Commonwealth Bank & Trust Company Brings ATM Channel In-House with CSFi’s u/SWITCHWARE®

Financial Institutions invest a vast amount of time and large sums of money into their ATM channels. From technology to placement, financial institutions are putting ATM networks at the forefront, treating them as crucial consumer touch-points. Ten years ago, there was a trend towards bringing ATM processing in-house. Financial Institutions were discovering the benefits of taking control over their ATM operations. But in reality, expensive hardware investments, staffing requirements, and complex compliance issues conspired to dampen the enthusiasm of the early in-house adapters.

In recent years, the pendulum has swung towards outsourced ATM operations. Financial institutions were drawn to the idea of streamlining their internal operations. Yet again, the reality of network consolidation, the frustration of reduced operational control, and the increased variable costs of outsourcing have led some to again question the "outsource-it" approach. We are now entering a time period when savvy financial institutions find surprising benefits to returning to the in-house approach, or to updating their current in-house environment. These benefits go beyond a strong cost/benefit justification. Ever wonder why the ATM in your state-of-the art corporate headquarters still sends transactions to a third party data center in Colorado, only to be routed to the core system that sits a few hundred feet away. Why is the ATM/EFT services department the last to know when the in-lobby ATM is out of cash?

Commonwealth Bank & Trust Company Profile:

• 500 Million in assets with 15 ATMs, 13 branch locations
• 7,500 Cardholders
• 30,000 Customers/Accounts
• 100,000+ POS Transactions Authorized (12-2005)
• $4.3 million in POS Transactions (12-2005)
• 13,000+ On-Us ATM Transactions (12-2005)
• 9,500 Foreign Transactions Acquired (12-2005)

About Commonwealth Bank & Trust Company:

Commonwealth Bank & Trust Company (CBT), headquartered in Louisville, Kentucky, started in the late 1980s as a denovo commercial bank. In 2002, it acquired Shelby County Trust Bank, located in Shelbyville, Kentucky. Commonwealth has grown at a steady pace over the years because of its commitment to personal service and a willingness to do more for its customers. With 13 branch locations, 15 ATMs, and 200 employees, Commonwealth delivers personal attention and quality products.

CBT has approximately $500 million in assets and over $1 billion in trust assets. It is one of the leading originators of residential mortgage loans in the region. Its holding company, Commonwealth Bancshares, Inc. is also the parent of First Security Trust Bank, a community bank headquartered in Florence, Kentucky and SMC Capital, Inc., an investment advisory firm, located in Louisville.

Original ATM/EFT Environment:

Although CBT's core processing was in-house, their original ATM/EFT support services were outsourced to the STAR Network. STAR drove the bank's ATMs and provided ATM and POS transaction authorization and processing. While this environment was working and stable, the costs for this outsourced solution were continuing to rise. Network charges, administrative fees, and per transaction costs were difficult to predict and hard to manage. Further, CBT felt it didn't have real control of its ATM channel. In late 2003, CBT embarked on a search for alternatives to its STAR arrangement.

The CSFi u/SWITCHWARE® Solution:

In reviewing the value proposition of its ATM channel, CBT determined that what differentiates it from the competition is the quality of service it offers account holders and its commitment to doing more for its customers. It stands to reason that if a financial institution can exercise more control over its ATM channel, it can enhance its customer service and deliver more varied products. This realization prompted CBT to look to CSFi for a solution. (In fact, CBT originally had selected a different vendor for in-house ATM driving, but once CBT looked deeper into the final solution the vendor offered, it became clear that this vendor's solution was not the right fit for CBT. This vendor's system was hard to manage, and the vendor's processes were not appropriate for a community-based bank.)

In early 2005, CBT selected CSFi after performing its required due-diligence. The CSFi system went live in October 2005, and CBT has been realizing the benefits of the in-house solution since then. According to Donna Wieber Senior Vice President at CBT,

"CSFi made the transition from outsource processor to in-house a less stressful process. CBT could not have achieved this without the daily support, attention, and interaction with the CSFi staff in Sarasota, Florida."

Because CSFi provides a seamless interface to CBT's core banking system, Harland Financial Solutions' "Phoenix System", CBT saw the logic in eliminating the third party processor and implementing the direct connection to Phoenix and an interface to Visa DPS. In this environment, CSFi's u/SWITCHWARE^® acts as the enterprise transaction processing and management system for CBT's ATM channel.

The Decision:

A key factor in making the decision to bring ATM processing in-house was CBT

The Payoff:

According to Donna Wieber,

"With our former third party processor, the costs were escalating. Every time we made a request, there were additional costs or fees assessed, and our monthly invoice continued to rise."

With its new in-house ATM environment, Commonwealth Bank & Trust reduced monthly expenses associated with ATM, POS, and card operations by 40%. In addition to reduced expenses, cost savings, and a fast ROI, the bank has achieved other objectives that were established at the outset of this project:

• Enhanced customer service by authorizing transactions on-line/real-time
• Up-to-date card/account balances and transaction information to customers and employees regardless of the access channel.
• Better control of their ATM environment
• Positioning the bank to implement strategic initiatives for cardholders
• Adopting new ATM technologies and prepare for future trends (e.g. no envelope deposits, deposit content imaging)
• Lowered cost of ownership

Improved Overall Operations:

In CBT's original ATM/EFT environment, the third-party processor handled all ATM/POS channels. Under this arrangement, the resolutions typically weren't reached as quickly as they are now that the operational control resides in-house. CBT has also seen improved systems availability and authorization rates.

