Perot Approaches Big Banks On National Processing Plan
Perot Systems Corp. has approached some of the nation's largest banks about setting up a network of regional computer centers to process data and clear checks, but so far the banks aren't buying in.
Perot Systems, a data processing and consulting firm established three years ago by Texas entrepreneur Ross Perot, first circulated its plan late last year. The plan calls for setting up data centers in several regions across the United States, using as a base the existing data processing operations of a large bank in each region.
Cost-Cutting Is Primary
The appeal of this approach, of course, is cutting costs, as banks bundle together their back-office operations, eliminating excess capacity. Each operation would be jointly owned by the founding bank in a given region and Perot Systems, while smaller banks in each region would be allowed to participate for a fee.
"There's lots of interest in the industry, but time will tell if it comes to fruition," said Mr. Perot in an interview last week.
In the longer term, regional data centers could compete with the clearing and settlement system dominated now by Federal Reserve banks. For Mr. Perot, success in such a venture would be a sweet reprise, given that he made his first fortune at EDS largely by processing data for government agencies.
To be sure, the idea of merging big banks' back-office operations has been studied by a number of firms, including International Business Machines Corp., Systematics Inc., and EDS Corp., the firm Mr. Perot founded in the 1960s and later sold to General Motors Corp.
For the banks, the first imperative in such a venture appears to be cost-cutting. But if successful, regional data centers could eventually become an income source for the founding banks.
No One Wants to Be First
In spite of the potential advantages, such a network has never gotten off the ground because few banks have been willing to be the first to weather the considerable operational and management changes required for a back-office partnership involving other banks.
But now, desperate to cut costs, banks are looking at the concept more closely. EDS, in its effort to launch the concept, has the advantage of having a few dozen existing check and data processing centers.
IBM is aggressively pursuing partnerships with banks, sources said, and recently formed a separate subsidiary to market processing services to banks.
Perot Systems started floating its proposals late last year. Mr. Perot himself was never involved personally in any talks with banks, he said, adding that the proposals were assembled by executives handling the firm's business with bank customers.
No Banks Hooked Yet
So far, Perot Systems has had a few nibbles from banks but no bites. "We've had banks approach us to see whether we could put together a business, but we're not in any serious negotiations right now," said Shellie Shonk, an executive at Perot Systems. He declined to identify which banks were involved.
"The idea has never gotten off the ground," he added. "Banks are dealing with earnings problems, restructurings, and mergers and acquisitions. This is just not a top priority."
Some bankers agree.
O. Darwin Smith, president of NCNB Support Services, the operations arm of NCNB Corp. in Charlotte, N.C., called the idea a good one but said the timing may not be right. He declined to say whether NCNB had considered a joint venture with Perot. The bank has a large systems integration contract with Perot.
Perot Systems Lacks Standing
Other factors may explain banks' reluctance for a joint venture with Perot, consultants said. Perot, with 1,300 employees, is essentially a start-up company that lacks the financial weight of an IBM, or the experience in the banking industry of an EDS.
The company is privately held, but analysts estimated it has about $200 million a year in revenue. Though Mr. Perot himself is well-known, not to mention being one of the wealthiest businessmen around, that apparently is not enough to convince banks to give him their business.
"Other than Ross Perot, the company can't bring the capital and make the investments that an IBM or an EDS could," said Lawrence A. "Ladd" Willis, managing vice president at First Manhattan Consulting Group and an adviser to many banks considering outsourcing deals.
Mr. Perot disagreed. "We have the financial strength and ability to perform," he said.
