Bank: Century Bank
Problem: New servers were going to cost the bank more than it wanted to spend.
Solution: Outsource the core processing and let the vendor take care of the hardware.
In the spring of 2010, Century Bank of Medford, Mass., was facing another large capital expenditure aimed at refreshing its IBM hardware. It had used IBM boxes for 34 years to power its back-end processing, beginning with an IBM System/3 minicomputer deployed in July 1977. It purchased several IBM boxes in the intervening years, including a System/36 minicomputer, a System/38 midrange in the 1980s and an AS400 in the 1990s.
In May 2010, retirement beckoned again, this time for two iSeries Model 520s the bank had used since 2005: one for production at Century's Medford headquarters, the other for disaster recovery at a branch 13 miles away in Quincy, Mass. Jason Melius, senior vice president of IT at Century, was looking at the latest IBM hardware: Power 755 systems in particular. But he and other executives were struggling to justify the price: $200,000 to $250,000 for two of these boxes.
Marshall Sloane, Century's chairman and founder, suggested it might grow, add products and improve services more easily, and save some money, by getting out of the hardware business altogether. But outsourcing servers would be a huge cultural change for the bank.
Sloane started Century on May 1, 1969, from a trailer parked on the sidewalk at 102 Fellsway West, at Mystic Avenue in West Somerville, Mass. Back then the staff of seven filled out ledger cards manually to process transactions. Using this method, the bank took in more than $7 million in deposits during the first two months on what was the construction site of its first branch. By the end of the year it had amassed more than $17 million in assets, a notable rate of growth for a bank in Massachusetts at the time. Century now has assets of $2.7 billion.
Though the bank upgraded in the early 1970s to IBM punch cards in a brief service bureau arrangement with First National Bank of Boston, its principals made the decision in 1976 to buy IBM machines and run processing in-house. After that, Century owned and controlled its back-end hardware for three decades.
"After 34 years, it was part of the culture to want to control everything," Melius says. "I was concerned about losing that."
Nonetheless, Sloane's suggestion catalyzed a months-long process during which Melius and the bank researched the overall outsourcing model. Early on, Melius focused on the bank's core provider Jack Henry, which had supplied the SilverLake system for Century since 1998. He gained confidence in the competence of Jack Henry's technology and staff after visiting the vendor's data center in Allen, Texas, in September 2010.
Melius also acclimated to the hosted model, in which costs are spread out in monthly fees. Importantly to him, it seemed to provide an operational posture in which Century could quickly acquire another bank. In-house hardware, by contrast, required money and time spent on server purchases and deployment to accommodate any change.
"I have 100% confidence in the outsourced environment. We could look at any kind of acquisition opportunity and not have capacity be an issue," Melius says.
That's because Century spent six months writing a seven-year contract with Jack Henry that specifies various 'if this, then that' service-level agreements aimed at allaying capacity concerns. It hired a consultant to aid in the negotiations, "because we're not outsourcing experts by any means," Melius says.
The bank signed a deal with Jack Henry near midnight on March 31, 2011. Migration, which kicked off in May, was completed Nov. 11, Veterans Day. The vendor backed up and restored the bank's entire system to Jack Henry's OutLink hosted hardware service on IBM machines at the Allen data center from a tape the bank flew down to Texas accompanied by a Century officer. Six minor employee-facing issues were resolved in four days, Melius says.
Screen response times at Century have increased a hundredfold for Web customers since the bank's migration, Melius says. Because Jack Henry had already hosted Century's online banking, a previous stop the system used to have to make in Medford to pull data when providing customer account balances was eliminated. And the "Jack Henry cloud," says Melius, "has much more bandwidth than we ever had."
The back-end connection has shown no noticeable latency, Melius says, even though bank employees work nearly 1,800 miles away from the machines that power Century's operations. And, he said, Jack Henry's disaster recovery site, built into a mountain in Branson, Mo., about 408 miles northeast of the Allen data center, "geographically is far superior" at protecting against localized or regional disruptions.
This story originally appeared on Bank Technology News.
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