When Emigrant Bancorp introduced its high-interest online savings account in 2005, its promise of the highest rates in the industry made the account an instant hit.
However, Emigrant claims that the systems powering the American Dream account were plagued with problems almost from the start, touching off a legal battle between the New York banking company and Metavante Corp., which provided the software.
In the latest court filing, the Milwaukee banking technology provider admitted there had been some problems with the software but said many of them resulted from Emigrant's underestimating the customer volume the systems would have to support.
"Any performance issues with the direct banking system which is the subject of the outsourcing agreement were caused, in considerable part, by the fact that the projections of customer volume that Emigrant provided to Metavante and that are set forth in the outsourcing agreement vastly underestimated that actual volume of customers," Metavante said in its filing Wednesday with the U.S. District Court for the Eastern District of Wisconsin.
For example, Emigrant claimed that the system failed to process at least 298 applications for new accounts, in April 2005.
Metavante said problems processing new account applications were "due to the fact that the volume of Emigrant Direct customers vastly exceeded the number of customers projected by Emigrant."
Metavante, a subsidiary of the Milwaukee banking company Marshall & Ilsley Corp., declined to provide an executive to discuss the case, citing a policy not to comment on litigation. But in an emailed statement a spokeswoman said "the best reflection" of the vendor's work for Emigrant is the banking company's own statements calling EmigrantDirect "'the fastest growing and most successful Internet bank in the country.'"
Though Emigrant has claimed that the Metavante software led to a string of mishaps, Daniel C. Hickey, a senior vice president and general counsel for Emigrant, said in an interview Tuesday that the largest problem was that "we did not believe that they were capturing all of the attempted applications for new accounts."
In addition to lost business from customers who tried and failed to open new accounts, Mr. Hickey said Emigrant had to establish a larger call center to handle complaints about incomplete transactions and outages.
Other problems included periodic outages, linking the Emigrant accounts to the wrong external account for funding, and incorrectly calculating interest due to customers, the bank claimed.
"We went live with that system at the beginning of January 2005, and pretty quickly ran into a number of problems with that system in terms of its reliability and its capacity," Mr. Hickey said. "Those problems continued throughout our use of the system."
Eventually Emigrant shifted to an online banking system it had developed in-house, in July 2006, Mr. Hickey said, "because Metavante's system was not giving us the reliability we needed."
In 2005, Emigrant began withholding payments, which triggered the initial legal filing in November 2005, when Metavante sued the bank.
Though Mr. Hickey said that Emigrant eventually resumed paying Metavante, it countersued in January 2006, seeking damages for the lost business. The banking company claims it lost out on about $3 billion of deposits.
In April a judge dismissed some of Emigrant's counterclaims of misrepresentation, negligence, and recklessness but not the bank's assertions of "fraud in the inducement, intentional misrepresentation, and breach of fiduciary duty." Daniel Wolfe contributed to this report.[This is the corrected version of an article originally published in the June 1, 2007, edition of American Banker.]
