Microsoft Corp., one of the largest front-end software pro-viders to the financial industry, plans to announce today an initiative that will position it as a consultant to banks.
The Redmond, Wash., company also plans to unveil an updated version of its small-business application suite, which lets retailers integrate payments data into the software they use to manage other aspects of their operations. As part of that update, Microsoft has added several major banks to its roster of partners in the payments service, which until now had been confined to Citigroup Inc.
The two developments have little technology overlap, but they both illustrate what appears to be a reevaluation by the technology titan of the role it wants to play when potential customers are deciding how and where to implement financial services information technology projects.
Though its operating system serves as the foundation for many financial services companies' computers, Microsoft does not develop the more specialized applications banks need to offer such services as online banking or cash management.
William Hartnett, the general manager of financial services strategy and solutions at Microsoft, said that since it does not make these applications, in the past it did not care which applications the banks used, as long as they based their system on Microsoft products.
"We were Switzerland," Mr. Hartnett said.
What was missing from that approach, he said, was the willingness to offer advice and recommendations to customers about which vendors might have the best product for a bank's needs.
In fact, Microsoft does have some very specific ideas about what financial services companies can, and should, be doing, Mr. Hartnett said. Its Experience Banking initiative calls for it to move from being merely a technology provider, selling software to the banks, to also being an adviser, offering help and suggestions as banks look to improve the overall banking experience for both customers and employees.
Microsoft is expected to announce the initiative as well as the expanded roster of partners today at the BAI Retail Delivery Conference in Las Vegas.
"We do have an opinion about what the banking industry could look like," he said. "We want to become a trusted adviser to banks."
Jerry Silva, a senior analyst at TowerGroup, the Needham, Mass., market research unit of MasterCard International, said that as computer systems have become more complicated, with larger, more complex, and more intertwined applications that are usually running on Microsoft's operating system, Microsoft has become "more ingrained in the technology fabric of financial institutions."
Banks are hoping to use technology to improve the customer experience, and many know that they may need outside advice. But Microsoft was long considered simply a software vendor, he said. "They were akin to bean counters. They could count how many desktops you had, how many copies of Office you were running, and figure out 'What do you owe us?' "
But because of its dominant role in the software industry, Microsoft can evaluate different vendors and make recommendations that banks might be willing to trust, and now it is willing to do so, he said. "I think it's a huge change."
Mr. Hartnett made it clear that he wants Microsoft to be seen in the same way as another technology giant: International Business Machines Corp., which generates huge revenues from consulting services. "We want to sit at the same table that IBM has sat at," he said, even though "being willing to have an opinion also means accepting more responsibility."
He hopes the result will be more sales of Microsoft products. Because the company will promote certain vendors whose software is based on the Microsoft platform, the technology will become even more entrenched, he said.
Microsoft currently claims to receive about 1% to 2% of banks' technology budgets; Mr. Hartnett hopes to double that share over the next three to five years. "This is our big push" to do that.
Perhaps one of the first signs of that push is the new version of Microsoft's Retail Management System, which is also being introduced today at the Retail Delivery Conference. The system, introduced in September 2002, gives small merchants the same types of centralized business management applications that have long been available to large merchants.
In January 2003, Microsoft added a transaction processing module, which automatically updates a merchant's accounting and inventory systems with credit card purchase information, according to Eric Estroff, a senior product manager for Microsoft.
However, the module used to work with only one acquirer, Citibank Merchant Services, and one transaction processor, Vital Processing Services. Merchants who wanted to use the module had to either use Citi as their merchant bank or install a third-party application that could import the transaction data into the RMS software.
Because that setup limited the customer base, Microsoft has added three acquirers to its roster: Bank of America Merchant Services, Paymentech LP, and Wells Fargo Merchant Services.
Mr. Estroff said that working with more acquirers should draw more end users. He called the RMS package an example of how Microsoft is working in "partnership with banks."
Don Weber, an executive vice president with Wells Fargo Merchant Services, said he expects this partnership to persuade more merchants to use RMS, though he would not speculate on how many. "This is an opportunity for us to work with Microsoft," he said. "They are a tremendous partner."
Cathy Corby Parker, a senior vice president for marketing at Vital Processing, a Tempe, Ariz., joint venture between Total System Services Inc. and Visa U.S.A., said that kind of enthusiasm would have been unheard of a decade ago.
She recalled that banks once feared that Microsoft had plans to compete directly with them. At that time consumer banking applications such as Microsoft Money and Intuit Inc.'s Quicken were considered tools that could make tech vendors more important intermediaries in the banking chain than the banks themselves, she said.
But Microsoft's current efforts should finally lay to rest any fears that it wants to compete with banks, she said. "This action is a clear sign that Microsoft sees an opportunity" from leaving the banks alone to do the banking.
Gwenn Bezard, a senior analyst with the financial technology consulting firm Celent Communications LLC, said that Microsoft's efforts are the result of two intersecting trends: Just as banks are hoping to offer more services for customers, technology vendors are trying to deliver applications that offer more choices to end users.
By offering applications like RMS and by advising banks on how to best use it and other software packages, Microsoft is participating in both trends, he said.
And it is now abundantly clear that the company's main goal is to sell products to banks rather than replace them, Mr. Bezard said. "Microsoft makes a lot of money from the financial services industry."
