Wells Fargo forges ahead

By Leslie Knudson, Deputy Editor

Wayne Mekjian, Group Technology Executive and Chief Information Officer of Wells Fargo, discusses how technology has helped the company thrive amid the recent market downslide and how it’s continuing to push the incredible rate of change in the industry.

In the financial industry, the only constant is change. Never so much has that been evident as in the recent subprime crash, the reeling markets and the flux of the dollar.

Even underneath the recent market fluctuations is a swift undercurrent of change at the industry’s core – with banking going mobile and the possibility of cash becoming extinct becoming much more real.

With markets in limbo and technology pushing the pedal to the ground, it’s evident that the companies who can roll with the punches are the ones who will last in the financial industry. Wells Fargo is one such company who has proved its strength amid the tumultuous market conditions as of late.

For the diversified financial services company that stretches across banking, insurance, investments, mortgage and consumer finance with $549 billion in assets, Wells Fargo wasn’t immune to a downslide in the fourth quarter – having reported the lowest quarterly profit in six years after its fourth quarter profit dropped 38 percent – but the company didn’t suffer from the big blows or asset write-downs that had befallen many of their competitors.

In fact, the company maintained one of the highest return on equity ratios among large bank holding companies as well as one of the strongest capital positions in the industry for 2007. While the diversity of its business offerings certainly helped to soften the blow from the economic downturn, technology also played a key role.

Investigating new technology
Under Mekjian’s technology group, much work has been done to keep data, applications and networks secure while at the same time, helping the sales force to better identify and understand the customer. “We’re committed to coming up with new products and services that we’ve designed over the last few years to keep opening new doors in the marketplace, bring product to market faster and lessen complexity and costs,” Mekjian says.

One of the major hurdles the group has helped to overcome is gutting out the time-intensive paper process related to handling checks and other documents. In turn, imaging has been a big part of streamlining business.

“The ability to apply image technology to capture at point of entry makes it a lot easier for accessibility going forward and streamlining the process, lowering the cost and giving more information for our customers,” Mekjian explains. “By using business services or SOA (Service Oriented Architecture), we’re able to create a utility that will allow us to display each of those images at different points of entry whether it be an ATM, a teller station, over the Internet or even to a phone banker.”

Aside from imaging, Wells Fargo has also been committed to other activities related to testing improvements and infrastructure advances to operate more efficiently and become more ‘green’. New tools and equipment on the marketplace have provided more speed while requiring less power, along with the ability to virtualize servers and applications for improved flexibility and faster deployment.

Caching and RFID (radio frequency identification) have also been big technology wins for the company. “We’re using data caching more, which allows us to lower our resource needs and increase our availability by cutting out redundant database access and reliance on single copies of data,” Mekjian elaborates. The group is also looking at ways to further extend its RFID technology.

What these technology advances mean for the business is the ability to streamline processes, keep costs down and better safeguard environments – and what it means for the customer is improved, real-time service. In the case of imaging, the process for getting a copy of a check, which once took about four or five days, is now instantaneous.

With image technology, Wells Fargo can now process checks by electronically transporting them from bank to bank. They’re also positioned to in the future be able to truncate a check when it comes into a branch without the need to process it or deliver it anywhere else. Soon the bank will also be rolling out ATMs with image capabilities, so customers can enter a check, retrieve the image and destroy or give back the check in one smooth process.

Customers aren’t only seeing benefits in the form of speed. Besides real-time information at their fingertips, imaging has also upped security for customers since fraudulent transactions can be spotted more quickly. In terms of virtualization, lowering costs internally has in turn helped keep costs down for customers since no additional cost burden has been passed on to customers through extra fees. Virtualization has also helped to provide uninterrupted service to customers.

“When we get to the data caching side, by having more stable, available systems for our customers when they use our Internet, our phone banks or our branches, our services are uninterrupted,” Mekjian says. “Over the last two years we’ve spent a lot of time focusing on availability, stability and security, and we have seen big lifts to our environment.”

Despite the ongoing developments and the competitive impulse to stay on top of the latest technologies, Wells Fargo is still careful to balance security with convenience. They’re not afraid to slow adoption to ensure the utmost security before a new technology is allowed into their environment.

“As new devices come out, it makes it difficult because while it’s simpler for the customer, it’s harder for us to secure,” Mekjian admits. “Until we know that a device is secure, we don’t actually let it come into our environment, which can be a minus, too, because others may come to the marketplace faster than we are but we’d rather take that chance.”

Transformation of the industry
The new technology is not only needed to stay innovative and competitive but also to adjust to the changing requirements of the industry. With four decades of experience in the banking industry, Mekjian has witnessed an almost unfathomable degree of change. In fact, he likens the transformation of the banking industry to that of the airport industry.

