Through late August and most of September of this year, First Community Bancshares in Bluefield, Va. maintained an online "countdown" to its core conversion at www.fcbupgrade.com. (At press time, there were 23 days to go). The site features a video with soothing piano music in the background, in which CIO Steve Lilly touts some of the benefits of the new core system being adopted, Jack Henry's Silverlake. "It will allow us to provide big-bank capability in the community banking style you prefer," he says.
Lilly wasn't crazy about performing in the video. "I'll tell you what, being chief operating officer is what I need to stick to," he jokes. "I don't believe my acting career is going very far. I'm doing the best I can to get the message out."
Banks rarely offer public announcements about their technology upgrades until after they're done, for fear of glitches that could cause errors, delays and outages. But at $2.8 billion-assets First Community, "We feel like they have a right to know, particularly with the new internet banking solution that's going in," Lilly says.
"We want them to know and understand that there will be changes and that they'll have to go through a couple of steps over that conversion weekend to re-establish their security and things of that nature. We figured it would be unfair to spring it on them."
First Community Bank is part of a wave of banks that have engaged in core banking transformations over the last year or so.
"Historically, transformations in the U.S. and Europe have stood at around 1-2% - considerably lower than the rest of the world," says Celent analyst Stephen Greer. "Currently, we're seeing that number rise to around 4-5%. It's not considerably higher this year, but considering how many banks there are in the U.S., this represents a lot of banks." These numbers are based on Celent's estimates and conversations with clients, he says.
A quest for improved efficiency is one driver behind this conversion. The bank's efficiency ratio - the amount it spends to make a dollar in revenue - is currently at about 57 cents per dollar, or 57%. Industry averages hover in the high 60s. "Our goal is to get it as close to 50 as we practically can," Lilly says.
Compliance issues were another driver of this project. "Monitoring compliance, making sure we got it right and that we were able to satisfy regulators, continued to be based on manual processes rather than trying to stitch databases together to get the information in the right places at the right time," Lilly says. "It's been one of our bigger headaches. Another has been our debit card processing, there's been a lot of manual process in getting a Visa card in the hands of our customers."
Also behind the change was the fact that the bank's IT staff was spending a lot of time writing and customizing code to get external modules, such as online banking, bill payment and debit card processing software, to talk with the incumbent core system (Fiserv Signature). The bank has two developers. "They're very good and talented," Lilly says. "Our philosophy here is we don't want to run a development shop, we want to run a bank."
The just-completed conversion was conceived five years ago, when a technology assessment revealed the bank had too many manual processes. "As we started looking at that, we structured all of our major IT contracts to be coterminous in September of this year, in order to search for the best technology we could afford that provided best integration and the highest degree of automation that we could find," Lilly says.
A post-conversion feature CEO John Mendez is looking forward to is a one-signature account opening process. "Our account opening process could span 15-30 minutes depending on the type of account, sometimes longer. We're converting to a system that will populate all the necessary applications and we'll also be using electronic signatures as we image those deposit documents."
Customers will be able to sign up for an account, online banking, bill payment and mobile banking through one paperless application. There will be fewer FedEx packages between the bank's headquarters in Bluefield, Va. and its 72 branches, which are up to 350 miles away. Compliance with anti-money laundering, Regulation DD, Regulation CC, and other rules will all be handled by the software.
"We feel that's very important in this day and time to achieve compliance but not to impose it on our customers to the point where it's offensive," Lilly says.
Over time, the bank will evolve into iPad-based account openings and paperless branches. Branch staff are "elated" about the new system, Lilly says. "They've already done some testing, it will make life in the branch a lot better so that we can spend time talking to customers about important things that matter, as opposed to creating a paper chase," he says.
Certain HR functions have already been made paperless. "We want to expand on that," Lilly says. "We also have a trust division and I think there's a great deal of potential there as well as in compliance and risk management. We'll migrate all those departments to paperless as soon as we can."
A new native mobile banking app for iPhone, Android and BlackBerry devices that's part of the upgrade "will be a quantum leap for our customers" from the mobile browser the bank has had so far, Lilly says, including text messaging and bill payment.
In the Bluefield metro area (population around 60,000), local competitors include BB&T and several community banks.
BB&T is a formidable competitor, particularly in the cash management arena for business customers, Mendez says. Silverlake includes support for commercial cash management. Jack Henry also has an iPad app for small businesses that helps them run their business from their iPad "anywhere, at any time," Mendez says. "We're looking forward to those enhancements."
The bankers expect the new system to provide stronger security. "I won't be specific there, but we're going to see a much tighter and more manageable security environment because we're dealing with one vendor overall as opposed to several," Lilly says. "We won't have to oversee as much as we have to today."
The bank is retaining its check processing platform. "We like it, we've had it since 1997, and it has evolved," Lilly says. "It made no sense for us to change it."
First Community has also purchased Jack Henry's Synergy imaging and workflow system. "We feel we can leverage that considerably across the enterprise, not only for deposits and loans but for a number of other functions within the company," Lilly says.
Data validation has been critical to this project.
