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| Why this core solution? They had their reasons (April 2007) |
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Some liked the vendor's professionalism, others the promise of easy integration to run abest-of-breed operation. A variety of mid-tier and community banksexplain their rationales. By Lauren Bielski, senior editor
The plainspoken Stumb knows a little something about starting ventures, having helped to launch the $112 million assets bank in 2004 aimed at the region’s high net worth market. “Bankers can be a very reticent bunch,” he notes, adding, “If you’ve ever worked in a place of any size, you’ll know it’s typical to talk about any number of system changes that need to be made and realize that many of them just never happen.” Hoping to avoid a similar fate, Stumb outsourced his new bank core processing business to Fidelity National Information Services and went with a PC—that is, its core processor software is housed on a PC at Fidelity rather simply having it as a front-end to a mainframe hiding, like Oz, behind a silver curtain. The choice of the low-cost, nimble, core processor has never given him a moment of regret. It was also far from the legacy norm when he did his evaluations of which core processor to select. But speed, not being contrary, motivated him. As one of the most active user-group members for Fidelity BankPac, Stumb knows that system upgrades don’t drag on. In one example, he described Fidelity’s simplification of data field population. “It used to be that names and addresses needed to be keyed in multiple times—at the deposit platform, the core, for debit card and check reorders, and for systems like OFAC scanning,” the CEO recalls. No longer. “Within 90 days of my request, the vendor set it up so that all the systems were pre-populated with common information and no rekeying was required.” A need for new applications—or features—can cause a new bank to choose one vendor over another, or lead a bank IT team down the hard road of swapping out the technology that lies beneath, but it turns out that any number of factors can instigate core replacement. Tom Brydon, North American banking industry marketing director with Accenture, Charlotte, N.C., says that de novos are small enough to run with most platforms. As they take on branches and deposits, those systems can be taxed. And so, scale becomes an issue rather quickly. Certainly this is the case at the threshold of about $1 billion, but it could be sooner. Above that, vendor selection can be guided by a need for latitude with operations, whereby web-based applications that can be centrally managed, upgraded, or transitioned to a new geographic region, would be a good choice. “Beyond that, banks make decisions based on ease of integration and application feature sets,” Brydon explains. In the rest of this report, we let the bankers tell their stories of operational renewal from the core. Discipline for the big swap out Capitol Bancorp Ltd., Lansing, Mich., is a $3.4 billion-assets community bank developer with 53 banks in its family and dual headquarters in Lansing and Phoenix. In 2005, it needed to modernize its slew of community banks in an ambitious, two-year project schedule to keep the company in line with other business objectives for further, multistate growth. “We had an aging system and we knew it wouldn’t be supported much longer,” says Dave Dutton, chief information officer. “We had to get a jump on simplifying the technology.” As he recalls it, the epic conversion project ultimately required military precision to pull off: 34 sites were converted in the required timeline and 19 de novo banks were opened up during the conversion period. A hub and spoke model of project management was developed, whereby personnel from the current core replacement exercise were joined by nearby personnel from the next-to-convert in the region. This way, staff gained experience on doing the technical work before conducting their own swap out. Even to get that far, the bank relied on meticulous preparation. Capitol Bancorp’s senior management did an extensive vendor evaluation and then it developed a template bank. “Although our community banks have individualized missions,” says Dutton, “we wanted the infrastructure to have some commonality with leeway for customization.” Jack Henry was the vendor chosen, in part because it had gained familiarity with the bank through its prior acquisition of Peerless, the system Capitol Bancorp had been using. Today, running on the SilverLake core processing platform, each community bank has a common loan and deposit environment including general ledger, DDA, CD, ACH, and teller platform systems. Two data centers serve the check processing needs of all the banks. Common forms and transaction codes have simplified both training, operations, and IT support and cut operational cost. (Next month, ABA BJ will profile the unusual Capitol Bancorp structure.) Data access a huge plus At $2.4 billion-assets Washington Trust Co., the oldest community bank in the nation (founded in 1800), serving the beachfront community of Westerly, R.I., data access wasn’t the only reason why Open Solutions and its client server solution for core processing were chosen, but it played a key role. And the community bank’s been letting the data guide its strategy ever since, driving efforts that include marketing outreach, profitability analysis, and retention. Westerly, founded in 1669 and famous for its granite and as a tourist attraction, encompasses a region with a cluster of villages including Potter Hill, Avondale, Shelter Harbor, and Misquamicut. Given the diversity of clients and business lines (including wealth management), there’s a lot of segmentation and analysis that needs doing. Mark Gim, senior vice-president financial planning, explains that the Oracle database that runs OSI’s solution allowed for easy access and query formation. “There