If timing is everything, Sanchez Computer Associates Inc. has it all. Not your classic Internet overnight success story, the company has plodded in the systems integration business for 20 years. Now, with demand escalating for quick connections from the back end to the front end, the Malvern, PA company, led by two of the best-known brothers in the business, appears set for success.

Give Michael and Frank Sanchez credit-their timing is impeccable, as these are heady times for enterprise banking software vendors. That's because the time for talk is over, and financial institutions are well into the struggle to implement new systems that provide a fast track online.

Riding this wave, the financial software specialist is beating everybody's expectations these days. Financially, both long- and short-term cycles are solid. Revenue is growing at a nice double-digit pace quarter over quarter, and margins should improve with the spin-off of e-Profile, the e-banking solution in which Sanchez has invested heavily.

The company recently announced a 17% increase in revenue for the company's second quarter ending June 30 over the same period in 1999, with revenues rising to $16.3 million. The revenue mark beat analysts' average estimates by $1.1 million. For all of 1999, the company recorded revenues of $56.4 million, compared with $44.1 million for the previous year.

"The revenue results are indicative of the health of our ecommerce initiatives," offers Frank R. Sanchez, chief executive officer of the company. "During the past nine months, we focused on building and supplying an end-to-end ecommerce solution. The result has attracted the top-branded institutions in the financial services industry."

Big names, big deals

In an industry in which the ability to sign the big-name deals often determine the fate of a supplier, Sanchez has indeed walked away with some prize catch. During the second quarter, Sanchez announced seven ecommerce contracts-five of them focusing on e-Profile, which helps banks start up and run financial services package across multiple platforms.

Sanchez rolled out e-Profile deals with GMAC Bank, American Express' Membership Banking, Morgan Stanley Dean Witter, Lehman Brothers Bank and Sovereign Bancorp's 1st Webbankdirect. Plus, Sanchez announced two licensing deals with Lloyds TSB's evolvebank.com and ING Direct France. It already counts Wingspanbank.com and X.Com among its clients.

Six other deals involving Sanchez and e-Profile are brewing, although the company refuses to divulge any names yet. However, Sanchez did disclose that the clients include one of the largest personal lines insurance companies in the United States; one of the largest global brokerages and one of the world's largest card and financial services providers. "We expect that the names of these clients will be announced by the end of the summer," says James A. Hartke, director of research at First Provident Financial Group. "We also view this announcement to be very positive for the company because of the stature of the clients and the expected large recurring revenues which they will represent over the next several years."

mmAnalysts say that Sanchez is in a strong position because it is one of the few enterprise banking software vendors to actually implement online solutions that integrate legacy-driven back-end shops into new, Internet- based front-end ones.

Giving customers the ability to continuously introduce new technologies to an integrated, end-to-end Internet banking platform has separated Sanchez from the rest of the enterprise banking software pack, which historically has focused on the front end-and little else. Sanchez has built a back-end infrastructure that handles some fairly heavy lifting, including large transaction volumes and multiple platforms and channels.

Merging many systems

Through e-Platform, online banks can integrate a bevy of options, including customer relationship management (CRM) tools, telephone call centers, data warehousing, business-to-business Internet platforms, electronic billing and payment services, and interactive Internet banking in a user-friendly architecture.

That architecture features Sanchez Computer Associates' integration architecture layered on top of its Profile/Anyware bank product processing application. Sanchez also has tapped Bluestone Technologies' horizontal integration application and a global CIF with connection, transaction and messaging standards.

Consequently, e-Profile is winning converts across the online banking spectrum. "E-Profile is a dedicated e-banking service center which provides financial institutions differentiated direct banking services at a lower cost and with less lead time than has been traditionally available," offers First Provident's Hartke.

"In this regard, Sanchez, along with its key technology and service partners, offers complete bank operations outsourcing, allowing new direct banks to focus on building consumer value through the Internet," says Hartke. "Accordingly, we believe that the Company is well positioned to penetrate the emerging Internet-based financial services market, which is estimated to be on the order of $7 billion annually."

Merging the front- and back-ends has also given Sanchez a leg up on the S1's and Corillians of the world, especially with the rapid advancement of Sanchez's e-Profile outsourcing package, which has attracted many of the heavy-hitting customers mentioned above.

