Banks do it, home builders do it, automakers do it, consultants do it, and now, even bank tech vendors might lay off employees for the first time in history

Implications: As if there isn’t enough bad news about the economy, here I am adding to the heap before it even happens. As much as I don’t like bad news, what’s worse is bad news that comes as a surprise. So be prepared. Just follow the facts, and then draw your own conclusions. We may see the bank tech sector face similar job cuts.

Analysis:  1. Fiserv has never had a layoff. Nor has Metavante, Jack Henry, Open Solutions, Harland Financial Solutions, Computer Services, Inc. or COCC. It’s hard to tell if Fidelity National Information Services has had any layoffs because they selectively discharged redundant employees as they acquired like companies, and I’m not sure that counts as a layoff. Suffice it to say, bank tech companies have been constantly adding employees to satisfy a growth record that never dipped in over 40 years.
2. Other companies in the tech business layoff employees routinely. Accenture, EDS, CSC, BearingPoint, Perot Systems, IBM, CGI and others are accustomed to layoffs because of the nature of their business - projects that have a beginning and an end. When a project ends, and another one isn’t in the pipeline, employees are laid off.
3. Transaction processing companies are in it for the long haul, but when parts of their business meets with a decline, then ready-willing-and-able employees are no longer needed.
4. Right now, for the first time in fifty years, I see a leveling off in the bank tech arena which can simply be called “all the pieces of the bank tech pie are in place and working reasonably well.” In fact, my stats showed signs that it was about to happen two or three years ago. The core apps churn rate dropped from a consistent 8% per year to about 3%.
5. When bank tech vendors aren’t selling core apps systems, it’s like Thanksgiving without a turkey. The trimmings are fine, but they all depend on what’s at the center of the table.
6. Core apps work is the largest user of a vendor’s human resource pool, thanks to that nightmare of a word, “conversions.” If vendors are not installing as many core systems, what will they do with the people who did those jobs?
7. Organic growth among bank tech vendors is dropping to single digits. If the top line levels off, and the CFO wants to preserve the bottom line, it’s the middle lines that need to be adjusted. 40% of the middle lines is one line - salaries and related fringe benefits. Since that line is the major and almost only variable expense, which one do you think is the best line item to cut?

I wish there was something new and exciting to replace dwindling core sales. In my opinion, current “trimmings” (security apps, EBPP, electronic check clearing, remote capture, credit management, and business intelligence) aren’t enough to pick up the slack. Even the guys who need a new core system more than any other bank (the 128 large U.S. banks) are digging in their heels hoping their legacy systems will keep on posting. And for the first time in at least 40 years, I don’t see a new silver bullet solution even in the distant future.

Which way is it to “Chindia?”