In the next few years, U.S. banks will change the way they obtain computer software, according to a study sponsored by the American Banker and the consulting firm Ernst & Young
Because of the weak economy, most banks are now buying packaged applications software and are making only small changes, if any, to customize the packages.
By 1993, however, more banks will be developing their software in-house and fewer will purchase packages, according to the American Banker/Ernst & Young 1991 Technology Survey. The research was based on responses from 57 of the top 150 largest banking companies as ranked by noninterest expenditures.
Staying Up to Date
Industry experts say the reason for the migration away from packaged software is simple: It will be increasingly difficult for banks using these systems to keep up with the rapid rate of change in the industry.
"In the early 1980s, people typically bought software packages and then modified them significantly to meet their needs," said James R. Dempster, vice president and group manager for software development at M & I Data Services, a subsidiary of Marshall & Ilsley Corp. in Milwaukee. "But if you modify a package, you can't keep up with whatever changes and new versions the vendor offers, and the vendor can't support what you've got."
According to the American Banker/Ernst & Young survey, published this summer, 39% of all U.S. commercial banks will developed applications software in-house by 1993, up from 35% now. The survey also found that the use of packaged software will drop to 52% from 57%.
Banks are most likely to direct in-house development efforts to software applications that provide new products, promise faster delivery, or improve customer service. BAnks are also likely to develop in-house software that can take advantage of existing systems and information, observers say.
"Custom programs can do what no off-the-shelf program is ever likely to do: automate the workflow for those processes most individual to an organization, from loan processing to marketing and customer support," said Michael Stein, president of Michael Stein Associates, a software development company in Washington.
But not all banks can afford the time and energy needed for in-house development. The strategy at First of America Bank Corp., Kalamazoo, Mich., is a combination of standardization and customization.
The $14 billion-asset company -- with 28 commercial bank subsidiaries in three states -- purchases third-party software for some standard functions like customer information files, loan servicing, and general ledger. It also designs its own enhancements, such as special market analysis tools, that "support individual market differences," according to Peter Purcell, senior vice president of applications development.
Mr. Dern, a technology and business writer, is based in Watertown, Mass.