"Sanchez is a good example of a credible banking platform specialist that knows middleware in an industry that can use such a company," says Chris Musto, vice president at Gomez Advisors. "If anyone has been able to make headway in truly integrating disparate platforms, it's Sanchez. They've still got work to do, but the recent additions to its client list demonstrate the faith that the banking industry has in Sanchez and e- Profile. They're a major player because of it."

While the company is keeping a tight lid on pending deals, it's telling an impressive numbers story to the clients it has now. For the second quarter, company insiders say, e-Profile processed an average of 565,000 accounts in its bank operations and data center and is processing an additional 579,000 accounts for four e-Profile clients. Altogether, more than 1,200 institutions in 15 countries have licensed Sanchez products. "In one year's time, we have put e-Profile on the map as a vertical services provider for the financial services industry," says Michael A. Sanchez, chairman of Sanchez and chief executive officer of e-Profile. "The company has captured and continues to win the Internet and direct bank contracts from the top-tier financial institutions."

Sanchez is also coming to the end of a six-month "quiet period" that is scheduled to result in an IPO for the e-Profile subsidiary. Last February 11, Sanchez announced plans to file for an initial public offering, which analysts say should help Sanchez Computer Associates fuel higher earnings when the company will no longer be obligated to fund e-Profile. "The IPO makes e-Profile a legal entity," says Richard Jacobs, an analyst at Philadelphia-based Janney Montgomery Scott. "That's good news for Sanchez's shareholders, who know that the company has been spending lots of money to help Internet banking clients go live."

Experienced hand

The flurry of activity at Sanchez is no surprise to industry observers who've watched the company grow since its inception over 20 years ago.

Founded in 1979, and traded publicly on NASDAQ since 1996, Sanchez has carved a nice niche as a leading global developer and integrator of end-to- end financial services solutions for top-tier institutions. In the last year or so, e-Profile has emerged as the cornerstone of the company's business strategy. Currently licensed to 1,200 institutions in 14 countries throughout the world, e-Profile was rolled out in early 1999, billed by Sanchez as an end-to-end financial services outsourcing technology and operations utility for direct and Internet banks.

Company literature touts e-Profile as "an integrated, one-stop, outsourcing solution providing top-tier banks and other financial institutions with a 'turnkey' Internet banking operation." E-profile provides a menu of "best-in-class" technology, application and service vendor partners from which financial institutions select their ecommerce solutions. E-Profile then provides the technical integration and vendor management services to help clients launch a direct or Internet bank.

The company has big plans for e-Profile, marketing the package as an information technology application that can support an outsourced, supply chain venue for online financial services. Inside Sanchez, staffers have taken to calling the company a "vertical services provider"-or VSP. Sanchez, which is just now evolving beyond the launch of e-Profile, plans to parlay its investment in e-Profile to help the entire company establish strategic relationships, primarily in the financial services sector. It also hopes to develop and incubate various businesses, and then deliver those technologies and products through multiple means of distribution around the world.

"E-Profile is proving a valuable distribution arm for Sanchez products, services and technologies," adds Frank Sanchez. "Our goal is to continue to increase the penetration of Sanchez' Profile products and services through e-Profile and to work with our partner clients to increase their penetration in the market. We also will continue to develop solutions that will leverage our software assets, technologies and industry domain expertise into additional geographies, customer segments and distribution channels."

Analysts seem to think that Sanchez is in the right industry, at the right time, and is on the right track. "We believe that the major trends in global banking, such as multinational consolidation and direct banking over the Internet, are accelerating the need for financial institutions to migrate from unwieldy legacy-based systems to more customer-oriented, flexible client/server based systems," says Hartke. While The Tower Group estimates that the market size for these upgrades exceeds $15 billion, Hartke also believes that e-Profile is a big winner-a highly flexible multi-currency, loan, deposit, and branch system that also supports emerging delivery channels such as the Internet and the direct banking market.

He also believes that e-Profile provides significant advantages over the typical in-house systems in use today, including an integrated architecture that better supports product delivery, customer service, customization, and cross-selling, in real-time across modern networks. "Over the next several years, we believe that a significant portion of information technology spending by the financial institutions will be oriented to integrating new distribution channels into existing legacy systems or replacing them with more flexible client/server processing architectures," explains Hartke. "We believe that Sanchez will be a major beneficiary of these spending trends."

