How much of the softwarerunning in your bank is using that little-heard-of, buttoo-often-relied-on operating system: “Stealth DOS”?
 
There’s reallyno such program, of course. But there are programs peddled to banksthat are nothing more than gussied-up DOS programs married to aninterface that looks current.
 
“These vendorsbuild layers on top of their old, original MS-DOS code to make itappear that it’s Windows software,” says community banker Jan Clark,“but when you get right down to it, it’s still a DOS program and thereare limitations. These companies are just not willing to go back to thebeginning.”
 
This is onespecies of complaint about the vendor community. There are others. Takethe unhappy experience of Tom Leetch, Peoples Federal Savings Bank, a$286.2 million, Boston.
 
Peoples’outsourcer was switching from a mainframe to client-server technology.Peoples was one of the first to convert, and it was ugly.
 
“Conversions arenot nice, not nice at all,” Leetch says. He felt the programs hadn’tbeen tested adequately before the conversion went live. There werecustomer complaints that the bank had to handle, as a result, and then,glitches the bank had to fix.
 
“It was just a nightmare,” says Leetch. “It got to the point where I demanded compensation, and I received a credit.”
 
Are many community banks at the mercy of their software vendors or their outsourcers? Or are they pretty much in synch?
 
The issue ofcooperative coexistence with IT suppliers was the first of thequestions presented to a group of bankers, all current members of ABA’sCommunity Bankers Council. But the stories you’ve heard thus farweren’t the only frustrations aired.
 
Commonly, the sheer pace of technological change drove all these senior bank officers crazy.
 
“For us, thechallenge of technology is being constantly behind the curve,” says G.Courtney Haning, president and CEO, Peoples National Bank, NewLexington, Ohio. There’s only one, albeit temporary, exception, henotes. “A bank our size ($83.8 million-assets) can go outside today,get up to date, and, for a little while, be right there with everybodyelse,” says Haning. “But we can’t afford to do that again for anotherthree or four years.” In the meantime, the world moves on.
 
You can’t blameHaning for feeling this way. In the last two years his bank has poppedfor upgrades to platform automation, desktop PCs, and ATMs. Within thenext year, he intends to replace the bank’s teller system and itsinternet banking software.
 
Platformautomation and PC upgrades were common recent expenditures among thebankers, and more than half expected tech spending to rise this yearover 2004.
 
“I’m concernedwhether spending to keep up with technology is always justified by thecost-benefit comparison,” says Dean Fitting, president and CEO, OzaukeeBank, Cedarburg, Wis., $600 million-assets. At the least, there is theneed to get the best “bits for the buck.”
 
The banker-vendor team
ABA BJ: Arebank vendors giving community bankers all that they need to remaincompetitive or is your thinking somewhat ahead of what your vendor cando for you?
 
Kathleen Steward, Chisholm Trail State Bank

We outsource to Data Center, Inc., which is based in Hutchinson, Kan. I feel they are right in step with us.
 
Our IT personworks closely with DCI and totally understands the company’s process.They don’t talk over our level and we don’t talk over their level andit’s a nice partnership.
 
Tom Mantor, Bank of Walnut Creek

We’re a growing bank in the San Francisco area and we’re represented bya commercial lending office in Silicon Valley, so technology is hugefor us.
 
We’ve been usingITI software on our own hardware for about 12 years. We’ve priced theinside/outside decision, and found the cost is relatively the same.However, we didn’t want to lose that element of control, and we havesome pretty good IT people. So we kept it in-house and that’s right forus.
 
ITI does a goodjob, though when they came out with their internet banking product, itjust wasn’t state-of-the-art. We had to go to someplace else. Thatsaid, we’re converting to ITI’s current internet banking product thisyear. But that’s as a conversion. We’ve had internet banking about sixyears now and it’s taken them six years to get to the state-of-the-art.And that’s just not acceptable.
 
Jan Clark, County National Bank

When we started our bank eight years ago we knew that in order tocompete with the established commercial banks in our area that we weregoing to have to be on the leading edge of technology.
 
So we movedright into imaging and things like it from the get-go. We use DelmarvaData Center (officially Delmarva Bank Data Processing Center, Easton,Md.).
 
The center hadabout 15 banks at the time we started with it; four of the banks ownedit. We had the opportunity to become part of the ownership group, butelected not to, because the way the technology was changing we thoughtthat they would be locked into their the equipment and not have thecapital available to pay for upgrades that we saw coming in the future.
 
