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For institutions trying to decide how best to handle their EFT back-office processing operations, the atmosphere is starting to resemble London in winter: foggy. With bankers caught between the in-house enticement of declining hardware costs and the ability to maintain greater control over their operations and the outsourcing advantage of avoiding equipment upgrade expenditures and having to hiring and train systems operators, the maps for deciding which road to follow are getting increasingly confusing.
Though a growing number of financial institutions have moved to third-parties processors over the last several years, analysts note the impetus has largely been triggered by short-term financial considerations of not having to incur equipment and personnel expenses rather than any long-term operational strategies.
DECLINING HARDWARE COSTS
"The recent trend to third-parties has been driven by earnings pressures and capital requirements, not by a desire to get something done better, " says Donald Atkinson, president of Atkinson & Associates, an Irving, Tex.-based bank processing consulting firm. "But in many cases, there is no reason to send the business out." EFT comprised about 12% of the $12.1 billion in 1991 bank processing revenues, compared to about 10% of 1990's $11.4 billion in revenues.
In stressing the benefits from outsourcing operations, third-party processors emphasize the difficulty financial institutions will have in purchasing the hardware and software upgrades that are expected to be released throughout the next decade. In addition, the need to manage back office operations could hamper banks' efforts to sell more profitable products and services. Yet, such institutions as Banc One, First Chicago and Northern Trust continue to pull such activities as ATM-driving from third-parties because of the declining...