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TGIF: SNL's Seth Meyers Says "Thanks, Technology!" at CES

Posted on January 08, 2010

Weekend Update anchor Seth Meyers explored some of the ways technology makes our lives better, just before Steve Ballmer's keynote address at the Consumer Electronics Show this week.

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FROM RDS ’08: ING Direct’s Kuhlmann on Being Different and Saving the Industry

Posted on November 19, 2008

When ING Direct’s chairman, president and CEO Arkadi Kuhlmann talks, people listen. Kuhlmann was the featured speaker at a morning session at the Retail Delivery show called Innovation Works. The bank chief, who prefers to camp out in the call center than sit in an office, discussed some of the secrets to being unique.

“You need grassroots thinking” in order to stand out from the thousands of banks in the U.S. “Look at the business model and do it differently,” he told attendees. One way to do this is to look outside the banking industry since there “aren’t enough unique approaches” within banking, Kuhlmann said. (This also includes hiring non-bankers.) ING looked at retail, airlines and other sectors and closely examined their operating models. ING found the grocery story model of particular interest, given the metrics they use to measure customer interaction. “This is a high volume, low margin standardized business,” he said. And once a bank decides to go with such a model, it must stick with it or else risk unraveling all its efforts.

“You need a different attitude if you want to be different,” Kuhlmann said. “It’s comfortable to be the same as everyone else.” When a bank decides to take a unique route, they risk being scorned by their peers. However, he added, at the end of the day, it’s more important what the customers think.”

Therefore, one of the most important things is to be able to identify and connect customers in a different manner from other banks. “Connect with customers on the things they care about—simple concepts that Main Street cares about. “In order to succeed, you must understand the psychology of how people look at money,” he explained. “Our rates aren’t the highest. We’re not that much different in many ways. But people come to us for intangible reasons—beliefs, values. “Americans want someone to validate their beliefs of what’s right.”

The ING Direct model is one that sets out to democratize banking—everyone gets the same deal, said Kuhlmann, no matter how wealthy you are. Don’t expect sweetheart deals and concierge service from ING Direct if you’re a high net worth consumer, he remarked. “I like to tell rich people to go wait in line. There is no negotiation ever.”

Some consumers just don’t fit in with the ING Direct model, stated Kuhlmann. “We close 5,000 customer accounts per month. We do it with respect and professionalism…. But the customer isn’t always right.” This, he added, would shock most bankers.

Of course, the conversation shifted gears to the subprime meltdown. Kuhlmann expressed optimism for the industry. And had some very strong words for the critics and herd mentality. “I’m tired of the banking industry being turned into glorified distributors who sell to the guys on Wall Street who set the terms.” ING Direct’s mortgage model is to actually keep the mortgages on its own books. This, he said, is what the banks should have been doing in the first place.

Kuhlmann also scoffed at the 30-year mortgage. “Who conned consumers into believing this?” he quipped half-jokingly. “You can’t guarantee your health or your marriage but you can have a 30-year mortgage.”

He further asserted that homes shouldn’t be considered financial assets. “A house is not a tax deduction in other countries. … Keep the Wall Street guys from marching around with the American homestead.” Go back to the fundamentals was the main thrust of his point—no down payment, no mortgage.

“We can re-engineer the mortgage industry,” he stated. “But it can’t be done by the Wall Street guys: it has to be done by us.”

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The People Have Spoken

Posted on November 05, 2008

The results are in and after a long and contentious campaign, America has declared Barack Obama the next President of the United States.

No matter your position on the political spectrum, we can probably all agree that Obama will usher in an era of change for this country as he takes us in a vastly different direction. Whether that change will be good or bad remains to be seen.

One thing is for sure though--he's going to have his hands full with the economy. I just hope Obama surrounds himself with intelligent economists and business people who have logical ideas as to how to help our economy recover. The last thing we need is for a bunch of career politicians with little or no background in economics calling the shots in Congress (unavoidable though that might be).

Unfortunately, banks and other financial services firms will likely be faced with a slew of new regulations and a serious regime of enforcement. This would have been true under a McCain administration as well, but the evidence suggests we should expect it to a greater degree from Obama.

