TD upgrades ABM network with HP outsourcing deal

In a deal worth $420 million, Hewlett-Packard Canada Co. signed on to upgrade and manage TD’s national automated banking machine (ABM) network and point-of-sale (POS) transaction infrastructure over the next seven years.

TD’s representatives say the deal means the financial firm can offset the capital and operating costs of upgrading its ABM network, which includes 2,400 “Green Machine” automated tellers. TD plans to add new “accessibility” features to the devices, to make them easier for people with disabilities to use. The bank also plans to add new security features meant to cut down on fraud.

According to Chuck Hounsell, vice-president of retail transformation at TD, HP convinced the bank that HP infrastructure could improve cash demand forecasting so TD wouldn’t have to keep so much money on hand for ABM emergency refills. As well, “the machines will be more modern. There will be less maintenance, less breakage. Because there’s better network management they’ll be able to do more servicing from the network connection, instead of having to dispatch a technician.”

HP has, in the past, provided TD with service desk help, data centre operations, integrated management and communications as well as HP ProLiant servers and HP NonStop switching gear. But this is the first true outsourcing relationship between the two parties.

TD established a high comfort level with HP during the selection process for this particular project, a two-year-long decision gauntlet that Paul Tsaparis, president of HP Canada, describes as “comprehensive and rigorous….For any large company or financial institution to entrust critical infrastructure assets to another supplier, you can imagine the legal and technical due diligence.”

Hounsell says the two-year process was worthwhile. He advises financial institutions to follow TD’s lead, and take the time to consider all aspects of the outsourcing agreement before going ahead. Hounsell says his firm’s slow approach allowed it to develop a complete picture of the deal before deciding which provider, if any, would win the contract.

“We were already well into solution development because we created all of the specs on how the business runs. Doing that up front has exposed a lot of issues that normally don’t arise until you start implementing. You can check back with me in a year to see if I’m right or not, but I’m anticipating fewer issues coming up later because of the two years we’ve taken to get to this position, than had we made a deal quickly and tried to implement.”

Hounsell says the process of finding a service provider started with three potential scenarios: one in which TD would upgrade and manage its machines all by itself; another in which a partner other than HP would do the work; and the third, ultimately chosen approach whereby HP would take care of the ABM and POS infrastructure. Hounsell says HP won the contract because the provider’s solution seemed to offer cost savings as well as the requisite IT enhancements that TD sought.

HP will not work alone to satiate TD’s technological demands. The company has called on The Diebold Company of Canada Ltd., which will provide ABM terminals and first- and second-line maintenance. HP is also turning to ACI Worldwide, which will provide its BASE24 core switching platform and application development. Intria Items Inc. has been brought in to provide business process outsourcing services, including cash management and forecasting.

It’s one thing for TD to be confident about HP’s capabilities. It’s another for the bank to be sure of these other partners. How can TD rest assured that firms like Diebold and ACI will live up to the bank’s strict security and reliability expectations? Does HP’s position as a sort of middleman between the bank and the subcontractors not add an element of risk to the situation that would be absent if TD established direct connections with Diebold and ACI?

Not at all, explains Hounsell. “I’m privy to the high-level arrangements they have,” he says of HP’s relationship with its partners, explaining that TD is confident that HP’s ties to these third parties are strong. And besides, “I have service level agreements with HP that have fairly substantial penalties if HP doesn’t do what it’s supposed to do. They’re motivated to have solid relationships with these other players, because they’re (HP) the ones that are going to take the rap otherwise.”

It’s crucial to establish a high comfort level between the buyer and the service provider for outsourcing deals to succeed, says Jim Westcott, senior industry analyst, outsourcing at IDC Canada Ltd. in Toronto. “Common business practices and a common business outlook” between the customer and the provider “are definitely some of the key factors in any outsourcing relationship. You can’t afford situations where fundamental differences arise.”

So long as TD is confident that HP will maintain its end of the bargain, it makes sense for the financial firm to outsource the ABM and POS management tasks, Westcott says.

He adds that risk is a fundamental part of outsourcing — companies might have less control over their outsourced assets than they would if the assets remained in-house — but if it’s properly managed, that risk may well pale in comparison to the cost savings and productivity enhancements that outsourcing can bring.

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