By Lauren Bielski, a freelance writer based in New York City, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Lauren was technology editor of ABA Banking Journal for ten years.

It was July 2006. National Bank of Kansas City, Overland Park, Kan., had a year left on its legacy core-processing contract, but had been feeling the ragged edges of the system’s abilities. Management knew the core had to be replaced, but refused to rush into the project—instead going through its vendor selection process methodically with an open mind and a tall list of requirements.

The analysis that ensued took six months and ample sweat equity.  

Eric Garretson, chief financial officer and senior vice-president of the $750-million assets commercial bank recalls that, initially, a team from each of the six major core vendors shared a day presenting highlights from their offerings. Still undecided, National Bank issued a 175-question RFP, which went out to those and other vendors. Later, in a call-back presentation for finalists, Garretson and his team spent an entire day simply going over general ledger capabilities. The show and tell for other features was equally comprehensive.

“More than one vendor told us that this was the most rigorous review that they’d been through,” says the CFO. But Garretson wasn’t being persnickety for its own sake. “We needed to be sure that such a big project would yield the efficiency we were after.”

The list of half a dozen vendors was whittled down to a few, among them, Harland Financial Solutions and its Extended Financial Enterprise product, known as PhoenixEFE, which was ultimately selected. The bank went live in July 2007. The integrated platform brings together real-time core processing of customer files with risk management capabilities, and also supports end-to-end commercial, consumer, and mortgage lending, enterprise content management capabilities, business intelligence and marketing support, and branch automation (including branch capture capabilities). The core also supports a comprehensive suite of payment solutions, including real-time EFT.

Panelists share conversion opinions
Garretson discussed the bank’s core conversion experience and his opinion on core processing trends at the Celent 2010 Banking Innovation and Insight Day held at the Westin Time Square in New York on May 13. National Bank is part of two-bank holding company, Ameri-National Corp., and operates six locations.

Garretson shared panel time with Richard Kick, executive vice-president, of the $1.3 billion assets First National Bank of Long Island and Kent Seinfeld, former CIO of New Jersey-based Commerce Bank (prior to its takeover by TDBank) and currently a core processing consultant working on several projects here and abroad.

The panelists agreed that a hybrid, best-of-breed approach to developing bank automation—defining core from outside in, with middleware supporting application diversity—had its benefits.  Yet, it was ultimately more manageable to go with a single vendor offering highly integrated solutions, with cleaner, customer-centric data as a byproduct. Panelists also agreed that emerging vendors (even those with a substantial track record in European markets) didn’t necessarily meet their requirements. For instance, vendors that supported multicurrency processing provided unneeded complexity.

In a recent report on core processing vendors vying for business in the North American market, Rajesh MR, Celent analyst, notes that banks increasingly wanted a core that could buttress such diverse operations as internet banking, ATM operations, phone banking, and debit cards.

Harland’s PhoenixEFE, which was compared to other classic core vendors in the report, has enough firepower to run much bigger banks. But National Bank, even at its relatively modest size has big aspirations, particularly in merchant capture and commercial lending  and wanted a core it could grow into.

“I know it sounds perverse,” Garretson joked, “but I was excited to go through the conversion process.” He added: “The process went so well, that we did it again, following the 2007 conversion of National Bank of Kansas City with the upgrade of Arizona-based Heritage Bank” (the other bank in the holding company).  

Need room to grow
Risk management also played into the decision. In 2006, National Bank was experiencing growth but would soon face ripple effects from the subprime mortgage crisis and subsequent economic downturn, making credit risk analysis more critical than usual.

“We like the governance that PhoenixEFE supports,” says Garretson. “National Bank has been able to quantify its deposits at risk—all of the CDs outstanding and those customer relationships that are in excess of FDIC limits. We’ve been keeping regulators and the board members informed of liquidity risk in a timely way.”

And, as Garretson emphasized during the presentation, efficiency was critical to the bank. It was defined by the CFO in a couple of ways.

First, the ability to keep existing applications that had value. “We didn’t want to have a lot of deep, custom integration work that would require contracting with a consulting firm,” the CFO says. NBKC has a large mortgage operation and an auto floorplan lending business that each had custom software that ran part of its lending operations. “We were able to integrate to the general ledger using either XML direct interface or External Input File (EIF) interface—the latter operating in a batch mode for overnight processing,” Garretson recalls.

Other legacy apps were saved: National Bank integrated Fedline Advantage directly with PhoenixEFE in order to post incoming wires in real-time to a given customer’s account and send email notifications. On the B2B side of the operation, NBKC integrated a separate app from Commitment Software for customer repurchase “sweep” agreements.

Simplifying employee access was also important. In line with that, PhoenixEFE supports single sign on, simplifying bank employee use of the system, and places marketing capabilities, such as CRM, at the front line.

These days, the bank is picking up merchant capture business and aiming to reduce reliance on rate shoppers by attracting longer term deposits and the relationships of local businessman.

[This article was posted on June 4, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.]