I guess it's probably a good time to be a risk management technology provider.

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No More WaMu. What's Next?

Posted on September 26, 2008

It looks like the bank that was Washington Mutual is no more in what is being called the largest U.S. bank failure. Now, through a transaction facilitated by the FDIC, JPMorgan Chase owns WaMu’s banking operations. According to a release by the agency, “JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of $1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired.” Due to the nature of the transaction, there was no cost incurred to the Deposit Insurance Fund.

According to JPMorgan, the acquisition creates the largest depository financial institution with over $900 billion of customer deposits. The acquisition will also expand Chase’s consumer branch network into California, Florida and Washington State and creates the nation’s second-largest branch network with locations reaching 42 percent of the U.S. population, said a statement from the bank. “The combined 5,400 branches in 23 states will also serve as an excellent base to extend the reach of the business banking, commercial banking, credit card, consumer lending and wealth management businesses. The acquisition also extends Chase’s retail branch network to additional states, including Georgia, Idaho, Nevada and Oregon.”

Chase plans to convert WaMu’s technology platform and banking, home lending and credit card business to the Chase brand. The combination will also bring the Chase ATM network to 14,000 machines.

“This acquisition makes us more convenient and valuable to our customers and meets our strategic goal of broadening our footprint to serve our current and future customers better,” said Charlie Scharf, head of Chase’s retail business, in a release.

Definitely an attractive deal for Chase and for WaMu’s customers, who apparently can resume “banking as usual,” according to Chase. They will also benefit from greater physical presence of the bank as well. Says Bart Narter, SVP of Celent's banking group, "This acquisition puts JPMorgan neck and neck with Bank of America in terms of total number of branches, with about 5,400 to BofA’s 5,785. If there had been any doubt that JPMorgan was serious about retail branch banking, it has entirely disappeared."

We all knew this was coming (although it was initially thought Citi was going to be the buyer). However, I can’t help but think what a shame this is. WaMu was just making headway in the New York area, creating a greater presence and brand recognition. But now, due to some bad risks, it is no more and has squandered the opportunity to become a significant player in a major retail banking market.

So, does anyone care to take any guesses as to what surprises await us next week in the ongoing saga of “As the Banking World Turns?”

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The Banking World Just Got a Bit More Crowded

Posted on September 22, 2008

As if banks didn’t have enough to worry about with new competitors, now it turns out the once hallowed investment banks Goldman Sachs and Morgan Stanley are metamorphosing into depository institutions to keep out of the trouble that’s plaguing the industry.

The implications of such a conversion are significant, to say the least. Now they’ll be subject to the same kinds of regulations as the likes of a Citi or Fifth Third. What happens with branding? Consumers who have for so long thought of them only as investment banks will really need some re-educating if Goldman and Morgan hope to gain their deposits.

And technology, of course, comes into play. Now these former investment banks will need to bring in all the IT associated with a typical commercial banking institution. I’m sure the IBMs and Fiservs of the world are licking their chops!

Oh! And what about branches? What kind of model are “Goldman Sachs Bank” and “Morgan Stanley Bank” going to use? Will they be direct banks only and just reside on the Internet? Will there be an ATM network? I’m sure Diebold, NCR and Wincor will have their eyes open.

TowerGroup recently held a telephone briefing on the upheaval (before we learned of the Goldman/Morgan news). To echo Kathleen Khirallah, managing director at TowerGroup, the world is in a state of flux when it comes to banking. So it’s difficult to determine how things will change. What she said would be a certainty was that we would be seeing more consolidation. And it happened a lot sooner and in probably a far different manner than any of us could have guessed.

I don’t know if we can take any more surprises. What’s next? Are we going to wake up tomorrow morning and learn that modern currency is being replaced by pretty pebbles?

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An Unfortunate, Yet Historic Week

Posted on September 19, 2008

TGIF! I think this is one week where we can all be thankful that it’s Friday. The financial services industry has been the subject of a drama that started about two weeks ago with the government takeover of Fannie Mae and Freddie Mac. This week, Bank of America did an about face and re-entered the investment banking game by acquiring/saving Merrill Lynch. Barclays stepped in and gave a hand to bankrupt Lehman Brothers. Morgan Stanley is reported to be looking for a buyer and is considering Wachovia. Now we hear news that Washington Mutual is likely to be rescued by Citi. … Woohoo? And need I mention AIG?