"You are taking over 300,000 accounts and moving them from point a to point b, the potential for things to go wrong is very high without meticulous data verification and making sure things convert and end up on other side of the fence the same as they were before they traveled," Lilly notes. "It is a very meticulous, time consuming process to make sure those are right because you have thousands of codes, hundreds of thousands of accounts in the customer information file. There's a lot of diverse information within our data."
Another complication is that First Community acquired People's Bank of Virginia in Richmond at the end of May and was going to convert that bank's IT to the Jack Henry platform over the same weekend. (People's was using an FIS system before.)
All in, include investments in storage and signature pads, the bank has spent $3.6 million on this conversion. The return on investment for the project is around 21%, based on reduced cost of processing transactions.
TURNING IT INTO A PROFIT CENTER
Up until a year ago, Ghan Desai, CIO of Team Capital Bank, was relying on what he calls "bank in a box" - a hosted service with one vendor providing everything for the bank's IT. Team Capital, which is based in Bethlehem, Pa., is a de novo that started in 2005. "There was no IT, there was no back office - there were the investors and an idea," Desai says. At the time, the all-in-one solution from Fiserv made sense.
But by 2009, it became clear to senior management that at the rate the bank was growing, the existing technology wasn't going to carry it into the future. "The problem with a bank-in-a-box approach is you get everything from one vendor, and that really limits you when you're looking for a certain type of mobile banking or social media [product]," Desai says.
"We wanted a strong core platform and the flexibility to make decisions as our needs change down the road, so we can swap something out that's not working and extend something that is working," he says.
The now $900 million-assets bank came up with a short list of vendors - Fiserv, Jack Henry and Open Solutions - and conducted a shoot-out. "We wanted a vendor that would not only allow us to keep our operating costs low but continue to reduce them," Desai says. "I know that's asking a lot.
"This was a huge deal for us, because we weren't just looking to replace the core, but also our merchant capture system, our online banking system, our business online banking system, our data warehouse system, our enterprise reporting system, our wiring system, and our ACH platform," he says. "This was a complete overhaul of the technology layer." Ultimately the team chose Open Solutions. The project began in April 2010 and went live Feb. 2011. One unusual element: no additional IT resources were summoned for the conversion.
"Most conversion projects require additional overhead," Desai says. "We had the right team of people, all wearing multiple hats. Also, there was support from a strong project management team from Open Solutions."
The bank is running the hosted option of the software; it's paying to run everything out of Open Solutions' Cherry Hill data center. "We pay the upfront cost and the monthly charges," Desai says. "Because we went with best of breed, not all the apps we use are from Open Solutions, there are third-party apps in the mix as well."
Desai hopes to make money off the new system by building add-on applications that work with the Open Solutions core platform and selling them to other Open Solutions customers.
"A lot of community banks look at their back office as a cost center or investment center where they're investing in technologies," he says. "We wanted to go to that next level of transforming ourselves into a profit center."
In the past year and a half, Desai, another developer and a new hire have built about 15 commercial-grade applications using Open Solutions' DNACreator.
"There's been tremendous interest from clients in some of our products," Desai says. A credit union in Hawaii has already bought one.
The applications the bank is building also are meant to help internally, to eliminate operations costs wherever possible.
Desai's group recently created an ACH origination platform that automates formerly manual ACH processes. "It's a lights-out process, nobody has to do anything," Desai says. "The app validates the file, customer, and limit; it generates exceptions and exception emails; there are approval links attached to the emails, somebody in authority for that customer has to approve those."
The staff members who used to handle ACH transactions are now doing other things.
These development projects have moved quickly. "These are not eight-hour days, we put a lot of sweat equity into building all these applications for our bank and turn around and market them to other clients of Open Solutions," Desai says.
"Our ulterior motive is to turn our IT operations into a profit center."
Citi's Global Core Conversion Chugs On
The largest core conversion project in the U.S. remains Citi's, which the bank says is meant to improve customer service and support. It is due to be completed in 2013.
The project is a multi-year effort to develop a single, customer-centric banking platform that will span all channels and consumer products in North America Consumer Banking, according to a Citi official. "Our customer support and sales experts will benefit from a streamlined application environment and can more easily extend consistent service across all channels," she says. The platform is reportedly FIS' Systematics.
The overall core platform project is global. Each of Citi's four regions is approaching the project in phases. Southeast Asia is complete, for example, and in the U.S. the bank has completed the first of several phases.
Project Rainbow, as the project is called internally, began in South East Asia. "We first used the Rainbow name due to the seven initial countries that came together onto the common platform to create something truly magnificent," the official says.
When this project has been completed, Citi "will be able to give consumers more personalized solutions and a consistent client experience whenever and wherever they interact with Citi, whether online, in a branch, through a call center, on a mobile device, or at an ATM," the spokesperson said.
Critics have slammed Citi for going with a batch processing, rather than a real-time transaction system. But the bank's more ambitious goals may be around customer analytics, for which it recently purchased IBM's Watson.
In a press release in March, the bank said it "will assess ways to use a first-of-a-kind customer interaction solution combined with Watson's deep-content analytics, natural language processing, decision support, and evidence-based learning to continue to advance digital banking." With 200 million customer accounts in more than 140 countries, the bank has a wealth of consumer data to mine.