Co-Op of Small N.Y. Banks Signs Pact with Systematics
A consortium of community banks in New York State has agreed to hand over the computer operations of its cooperatively owned data center to Systematics Information Services Inc.
According to terms of the five-year contract signed last week, Systematics will operate through 1992 the data processing facilities of Financial Computer Center of Eastern New York, a data processing concern owned by Evergreen Bancorp, Glens Falls, N.Y.; Ballston Spa National Bank, Ballston Spa, N.Y.; City National Bank and Trust, Gloversfield, N.Y.; and Central National Bank, Canajoharie, N.Y.
After 1992, the banks' data processing will be done at Systematics' data center in Albany.
With combined assets of more than $1 billion, the four banks join a growing number of smaller financial institutions that are benefiting from cooperative processing arrangements with data processing providers.
Economies of Scale
In striking a cooperative processing arrangement, a group of smaller institutions pool their data processing in an effort to achieve economies of scale and drive down the contract's cost.
While neither Systematics nor bank officials would disclose the value of the contract, company officials said the conversion costs were greatly reduced by the banks' close ties.
"The cost of converting three or four banks individually would have been extremely high - maybe out of reach," said Steve Michell, a senior vice president in charge of the remote operations division at Systematics, which is based in Little Rock, Ark. "They got some real attention because they came to us as a group."
There are a number of processing companies like Financial Computer Center scattered across the Northeast and Midwest. A growing number of these jointly owned companies have been moving to farm out their data processing operations.
Pact with EDS
In addition to Financial Computer's agreement with Systematics, a cooperative led by Flat Top Natiuonal Bank, Bluefield, West Va., recently signed a similar agreement with EDS Corp., Dallas.
The goals of outsourcing the data processing of a cooperative are much the same as those of an individual bank: to reduce processing costs and to remove nonbanking concerns, such as software maintenance, from management's agenda.
But beyond those basic concerns, the members of Financial Computer were also moved to outsource by the member banks' diverging paths.
Evergreen Bancorp, the largest bank in the group, has been looking toward acquisition recently, while Ballston Spa and City National are content with their present size.
"In an agreement like this, the outsourcer can play the role of both the good guy and the bad guy, so the companies owning the cooperative don't tear each other up," said Richard M. Sullivan, executive director of the Bank Outsourcing Alliance, Melrose, Mass.