These are historic times. I agree with analysts who say we are witnessing the most significant reshuffling of the financial services industry since the Great Depression. The Feds are trying to move quickly to stop the hemorrhaging, announcing that they are putting a temporary freeze on short-selling of company stock and are looking at ways to keep money market mutual funds afloat.

This being Bank Systems & TECHNOLOGY, I’m obliged to throw some kind of tech angle into the mix here. It’s simply this: technology is not necessarily at fault for the financial meltdown we are now witnessing—it’s a people problem. BS&T had been following the crisis as early as August 2007 and has always maintained that no matter how sophisticated your risk mitigation and analytics technologies, they won’t amount to anything if the people in charge choose to ignore the warnings that are right before their eyes.

Banks and all the parties involved were living high on the hog during the heyday of subprime lending. The money kept rolling in and they chose short-term gain over long-term stability and ignored the growing tsunami looming just over their shoulders. It’s human nature to want instant gratification, after all.

Now the wave has crested and it’s starting to break, pulling dozens of financial institutions under. It might just turn out, however, that of all the entities involved that the banks will emerge on top as they absorb A-list companies from the investment banking world. And there are still those banks, many of them community institutions, that have weathered the storm fairly well because they strictly adhered to their risk models. I like to think the financial services industry will ultimately be strengthened by this mess. But until the waters finally recede, institutions will continue to contend with the rip current.

I still believe the industry is capable of policing itself. Most of the regulations on the books are good—they just weren’t enforced well. So rather than implementing more regulations on the already over burdened banks, there should be a concerted effort to actually enforce them. After all, once Congress becomes more involved, it’s likely their solutions will consist of further regulations, along with the usual finger-pointing.

To see more coverage on the subprime meltdown, please visit:

Fannie, Freddie Troubles May Have Been Avoided If Technology Was Used Properly

Tech a Factor in Fannie, Freddie Bailout, Analyst Says

Not Too Early for Lenders to Regroup and Think Ahead

Fannie and Freddie Bailout a Tech Black Box

Banks’ Risk IT Spending to See Modest Growth

Lending Tech Vendor Space to See Realignment

Sub-Prime Lending Mess Not Technology’s Fault

Lenders Focus on Customer Relationships

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Reflections on Reengineering

Posted on September 11, 2008

The sad news of the death earlier this month of Michael Hammer, the author, professor and analyst who made the concept of reengineering famous, caused me to reflect on how far organizations have come –- and how far they have to go -– in terms of standards of operating excellence. Today reengineering is a term and concept that is familiar and almost mundane> It’s hard to remember how revolutionary and unnerving the concept was in the early 1990s.

When Hammer’s book “Reengineering the Corporation: A Manifesto for Business Revolution” came out in 1993, the financial services industry was very different from the business we know today. Banks were smaller, more regional, less efficient, and less competitive –- partly because competition was an easier, simpler matter. In most businesses, including banking, people anticipated long-term employment and jobs that didn’t change much from year to year (or decade to decade). There was an interest in automation but most processes continued to be heavily paper-based. And most institutions didn’t know very much about their customers.
However, the industry was being starting to be shaken up by some big developments of the late 1980s -– fallout from third-world loans, the savings and loan crisis, the 1987 stock market crash, acceptance of interstate banking. Not only were many institutions unable to weather these storms (this was a period of dramatic M&A activity) there also was awareness that business-as-usual wouldn’t be enough to guarantee success. It remains to be seen whether the industry simply was ready for the concept of reengineering -– a technology-based way of redesigning and transforming all kinds of business processes, in order to make companies more flexible and responsive –- or whether the popularization of the concept shook up the industry.
Reengineering quickly took on a negative connotation, as it became synonymous with layoffs. And while efficiency and automation are core to the concept of reengineering, it was unfortunate to see how a potentially transforming set of practices and technologies got boiled down to being mainly about cost-savings and headcount.
The turmoil the industry is going through now is reminiscent of the upheavals of 20 years ago, and it’s inevitable that many companies are going to be transformed –- by choice or necessity. Whether or not those changes are called “reengineering” remains to be seen.

