When banking software vendor Automated Financial Systems Inc. merged with payments systems consulting firm Littlewood, Shain and Co. on 1990, the event left many in the financial technology business scratching their heads as to how banks would benefit from the combination.

Founded in 1972, Exton, Pa.-based Automated Financial had built its business selling mainly commercial loan accounting software, a niche they have come to dominate among large U.S. banks. Blue-chip users of its flagship Level III mainframe-based software include Bank of America, Chase Manhattan Bank, Banc One, NationsBank, and Wells Fargo Bank, very demanding customers that are large enough to build their own commercial credit systems from scratch if they chose to.

While AFS toiled successfully in corporate lenders' back offices, in contrast, Littlewood Shain made its mark mainly in management consulting in the deposit side of banking, particularly in areas such as check processing and fee-based cash management services.

While AFS and Littlewood Shain worked with many of the same banks, and the lending/deposit distinctions of the two companies might have been seen as complementary, the benefits of the merger were not immediately apparent to many bankers, according to AFS chairman James E. Greenwood and Littlewood Shain founder John H. Shain. "We felt we had some true synergies, and we both had high name recognition, but at the time we joined forces, I'm sure some of our clients were thinking, 'How is this going to work for me?'" Mr. Shain said.

But Mr. Greenwood added that at the time, he realized that if AFS was to continue to grow, he had to change bankers' perception that his company was merely a provider of accounting software. "Four years ago, we saw more and more senior bank management getting involved in the decision-making about systems," he said. "The problem was that our point of contact was mainly on the technology side, and these people were often not trusted by senior management -- so we were kind of part of the enemy."

Since then, Mr. Shain's consulting expertise and access to banks' executive suites has helped change the view of AFS as merely a back-office company, he noted. "We now act more as a partner [with banks] than just a software vendor.'

In turn, Mr. Shain said his consultants now have a suite of technology products to offer clients. "Before we merged, Littlewood Shain was more of a boutique," he noted. "With AFS we got access to products with long-term capability."

But Mr. Greenwood said the key factor that compelled the two companies to join forces was his belief that the a growing number of forward-tinking banks would begin to reorganize themsleves around market segments, rather than by product. "Once banks started organizing themselves around customers instead of products, technology becomes more than just a tool to create efficients; it's about turning a profit," he explained.

Michon Schenck, a former wholesale banker at Fleet Financial Group and now a technology consultant with the Tower Group in Wellesley, Mass., said Mr. Greenwood's foresight was 20-20/

"More and more, banks are aligning themselves by lines of business; segregating into consumer/retail and wholesale banking," Ms. Schenck noted, adding that while the retail side of banks started becoming more vertically integrated in the late 1980s, the wholesale said has only recently started the process.

"For instance," she said, "Fleet just went through a reorganization such that all the technical and systems support for wholesale banking is now in one place under one person, so the cash management folks and [commercial] lending support people all report to the same person." Mr. Greenwood said this trend was inevitable. "Banks desperately needed to get better, more complete information about their corporate customers in order to compete."

AFS's strategy of providing ever more products and services to serve this new unified view is paying off handsomely, officials say. While declining to give specific revenue figures, Mr. Shain said privately held AFS should grow earnings by 15% this year and 20% in 1995, adding that growth is accomplished while reinvesting about 25% of revenues to enhance existing systems of to develop new products. Mr. Greenwood and Mr. Shain cited Birmingham, Ala.- based AmSouth Bank as an innovative client that is taking full advantage of the two companies' combined strengths.

Earlie Stowe, a senior vice president and manager of commercial banking services at $17.3 billionasset AmSouth, said her institution reorganized its wholesale business two years ago to focus better on customers.

"We're matrix management at its best. We're still organized by geography, but we also have a centralized line of business support role," she said, assing that her responsibility includes support for commercial lenders as well as cash management products. "If you put it under one umbrella, all the pieces begin to talk to each other."

The next step was to bring commercial lenders out of the technological Dark Ages. In 1992, lenders "didn't even have PCs on their desks," and AmSouth's home-grown, 1960s-era commercial lending software "had been custom-coded to death, to the point where I was worried about the stability of the system."

After about of six months of research, Ms. Stowe said she came to the conclusion that "there wasn't a signle solution on the market for commercial banking. So I was going to hae to find a company that I could partner with that could provide me 60% to 70% of my solution, but also had the tool kit to wrap all the other vendors together."

She said AFS nealty fit that bill, adding that she knew John Sham from working with him previously in the cash management area. "They really helped me put my business case together in terms of the vision and what I was trying to accomplish."

Now AmSouth is going full-bore in its wholesale-bank reengineering project: it is installing a bevy of AFS/Littlewoood, Shain software including Level III, and a customer information data base system. In the second phase of the project, AFS will assist the bank in developing a PC-based commercial banking workstation that gives corporate lenders office automation tools as well as workflow management, Ms. Stowe said. The last phase of the project will be to install document imaging capabilities to the lenders' workstation, integrating technology from International Business Machines Corp.

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