Increased Control:

Commonwealth Bank & Trust has clearly realized that an in-house ATM solution can result in increased operational control. Since implementing the CSFi in-house ATM solution, CBT is no longer subject to mandates and restrictions set forth by a third-party processor. CBT can manage its own data and doesn't have to wait on the processor to service other financial institutions before resolving its concerns. CBT's ability to react quickly and accurately to customer requests is greatly improved over the past environment and expects to see increased customer service levels with the in-house ATM solution.

Hands-On Implementation Support:

Once contracts were signed, CBT and CSFi developed a mutual project plan to implement CSFi's u/SWITCHWARE^® Enterprise Transaction Processing and Management solution. CSFi provided a dedicated project liaison, along with additional technical and sales support staff, to assist CBT with all the phases of the ATM in-house transition. CSFi and CBT worked closely on the implementation/installation, hardware platform selection, and communications infrastructure requirements. Once the appropriate framework was in place, CSFi and CBT began working with Visa DPS on the certification process. During this period, various transaction types/sets were performed and verified since CSFi and CBT had to ensure that all components of the system were operating correctly and interacting properly with Visa DPS. Finally a "live" date was issued and the production system was cutover.

Reasons to bring ATM Processing In-House:

As CSFi and CBT have learned, here are some valid reasons to drive your own ATMs.

• Return On Investment (ROI); The platforms used to support in-house ATM management are based on open standards components so they are easier to maintain and operate. ATMs are now IP-based so they're like over devices that are already on your network. If you already have an IT staff, or even a limited one, the added platform and software is no more intensive then adding another application on the network.
• Control and Flexibility; Cash management, balancing and reconcilement, card activation, rewards programs, marketing promotion and rapid deployment of new terminals are just a few areas where in-house ATM management solutions shine. ATM screen changes can be made in minutes rather than days and updates to limits, number of days to place a hold and other business parameters can be implemented on your schedule.
• Responsive Service; If a cardholder asks about a deposit at your institution's ATM, can your customer service representative (CSR) help them on the spot? Or do they promise the customer they will get back to them, and then have to open a ticket with another call center? Few financial institutions would outsource or compromise customer service; it is considered "Core Competency". Remember that for many accountholders, the ATM represents their primary point of service delivery. An in-house ATM solution permits higher levels of service for deposit automation and funds availability – particularly for the most valued depositors. In many cases, outsourcing provides a 'One Size Fits All" level of service.
• ATMs as a Strategic Point of Contact; Is the ATM industry at a key point in its evolution or do you see the ATM as a static tool for automating routine transactions? Will screen presentation remain static or evolve into a dynamic interaction? Institutions that pursue in-house ATM control are those that view ATMs as a strategic delivery channel rather than a transactional commodity. They see the opportunity for ATM interactions to tie in with the WEB, deposit automation, cross selling, and more.
• Integration Across the Institution; Today, what a cardholder experiences at the ATM can be driven by customer relationship management and the financial institution's goals for personalization of service. For the cardholder, the ability to access all the account relationships at the ATM or to respond to a targeted marketing promotion in real time or to enjoy additional funds availability for official check deposits are examples of integration more readily supported in an in-house environment.
• The Increasing Importance of Security; Your cardholder data is an important asset. So too are encryption keys, PINs and other sensitive data. In-house control of these assets limits the institution's dependence upon external points (outsourcing) where critical data may be compromised. Financial institutions with in-house control of their own ATM network can maintain tighter control over their customers' proprietary data and ensure that this information is never compromised by third parties.
• Information is Intelligence; If knowledge is power, then information is intelligence. In-house ATM processing solutions enable your institution to capture critical information about cardholder activity. Data on cash management trends, terminal usage patterns, and cardholder preferences provide the business intelligence needed for strategic decisions.
• Innovation; Is your institution a follower or a leader? The institution that has full control of its network has the advantage of speed and flexibility in deploying new advanced functions in the areas of deposit automation, wireless communications, WEB integration and other upcoming technologies. The outsourcing model strives for economies of scale.
• Differentiation; With an in-house environment, service can be tailored to a user's preference or habits. Customizations such as allowing the individual to select his or her preferred "quick cash" amount may cultivate a relationship based upon service and personalization rather than fees and discounts.

Commonwealth Bank & Trust ultimately chose CSFi as their in-house ATM management solution. Commonwealth Bank & Trust's choice is guided by a forward-looking approach to ATM management. The bank feels it has taken the right path for the years to come, rather than following the trend from the past several years.

"CSFi has been an outstanding partner in this initiative. Not only does CSFi offer an exceptional product, but as importantly, its staff is top-notch, and its commitment to customers is second to none."

Donna Wieber

Senior Vice President