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The Remaking of Cobol?

Posted on August 18, 2008

I recently posted a blog about a sticky situation going on in the California government that, in part, deals with the difficulty in updating its payroll system because it runs on Cobol. I commented on how similar this situation sounds to what many financial institutions are experiencing. And I received some very interesting e-mails and comments. If what readers are telling me is correct, Cobol is alive and kicking.

It's not just a stale, antiquated computer language, an albatross around bankers' necks. Instead, Cobol seems to be quietly evolving and making a niche for itself in today's computing world.

For instance, one reader directed me to two articles from fellow UBM sister publication Dr. Dobbs Journal: This COBOL's For You and More COBOL: A Billion Here, A Billion There. Apparently new applications are being written using Cobol. According to the article, Veryant rolled out the isCOBOL Application Suite 2008. And there is still a loyal following amongst programmers as well, if the comments I received on my previous blog are any indication (and judging from the feedback Erickson seems to have gotten). In fact, my research on Cobol showed there are d active groups and initiatives dedicated to using Cobol in this day and age.

Plus, as Erickson also points out, there are still billions of lines of Cobol code in the world. It all won't be going away any time soon, so what happens when the diehard Cobol programmers retire? I recall hearing stories about the universities in India offering training in Cobol to their students. If these graduates play their cards right, they probably could cut a nice niche for themselves in the business world—especially in the U.S.

Maybe this is all old news to those bank techies who are down in the trenches when it comes to the IT systems at their respective financial institutions. However, this new information puts a lot of things into perspective for me. I guess some computer languages are sometimes like fashion trends—they come back in style eventually.

Still, there's no doubt that banks operating with older core systems lack the flexibility required to compete in an increasingly data intensive, real-time environment. Whether the Cobol in place at banks today can evolve is the question. Otherwise, when banks are eventually ready to convert their cores, they will likely be inclined to gradually phase it out in favor of newer, "shinier" systems and languages.

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Rethinking the Credit Scoring Model

Posted on July 18, 2008

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.

Clark is basically proposing the creation of a new credit score. Kind of a credit score "plus" that takes into account other dimensions of the consumer, such as their capacity to pay bills and their capital.

Clark says the banks need to look at their customers' information in the context of what's going on in the rest of their lives (for example, changing a job for higher pay) and as they relate to consumers in similar situations. In doing so, claims Clark, banks will get a more in-depth view of a consumer's risk than they do today. Furthermore, banks need to adopt models that are flexible and can adapt at the market changes and as the customer's financial condition changes as well. (This is just a basic description of his ideas. For more information, please see his column I referred to above and his own blog.)

This would be ideal. Imagine being able to drill down to such a degree into your customers' risk profile. If the industry had models in place like this, there is a good chance the subprime crises could have been averted or detected much earlier, according to Clark. He is not advocating that banks discontinue using the credit score. On the contrary, he says the credit score would be a part of an overall more broad-based credit rating process.

This all sounds great, but are the banks ready to take this step? Sure, they'll have a great deal more information at their fingertips, but there is such a thing as information overload. The complexity of performing a credit check could increase ten fold. Would banks be willing to bite the bullet and invest in what is needed to accomplish what Clark proposes? He kind of smiled at me when I asked him that. His answer was that it would most likely happen only if the regulators pushed it (and, by the way, he has presented his case to the regulatory bodies and the industry associations). This is, after all, a new way of thinking for banks, right?

Regardless of one's opinions on Clark Abraham's idea, it is clear from the state of the financial services industry that perhaps some new way of thinking is in order. Most of the technology is there today to help banks gather the information they need. Already, some are advocating the use of alternative credit data, such as records of utility bill payments, to score those with thin or non-existent credit files. Could this move into the thick file area? Who knows?

I'd like to know if any of our readers think it's time for the industry to reexamine the way it scores customers—not necessarily in the manner described above, but some new method. Is a new credit risk model necessary as the kinds of financial products offered become more complex and as banks look to different markets for business?

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So Many Passwords, So Little Memory

Posted on July 08, 2008

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.