“What 9/11 did to our airports, regulatory pressures and security concerns did to our banking environment and our financial institutions,” Mekjian says. “It locked it down to a point where it was almost shut down. We’ve worked over the last four or five years trying to figure out how do we stay flexible yet secure and not sacrifice new product time to market.”

Fortunately, Wells Fargo has discovered faster and cheaper technology with improved capabilities such as for storing and more quickly accessing data, which has helped to bring silos of information together. That’s something that’s critical for Wells Fargo, which consists of 82 businesses – or, in essence, 82 silos, which in turn each house their own silos.

“Bringing the information together is a big deal, and the good news is the technology is faster and storage capacity is less expensive opening up options to address rising consumer expectations,” Mekjian says. “What we used to do in the dark, we’re now doing in the light; and technology helps us make better decisions, reduce losses, and reduce fraud.”

Mekjian also points out how the speed of change in technology has somewhat shaken up the business model and jeopardized some sources of revenue. “Previously, the technology was expensive and we had to charge our customers to provide them with the information they requested. Now reduced technology costs and increased customer expectations force a model where this information is now provided for free.”

On the upside, the improved retrieval and storage of information has enabled Wells Fargo to sell more products and for customers to more easily see the benefits of those products. With the ability to see their trades, checking accounts, savings accounts, bonds, CDs and 401K information online – the greater availability and visibility of information has instilled greater consumer confidence.

In fact, unlimited online account access has brought into question whether or not branches will be needed in the future. Mekjian says it all depends on where you started. “Some of the younger generations who are used to using electronics will probably not go to a branch until they have a need for more personal attention and financial planning. When you’re my age, you want to go to a branch for certain transactions, while other transactions you want to do from home.”

Still the rate of change of technology continues to alter industries alike and there are no limits on what the future may hold. “It’s amazing how technology has changed over the last 20 years,” Mekjian admits. “It’s changed so much that it’s just incredible where we could go. If we’re at the same pace 20 years from now I’m not sure I know what this world will look like.”

Of course, the ultimate evolution in banking would be the elimination of the use of cash.

Mekjian doesn’t think it’s such a far-off notion. In fact, he doesn’t foresee much cash being passed around in five years and projects it may potentially be gone in twenty. “If we ever get rid of cash, I think we’re close. I know that financial institutions and the credit card companies are making a big push now to try to get rid of cash by using their debit card. All these things that we built around the currency are going to be gone, which means there are a lot of traditional infrastructure that we can take away. Then why do you need a branch?”

Aside from the grander projections around the necessity of branches and the lifeline of cash, Mekjian also makes some more sedate forecasts about the immediate future. The foremost is the blending of industries, namely insurance and finance, as he foresees similar products offerings across multiple industries and in turn, more competition within the financial services arena.

“Over the next five years, you’ll see a lot fewer banks and financial institutions and I’m not sure what the differentiator is going to be. That’s what a lot of people are wrestling with right now: what makes us different than the others out there? I think it’s going to be the ability to package your applications and your products in a way that the customer wants.”

Wells Fargo 08’ initiatives
For the technology group at Wells Fargo, there’s a laundry list of initiatives they’re hoping to accomplish in the next year. First on the agenda is simplification – simplifying the environments and reducing their number of applications and tools.

“We have many environments with many similar applications running across those environments, so reducing of the number of applications whether they run on mainframe, server types or open systems,” Mekjian says. “We want to be able to simplify it for our customers and our service people.”

Consolidation and automation are two big parts of the simplification formula. “We’re trying to consolidate a lot of our similar types of activities so that we can get some economies of scale, and then identify best practices to reduce costs in these new consolidated environments,” Mekjian says.

The group is focused on automating as many labor-intensive activities as possible. A major aspect of this process includes working more closely with business partners to understand their needs and collaborating with them to find out where automation is possible. Automation is also being examined in terms of testing – looking at how to reduce the number of test scripts run, how to automate scripts where manual intervention is currently required and how to ensure full test coverage of the application.

Business continuation planning (BCP) is another heavy focus area, with the end goal of creating a real-time duplicate environment with nearly 100 percent availability so there are no business interruptions.

“We’re really looking at virtualization for applications, environments and data,” Mekjian says. “We’re mirroring our data internally and across the enterprise. Not only are we mirroring the data in a location, but we’re actually keeping track and updating another environment with the data being almost identical if not identical – so that it’s almost an on-the-fly switch to another location to continue production.”

While mirroring data, the group is being careful not to promote needless repetition. So they’re looking at smart data replication where data is tagged or indexed and not just excessively replicated, and then caching so information is available in the necessary devices instead of repetitively accessing the databases.

Lastly, there’s a significant amount of activity on the security side. On the network side of things, they’re looking at Voice Over IP and RFID. Objectives include upgrading equipment to carrier standards to make it reliable and fault tolerant, and making sure encryption goes from end to end. A fair amount of activity around wireless LANs is also planned.

