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September 27, 1999

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Beyond Y2K: Better Systems, Integration

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Contingency plans ready, banking looks to the Web to expand and integrate services

By Ramin P. Jaleshgari

ith just a few months until Dec. 31, 1999, consumers concerned about Y2K glitches are fitfully scrutinizing their financial institutions, carefully filing away statements, considering and reconsidering where their money lies. It's a crucial time, but leaders in the banking and finance industry are beginning to think well beyond the dawn of 2000.

Few financial institutions are adopting cutting-edge technologies until Y2K issues have been resolved. But most are re-examining their systems and practices, looking for ways to deliver integrated products over the Web, improving workflow, reducing paperwork, providing online document imaging for users, and creating industrywide standards.

Banking and finance has been ahead of other industries in tackling Y2K problems. Most are finishing up their Y2K work and completing contingency plans. Chase Manhattan Bank, for example, has worked with local fire departments and utility companies to create contingency plans, and it has created an elaborate alternative communication system if the Swift international fund-transfer program were to go down (July 19, p. 46).

Now, banks and financial-services firms are turning to IT to expand their business. There are several technology areas in which they can expect to see huge growth in the coming year, according to Bob Rossettie, a partner in the banking consulting practice at Ernst & Young. Most notable among these are E-commerce strategies that deliver truly integrated products to the consumer, such as check imaging, loan shopping, and statements on demand. "It's only a matter of time before traditional brick-and-mortar branches will become less and less important," Rossettie says. "Banks are redirecting capital investment to E-commerce. Customers won't stand for the old paradigm; they want to buy and sell everything in Internet time and in a secure environment."

One good example of this phenomenon is the Teachers Insurance & Annuity Association-College Retirement Equities Fund, the world's largest pension fund, with more than 2 million plan participants from more than 9,000 educational institutions. One of the first financial-services companies to offer users multiple transactions via the Internet, TIAA-CREF has transformed itself internally into a virtually paperless company as well. The company is using an imaging processing index, in which documents are scanned and the images stored in a database, where they are filed according to identification codes that relate to the type of transaction the documents represent. Then, the paperwork is electronically delivered to the appropriate office.

"Our workflow process is entirely untouched by human hands-no one has to enter keystrokes," says TIAA-CREF CIO Jim Wolf. "The result is we've been able to process a lot more transactions with the same amount of people. The productivity gains are tremendous."

TIAA-CREF's next step is to roll out Intelligent Character Recognition, a software program that reads handwritten applications and letters. The project is in pilot stages and is expected to be fully rolled out in 2001. The goal is to make a client's entire correspondence and paper-filing history available on the Internet.

Using the Web to facilitate other internal processes is also on TIAA-CREF's agenda. This fall, Wolf says, the company will launch an Internet site where regional offices will be able to create a marketing event with a sign-up page that will immediately generate a confirmation to attendees. This month, the company will add "smart forms" to its online application process, which will dynamically adapt questions based on local tax and filing laws once the address fields are filled in. "Our justification for IT spending is the service orientation it allows," Wolf says. "Policyholder self-service accessibility to TIAA-CREF allows for great productivity gains for us as well."

Other financial institutions are looking to Internet projects to boost revenue, says Bill Miller, president of IDLX Technologies Partners, a systems integrator that works exclusively for the banking and finance sectors. "The kind of things we're being asked for is the development of new applications that can run the back end more effectively so internal staff can focus on customer-interactive Web content," he says. "That might include, for example, bill presentment or electronic-wallet functions."

Companies such as IDLX take over day-to-day IT operations at financial companies, often porting their management to offshore sites, such as India, so that internal staff can create services that compete in Internet time. These measures are necessary because the speed of E-commerce is overwhelming the backlog of traditional IT initiatives, says Ernst & Young's Rossettie.

Offshore Solutions
Finding the IT talent to pull off major initiatives has been an issue for most financial institutions. J.P. Morgan & Co. found a solution to the problem offshore. Noting the wide availability of technology talent emerging from Scottish universities, the investment banking giant set up an Application Development Centre in Glasgow to support its European operations. The 300 employees at the center will be writing securities processing software as well as instruments for fixed-income and securities processing. The cost savings will be 30% per person over what J.P. Morgan pays for the same talent in its London bureau.

The creation of standards for the use of IT in the financial industry is another of J.P. Morgan's priorities. The company formed an alliance with software giant Computer Associates as part of a larger contract to outsource its IT operations. The two companies have jointly written an applications-management framework for the banking industry and submitted it this spring for adoption by the Open Group LLC, a vendor-neutral IT consortium that works with companies to develop best practices and standards across the enterprise.

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