However, we’restill with them. They’ve done a real fine job. In part this is becausethe bank clients formed a user group that pushed the demands of itsmembers. But the center also brought in more capital and that helped itkeep up. Presently, Delmarva Data Center has about 26 banks.
 
A little whileback the data center partnered with Kirchman Corp., to make KirchmanBankway software (a core processing system) available to customers. Ihave a little concern about the company supporting two core systems,because they may ultimately push customers into Bankway, which is moreexpensive than what we have been paying for core processing so far.
 
Tom Leetch, Peoples Savings

I think my institution is ahead of our vendor’s capabilities(Connecticut Online Computer Center) and we are always looking for moreinformation. Our biggest problem right now is to mine information offour database. But also, we don’t have the ability in the Check 21 areato initiate transactions. We can receive transactions but we don’t havethe ability to initiate them. That’s something on my wish list.
 
There is a veryactive users’ group. But somehow technology keeps changing directionand our data processing thinking and practices have to change asquickly. And that distracts the members of the users group.
 
Nino Moscardi, Westerly Savings

Like Peoples Savings, we outsource to Connecticut Online ComputerCenter (COCC). We too went through the recent conversion, driven bytheir change from a mainframe system to a client-server. But we had abetter experience than Tom’s company did, because we were at the end ofthe line, while his turn came early.
 
The conversionwas not without its problems, however. Ours centered around the qualityof some of the management reports that were provided to us—mostimportantly, the reports that we rely on for regulatory purposes.
 
But having said that, we generally have been very happy with Connecticut Online. We are not technologyinnovators by any stretch. We are a very small bank. The productofferings that they provide are perfectly suited to our needs. I dobelieve that they have made an effort to stay ahead of the curve.
 
Dean Fitting, Ozaukee Bank

Our data processor is Metavante Corp. and while Metavante is certainlyahead of the curve on product offerings, it is also ahead of the curveon pricing. It’s a Cadillac provider at Cadillac prices.
 
We just wentthrough an analysis of our needs and we came very close to moving toInformation Technology, Inc. (ITI), and also priced Fiserv, Inc. (Thetwo firms are affiliated.) But in the end we ended up negotiating withMetavante and staying with it.
 
Having gone through that process, I’d say there is no easy way to compare. There are so many
options and providers.
 
Brad Krieger, Arvest

We process in-house, through our (multibank) holding company, deal witha lot of vendors, and try to stay state of the art. This isparticularly important on the fraud side.
 
Courtney Haning, Peoples National BankWe process in-house, using NCR equipment. Currently, Jack Henry is oursoftware provider. We used to use the old NCR software product calledBanker II, which Jack Henry acquired. We had some concerns at first asto whether we were going to get good service after such a transfer. ButJack Henry has done a good job.
 
We’re not aleader in technology, and Jack Henry remains ahead of us. We wantsomething that’s tried and true and proven. Much like Dean Fitting saidabout Metavante, Jack Henry does a good job, but they are reasonablypricey.
 
Every couple ofyears I take a look at the costs of our data processingapproach—continuing to do it in-house or changing to outsourcing. I’vefound that it’s not significantly different for a bank our size. Butone important difference about doing it in-house is that I have theability to get customer reporting—any kind of special project that Iwant—whenever I want it.
 
There’s anotherconsideration too, for community banks. In a small town like ours,you’ve got a concern about displacing four or five people. We’re notbig enough to absorb that many jobs.
 
Ron Hansen, Liberty Trust

It’s much the same for us—NCR hardware and Jack Henry software, theBanker II product. A lot of vendors came around and tried to scare usinto thinking that Jack Henry wasn’t in the business of supporting thatsoftware, but it hasn’t been the case. It’s worked real well for us.
 
Innovation and its frustrations
ABA BJ: How far out on the curve are your banks going?
 
STEWARD It’s not new for most everybody around this table, but we just went tocheck imaging. We made the decision to image every statement and notgive anybody a choice. Being a 30-year-old, hometown, good-old-boybank, we thought it would be absolutely devastating to our customers.Yet I can count on two hands the complaints that we had.
 
LEETCH We were the guinea pigs seven years ago at COCC with imaging and we gota break because we were one of the first to dive in. It’s probably beenone of the best products to come out.
 