“We’re looking at simplifying the mainframe environment,” Mekjian adds. “In our distribution systems, we’re doing server virtualization, resource virtualization (SANS), Virtual LANs, and automated server provisioning, leveraging, for example, zLinux and VMware and so forth.” Other items on the to-do list include becoming more ‘green’, strengthening their security defenses through multi-factor authentication and data encryption, and extending their computational grid computing solutions and data grid computing solutions.

Though much of their efforts are focused on environments, applications and tools, one challenge is much bigger than technology: people. “The toughest challenge that we all face is retaining our people – how do we get our people involved, engaged and keep them from going somewhere else?” Mekjian admits.

Already Wells Fargo has done a fair amount of work to keep people involved and in the right place by becoming more diverse and more virtual, along with focusing on making the environment flexible so team members can come together and stay motivated while in different geographic locations.

But with the remarkable rate of change, training and recruitment is a major concern. As certain skills are dying off and others are becoming less viable – all against the backdrop of rapidly changing networks and increased security demands – the question of where to find and how to train the necessary people is a daunting one.

Nonetheless, Mekjian is determined to continue to forge innovation within his group and is intent on making sure his people think outside the box. To do so he is hoping to tap knowledge from those farther from the front lines of business. “I have a lot of people, programmers, architects and data analysts that don’t get out and see and touch the lines of businesses. I’d like to get them closer to the business because if they can see what they’re producing and the effect of what they’re producing, I think they are going to be able to come up with innovative ideas on how to change the environment and the way things are done.”

Wells Fargo Innovation Stock Exchange
Wells Fargo has fittingly taken an innovative approach to encouraging innovation. Its Innovation Stock Exchange provides an interactive type of environment where both vendor partners and team members alike can post ideas and receive feedback.

The focus of the second iteration of the exchange is to promote and acquire innovation ideas that address specific challenges posed by the six Information Services Councils (Architecture, Chief Application Officer, Customer Relationship Manager, Infrastructure Project Management, and Quality Assurance).

In its first year the program attracted 43 vendor participants generating 190 different innovation ideas. Mekjian estimates that they are evaluating approximately 15 of the submitted ideas for implementation. Combining the vendor partners with the similar team member innovation component, the entire program today consists of approximately 500 participants.

Some of the ideas currently being evaluated for implementation include:
*New ways to utilize ATMS
*Solutions for consolidated customer communications
*New innovative ways to increase system availability and optimize performance
*Creative ways to deliver products faster and cheaper

WELLS FARGO’S POWERFUL DISTRIBUTION
#1 in total stores (5,928 stores)
#3 in banking stores (3,283 stores in 23 states)
#1 in mortgage stores (presence in more than 2,300 stores)
Supermarket stores (581 stores)
Consumer Finance (1,102 stores)
Nation's first bank to provide online account access
#1 personal credit market share in Wells Fargo's banking states
One of nation's largest telephone banking networks (20 million calls monthly)
#3 branded bank ATM owner (6,900 ATMs)
#2 debit card issuer
#2 prime home-equity lender
Among the nation’s top-20 mutual fund companies

DIVERSITY OF BUSINESSES*
Headquartered in San Francisco, Wells Fargo has $549 billion in assets and 158,800 team members across its 80+ businesses. As the 25th largest employer in the US, the company is ranked fifth in assets and fourth in market value of stock among its peers as of September 30, 2007.

Below is a breakdown of the diversity of its business lines:

Community Banking – 33%
Home Mortgage & Home Equity – 19%
Investments & Insurance – 16%
Specialized Lending – 16%
Wholesale Banking/Commercial Real Estate – 9%
Consumer Finance – 7%

* Based on historic averages and near future year expectations

About Wayne Mekjian
As Group Technology Executive and Chief Information Officer of Information Services, Wayne Mekjian is responsible for guiding the effective use of Information Technology and managing IT resources to deliver technology solutions to over 84 unique lines of business across Wells Fargo spanning Retail, Operations, Call Center, Home and Consumer Finance Lending (including Mortgage, Consumer Credit, & Wells Fargo Financial), and other key lines of businesses within Wells Fargo.

Wayne has more than 34 years of experience in banking, leading large-scale and complex technology and operations initiatives. Prior to his current role, he was Executive Vice President and Chief Information Officer for Wells Fargo’s Home and Consumer Finance Group, where he managed technology for the Consumer Credit Group, Wells Fargo Home Mortgage and Wells Fargo Financial.

About the company
Wells Fargo & Company is a diversified financial services company with $549 billion in assets, providing banking, insurance, investments, mortgage and consumer finance through almost 6,000 stores and the internet (wellsfargo.com) across North America and internationally. Wells Fargo Bank, N.A. is the only bank in the U.S., and one of only two banks worldwide, to have the highest credit rating from both Moody’s Investors Service, “Aaa,” and Standard & Poor’s Ratings Services, “AAA.”