Not that it's RSA's fault. Culturally, banks are disinclined to pool customer information. So, the software used to authenticate customers who have RSA's new SecurID Display card resides at each bank, not in a central repository.
That psychology stands in the way of biometrics –- authenticating individuals using parts of their anatomy. A technology seemingly always ahead of its time, biometrics has finally seen some general application for airline travel post 9-11, with fingerprint and retina scans.
Since you can't actually forget your head, biometrics could save the information-overloaded citizen from remembering a growing list of log-on combinations.
But for banking, it seems it's not to be. RSA offers biometric authentication but, says Rachael Stockton, product manager of its new SecurID card, "Banks' problem is that they don't have control of where, say, a fingerprint is stored."
And in a Financial Insights teleconference just before the July 4 holiday weekend, an old American Banker headline heralding the popular coming of biometrics provoked a chorus of laughter.

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There's Something About Silos

Posted on June 20, 2008

Sometimes I like to post stories about my personal experiences with banking technology. I think what happened to me the other day with my debit card fits the bill.

My card stopped working. I tried it at one merchant and thought it was their POS machine (that's "point of sale", not the other thing…). But when I went to a different store, it still didn't work. I knew the card was supposed to expire in June, but that's at the end of the month and I had a couple more weeks.

So when I got home, I called I my "extremely large" bank and explained the situation. I was asked for my debit card number and I gave it. There was a long pause and then several requests to repeat the last eight digits. Finally, the rep said it wasn't showing up in the database. I was getting nervous and then gave her my checking account number. Fortunately, that was in the system. After verifying some personal information, she concluded that the card was deactivated because they mailed me my new one.

Well, that was news to me, since I never received it! She checked my address. It turns out my old address was in the system. We moved to a different state earlier this year and the first thing we did was change our address with our bank. We thought everything was fine since our statements were coming to our new address and my husband's new debit card came to our new address. But for some reason, they never changed the address under my name in the debit card system. The "silo monster" strikes again?

I guess as a bank tech journalist, I should have been a bit more aware. But I mean, really; how were we as customers to know that the databases of our "extremely large" bank weren't completely synchronized? I kind of thought we were beyond this kind of situation at this point in time, given the size of the bank. Looks like there's still some more work to be done though.

I will say the rep was very nice and apologetic. What else could she do?

This incident has really driven home to me just how dependent I am on my debit card now. Before I was married, I was a "cash person." Now, taking out my debit card when I'm at the supermarket or some other store is just as natural to me as using cash was. In fact, I'm finding I prefer to hoard the cash I have. Oh, I keep bills in my wallet—I just am very reluctant to use them!

Anyway, so now I'm stuck without a debit card for the next "five to seven business days." Actually, now that I think about it, maybe I should call them back and demand the card be given expedited shipping since it was the bank's fault!

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Facebook Users Want Web 2.0-enabled Banks

Posted on June 05, 2008

I've been pretty skeptical about the use of Web 2.0 tools in the financial services space. I just can't see how banks can broadly implement things like wikis, blogs and podcasts throughout their practice just to cater to a particular demographic—Gen Y. Nor can I see why they would want to embark on such a project beyond simple curiosity.

Then I saw this study of 1,000 Facebook users, issued by Web 2.0 technology provider WorkLight. It says that people between the ages of 18 and 34 desire to interact with their financial institution in a Web 2.0 fashion. Specifically, 48 percent of respondents said they would take advantage of online banking with Web 2.0 gadgets if their banks offered this service. In the 25 to 34 year-old bracket, 33 percent said they would be more likely to switch to another bank that offered Web 2.0 gadgets for online banking, versus 21 percent for 18 to 24 year olds.

But tastes change with age, even in financial services. I seem to recall seeing a piece of research that said that the usage of credit cards versus debit cards varies with the age of the user (I think younger people prefer their debit cards, if I remember correctly). And what about the branch? It's quite fine to look at these 20-something people and say that they love to use the web and mobile channels now. But what happens when they're much older? I see in my older relatives what happens as the eyes goes, as the hearing becomes more muddled and, unfortunately, as confidence starts to wane. Will these same wired Gen Y-ers still wish to engage with their bank using only these online, self-service channels when they're into their golden years? Perhaps, like generations before them, they'll find it comforting to walk into the local branch and talk to a human being.

