As bankers bemoan the influx of insurers, brokers, and other companies into their business, one bank wants to give these newcomers a helping hand.
Through its M&I Data Services subsidiary, Milwaukee's Marshall & Ilsley Corp. is planning to offer management expertise and processing services to nonbanks looking to enter the banking business.
"Insurance companies want to offer banking products, but they don't have the expertise to offer credit products, take deposits, or process loans," said Owen J. Sullivan, president of M&I Data's enterprise solutions group.
"We will take over the whole financial services management" for them.
As one of a handful of technology companies that provide data processing to banks, it is not surprising that M&I Data would see other firms that are entering banking as a potential source of new business. But M&I is wholly owned by a commercial bank; some say what it plans is like helping foxes get into the henhouse.
"I would view it as counterproductive," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America, which vehemently opposes insurers and others getting into banking. "We'd question why any bank would want to help them."
For $21.3 billion-asset Marshall & Illsley, the answer is to shore up revenues at a crucial unit. M&I Data's fourth-quarter revenues of $115 million represented more than half of its parent's noninterest income of $209 million.
Though the data unit's results were up 21% year to year, its executives told analysts to expect slower growth. M&I Data will lose its biggest customer at the end of 1999 as a result of BankAmerica Corp.'s merger with NationsBank Corp. BankAmerica provides 8% of M&I's revenues but plans to bring data processing in-house.
Year-2000 fears have also prompted some of M&I Data's bank clients to slow their technology outsourcing projects, the company said.
Against that backdrop, M&I went looking for new sources of growth, Mr. Sullivan said. With 54 nonbank applications for federal savings bank charters pending at the Office of Thrift Supervision, banking newcomers seemed like the obvious choice.
"It doesn't take a genius to figure out that the market is going through incredible change," Mr. Sullivan said. "Financial transaction activity is shifting from banks to financial institutions to everybody and anybody."
M&I Data plans to unveil its menu of new services within the next two weeks. On the loan side, it might offer to market, analyze, and service loans, and let customers use its call center. Virtually the only thing M&I would not do is keep the loans on its own books.
Analyst Ben Crabtree of Dain Rauscher Inc. said it makes sense for M&I to target newcomers. "These guys are going to open those banks," he said. "Why shouldn't they go after a piece of the business?"
Among the thrift charter applicants are 24 insurers and a wide range of other companies, including the retailer Nordstrom Inc. and the mutual fund manager T. Rowe Price. Given the maturity of the bank technology outsourcing business, M&I will not be alone in going after their business, said William Bradway, research director at Meridien Research in Newton, Mass. But he said M&I could have an edge over competitors that are not bank-owned.
M&I's rivals disagree. A spokesman for Electronic Data Systems Corp. said his firm has a marketing plan of its own. "This is a strategic area for EDS, one we're very much focused on."
William Neville, president of Bisys Group's bank information solutions, said experience with start-up banking operations gives his company a competitive edge.
Though they have not disclosed revenue estimates, M&I officials have hinted the program could at least replace the lost business from BankAmerica.
M&I has been attempting to line up a couple of customers to help roll out the new service. "It will validate the concept," Mr. Sullivan said. M&I is talking to about 10 potential users.
Not all companies will endorse the idea. Steven J. Ollenburg, president of Principal Bank, a unit of Principal Financial Group, said his company preferred to have multiple vendors for outsourcing bank technology.