It's not easy being a banker these days. Pressures to slash costs and improve customer service, coupled with stressful mergers and acquisitions, have led to many sleepless nights.
Not surprisingly, these same trends also have created new business opportunities for companies that develop and sell banking software - opportunities to provide new automation solutions that aim to eliminate many of the frustrations associated with back-room operations.
Take the case of Kirchman Corp. The Orlando-based company has set its sights on becoming "the software provider for the banking industry." Kirchman began its quest in 1968, when it became the first company to sell prepackaged software to banks.
Operating then as Florida Software Services, the company specialized in individual applications, such as demand-deposit accounting and commercial loans, and its client roster included some of the biggest names in banking, like Citicorp, First Chicago Corp., and BankAmerica Corp.
About 12 years later, after changing its name to Kirchman, the company turned away from the big-bank market and individual software applications, and introduced an integrated banking system geared primarily toward the community-bank market.
Today, Kirchman's flagship product, the Dimension core banking system, is providing processing for 650 banks worldwide, with a daily processing value in excess of $100 billion. The system, designed to operate on virtually any brand of mainframe computer, supports transaction processing, loan and deposit processing, customer information, and management information processes.
Gregg Pace, Kirchman's vice chairman, explains the decision to abandon the company's initial big-bank clientele as a survival technique. The company, he said, had developed an integrated banking system that was ahead of its time. When Kirchman introduced its first package, dubbed Omni, Mr. Pace said, no other software company had attempted to interest banks in the benefits of integrating their core processing applications. To convince the nation's largest banks to gamble on a revolutionary idea like integrated banking seemed an impossible undertaking.
"Our objective was to go to the very small banks, because we didn't think we could make integration work at large banks," Pace said. "Ever since then, we've been working our way back up the food chain."
Today, Union Planters Corp., Memphis, is the largest U.S. banking company running Dimension. The system supports centralized processing for 35 banking subsidiaries scattered throughout eight states, with assets totaling about $10 billion, said Lloyd DeVaux, executive vice president for corporate support services and a former Kirchman consultant. Pending acquisitions will increase Union Planters' size by at least another $1.5 billion.
Mr. DeVaux, an ardent champion of centralized processing, said Kirchman's Dimension system supports Union Planters' focus on that method.
One of the biggest selling points of Dimension, said Mr. DeVaux, is that the software is packaged as object code, rather than source code. Software written in object code requires little in the way of end-user programming. Source code, on the other hand, must be edited and compiled before a purchaser can even begin to use the software.
Bill Bradway, technology analyst with Tower Group, Wellesley, Mass., said most vendors of banking software sell source code. Kirchman, Mr. Bradway said, is unique among major software vendors in selling object code. "What this means is that a Kirchman bank needs no programmers to meet the bank's business requirements," he explained.
Mr. DeVaux said he hasn't quite dismantled Union Planters' computer programming staff, but the implementation of Kirchman's Dimension software certainly has lessened the need for programmers. The bank-holding company, he said, employs fewer than 10 programmers, who write programs to support interfacing of Dimension to external bank applications. To put this in perspective, Mr. DeVaux noted that one $2 billion-asset bank recently acquired by Union Planters employed a staff of about 20 programmers.
"I don't need a big staff of programmers sitting around writing code," said Mr. DeVaux.
Rather, he and his staff can focus their time and energies on combining the back shops of Union Planters' far flung affiliates onto one core processing system. "Our goal is to be completely centralized, to eliminate all back rooms throughout our banks," said Mr. DeVaux.
The savings that can accrue from this approach are substantial, explained Mr. DeVaux. It eliminates the need to support dozens of individual data processing departments, along with the associated hardware, maintenance, and personnel costs. "These are hard-dollar savings," he said.
Kirchman's approach to pricing its software also helps cost- conscious bankers like Mr. DeVaux. Rather than charging a multiyear licensing fee and then tacking on a maintenance contract, Kirchman folds everything it offers into one big package, a process Mr. Bradway described as "software outsourcing." Charges are assessed based upon the client bank's asset size. "At the end of five years (the typical contract period) with Kirchman, you either renew, or you'd better have somewhere else to go," explained Mr. Bradway.
The asset-based pricing strategy, said Mr. Pace, is integral to Kirchman's marketplace survival. In an environment of nonstop mergers and acquisitions, a vendor's revenue streams could slow to a trickle if too many of its clients are bought out. But if you have a client on an acquisition spree, like Union Planters, revenues increase as the client bank amasses assets. "As our customers grow, we grow with them," observed Mr. Pace.
It also helps that the Dimension software is hardware independent, Mr. Pace said. Although Dimension originally was developed to run on International Business Machines Corp. mainframes, Kirchman has since adapted its software to run on Tandem, AT&T, and Digital Equipment Corp. computers. "That move has opened up significant portions of the marketplace to allow us to grow," said Mr. Pace.
The advantage of this multi-platform approach to software development and support, said Mr. Pace, is that a customer bank running Dimension on an IBM platform, for example, can acquire another bank that runs AT&T computers, and convert the acquired bank to Dimension without having to replace its hardware configuration.
"One of the reasons banks have come to us over the last few years has been our ability to respond to their acquisitions of branches and banks," said Mr. Pace. The hardware independence of Kirchman's software, Mr. Pace suggested, bodes well for retaining the value of assets that a bank acquires.
But whether that fact will ever appeal to big banks remains to be seen. The one-size-fits-all appeal of Kirchman's software works well for smaller banks, but larger banks often prefer tailor-made applications, observed Mr. Bradway.
Kirchman also could run into problems meeting the expectations of clients as those companies outgrow their community bank roots. Banks everywhere are under pressure from customers to provide service 24 hours a day from a multitude of entry points - such as voice response systems, automated teller machines, and home banking services. The bigger a bank, the more intense the pressure. And to support this approach to banking, managers say they need the technological capability to handle real-time system updates.
"If you have a core banking system with on-line updates you really have the best of all worlds," explained Mr. DeVaux. "It really is what everybody is pushing for." To that end, Mr. DeVaux said, he expects Kirchman to add this capability to Dimension, perhaps as early as next year.
But Mr. DeVaux may be overly optimistic. According to Peter Cranis, Kirchman's director of marketing, systems enhancement to support real-time updates are not at the top of the company's to-do list. "It's something we've been looking at," he said, "but we're not yet into the design phase."
Rather, Kirchman is focusing its efforts on enhancing Dimension to better accommodate commercial activities and new revenue opportunities for banks. Enhancements that have been added recently to the software, or will be added soon, include an account analysis function, an ATM surcharging capability, and a sweep transfer function.
It's enhancements like these that will really make a difference for a bank's bottom line, and by extension, sustain Kirchman's bottom line, Mr. Pace suggested. "Banks are trying to be more responsive to customers at their points of contact," observed Mr. Pace. "I think we're in harmony with where the market is."