The decision to install emerging technology is an expensive one. And as a recent failed business deal between two vendors shows, it's also fraught with risk when the systems they are promoting don't have long track records — especially for their customers.
The latest case in point involves a move by a core systems vendor to convert several community banks to new processing software, a million-dollar-plus investment, by yearend.
On Thursday, executives of Rurban Financial Corp., the Defiance, Ohio, bank holding company that owns Rurbanc Data Services Inc., announced they were scrapping a plan to spin off the technology subsidiary into a separate public company and merge it with New Core Holdings Inc.
Rurbanc, which goes by RDSI Banking Systems, encountered several problems in trying to deploy a new core processing system developed by New Core, a Birmingham, Ala., company operating as New Core Banking Systems, according to filings with the Securities and Exchange Commission.
State Bank and Trust Co., also a Rurban subsidiary, in March converted to Single Source, the system that New Core developed, but determined it needed "further enhancements to operate in a number of complex areas," a recent filing stated. The bank subsequently decided to migrate back to its previous core system.
At May 14, 53 of RDSI's 74 core processing customers had notified it of their plans to move to a new core provider rather than migrate to Single Source.
"A lot of risk was taken here, and banks, in the end, are the ones that are suffering," said Paul Schaus, the president and managing partner of the bank consulting firm CCG Catalyst in Phoenix, who is familiar with the situation.
That number continues to grow because RDSI will stop offering core processing at the end of the year.
"New Core will continue to develop its proprietary software, Single Source, and pursue its own strategy," Mark Klein, the president and chief executive of Rurban, said in an interview Friday. "RDSI under the (Rurban) umbrella will continue to market the services that they have core competence in."
Those include item processing, image exchange, network services and information technology consulting, Klein said, adding that it is exploring other core processing options.
A vendor's track record typically is a major factor in determining to migrate to a new core system, said Eric Weikart, a senior director with the bank consulting firm Cornerstone Advisors Inc. in Scottsdale, Ariz.
"We look at things like have they ever converted a bank from the core system that the bank is on" and the number of banks that are operating on the system in question, he said.
RDSI's struggles seem to be the result of both technical issues with Single Source and timing. Before announcing plans to join forces with New Core, RDSI was licensing a core system from Information Technology Inc., now Fiserv Inc., and selling it to its own clients.
In April 2009, RDSI entered a reseller license agreement with New Core to become the exclusive provider of its Single Source software and announced the merger plans.
Subsequently, Fiserv notified RDSI that it planned to terminate their license agreements and sued RDSI in U.S. District Court, accusing it of breach of contract.
The companies settled the suit in July 2009, agreeing to phase out the licensing agreement by Dec. 31, 2010. After that date, RDSI is no longer able to offer Fiserv's Premier core software system to clients. As a result, RDSI clients were forced to decide to migrate to the Single Source system by the end of this year, go to Fiserv directly to license its core system or seek an entirely new vendor.
