Despite handing off its technology operations to EDS Corp. in one of banking's biggest "outsourcing" deals, First Fidelity Bancorp. has had problems integrating its newly acquired affiliates.
The mishaps, confirmed by First Fidelity officials last week, include delays in mailing statements to customers and technical difficulties in converting some banks to new software.
EDS Not Blamed
Fidelity executives said the problems were caused by poor staff training and complexities involving modified software. They denied the deficiencies were related to the work hired out last year to EDS, a subsidiary of General Motors Corp., in a 10-year contract worth $450 million.
The bankers also said the back-office problems are not significant and will not impede the bank's ability to acquire other institutions.
"We're trying to paint an airplane going Mach 1," said Donald C. Parcells, executive vice president overseeing the back-office consolidation of First Fidelity's eight affiliate banks. "You're inevitably going to spill some paint along the way."
Since First Fidelity is one of the largest banking companies to farm out its data processing, the project has been viewed as a test by other superregional and money-center institutions considering similar deals.
Outsourcing proponents claim it can dramatically reduce expenses and let banks keep up with technology without keeping highly trained technicians on staff.
Rish Seen for Big Banks
But some observers say that outsourcing is risky for large banks like First Fidelity because institutions lose control over a vital operation and end up paying more for technology in the long run.
Sources familiar with the problems in New Jersey said the conversion under EDS has been fraught with technical problems and delays. "They are nowhere near close to where they're supposed to be," said a source familiar with the company's operations.
As part of its agreement with First Fidelity, EDS is charged with converting about 25 software systems into fewer than 60 that will support all core operations at the Lawrenceville, N.J., banking company.
8 Affiliates to Convert
As part of the consolidation, software must be installed at the bank's eight affiliates. The project had been scheduled to be completed in March.
EDS, headquartered in Dallas, was also charged with merging the bank's two data centers at a single site in New Brunswick, N.J., and then to run the facility. The data centers were merged in June.
Mr. Parcells said the company will meet is deadline for converting the banks, although the schedule was extended to next fall because the holding company has acquired six institutions since it signed the EDS contract.
"We considered the EDS systems conversion project to be a resounding success," said Mr. Parcells in an interview last week. "We are on a learning curve, and the problems didn't surprise anyone."
"From a financial standpoint, all our objectives have been met," he added. The bank expects to save $50 million when it is finished consolidating software systems. Mr. Parsells said the company has already wiped out $35 million in costs.
The company ran into snags in the consolidation of check-processing and statement-rendering centers, Mr. Parcells said. It merged eight centers into two sites and is running different deposit systems that must interface with the check systems.
This caused some customers of the bank's Pennsylvania and southern New Jersey affiliates to get statements late. One customer reported receiving a statement 22 days after it had been printed.
The delays were also caused by problems with the post office and the fact that the company is using old statement-rendering equipment, Mr. Parcells said. New equipment will be installed soon, he said.
Mr Parcells said the company mails statements within three days of printing and that most problems have been corrected.
Problems in Pennsylvania
The bank also had problems in the back-office operations of Merchants Bank, Allentown, Pa., acquired this year. Mr. Parcells attributed the difficulties, which affected customer service, to a lack of proper staff training and the complexities of handling software that has been significantly modified.
"If we had a fault, it was that we didn't do a good enough job putting training material out there," said Mr. Parcells. "People didn't understand how to use the new system."
Sources said that First Fidelity and EDS sent in a team of technicians that worked around the clock to fix the problems so the bank could process customer transactions. Future conversions were postponed.
Mr. Parcells said the company has worked the kinks out of the demand deposit accounting software, which required more than 1,000 modifications. Fidelity then installed the software at Merchants Bank without a hitch, he said.
The company has converted a total of five of its eight banks to the new software. Its north and south New Jersey affiliates, which do the bulk of the data processing, have yet to be converted.
Mr. Parcells said First Fidelity would reach its technology goals faster than it could have if it had kept the data processing operation in-house. Problems have cropped up in the normal course of business, he said.
"Outsourcing is not, a panacea," said Mr. Parcells. "It's not going to solve all the problems."