Then again, this is a completely different generation from my parents who grew up during World War II. My generation walked on the first stepping-stones of the Internet, not to mention the explosion in video game consoles witnessed during the 80s. The generation after mine has grown up knowing nothing BUT digital this and online that. They probably don't even know that there were once rotary telephones not long ago! Boy, I feel old.

And age aside, why do these people feel that they should be able to engage their bank in the same manner as their friends, retailers and entertainment outlets such as TV stations? Perhaps this is worth more analysis. I can see some merit to things like blogs when it comes to offering financial advice. I'm sure this goes on today at some of the more progressive financial institutions. But still, is embarking on a Web 2.0 strategy worth the effort at this point in time? And who knows what awaits us a decade from now? Perhaps we'll be able to have neural shunts implanted into the base of our skulls allowing us to directly plug into the communications network. OK. Maybe I read too much sci-fi, but it is possible. Still, it's fun to think about decades from now whether that 75-year-old with the neural jack in his head will prefer to "plug in" to his bank or to walk into his branch to perform a transaction.

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NACHA BITE: How Much of a Threat Is Decoupled Debit?

Posted on May 20, 2008

On Monday at the NACHA Payments 2008 conference, I attended a session on decoupled debit aptly named "Decoupled Debit: Threat or Opportunity?" During the session, HSBC's Daniel Eckert, SVP, payments products, and Mike Grossman, CEO of Tempo, an alternative payments company, spoke to a packed room about what exactly decoupled debit is and what it means for banks.

Decoupled debit cards, unlike traditional debit cards, are not tied to a person's DDA. These cards can be issued by a financial institution that is not someone's primary depository financial institution. As a result, there are opportunities for retailers and other to become involved in this emerging payments scheme.

HSBC is one of the few financial institutions that have embraced decoupled debit as a part of its competitive strategy. The bank has partnered with Tempo and is now offering these cards as a new value added service to its commercial clients. Since the decoupled debit cards can be co-branded, Eckert said that it is gaining the attention of the bank's merchant customers.

Knowing what I already know about decoupled debit, what struck me as most interesting were the number of questions posed by the audience to both speakers. In fact, these questions did not crop up during the obligatory Q&A at the end, but in the middle of the presentation. "Can these cards be used at ATMs and at the point of sale to obtain cash?" "What will decoupled debit mean for interchange fees?" "Does an issuer need to be a financial institution?"

Although we're still in the very early stages of the evolution of decoupled debit, there's no doubt this new payments mechanism is an attention-getter. Whether a bank sees it as a threat to its existing relationships or as an opportunity to further expand its footprint and bring in new revenue streams will ultimately depend on the bank's operating model.

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Green Banking: Reality or Hype?

Posted on May 14, 2008

Once upon a time, the only thing green in banking was the cash. Now the financial industry has hopped aboard the Green Express – with mixed results. The newly-released 2008 IBT Market Pulse Survey has attempted to identify and measure the types and amounts of greenness in the banking sector. So how is that working out?

The problem is the appearance versus the reality of going green.  Eighty six percent of the respondent bank executives recognize that green initiatives are important to their clientele. But less than one fifth of their institutions have any environmentally-friendly programs in place (except for paper reduction): 19 percent have eco-friendly car loans, 17 percent have eco-friendly home financing, and 8 percent have credit cards whose usage result in contributions to green initiatives. And customer use of these green services is reportedly “very modest.”

Similarly, a whopping 90 percent of the bankers surveyed have paperless options like online applications and electronic statements. But just 16 percent say that a majority of their customers participate in the programs.

Is it a lack of consumer education? Or are banks merely basking in the sun of reflected greenness, capitalizing on a hot trend by adding green offerings?

The most promising survey results are in the area of physical facilities. Sixty eight percent of the respondents say “We realize the benefits of lowered operating costs” with green practices like energy-efficient lighting and planting trees to improve heating or cooling. Of those planning new building projects, 75 percent are considering green building materials and/or practices. Here is where the business case for green can be made – and it’s the same case for banks as it is for other businesses.

