was big and had to change. People don't punch at AT&T anymore. We will get to that point, too."
For Mr. Price, that means diversifying the front-end applications that banks want while defending the mainframe business that still constitutes about half his division's revenues.
At one moment, he is defending his core business. "All the talk is about the mainframe being dead, but it's going in the opposite direction." The next moment, he talks about the need to diversify. "If we don't change, we will be marginalized."
The dichotomy facing IBM also confronts Asian banks as they develop a technology strategy. They must deal with the need to move away from 1970s mainframe technology that holds data, into an environment where the data can be manipulated.
So far, no single standard of technology has become uniform in the diverse Asian market, leaving opportunity for multiple players.
"Depending on who you talk to, mainframe is dying, but (Alltel) is still doing a good business," said Alex Groenendyk, president of Fiserv's international operations in the region. "Others say that everybody is going to Unix. But our AS400 is still probably the most successful mid-range (system) available."
What is driving demand is the need by banks for systems that will help them know the customer better - and role out new products - as new waves of competition arrive.
"In the past, we were like God. You could charge what you wanted and the customer had to know his banker," said Yongyuth Tariyo, director of management information services at Government Savings Bank in Bangkok, Thailand. "Now you have to know the customer like never before."
The reason is simple: the opening of markets to outside and new local competition has forced banks to focus on retail banking. As large corporate loans are chased by foreign banks, margins become squeezed. However, most banks have millions of local customers that historically have been ignored or subjected to long waits and poor service.
"They realize their IT systems are very much behind their customers," said Jay Curtis, the Bangkok-based representative for EDS. "They have a lot of information on their customers, but they just can't get to it."
But vendors say there is another reason driving the move toward better technology: cost-savings. Asian bankers historically have not based technology buying decisions on the ability to replace people with a new process. One reason is that salaries are too modest to be offset by million dollar software buys.
"More banks are beginning to understand efficiency and operating ratios as it relates to the bottom line," said Alltel's Mr. Bova. "But that's still an art that most do not yet endorse."
Time and economics appear to be on the side of vendors. Emerging countries like Thailand, Vietnam, and Malaysia will ultimately find qualified workers in short supply. That, coupled with high growth and rising inflation, is already causing the cost of labor to grow at double- digit rates annually.
That trend already has affected banks in Singapore and Hongkong where labor costs frequently include meals, transportation, and education as well as traditional perks.
"The cost of labor will eventually creep up on all these banks and they will have to think about it differently," said an executive from a U.S.- based technology company who declined to be identified. "It threatens to test their concept of worker loyalty against bottom line reality."
But that cultural change will be slow in occurring. Consider the reengineering project at Bangkok-based Thai Farmer's Bank. By automating manual processes and giving customers more self-service alternatives, the bank has been able to eliminate an estimated 40% of the jobs in a typical branch. But those workers have not been terminated, just retrained.
BPI's Mr. Sales says cost-savings is something that is seen as a gradual benefit, unlike in the U.S. where positions are quickly eliminated. Using his bank's reengineering as an example, he notes that cutting positions was not the primary driver. Instead, it became a byproduct as the bank grew.
The bank has quadrupled assets since he arrived in 1986, but has reduced overall employment by 100 to 6,400.
"Our branch headcount went from 15 to an average of 8," said Mr. Sales. "The cost-savings just happened. I think that the senior management intuitively knew it would happen, but that wasn't what motivated us."
Not surprising, then, few banks are ready to outsource functions as quickly as in the U.S. Complicating the potential for serving large banks are high telecommunications rates - as much as 11 times the U.S. average - which dampens the economics of outsourcing.
Companies like Alltel and EDS are studying the situation and say that rather than a multi-country regional approach, the best opportunity may be in-country for multiple institutions.
"We are running out of potential, at least on the software side," said Mr. Bova, whose company saw profits compound at 60% a year since 1991. "We would like to covert them to outsourcing. Their low-cost labor is rising much faster than inflation in general."
He concedes that the economics of offering profitable outsourcing is difficult, but says Alltel hopes to have their first single-bank arrangement by yearend.
At EDS, officials have only recently began to focus on banking in the region. Mr. Curtis transferred to Thailand from Chicago this spring with the mission of learning the market.
In the meantime, EDS is likely to focus on consulting, hoping to build a market for the day when outsouring is in demand. "I don't think there are many cookie-cutter solutions here," said Mr. Curtis.
