Changing even a small part of a core-banking platform does not come easily to any bank, as it is the lifeblood of operations.
But for the $300-million asset First State Bank, based in Waynesboro, MS, running the nightly batch cycle was becoming something of a headache. Batch processing sometimes did not get started until well after the close of customer hours at 7 p.m., and it could stretch on as long as seven-and-a-half hours, perilously close to the opening time of the bank the following morning.
Like a lot of community banks, First State Bank was running the batch portion of its core banking program on an old, IBM Corp. AS/400 series mainframe. Though the bank said that system had run just fine for about 20 years, clearly it needed more capacity. But cost was a factor.
Then, at the urging of its core banking software provider, Kirchman Corp., a unit of Metavante Corp., the bank switched its batch operations server to a Unix-based Sun Microsystems V880 server; its work life changed, dramatically reducing batch time and expenses.
"The old system had maxed out, and you could not upgrade it anymore," says Don Story, evp in charge of operations for First State Bank. "If we got a late start, or had a problem with the nightly update, we were not able to have our system online and up at eight the next morning for our branches."
The bank made the decision to switch to Sun Microsystems in February, 2003, and by May of the same year the switch over was complete.
Since then, the real and forecasted time and cost savings to the bank have been significant. Most importantly, Story says batch time has been reduced by about six hours to about an hour-and-a-half. The decrease in processing time also means a reduction in overtime costs as well, totaling about $12,000 annually over the next five years. (The bank will also save $139,000 in hardware expenses, amortized over the next five years.)
While the cost savings may not seem like a lot, particularly to large banks, that's huge for small community banks in today's ultra-competitive banking environment. "They have very tight budgets and there is not a lot of room for miscues and for incremental project or hardware expenditures," says Don Free, principle analyst for the financial services and banking practice at Gartner Inc., based in Stamford, CT. "Any kind of savings they can acquire means a lot to the banks."
By comparison, the top 100 banks can spend billions replacing core banking platforms; according to Celent Communications, in 2003 the top U.S. banks spent an estimated $3 billion on core banking upgrades. The company estimates these same banks will spend about $6.5 billion in similar upgrades to hardware, software and related professional services by 2005.
First State is likely to find additional savings by eliminating energy costs for a mainframe data center, and by reducing software licensing fees as well, says Bob Hunt, a senior analyst for retail banking for TowerGroup, based in Needham, MA. Hunt says air-conditioning and energy costs for a mainframe environment are significant, so too are the licensing costs associated with running an IBM mainframe, which runs in a closed operating system environment.
"A lot of [the savings] is the use of open software standards and not paying for a big IBM operating license," he says.
The bank will also derive significant benefit for its customers, says Christine Barry, a senior analyst for Celent. "This insures that whatever channel is used will have the same updated information. You will not see the on-line channel and the branch channel with different numbers."
The switch over came at the urging of First State Bank's core banking software partner, Kirchman Corp., which has worked with Sun for the last two to three years to enable it to migrate its core banking platform, called Bankway, to Sun boxes more easily, says David Moore, global retail banking manager from Sun Microsystems.
Kirchman works with about 850 financial services companies that range in size from small community banks to large regional banks, though the majority of its banking partners are $40 billion in assets or smaller, and most no longer run their core banking systems on mainframes. "Previously, they were exclusively an IBM mainframe AS 400 vendor, so their software only ran on IBMs," Moore says, adding: "Sun has a product now called Mainframe Rehosting that allows anyone with a mainframe application to re-host that application whether batch or [IBM's] Customer Information Control System."
Moore says First State Bank's productivity improvements are more dramatic than usual. While he says banks could typically derive a 30 percent to 40 percent reduction in the total cost of ownership, they more typically increase operational speed by about 40 percent.
Though neither Kirchman nor IBM made anyone available to comment, industry experts said Kirchman has had some difficulty making its Bankway software run effectively on the older IBM mainframes. "The biggest problem is more peculiar to Kirchman," says Free. "They could not make their software run well on the AS 400."
At the same time, Sun has pursued the small and mid-tier market banks aggressively in the last few years. "Sun is making inroads to a mid-tier banking market where it has had very little penetration over the years," Hunt says.
Meanwhile, First State Bank still has plenty of power to scale up for additional capacity and potentially other applications, as it is using only two of the new Sun box's four processors. "We can more than double the processing speed," Story says.