As Earth Day fever cools off, maybe it’s time to focus green banking on cost efficiencies – and forego the public relations type of greenness. If customers aren’t rushing to take advantage of the more esoteric eco-bank initiatives, what’s the point? To paraphrase Kermit, it isn’t always profitable being green. -- Paula Damiano, Senior Editor, Bank Systems & Technology
 
Survey URL: http://rs6.net/tn.jsp?e=0012REQ4pMphgQVRz1waHbCdaz0F71km0jMxQYLVWqxHlFX6SNcn0dj-M0evzm2uNGmV_iGnDY1JMFr18kewcF4wv037kbVS_1QqX0LJerGa4VjSyUBJGoS-IZ4xBphdme2nN-2e6dKxFI

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Customer Bank Fees: Mint.com Takes on Wells Fargo

Posted on May 07, 2008

At a recent Web 2.0 panel discussion held in New York (courtesy of Celent), the concept of “rich user experience” dominated the discussion. Danny Peltz from Wells Fargo confessed that his bank’s rather cool Stagecoach Island website, complete with avatars, was begun on a bet. But is this the rich experience bank customers really want from their financial institution? A good-natured but pointed exchange followed from the panelists.

It was Mint.com that raised a substantive issue. Aaron Paltzer, Mint’s founder and CEO, threw out the statistic that the average American household will spend $500 this year on banking and other financial services fees, and said consumers aren’t happy about it. His opinion: banks should move away from fee-based revenue. And he vowed that Mint would continue to “expose” these fees on its site.

Peltz countered with, “Well, based on Wells Fargo’s 175 years of experience – we wish you luck with that.” The audience laughed. But only a little.

As a typical bank customer myself, I keep waiting for new technologies to positively impact my bottom line. I thought it would happen with the labor savings from ATMs. But instead, banks charge me to use them – sometimes, at both ends. If Wells Fargo’s commitment to fees is typical, will there soon be a teller fee as well? How about my online saving account? Will the land-based checking account that funds it start charging me for the privilege? Or maybe the online bank will begin extracting a deposit or withdrawal fee.

So what would you rather have from your bank – a nifty website, or lower fees?

And how much is the maintenance assessment on my avatar?

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The Greening of Banking

Posted on April 28, 2008

On the first Earth Day—April 22, 1970—I enthusiastically did my bit for the environmental cause by volunteering with some of my fellow high school students to run a car wash that was supposed to raise money and awareness. Of course it didn't occur to any of us that there was something inherently contradictory about trying to save the environment by washing cars. We felt optimistic and productive and kind of noble. We knew we had done something good, although none of us would have been very successful at explaining exactly what we had accomplished.

I was reminded of this long-ago experience when I started receiving announcements and press releases a few weeks ago from banks and vendors about their 2008 Earth Day initiatives. It all underscored how "hot" (there's a pun there somewhere) a topic green computing has become. The banking industry clearly recognizes that consumers are concerned about the environment and will embrace lifestyle-changing initiatives that help them "do well by doing good." To summarize just a few of the initiatives that were announced recently:

• In conjunction with Earth Week, Toronto-based TD Canada Trust announced it surpassed three million paperless banking customers. According to the bank, in the past year customers who have signed up for TD Canada Trust's Paperless Record Keeping option have saved more than 35 million sheets of paper. TD Canada Trust also offers a Green Mortgage and Green Home Equity Line of Credit (HELOC).

• JPMorgan Chase joined the Earth Day Network, participating in what it said is "America's largest Earth Day celebration" across eight cities. Additionally, "Pushing its environmental commitment, JPMorgan Chase is increasing its global greenhouse gas emissions reduction goal to 20 percent by 2012 using a 2005 baseline and adding 20-30 green bank branches this year."

• It's not just the biggest banks that are riding the (hopefully non-fossil-fuel emitting) green bandwagon. Cambridge, Ohio-based Advantage Bank partnered with Iron Mountain to host its second community Shred and Protect Day, which, according to the bank's official statement, means that customers are "not only going green; they're taking the stress of tax season off their shoulders."