MANTOR Abouttwo-and-a-half years ago we began offering e-mailed statements. Thishas saved us a lot of money and it’s great for our clients. Our goal isto get half of our online customers signed up and we’re about halfwayto that now.
 
CLARK One of my frustrations is what we spend versus what we get back forelectronic services. We have internet banking and bill pay and it’snecessary to build volume to do that, in order to justify the cost. Wecharge a $6 a month for bill paying. But we have trouble getting ourown employees to use it, simply so they can get familiar with it inorder to sell the product. About 300 customers are using it, that’sall. It’s just frustrating.
 
STEWARD One thing holding back bill pay is that so many credit card companiesallow you to their websites and sign up to pay electronically. You givethem your routing number and checking number, and they’ll debit youraccount, and, bam, you’re done.
 
MANTOR In our area, internet banking is just huge. We have 40% of our consumerclients on internet banking and we have almost 80% of commercialclients using it. But with bill pay we have less than 10%. Billpay is agreat service, but billpay is going to prove to be like the earlyATMs—at first, people didn’t use them. At least in our area, billpay isa next generation product.
 
The softer side of tech—people
ABA BJ: Do you lean more heavily on outside consultants, or in-house IT staff?
 
MANTOR We have a strong IT group, so we don’t use any consultants on a regularbasis. We might do so for special projects, but I can’t think of thelast time we did. We have a senior guy who’s really sharp, attends theuser groups for ITI, and other companies, and he’s backed by a strongstaff.
 
HANSEN We’re small enough that our IT is basically our DP area and we’ve gotan experienced employee with us who has been with the bank for years,right out of high school, and who has grown with the department. She isvery, very good.
 
We do use an outside consultant on the network side, but we stick in house with our mainframe processor.
 
MOSCARDI In my bank, I am, by default, the IT department—which is frightening.Essentially in our shop it’s very much a shared responsibility, and Iam quite serious when I say that I do play a role in that—and that thatshould be scary. And we’re very reliant on our vendor, COCC.
 
One of myconcerns is that, because of our size, we have fallen below the radarof our regulator, the Office of Thrift Supervision, and its examiners.What worries me is this: OTS has made it clear that there’s anexpectation that the OTS-regulated institutions will understand IT.They say you can’t lay it off on your outsourcing company. You need tohave the book of knowledge of all of your activities yourself. And Iknow enough to know what I don’t know.
 
So will we oneday have to face examiners over this issue? That is what worries me,but that’s the way we exist. We can’t afford to employ someone on theinformation technology side. Frankly, there wouldn’t be enough for himor her to do, under the circumstances.
 
HANINGI have a pretty good in-house data processing staff. They belong to ausers group and that keeps them pretty well attuned to what is going onin the industry as far the type of hardware and software that we’reusing. Anything major that needs to be updated to our mainframe systemthey usually handle by talking with specialists and then tackling itthemselves.
 
KRIEGER We’ve got an in-house staff, and, of course, much of what they do isdeveloped as needed. The question always is if what’s wanted issomething that the vendor should provide or is it something that we canand should develop in-house? One of the challenges of a inhouse staffis juggling priority of development projects.
 
FITTING Several years ago we used a technology consultant to supplement our ITstaff of four. The firm did help us do our initial technology plan, andwe stayed with the firm for a couple of years. We found, however, asturnover in the firm occurred, that new consultants weren’t as good asthe first one and we stopped using the firm.
 
CLARK We have about 60 personal computers and we use a consultant to keep upwith our in-house problems with those. But our operations staff handlesour data processing and our chief financial officer oversees therelationship with the Delmarva Data Center. We get some support fromthe data center but the three people we have in our operations areahandle most everything on our end. We’ve had them since the beginningof the bank and have been able to grow without having to add any staff.
 
When we designedthe system we tried to keep in mind that if we wanted to go to ITI orsomeone else we could unplug from the data center that we were usingand not have to do a whole conversion.
 
STEWARD Our bank has been with DCI, our outsourcer, for 30 years and thecompany looks to us to beta almost every product. I think that’sbecause we have an IT person who in her former life was a Fortranprogrammer. She’s been in banking approximately 25 years and she knowsher business. She likes to get in there and dig in to see if a newsystem is going to work or not.
 
DCI likes banksunder $100 million to beta for them. That’s because we’ll take the timethat a larger bank doesn’t have to take out a yellow pad and write downevery single little hiccup that we find in their program. As aconsequence we get a nice price break, and changes made just the way wewant them. BJ