Banc One Corp. and Electronic Data Systems Corp. have quietly agreed to end their joint development of a retail banking system after spending an estimated $175 million on it.

Once touted as banking's most ambitious, fully integrated approach to processing and managing customer information, the effort became mired in the technology assumptions of a decade ago and became outmoded by faster and cheaper forms of computing.

While the two companies retain their reputations for innovation and profitability, their experience illustrates the accelerating pace of technological change and the imperative not to get locked in to inflexible solutions.

Such mega-projects "are no longer an affordable option," said William Bradway, principal and research director at Meridien Research Inc., Needham, Mass.

Banc One's inability to complete installation of EDS' Strategic Banking System shows "the tremendous challenge an organization or an alliance has in developing a large scale retail banking environment from scratch," Mr. Bradway said.

"What this world doesn't need anymore is a new core banking application that will run on mainframes, and this demonstrates that point," said M. Arthur Gillis, a bank computer services consultant based in Dallas.

Among other benefits, Strategic Banking System, or SBS, was to give bankers complete pictures of their customer relationships and profitability-still elusive today but almost nonexistent when Banc One and EDS starting working together in the late 1980s.

Though Banc One had been running SBS for several years in some of its units, the system did not live up to expectations and was never rolled out to all the banking affiliates.

"There are a couple of systems out there that work well, and that's good enough," Mr. Gillis said. "I say to bankers, 'Use them, and surround them with applications that can make your bank different.'"

Observers said the SBS concept was sound: Give banks a single package of software not only for basic retail functions like deposit-taking and interest calculations but also for tracking customer profitability and improving cross-selling.

But the project collapsed under its own weight.

SBS "was just so overwhelming and so complete that by the time they were getting to market, it was going to take too long to install the whole thing," said Alan Riegler, principal in Ernst & Young's financial services management consulting division.

Banc One and EDS agreed to cease work on the software during a meeting late last month aimed at defining the companies' relationship in the wake of Banc One's internal consolidation.

"The two parties came together in a calm, sensible arena and said, 'We can't afford to put any more money into this thing,'" said Mr. Gillis, who was briefed about the meeting by EDS. "Sensible heads came together."

Banc One and EDS declined to comment on how much money each has invested in the project. Mr. Bradway put the total spending on SBS at $175 million.

In addition to Banc One and EDS, a few others might have footed parts of this bill. Norwest Corp., for instance, worked to install SBS from 1987 through 1993 and probably kicked in some funding, observers said. Norwest declined to comment on either the funding or its role in the project.

A spokesman for EDS, which contemplated eventually selling SBS to other banks, acknowledged that the system is, for all intents and purposes, dead. But he said the Plano, Tex.-based technology giant plans to continue selling the SBS customer relationship module.

Banc One has not settled conclusively on a replacement for SBS but may be leaning toward software from Hogan Systems Inc.

John Russell, a spokesman for Columbus, Ohio-based Banc One, said its Arizona and Utah units have been operating on Hogan since Banc One acquired them in 1992. The bank plans to upgrade that system, which was installed in 1988, to the latest Hogan release.

After that, a decision will be made for operations in Ohio and Texas.

"We've got a national line-of-business organization, not 88 banks anymore," Mr. Russell said. "It would appear that we could convert more efficiently on Hogan from a timing point of view and from a cost point of view."

Mr. Russell said the end of the development project is a "nonmaterial event, both financially and in terms of how the bank is going to process a national line-of-business company."

He said Banc One was lucky to have the opportunity to compare three software options running in real environments in its Texas, Arizona, and Ohio banks.

The pending selection of a new software package will benefit from that experience, he said.

"Banks are now out of the large-scale, fully integrated systems," said Mr. Riegler. "They are too complex to maintain and run. Those that can be maintained and run on a more modular basis-Hogan, M&I-are the ones that have survived."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.