isn’t any single project we can point to as a poster child,” Gim says. “There are hundreds of inquiries that we have made, including risk of attrition and preferred channel usage,” he explains. “These were questions that our people knew were difficult or impossible to get answered before.” Currently, the bank is working on a “next best sell” project, that is, based on transactional information and other customer profiling data, what is the customer likely to buy next. The bank has done well by the real-time Open Solutions platform. “Before, our data was fragmented,” says Gim. “Now, we can generate reports that offer insight.” National Bank of Litchfield in Connecticut is also benefiting from real-time operations, providing clean, consistent data for various front-end systems that support its small business banking and wealth management mission. “Our goal is to be a comprehensive provider and capture the total relationship of the small business owners,” says president and CEO Joseph Greco. The bank grew its assets by 46% over three years in the historic New England town, and doesn’t shy away from sophisticated technology. As part of its wealth management operation, for instance, it supports separately managed accounts with the Sungard Overlay Management solution, which includes asset allocation, manager selection, portfolio management, and trading functions. The linchpin of the operation is COCC, a regional bank outsourcer that private labels Open Solution, Inc.’s client-server core processing product. Through COCC, Bank of Litchfield has simplified operations, reducing the number of computer systems from three to one, and has improved marketing and customer relationship management solutions. Electronic forms have enabled the bank to eliminate paper and check image exchange has virtually eliminated courier runs. Anti-Money Laundering capabilities have been easy to add and have lightened the compliance burden. Tech advantage for de novo The $250 million-assets Integrity Bank, Camphill, Pa., located just outside the Pennsylvania state capital, Harrisburg, has just three branch offices in the Cumberland county area, but has big intentions. Founded in 2003, Integrity saw its assets increase by 37% in 2006 to $277 million and its loans grow to $224 million, up 34%. Chief executive officer Jim Gibson says picking up on the best practices of top-performing banks, hiring for service aptitude, and apt vendor selection, all had a role in a big, out-of-the-gate push that let it attract dozens of business customers as well as consumer accounts. Formerly president of Commerce Bank in Harrisburg, and still a fan of its New Jersey-based parent organization, Gibson is a big believer in having strong customer service. “Our tagline at Integrity is more, faster, better,” Gibson explains. “It’s all about keeping wait times short and service effective.” At Commerce, he’d grown familiar with the Kirchman core processing system and, at the launch of Integrity, opted to go with a modernized version, now packaged as Metavante’s Bankway System. “The Bankway System helps us during account opening by letting our tellers capture driver’s license data and customer ID photos,” Gibson says of its contribution to efficiency. “The tellers can also handle ‘onboarding,’ which includes familiarizing customers with complementary products within the first 90 days.” In 2005, the bank went live with Metavante’s AFS system for remote capture. “We were first bank in this area to offer the service and it got us several big accounts,” says Gibson. “While our competitors had to cope with legacy [systems] and were slower to react, we had a newcomer’s advantage and great technology to let us sweep in and grab the business.” Clean conversion wanted The $560 million-assets Community Bankshares, Inc., the holding company for Community Resource Bank, N.A., Orangeburg, S.C., was looking, in 2005, for a clean conversion that would cause minimum disruption. “We had extensive criteria for vendor selection, and transparency to our customers was right up there,” notes CIO Jo Davies. Davies began her career installing vendor technologies and knew how problematic upgrades could be if they weren’t managed. To keep it all in check, Davies formed a core conversion committee that brought business executives into the selection process. Davies also put her top three vendor picks through the paces, including presenting formally and hosting a site visit. Davies says she liked the way Jack Henry handled its presentation. What ultimately sold the group on the SilverLake core was ease of integration as well as a general sense that the company itself would be a good partner in creating an orderly transition. “We had a lot of existing systems that we wanted to keep, such as our item processing system from Bankware and our internet banking package from Digital Insight,” Davies recalls. Since the conversion, the bank has gone with another easily linked solution—IPS Sendero for asset/liability management. In the middle of 2005 the conversion began as a four-bank holding company project. However, changing business conditions and asset quality issues faced by one of the institutions prompted the holding company to consolidate what was once Orangeburg National Bank, Sumter National Bank, Florence National Bank, and Bank of Ridgeway under the Community Resource banner. This meant that a major MIS project had to run concurrent with a new charter, rebranding, and marketing effort. Jack Henry, which had to interrupt its efforts and rethink the project to do a four to one database conversion, was extremely helpful, Davies recalls. The project was completed in two phases and finished by the middle of 2006. Davies also credits her core conversion committee for using a newsletter and informal communications to keep all employees informed. At launch time, a talented, upbeat trainer got everyone prepared to work with the new front-end systems. “People tend to