Real-time deals

Sanchez is also the beneficiary of a good reputation among top-tier banking and financial services clients. Recent deals between the company and American Express and Morgan Stanley Dean Witter only augment the company's good standing in the industry.

Consider the recent American Express deal. American Express Co. chose Sanchez to replace Fiserv Inc. in supporting Amex's Membership Banking operation (the online bank at American Express).

Under the terms of the deal, American Express will implement e- Profile's processing solutions in multiple markets as the financial services company continues to grow e-banking and introduce other on-line initiatives in support of its international ecommerce strategy. E-Profile will process Membership Banking customer accounts for money market, checking, savings, CDs, investment management and lines of credit products, insiders say. "E-Profile will manage the supply chain of banking products and services for Membership Banking," says Michael Sanchez. "Our solution manages these capabilities within a technology infrastructure that allows us to adapt the offering quickly to evolving market opportunities."

A notoriously demanding customer (word from the Fiserv camp was that staffers there were only too happy to see Amex go), American Express executives say that the ability to upgrade on the fly-a prerequisite for success in the fast-moving Internet world-as a big reason it chose Sanchez. "We think that working with e-Profile and utilizing its experience will allow us to quickly identify and implement new technologies and provide operational support for Membership Banking," says Ruediger Adolf, senior vice president of strategic planning and business development for American Express. With Amex's 30 million credit card holders, the deal was seen as a big victory for Sanchez.

"Sure, I think so," says Gomez Advisors' Musto. "In the Internet world, grabbing big-name clients is seen as a huge plus. So the Amex deal, along with the Morgan, Lloyd's deal and others, only helps to increase e- Profile's brand name."

With the Morgan deal, Sanchez helped the financial services giant gain some leverage in the B2B.com world, helping Morgan Stanley launch a business-to-business ecommerce solution using e-Profile. Through e- Profile's Profile/Anyware system software, Morgan's financial advisors now can service the credit, loan and investment requirements of small and middle market businesses in the U.S., while outsourcing account processing and bank back-office functions such as billing, statement production and other fulfillment activities. Morgan's IT department is deploying e-Profile over the company's Intranet, where the financial advisors can open accounts, conduct transactions and service customers. Morgan recently began the rollout of this new service to its network of more than 12,450 financial advisors.

Insiders say the integration process was huge, requiring more than 30 electronic interfaces and included integrating with existing Morgan Stanley systems, new applications and technology interfaces such ATM and card systems. Sanchez, e-Profile and partner PricewaterhouseCoopers implemented and integrated the solution for Morgan Stanley.

"Sanchez and e-Profile provide the enabling technology and infrastructure necessary for non-bank financial institutions, such as MSDW, to gain competitive advantages," explains Frank Sanchez. "It's an example of how a non-bank can use the expertise of its extensive broker network and combine it with the speed and convenience of electronic commerce to deliver new products and services to their customers."

Lloyds plans pan-European bank

In a similar deal, London-based Lloyds TSB Bank plc, one of the 25 largest financial services groups in the world, will use e-Profile for its stand-alone, pan-European Internet bank-evolvebank.com. The new, Internet- only bank is scheduled to launch in Spain later this summer with subsequent rollouts in the United Kingdom, France, Germany and Italy. The bank will use e-Profile to process customer accounts for deposit and loan products. Profile will also process debit and ATM transactions for the bank. The bank will process the accounts on IBM's RS-6000 line of Unix-based servers. "Evolvebank.com has set its sights on becoming the leading Internet-only bank in the U.K. and throughout Europe," says Jayne Almond, managing director and chief executive officer of evolvebank.com. "To help us accomplish our goal, we required leading Internet banking technologies. Sanchez and its e-Profile suite of e-banking products provided us with flexible product manufacturing and a customer-centric, high-volume account processing infrastructure that has proven its mettle with some of the most successful Internet banks in the world."

Evolvebank.com to use e-Profile

That's the kind of testimonial that brings smiles to the faces of the Sanchez brothers-and to the 500 people they employ. So far, the new century has been kind to the company. It should continue to do so as long as it keeps a high profile.

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