When Richard J. Matteis set out to build Chemical Banking Corp.'s Geoserve unit into a major profit center-- and not a major cost center - he had no idea how successful his efforts would be.
This year. as Geoserve celebrates its fifth anniversary, Mr. Matteis is a happy man. Combining the powerful one-two punch of slashing costs while introducing fee-based services. Mr. Matteis has made Geoserve into a unit that produces revenues of $750 million for Chemical's coffers.
"We have successfully changed the thinking that the back office was simply a factory for handling processing to the idea that it can be a viable profit center." said Mr. Matteis. "We have gone and squashed the production line and created an operation that uses technology to ham dle transactions which are focused on customer service."
Since its inception as a part of Manufacturers Hanover Trust Co. in 1989 - thus becoming part of Chemical when the two New York money-centers merged in 1992 - Geoserve has been a stellar example of how banks can use technology tOturn a profit.
The numbers add up Since the merger. Geoserve's earnings have been growing steadily at 15%.
More important; the unit is contributing profitably to Chemical's bottom line. Last year, the unit had pretax profit margins of over 20%.
Mr. Matteis said the operation was created without an "assembly-line mentality" but rather with the idea that by using the right technology and having the right information, the operation could handle transactions more efficiently while providing customers with a higher level of service than the traditional back office.
"We have created the idea that as an organization that knows its customers, we are able to respond to the needs in a highquality fashion." Mr. Matteis said.
"We are a business based on technology; the only way we are able to offer these services is by harnessing the technology and continuing tO change with it."
Geoserve spends over $150 million on technology annually, while servicing about 1.8 million transactions a day.
The transactions include everything from stock certificates and fund transfers to interest payments and electronic data inter-- change.
"Technology is the key to two pans of our business." said Mr. Matteis.
"One is to be able to be cost efficient, and the other as a tool to differentiate ourselves from the rest of the marketplace."
Mr. Matteis said the unit has seen a saving of $80 million since the merger from a combination of reducing head counts, integrating systems, and closing data centers.
"By being able to take advantage of the best technology and integrating our operations, we have been able to reap significant savings," he said. "One example was our ability to close 17 of the 19 data centers the banks were operating, leaving us with two centers that handle all of our needs ."
The combined unit has reduced the number of full-time equivalents from about 6,000 in July 1992 to just over 5,000 today.
"We have been able to capitalize on the resources of both institutions and reduce staff out of redundancy, without sacrificing the level of service we are able to offer:' Mr. Matteis said.
"We have also taken a unique approach to reengmeering the operation, which consists of both large and small projects in different areas to increase efficiency of the operation as a whole."
Earlier this year, Geoserve announced that its stock transfer business would be spun off into a joint venture with Mellon Bank Corp.
Mr. Matteis said the alliance will allow Geoserve to cut costs, increase market share, and improve the economies of scale of the operation, which will lead to increased profiL The combined organization creates the largest stock transfer firm in the Country.
"We have taken the No. 2 and No. 5 players in the industry and created an orgamzation that should have pretax profit margins along with the rest of [Geoserve];' said ML Matteis. "Without the merger, the margins would have remained slim at just under 10%."
Geoserve also announced recently the creation of a new securities processing unit that will combine corporate trust and global securities services into one organization.
"By combining the two units, we will be able tO offer more flexibility and be more responsive to existing and potential customers," said D'Arcy LeClair, senior vice president, who heads up the new unit. "The new unit gives us the opportunity to leverage ourselves and create better customer relationships because all of the functions will be under one roof."
To this end, Geoserve has not shied away from adopting new technology - especially if it will help the unit cut costs or offer new services.
For example, within the last year Geoserve started using imaging technology in its stock transfer business.
"If a customer has a single certificate worth 1,000 shares and wants to split it into two sets of 500, we can complete the transaction with ease through the use of imaging," said Mr. Matteis.
"Before we installed the technology, we would have needed to perform seven steps in order to split the shares."
Imaging allows the unit to capture the certificate and complete the transaction digitally instead of shuffling paper back and forth.
Another area Geoserve is reengineering is its Chemlink information services product. which provides customers with up-to-date information regarding their specific accounts.
"By combining the processing services and taking advantage of the technology that existed at Chemical before the merger, we have' been able to create a single unit that offers the services our customers need while giving us a significant savings," said Mr. Matteis.
"Since the merger, we have been able to save over $10 million in technology and processing costs by offering the services through a combined unit."
Geoserve is also embarking on a number of smaller reengineering projects throughout its operations.
Management is evaluating the industrial engineering aspects of the operations while also "delayering" the unit's organization stlucttlre.
"Most of the little projects we are pursuing are helping us to reevaluate the way we operate both internally and externally to make the operation as a whole more efficient;' said Mr. Matteis. "One particular thing we have boen focusing on are small reengineering projects which consist of specific goals, specific ends, and are usually completed within six to eight weeks."
For example, a team of employees from Geoserve's shareholders services group found that by eliminating the number of duplicate files, the firm could save over $250.000 immediately.
"A team of people got together and worked on this project and found us immediate savings," said Nicholas Papanikolaw, who heads up operations at the global securities and trust division of Geoserve.
"By looking at projects on a smaller level. we have been able to build a camaraderie in the organization, which otherwise did not exist, allowing us to operate more efftciently?
While saving money is important to the unit, making money is where top management is really concentrating its energies. Mr. Matteis and associates realize the implicit advantage of a high-tech approach: the possibility of adding new services and products, and then collecting the associated fees.
"The first thing we do when we look at ways to make money is to determine what are the current business needs of our customers and what services need to be added or subtracted," said Mr. Matteis.
Because Geoserve's mission is wide-ranging - from transaction processing to cash management services, from funds transfers to information services - the unit's management finds it relatively easy to develop new fee-collecting products and services.
"What has happened in banking is that people were always paying for services and what we have done in declaring that we are a profit center is make the fee schedule explicit;' said Mr. Matteis. "We have-taken the array of products and services customers are looking for and defined our fees to meet their demands?
Every time a customer makes an inquiry into an account or initiates an electronic data interchange payment, the firm charges a fee.
"We are very much a feebased service," said Mr. Matteis. "There is a fee for everything we do."
U.S. banks with a large presence in securities services and global cash management business have realized that they need tO establish for-profit entities to deliver the services customers have come to require, said Robert M. Tetenbaum, an executive vice president of First Manhattan Consulting Group in New York.
"Organizations like Geoserve provide enormous value to the bank as a whole," he said.
"There has been a realization that the only way for banks to continue to lead the market and continue to sustain investments is to operate for-profit organizations?.
