The Internet and other hot technology topics are anything but hype to banks' wholesale services strategists, judging by a recent conference sponsored by the New York-based software company Banklink.
Though institutions' approaches may differ-for reasons of size and scope, corporate culture, market structure, or business mix-technological issues are invariably assigned high priorities, and change management has become a common concern.
This was reflected in a senior-level panel discussion at the end of the four-day session that Banklink, a Fiserv Inc. subsidiary, held last month in Vancouver, Canada. Here are excerpts of the remarks, with questions posed by American Banker executive editor Jeffrey Kutler, who was moderator.
The participants included senior officers from institutions with varying perspectives: Barbara Fischer, senior vice president of corporate services, Sovereign Bank, Wyomissing, Pa.; Thomas Cooke, senior vice president and manager, treasury management services, Washington Mutual Inc., Seattle; and Ken Smith, senior vice president and general manager, electronic services, Chase Bank of Texas, Houston.
Also in the group were Kenneth Vander Wal, partner, Ernst & Young; Frank Martire, corporate executive vice president and president of the bank and credit union group, Fiserv Inc., Brookfield, Wis.; and Paul Denola, senior vice president (specializing in emerging technologies), Fiserv.
How are your corporate services businesses shaping up this year against expectations?
COOKE: Keep in mind that commercial banking is a very small part of the $175 billion Washington Mutual organization. It is a thrift institution that has just gotten into commercial banking in the last few years.
I came in two years ago as the first treasury management staff member. If there hadn't been significant percentage growth in the last two years, then I wouldn't be here to talk about it. After working at large commercial banks for 20 years, I had the luxury to come into a large financial institution and build something from scratch, taking time to step back and do some strategic thinking about what we want to accomplish, how we want to compete.
We are very excited. We think we have positioned ourselves to compete effectively in our markets-for the past 15 months, that means the Pacific Northwest. Entering California, we are taking the opportunity to decide what segments we want to focus on-in California, that is commercial clients with at least $10 million in sales or borrowing needs of at least $500,000 - and it is a little higher in the Northwest.
Also we look at what products we need, how we want to position ourselves and, most important, how to differentiate ourselves in developing business. ... Time will tell how successful we will be. We look at noncredit products as well as credit, and take a relationship management approach to profitability analysis.
FISCHER: Sovereign in the past looked at cash management as a defensive product. In the last year or so, because of acquisitions we made and markets we entered into, we took a very aggressive approach to cash management.
In Philadelphia, for example, we can be very aggressive competing at larger institutions like First Union. We want to have the ability not to be dependent on commercial lending-to go in and lead with cash management products. We tend to focus on the middle market. We are getting great recognition in our market area, and we think we are poised for excellence.
SMITH: Chase Bank of Texas is a regional bank, primarily serving the middle market, which is $150 million of revenue and above. We also serve larger corporations, primarily energy companies around Houston. We have exceeded industry averages on growth. We are not expecting double-digit growth this year, and we are right on plan.
We understand that our services can be provided by independent banks in Texas and by large competitors, so we focus on quality and relationships that our commercial lending group can bring into play, with opportunities to cross-sell or up-sell. We believe the relationship with the client is the foundation on which everything else is built.
How do Fiserv's results reflect the state of the cash management market?
MARTIRE: Speaking to the Banklink product, we do as well as our clients do. There has been a lot of growth through acquisitions and new clients, and we are very proud of that. As for what we are focused on, we are very concerned about year-2000 and are comfortable with our position. We have to stay focused on that area.
The other obvious focus is on the Internet. Though it is very important to us and we are very committed to investing in the future-we are about to create an e-commerce division within Fiserv-we remain very committed to the products our customers are running today.
DENOLA: Like most organizations, Fiserv first approached the Internet more from a retail perspective. Bank response began slowly. But today, one thing that has not slowed down because of Y2K has been our Internet activity. We have tremendous backlogs, and banks want to make that move now, rather than wait to work through Y2K.
Does that demand for Internet support come from banks of all sizes?
DENOLA: Definitely across the spectrum. We serve a lot of small credit unions, and this is becoming the way for them to do business. It has been a little slower among community banks, but demand is starting to pick up.
When mergers happen, how does technology figure into the planning and implementation, and how does that priority filter down to your business units?
SMITH: Technology is a primary player in Chase's mergers and acquisitions. As our banks have come together, we made choices between available platforms or decided to create new ones. We made those decisions quickly and moved to bring the banks together as quickly as possible.
The reasons are obvious: There are economies and efficiencies in bringing two banks together, and we get the new organization thinking as a single, cohesive organization that allows for teamwork in project management. Technology is important because it drives the types of services we can offer and how we deliver them.
COOKE: At Wamu, (the commercial banking organization) operates on a totally different platform than the thrift. We have to look at how to integrate ourselves in terms of common platforms or interfaces to take advantage of our larger network. We look at alternative delivery channels, and the Internet holds a lot of excitement for us.