emphasize data during a conversion,” says Davies. “We tried to address all of it.” Flexible for different missions Colorado Capital Bank began life in 1998 as Bank West, a community bank out to grow with the mountain community of Castle Rock, nestled between Denver and Colorado Springs and known for its small town feel. In 2003 when the shareholders wanted to liquidate, founder Sandy Larson turned to a bank strategist friend, John Davis, who pulled in another banker with an itch to launch a de novo. With resources and a new mission, Colorado Capital, now $385 million in assets, was launched as a commercial bank aimed at privately owned businesses. “The Denver market was growing and we felt there was real opportunity to grow with the entrepreneurs in the region,” recalls CIO Basil Blume. Today, the bank has ten locations including Denver Tech Center, Greenwood Village, as well as the mountain communities of Vail Valley, Eagle Ranch, and Cherry Creek. To accommodate a collection of individual bank missions (from pure retail to construction lending), Colorado Capital needed a flexible core processor. It went with iCore from DCI and converted in the spring of 2004. The client-server and relational database core processor also had the benefit of supporting easy change of pricing structures or addition of account types. Blume believes in the “best of breed” approach and his shop has a wide range of vendor tools that touch all types of operations. Digital Insight supplies cash management and internet products. A CRM system from Resource1 called CoreTrack lets loan officers, relationship managers, and other employees understand the pipeline a little better and share referrals easily. Another third-party product, PayPlus USA by FundTech, automates the front-end work of wire transfers. And, Foresight, an asset/liability management package from Farin & Associates, supports better interest rate management, according to Blume. All interfaced easily to the core. “This core lets us focus on getting the features we like,” he says. “We can forget about integration issues.” Outsourcing to cope with talent gap Pat Mielke, senior vice-president of operations, describes herself and some of her peers as “generalists,” familiar with many facets of the work that goes on at $173-million assets Premier Community Bank in Marion, Wisc. “But these days, people are trained to be specialists, and with everything you need to know about internet banking security alone, I understand the trend.” Yet understanding doesn’t make it any easier to cope. A happy client with Fiserv’s ITI core processing technology for years, Mielke didn’t see any reason to change vendors, but she did make the difficult decision to “turn over my baby” and let the vendor run the core and ancillary branch and internet operations. At the time of the interview, Mielke had just come out of a meeting reviewing loan specifications. The process of converting to outsourcing, which began soon after the ink dried in December, will be finished by the end of April. “This is a very rural area and, as a community bank, we always want to put our customers first,” says Mielke. “I have to say in recent years, examinations had gotten so tough, particularly in the online security area, that I felt as if we were a bit distracted by operations. Now, that won’t be an issue.” Another Fiserv client, $115 million assets Bank of Charlotte County, Phenix, Va., also operates in a rural environment where personnel can be hard to find. “If we want to add a product or change some business process, we no longer get slowed down by operational issues,” says chief operations officer John Pillow. “I can pick up the phone and get many experts that can help me get the job done.” There are fringe benefits to being part of a bigger collective, notes Pillow, recalling Fiserv's aid in getting low-cost telecommunications services when he needed more capacity. “I could not have gotten that kind of discount on my own,” he says. “It’s just that simple.” Select vendor approach trims costs “The Charleston area is known as a premier tourist destination with many small service businesses, but it has other virtues,” note Paul Hollen, executive vice-president and operations expert at $500 million assets Southcoast Financial Corp., based in Mt. Pleasant, S.C. “There’s still a significant ship building industry and the largest U.S. port, South Carolina State Ports Authority (SCSPA) has its home here,” he says. “Plus, engineering and electronics businesses now call the area home.” As the town continues to open itself to a new mix of business, so does the bank. As diverse as its client base is, the growing institution has grown up on a consolidated platform and has counted on the Phoenix core processing system, now a Harland system. “When we opened this bank, we wanted client-server and core processing software that could run natively on a 32-bit Windows environment,” notes Hollen, who had a career in manufacturing and naturally gravitated toward the operations side of the business after a stint as a loan officer. The decision has paid off. The bank recently learned that its IT costs are among the lowest of its peers. As an added bonus, the bank learned to work with a customer centric bent. “We had to collect a lot more information than we were accustomed to, but now, all that customer data comes in handy,” says Hollen. Originally running with a Sybase database when the bank opened almost a decade ago, the bank made the change to running with a Microsoft SQL, which can handle nightly batch processing quicker. This year, the bank will revisit branch-based capture and will be moving to check truncation in its work with the Fed. “This system has taken us far, without a back room of code writers to manage, ” says Hollen. BJ The electronic version of this article available at: http://lb.ec2.nxtbook.com/nxtbooks/sb/ababj0407/index.php?startid=42
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