If you were waiting for one of the major bank technology service providers to announce sweeping, revolutionary improvements in their systems and services, you'll be disappointed - and you may need lots of patience.
None of the vendors we interviewed for this article planned dramatic, revolutionary changes. Instead, all plan to evolve their existing products slowly to match the emerging system architectures.
Strategically, the vendors are uniformly reluctant to convert their mainframe-based systems to client-server architectures. This is partly driven by the normal response to having made significant capital investments in existing products. But in addition, these vendors do not believe that client-server will really replace mainframe systems.
Accordingly, you can expect vendor system development to fall into two categories: interface enhancements and steroid injections into the mainframe back end.
We interviewed four major vendors - EDS Corp., Alltel Financial Services Inc., Fiserv Inc., and M&I Data Services Inc. - to take a snapshot of their system developments for 1995 and beyond.
EDS has developed the only new mainframe back-end system since 1980. The Strategic Banking System offers a customer management system that is mainframe-based on the back end and LAN-based on the front end.
Meanwhile, EDS continues to market and operate multiple mainframe back- end systems, but it has begun consolidating these systems - planning to achieve common designs and functionality over the next few years. Development funding for new technology has been earmarked for its new front-end product, On-Call.
Strategically, EDS is counting on its size and the availability of its technical resources to build a greater market share. As part of this drive, EDS is investing heavily to underscore its commitment to consulting services and is poised to become a major competitor to Arthur Andersen for large-scale design and development projects.
EDS has several strategic advantages:
* It has made a long-term investment in its On-Call set of products.
* Its acquisition of the Ampersand branch automation system and the migration to Windows operating interface is a move in the right direction.
* It offers substantial organizational size and breadth and significant industry expertise.
Four key issues face EDS:
* How well can it integrate its plethora of host systems with the On- Call software modules?
* What will be its community bank product strategy?
* How will the recent acquisition of Newtrend's Miser system blend with its overall strategy?
* Will it continue developing the core client-server system that Newtrend had previously announced with Microsoft?
Alltel Financial Services devotes the bulk of its budget to fine-tuning its existing mainframe system. While focusing on improving operational efficiencies and introducing usability improvements, Alltel's ownership of Computer Power Inc., or CPI, ensures that it will maintain a very strong presence in mortgage banking and processing services.
New development budgets are aimed at strengthening distributed services, such as customer service and platform systems. In addition, existing and new platform and branch automation products will be much more tightly integrated with existing and future back-end products.
Strategically, Alltel would like to give its Horizon AS/400-based customers the option to move to a service bureau environment. The company expects to remain competitive by leveraging its software and industry expertise with its strong reputation for solid application management.
Alltel has the following strategic strengths:
* It has an excellent reputation for strong project management expertise - as evidenced by its handling of projects exceeding $100 million, such as the one being completed for NationsBank.
* It has a clear, formal intention to develop its own client-server branch automation system and begin the migration of CIF development to a server-based architecture.
* It has tremendous market and technological synergies with its parent, Alltel, and its peer subsidiary, CPI. The combination of telecommunications and service outsourcing is well poised for future delivery systems.
These questions remain unanswered, however:
* How great a commitment to community banking will Alltel maintain in light of a recent divisional writedown?
* Formal intentions aside, does the company have the in-house expertise to develop competitive client-server products?
* With so much internal focus on larger banks and service integration, will these in-house client-server products get the needed resources, and are these products really appropriate for their target markets?
Fiserv continues to support and operate multiple systems, running on different platforms, as a result of its rapid, acquisition-based expansion.
Strategically, Fiserv will continue to support both regional and national products, and it will continue its pattern of growth by acquiring additional systems. At some point, however, the costs of operating and supporting so many products may force it to consolidate products and data centers.
Like the other major vendors, Fiserv is allocating more of its development budget to client-server applications, but also like the others, it is focusing on peripheral systems. One advantage of operating so many platforms, however, is that Fiserv is well positioned to create an intermediary role between financial institutions and the information superhighway.
Fiserv has these strategic advantages:
* Its Comprehensive Banking System is well positioned to serve both small and mid-sized community banks.
* A recent internal reorganization of the marketing and product development functions should better integrate products and expertise throughout Fiserv - particularly from the CBS and Fiserv Fusion groups.
* Product and system diversity offers the customer a wide range of price-performance options.
Fiserv must address the following issues:
* How will it manage both the costs and the service-support effects of the needed data center consolidations?
* Will it be possible to migrate products cost-effectively to client- server architecture with so many platforms being supported?
* Can it continue its stellar earnings growth once the cycle of product and company acquisitions slows?
M&I Data Services has adopted a strategy, in contrast to Fiserv's, of remaining focused on a single, well-run, uniform product. It chooses to integrate technological innovations into that product.
Strategically, the company's goal is to move toward a single data source to support both the front and back-end systems, and it plans to move its branch automation products in that direction this year. This single-data- source approach - which allows tight integration to be maintained with the core systems - demonstrates one aspect in which M&I is leading the evolution of new technology solutions.
M&I holds a number of strategic advantages:
* A tightly integrated, uniform, single system solution.
* Both broad and deep banking expertise and a well-deserved reputation for excellence.
* Data services that contribute significantly to the bottom line of M&I's parent so that resources will be available for innovation.
* A clear, formal commitment to evolving toward client-server systems and a beginning for the infrastructure with distributed messaging.
Still, these advantages are not without unknowns:
* Will M&I's strategy - putting all its eggs in one basket - prove too risky?
* Can it develop a strategy to serve community banks more cost- effectively, and are they interested in that market?
* The Sales Partner branch automation product has been slower than others in migrating to the Windows environment. Will other migration efforts occur more quickly?
* M&I has relinquished the mortgage servicing business to niche players like CPI. Will that abdication matter to customers?
* * *
Large systems will continue to dominate core system solutions for the balance of this decade. None of the vendors we interviewed indicated a current commitment to the substantial level of funding needed to develop and market client-server-based core systems.
Once this technology is proven - more likely by smaller solution providers - expect to see another round of acquisitions as the major players buy the incubated solutions.
Ultimately, all vendors will need to modify their legacy systems to support client-server directly. As a final step in building a client-server infrastructure, these vendors will have to move the applications themselves to the distributed platform.
Everyone is discussing it, but no specific plans for this final step have been made, and for the moment, only the front-ends are being migrated. This final move - signaling the irrevocable breakaway from the mainframe model - will occur very slowly and, in all likelihood, through the acquisition of an emerging client-server solution provider well down the road.
Editor's Note: The third article in this series, running next Wednesday, will focus on branch automation.