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Bank Systems & Technology: The Blog

« June 2008 | Main | August 2008 »

Two weeks ago, I blogged about the language that vendors use, and yet, I committed a faux pas by not explaining the dual meaning of integration. One meaning has to do with the task of the acquiring vendor's CFO. His job is to eliminate redundant positions, consolidate real estate and leases, slash overhead, consolidate data centers, consolidate software licenses, regulate purchase agreements, neutralize human resources policies such as benefits plans, and try to get the acquired company to adopt the acquirer's culture. Except for the last goal, the task of consolidating the business aspects of two companies takes about 90 to 120 days after the merger is finalized. It's a tough piece of work but doable, especially since good CFOs are constantly looking for ways to cut costs. The other meaning of integration has to do with how the disparate systems of each company will be meshed harmoniously, and that's the job of the CIO plus hundreds of techies. That task takes about five years and lots of money. Even after it's done some people will never be satisfied because "foreign" systems are never consolidated as well as single-designer systems.

I recently had the opportunity to meet with Clark Abrahams, chief financial architect at SAS, on a trip he took to New York. He has helped me out with some articles in the past and it was nice to put a face to a name.

Clark, who actually wrote a column for BS&T, is working on creating a new framework for the financial services industry around scoring the risk of customers/potential customers in a manner that's a bit more three-dimensional than the tried and true credit score. His progress in convincing the industry to accept this new concept, called the Comprehensive Credit Assessment Framework (CCAF) was the subject of our conversation.

If history were to repeat itself, and it often does in the pattern of behavior regarding bank tech activities, there will be 409 conversions to new core systems in 2008. Not one of them will make the news, because small financial institutions (FIs) are not usually noticed by the news media. On the other hand, if one of the 137 large FIs in the U.S. (over $8 billion in assets) were to convert its entire core system, you'd hear about it even if you were on sabbatical at the island of Tristan da Cunha.

When Fannie Mae and Freddie Mac not just pioneered but mandated the use of automated underwriting in the mid-nineties, some feared the 'black box' making the decisions. Minority advocates, for instance, queried whether models would make middle-class existing homeowners the standard against which they would be found lacking.
No, the agencies insisted, pointing early to improved credit quality and less biased credit decision making from automated agencies.
Now we learn that the government-sponsored enterprises -- long deemed "too big to fail" are essentially getting a cash injection to ensure they don't (access to the Fed's Discount Window). It has to make one wonder how technology did so little to prevent Fannie and Freddie from massive mortgage losses.
We now know loan quality is bad. We know Hispanics, for example, are among the worst hit by foreclosures.
Yet, it's been known since 2003 that foreclosure rates were at then record highs. Though tiny compared with today, five years ago there were signs that subprime loans were witnessing their first test in economic down times and failing.
Where did automated underwriting go wrong? Did corrupt brokers or borrowers commonly falsify information, like claimed income, fed into these systems when everyone was too busy making loans to notice? Or, did the industry keep changing the rules of these rules-based systems so long as everyone was making money? In other words, did technology just served to rationalize a collective insanity?

This weekend, since our contract with Verizon expired, we switched our cell phone plan to AT&T (because my husband made me get an iPhone). Also on the plan are two other family members who just wanted simple phones (I swear, that’s all I wanted too!). So AT&T added them onto our “family plan” and said those two phones would be about $10 a piece after I mailed in the rebate information. Great. So that means I’ll be getting back about $50 or $60 from AT&T, right?

Whoever is writing the marketing announcements that tech vendors are using today, ought to get a makeover to remove the meaningless phrases that are just as bad as comb-overs, brilliant Chicklet-like teeth, and shiny stretched skin that makes the beholder's eyes pop out at you. You know who you are Donald, Kenny and Wayne. Is this what banking is all about today?

Seven days into my new job at BS&T and I have seven new password and log-on combos.
You can imagine how it struck me when security veteran RSA announced a new security token to authenticate customers for online banking that fits in your wallet like a credit card and, the release boasted, can bear the name of each bank issuing such a card. Great! It's not enough that I have two credit cards and one debit from JP Morgan Chase, alone, for example; I can look forward to having to carry additional cards to back up the original plastic online.

The story behind the story of the operational crisis and ongoing reorganization at Citi is one of technology.

In last week's blog, I attempted to alert the "suits" in banking that there are some downsides to the proliferation of the hottest new banking apps in the past two years. Security systems, fraud detection systems, risk management, regulatory compliance measures, dual authentication for online users and anything resembling protection are in vogue whenever bankers get squeezed by the unexpected. But when these systems do their job, they also create a huge workload for bank employees as they are now required to test all possible suspects. In other words, for every good technology there's a "gotcha" somewhere that no one anticipated. The CIO is claiming victory, but the head of operations is cursing.

By Mike Fenton, Parascript, LLC

Since the establishment of the first ATM networks in the early 1970s, ATMs have become an essential component of consumer banking technology that continues to evolve. Customers have come to rely on them for convenience and ease in accessing their financial institution and making transactions without the need for a human interface or bank teller. This type of service answers the demands of our fast-paced society and may seem unconditionally attractive. However, security is a big concern for both banks and consumers and is one of the reasons limiting ATM usage.

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