Dealing with much smaller customers than Chase, we are seeing a lot more push for technology. Small companies in business a few years and comfortable with technology are pushing us toward more electronics and less paper.
FISCHER: Most banks, when they do acquisitions, are on their prime operating system. Sovereign did it differently, while migrating to a new platform, which meant other large conversions were going on at the same time. That provided an opportunity to decide on "best of breed" for ourselves first, so as we brought new banks on board, we could gain economies of scale. Everybody was moving in the same direction.
On the corporate side, we had different customer bases. When we bought CoreStates branches, we saw a relatively high level of technology sophistication. But our approach made it easy to keep our operating teams focused.
Is there any concern that Y2K is distracting attention from things that need to get done?
COOKE: That issue is less frustrating than the resource drain over the last 18 to 24 months. A moratorium on system development may be a relief, in that it gets all this behind us.
SMITH: Although we have a moratorium beginning in October on system upgrades outside of any problem resolutions, we are ramping up some new- product offerings, research and development, product development. By no means are our programmers sitting back for three or four months and saying everything is done. We want to be ready when the doors open to bring some products to market.
MARTIRE: As much progress as we have made, there is no question that this has taken a tremendous amount of resources on our and our clients' parts. Products may be delayed three or six months, but they are going to be delivered.
VANDER WAL: We are anticipating a lot of pent-up demand. A number of projects have actually been accelerated from 2000 to this year because the existing system was not year-2000-ready. That may have an interesting impact long-term.
If it is true that Internet initiatives are less affected by Y2K distractions, is that for strategic reasons, or does it help that these systems may be able to bypass the more inflexible legacy computers?
DENOLA: I think a little bit of both. Demand is really ramping up on the retail side, and October will be our biggest month of installations. As an add-on to the organization, it is not really impacting the core processing and backend processing infrastructure.
Institutions are anxious to get their systems out, especially with nontraditional competitors like Nordstrom's and State Farm getting into direct banking.
One advantage in the Y2K context is that we are not selling an Internet product; it is an Internet service, so our customers rely on Fiserv for compliance like they do with anything else we provide. Beyond the product and features and functions, we really bring the operational support requirements that facilitate the launch of a product.
How did Internet strategies get established in your corporate services departments? Did it come from the top down, or did it happen independently?
FISCHER: It is a very natural step if you are dealing with the question, Who am I going to be tomorrow and where do I want to be? If I stand still today I may not still be in business the next day. (Sovereign Bank's announcement that it would form a separate Internet bank) came straight from the chairman, Jay Sidhu, who is a visionary and a marketer, and we were not the first to know about that.
SMITH: Our executive product committee looked at the Internet as the next vehicle to conduct business. The discussion started three years ago about how best to bring a product to market, and we had to address all the issues voiced about security, about who is responsible for what, how do we migrate the current client base to the Internet-if we want to do that.
COOKE: The Internet is not that big at Wamu. It is driven by customers voicing their interest in pursuing it. Quite honestly, the Internet is something wholesale customers are interested in, but it is not a critical issue at this point. They expect us to be able to compete in that market but it is not driving their business decisions.
We have to anticipate where customers are going and where they want to deal with the bank, and we will react to the marketplace. We will not develop products internally to compete with Wells Fargo and Bank of America and U.S. Bank, but we do want to compete with them in the broad sense, and that influences who are the vendors we choose to do business with to offer the products we want to offer.
VANDER WAL: One concern I have is about the business case, objectives, and goals-the basis that people are using to cost-justify Internet development. Is Internet work just a cost of business today to stay competitive?
MARTIRE: Clients more and more are seeing the Internet not as futuristic, but as a today issue. They want to know Fiserv has a product and see it demonstrated.
The business cases may not be strong because they are not quantifiable. It's very difficult to put a number on projected revenues six months to a year or two years out. So people are saying, Let's fly with this for a while and we'll try to get our arms around it in six months.
Besides the Internet and Y2K, are there other technology issues that raise concerns about priority-setting or strategic planning?
SMITH: We believe in technology and the need to continue to invest in it. We look to technology for efficiencies and to do what we are doing today faster and better. We look at what our clients require and how to marry that with what we can provide.
Technology will take us out of a product-defined organization into one that is solution-defined. For example, imaging-converting paper to images that can be passed PC to PC, workstation to workstation-is something we have invested heavily in and believe in.
FISCHER: I echo that. We always say internally that we want to do things faster, better, and cheaper. Our competition is not just financial institutions anymore. Everyone expects us to be as fast as FedEx. We have to think in those terms and take what is an ordinary process and turn it into an electronic process, so that I touch it once, touch it right, and it moves on.
SMITH: We and other banks have invested venture capital in small start- up companies with new technologies that we know little about but want to keep tabs on. That can give the banks easy access to the technologies as they come out. In the past, we did not always try to be cutting-edge. Today, we don't know what that next hook is going to be. We are trying to find out what it is and how we can leverage it.