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Rampaging nature provides a case for outsourcing core systems

After close calls with a three different calamities, Missouri bank seeks peace of mind

What if your bank has had to deal with a tornado that destroyed half your town, an ice storm that cut power several days, and a Mississippi River flood that threatened to submerge your main branch?

On top of all that, what if you realize that your bank sits on the biggest earthquake fault zone in the Midwest?

If you’re at First State Bank of Caruthersville, Mo., you decide to switch your core system from a rack-mounted computer in one of your branches, to an outsourced provider whose hardware is located hundreds of miles away. This bank had endured enough—the tornado in 2006, the ice storm in 2009, and the flood, with a crest just one and a half feet from breaching the bank’s flood wall, this spring.

“Finally, when the flood happened, peace of mind got worth a whole lot more,” says Lindsey White, senior vice-president at the $325 million-asset bank in the southeastern part of the state.

This summer, bank management arranged with Jack Henry Banking to embark on a phased conversion from its current in-house data processing system to one connected by fiber optic cables through a virtual private network. Jack Henry operates numerous data and disaster recovery centers throughout the country, including one in a cave 1,000 feet below Branson, Mo. Once the conversion is complete in February 2012, First State’s primary data center will be located in Houston. The network will be protected by multiple layers of security.

Jack Henry already provides such outsourced core services to about 560 banks, and has seen around 150 banks make the switch in the last five years.

Once the conversion is complete, White says, “Our tellers, CSRs, and loan officers will not be able to tell the difference between a computer sitting in one of our offices and the computer sitting in Houston.”

He admits that the conversion will involve a lot of hard work, compounded by a related decision to add new products such as item capture at the teller line and new check imaging and storage. This will require the purchase of new hardware as well as providing training for staff. Once it’s done, though, there will be no more need for proof-of-deposit and night-processing functions, because transactions will be balanced in real time.

Also, says White, “No more end-of-year late nights.”

Although he anticipates fewer staff positions, the bank intends such reduction to occur through attrition. “I don’t think it will save us a lot of money, but I don’t think it’s going to cost us a lot,” White says.

Meanwhile, Caruthersville, population 7,000, sits right on top of the New Madrid Fault. While not very active recently (four major quakes shook the region from December 1811 to February 1812), White and First National don’t want to take chances.

“It’s a very prominent zone. If anything happens, it will shake from Memphis to St. Louis. It will be devastating in this area,” White says. “That’s one of the reasons we felt it was prudent to make the move.”
John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected]

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