"Our strategy is about moving up the food chain," said Michael Blum, the vice president in charge of HP's financial services division.
"We are currently known primarily for our infrastructure products — the servers all the way through printers," he said. "We have a very large market share, but what we want is to do more, and have the banks pay less."
Mr. Blum said HP's products are currently used by the world's 200 largest banking companies, the 50 largest brokerages, the 25 largest insurers, and 130 stock and commodity exchanges, so getting a bigger piece of the financial services pie might seem like a tall order, but he's confident it can be done.
The goal is to "up the game" by changing the terms of what bankers expect from their information technology partners, he said.
EDS Acquisition
The August acquisition of the Plano, Tex., technology outsourcing giant Electronic Data Systems, will likely play an important part in achieving that goal, by allowing the company to provide technology services on both a hosted and outsourced basis.
Jeff Embersits, the chief information officer of Shareholder Value Management LLC in Belmont, Calif., follows HP for his firm's clients and says the strategy has real merit.
"If someone is going to get it right," it will be HP, he said. "They definitely have the skills and products to put together an attractive package, and now that they have EDS, they can do anything from run a data center to provide the software and hardware. They can tweak it and make storage look really cheap and make a higher margin on something else."
If it sounds as though HP is attempting to position itself as a rival to IBM in providing full-service technology to large financial companies, this idea should not come as a surprise.
IBM's Impact
When HP made the decision to target the financial services market, the company recruited Mr. Blum, an IBM alumnus, to lead the charge.
He came to HP from the customer relationship management software company Amdocs Ltd., where he led its financial services unit, and before that, he had led IBM's global banking practice.
Mr. Blum said that when it comes to financial services, technology firms can do more than simply fill customer requests — they can open bankers' eyes about ways to reinvent their business.
Many banks have been trying to implement a service-oriented architecture model for technology, he said, but without guidance many are failing to realize the full potential of such an architecture.
The idea of an SOA system is to centralize programs and functions used across a company, so that common applications are delivered on an as-needed basis across a network, instead of being housed in individual machines. The setup can improve interoperability and to help companies jettison redundant processes.
But Mr. Blum said banks are "implementing SOA by converting the existing applications to an SOA format," when they ought to be "looking at a new business model."
A New Model
Large banks can have dozens of different accounts that can bring customers into the institution, he said, and across business lines and divisions, those different application processes often do not talk to one another. Under an SOA structure, the account opening processes could be reduced to a single, uniform procedure delivered over a network.
In many ways, what Mr. Blum proposes as the best IT strategy for banks is to reduce the amount of technology the bank has to handle. Just as SOA is designed to remove redundancies, other services can remove different technology issues, he said.
HP's next effort in the banking market will be to offer a set of services designed to transform the branch experience — for both the customer and the bank itself, Mr. Blum said.
One of the big headaches in opening a branch is establishing its IT infrastructure, and HP proposed taking that responsibility out of the bank's hands entirely with its Branch Innovation Center, which was scheduled for rollout in October.
Branch Systems
"We are implementers of retail branch technology," Mr. Blum said. "We will not only implement an entire branch's technology assets. We can lease it for you and operate it for you."
The center also will feature a system of self-service tellers that can do everything from accepting deposits to generating certified checks.
The typical branch might require three or four tellers to cope with normal customer flow, but the automated tellers are designed to be monitored by a single teller, who can address customer issues as they arise, the company said.
"Banks want their branches to sell more at lower cost," Mr. Blum said. "But the lowest-paid employees with the highest turnover are the people in the branch, and they are the only people who touch the customer."
By creating branch systems that would free employees to focus less on transactions and more on sales, customers will come closer to realizing that goal, he said.
The system has also been designed to continually educate bank employees about new products and service and to keep them engaged in its overall mission, Mr. Blum said. The educational component will give the bank's human resources department a sort of "portal" into the branch to bring along young talent and reduce turnover.
HP's efforts are not focused on the front office alone. Mr. Blum said its upcoming offerings in the area of back-office operations will change the way banks think about technology.
In the last couple of months of this year the company will begin conversations with banking leaders about the development of a system to route the dozens of payment streams common to large banks through a central facility, reducing exceptions and allowing for the consolidation or removal of redundant systems, he said.
In addition to the efficiency gains, Mr. Blum said, the system will simplify exception reporting and reduce the amount of staff required to manage the payments system.
In the first quarter HP plans to introduce an operational risk management product that will let banks monitor their systems' stability, predict outages, and fulfill regulatory requirements for reporting IT failures.
Federal risk management regulations typically require banks to track, record, and submit reports on significant IT failures — generally as part of a bank's "operational risk," which plays a role in every bank's capital requirements.
Mr. Blum said HP is preparing to launch a suite of servers and applications next year that will self-monitor on a continuous basis and warn the bank's IT staff if a particular element is at risk of crashing. The system will effectively seal off that element from the rest of the system, reducing the likelihood of a crash and mitigating the impact if one occurs.
Adding Value
"We call these horizontal solutions," he said. "We are providing an operating platform, but we are putting a layer of value on it by building in the capability to remediate potential outages and failures that you hear about all the time. Each machine that we put out performs diagnostics and can tell us if it is going to come down. Before it goes down, we can move the application to a healthy server, if you will."
The reduction in downtime not only would benefit the bank from a customer service perspective, he said, but it also could reduce capital requirements by reducing the risk of system failures.
With systems like this, Mr. Blum said, his goal is to keep HP at the front of an inevitable trend in the IT world: technology firms becoming "not just a provider of platforms, but of total solutions."
Mr. Garver, a former American Banker reporter covering public policy, is a freelance writer in Springfield, Va.
