Banking Service Bureaus Offer A Higher Return

Back in the days of the Wild West, outlaw Jesse James and his gang began their bank robbery careers knocking off individual banks. Though they continued to hit individual banks when opportunities arose, they soon found that it was much more lucrative to rob the trains that carried the money for several banks, taking the same risks for a much higher payoff. Today, even law-abiding Westerners like Wayne Whaley, president and CEO of integrator PROFORMANCE, Inc. (Spring, TX), can apply the lesson learned by the James Gang when it comes to attacking the banking vertical market with ERM (enterprise report management, also known as COLD [computer output to laser disc]) and document management technologies.

"I'd rather shoot with a rifle than a shotgun," says Whaley of his decision to directly target core data processing service bureaus that manage data and reports for hundreds of banks, rather than scatter sales resources among individual banks. "When we installed an OnBase ERM solution [from Hyland Software, Inc.] at service bureau Computer Systems, Inc.'s [CSI] [Paducah, KY] data center, we gained access to 450 banks," says Whaley. "That's more than 4% of U.S. banks with one sale." To make the same margin, Whaley estimates he would have had to sell 50 individual banks on an in-house solution.

Core data processing service bureaus process daily data and generate reports on activities and balances on an outsourced basis. Many banks purchase in-house core data processing solutions from giants such as Jack Henry, but Whaley estimates that about 50% of the approximately 10,000 U.S. banks outsource this operation to service bureaus. "Many are small banks that couldn't afford an ERM system," he admits. "But I also know of a $4 billion bank in Chicago that outsources. Whether they outsource or not, most banks are highly influenced by their core data processing provider because they already trust that company with the most important aspects of their businesses."

Learn The Route Of Core Data Processing
Like any industry, core data processing service bureaus are working to remain competitive by offering more efficient service and cutting costs, and Whaley says automated ERM has been successful in addressing that need. Core data processing service bureaus like CSI often use remote capabilities to print the lengthy documents at the customer site. In many cases, these reports are archived on microfilm for long-term retention, which is sent to the bank sometime later. Using OnBase's ERM and Web Server capabilities, Whaley helps service bureaus use automated workflow and report generation to provide their customers with faster access to important business and account information at a lower cost than remote printing. The banks' daily report information can be viewed via a standard Web-based browser. Instead of remote printing, the individual users can view their own custom sets of reports the morning after the nightly processing and make it available to authorized workers without the need to print multiple copies. Whaley says service bureaus typically maintain about 18 months of OnBase report data online. Archived reports, usually covering a two-month period, are burned to CD or DVD with duplicate copies made for the bank, a solution that is quicker and cheaper than creating and shipping microfilm archives.

When presenting an ERM solution to a service bureau, Whaley says he often starts with top-level executives and gains their approval to address concerns down the corporate ladder. Sometimes this involves making the presentation and answering potential objections at as many as five different levels. "What it comes down to is that service bureaus have old, broken-down microfilm equipment and don't want to spend a quarter of a million dollars to buy outdated technology," asserts Whaley. "Management is wondering how they can retain and win customers through better service without a huge capital outlay. Microfilm is just not a strategic buy for them.

"If a service bureau can get six to eight of its banks to sign on, it can justify the acquisition cost," contends Whaley. "CSI now offers the service to 45 of its 450 banks and can easily expand as needed by buying additional licenses. Within one year, CSI expects to have 190 banks on the system and therefore eliminate the cumbersome process of preparing and delivering microfiche to their banks." The service providers are often able to use a single large SQL database with separate disks and security features. "We have another service bureau, Intrieve [Cincinnati], that processes data for 150 banks each day and has all the information online by 7 a.m. the next day, all from a single Compaq server," says Whaley.

Complement ERM With Document Management, Workflow
"ERM also helps us take advantage of the trend toward total information management," notes Whaley. "When we sell an ERM solution, there is often an opportunity to provide document imaging and workflow as well. If a customer has already invested in a reporting solution, adding these functions doesn't cost them that much more. The increased efficiency gained through imaging and workflow offsets the cost of the project." For example, banks with high-speed communication connections such as a T-1 line might choose to scan signature cards at the teller line and have them available in the archive. "The Patriot Act also has people concerned that banks will have to do things like scan drivers' licenses for verification of identity," adds Whaley. "If the service bureau is using ERM for reporting and archiving, it can easily use that same engine to scan drivers' licenses."

While Whaley is concentrating on core processing service bureaus right now, he says there are similar opportunities in other industries. "Outsourced processing is also available in insurance, for example," says Whaley. "VARs can go after any group that centralizes data if there are enough of them doing the same thing. One of the things we've learned over the years is not to waste time on one-offs. If we can't do the same project or a variation of it 15 to 20 times, it's probably not worth it.

"A typical installation for us includes a total solution sell - hardware, software, implementation services, and support," says Whaley. "Our goal is to generate enough recurring revenue just from ongoing support contracts to meet our annual overhead, and we're 78% of the way there for 2003. We bill in advance at the end of the year, which puts us in a good position when it comes to cash flow."

In core data processing service bureau environments, PROFORMANCE engineers work harder than usual to earn those services dollars. "The deployment is more detail oriented than what we have done in other verticals," comments Whaley. "There are more task lists, time frames, and different tiers. There's also much more project management than the typical OnBase installs we've done in other verticals."

The James Gang's activities were limited to the West and Midwest, but Whaley has already established a national reputation for PROFORMANCE with financial services customers across the United States. Whaley's goal is to land 5 new service bureau customers in 2003 and another 10 in 2004. Armed with Whaley's nearly two decades of experience in the banking market, PROFORMANCE is poised to become a legend among core data processors.