• The vendor community is also part of the trend. For example, Fiserv's CheckFree unit announced partnerships with a number of institutions, including credit union PSCU Financial Services, to demonstrate the environmental benefits of paying and receiving bills online. "More consumers are realizing that online bill payment is not only convenient, it also contributes to a healthier environment," said Leslie Reistrup, director of eServices at PSCU financial Services, in a statement.

It's great that our industry is embracing the concept of sustainability and environmental responsibility, but with each announcement I began to wonder how much of this activity is for real and how much is hype. There's nothing wrong, and probably quite a lot that's beneficial, about these various initiatives, yet the impact they will have in terms of forestalling climate change remains to be seen. That's not necessarily a bad thing, but it would be bad for "the cause" if public concern and enthusiasm about fighting global warming or saving rivers and oceans turned to cynicism and the sense that it all has been co-opted by big business.

What do you think about green initiatives in the financial services industry? Feel free to leave us your comments.

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Can Anyone Stop DataTreasury In its Patents Crusade?

Posted on April 23, 2008

It looks like Data Treasury has claimed yet another victim in its patents game. It was announced recently that PNC Financial was the latest FI to settle with the notorious patent litigant over technology around electronic check imaging.

DataTreasury had accused PNC of infringing on patents which were issued to the company in 1999 and 2000 for image capture, centralized processing and electronic storage of document and check information. DataTreasury also had accused PNC of infringing two other patents that were issued in 1993 and 1996 for a central check clearing system. Keep in mind—DataTreasury merely acquired these patents from another company. They did not develop the technology themselves, from what I understand.

Like so many FIs and financial services solutions providers before it (JPMorgan Chase, NCR and NetDeposit—the division of Zionsbancorp that provides remote deposit capture technology), PNC settled. And why not? Litigation is very costly and this was probably in the bank's best interests. PNC agreed to a worldwide licensing agreement from DataTreasury for its patents. Terms of the agreement are confidential, according to a release, but they "include protections for PNC's customers, giving the bank a competitive edge in check processing."

"It is clear that PNC understands the importance of DataTreasury's patents, which help the bank realize the benefits afforded by the underlying technology," said Rod Cooper, DataTreasury's patent and licensing counsel, in a statement.

I think it is crucial to protect one's patents. However, the DataTreasury issue has been a thorn in the side of banks for several years. I won't pretend to understand all the intricate details about this case. But I think what it boils down to is that the financial services industry feels that DataTreasury has laid claim to much the technology and processes related to the Check Clearing for the 21st Century Act—Check 21. One person commenting on a different blog about this topic put it into even simpler terms, saying this is akin to DataTreasury's saying it invented document-imaging technology. For the financial services industry, the drawn-out litigation process around this issue, along with the rulings in favor of DataTreasury (thanks to the plaintiff-friendly U.S. District Court, Eastern District of Texas), have been detriments to banks' innovation in this space.

Speaking of drawn-out, so is the patent process. One patent attorney I spoke with for a feature on patents in our April issue said a company can obtain a patent in China in about two years from start to finish. In the U.S., this can take as much as four years. And in the technology space (banking or otherwise), a lot can happen in those four years that may even make the original patent obsolete.

On top of that is the issue of whether "business methods" can be patentable material. I discuss this topic in my April feature. But according to experts, the DataTreasury case does indeed deal with a business process, as opposed to an actual piece of tangible technology. The courts and the Patent & Trademark Office (PTO) have been struggling with whether to differentiate the two categories and how to do so. Their confusion on the issue has contributed to the general unease that technology companies and financial institutions feel with regard to the patent process in this country.

Further complicating the patent issue is that in the U.S we use the "first to invent" methodology. If someone is the first person to invent a particular technology, then they have a case to make in saying that they own that technology. However, in most of the other industrialized nations, patents work on a "first to patent" basis—first one to file for the patent is the owner. If you're the inventor and did not file with your patent office, then tough luck. So far, Congress has been unsuccessful in affecting significant change in this area.

The point that I'm trying to make is that the patent system in this country is in serious need of an overhaul. That's probably no big surprise to the industry. Congress is trying to address the patent issue, especially as it relates to technology. However, these efforts become stalled for one reason or another, and the innovators in this country are left to languish for more months and years as the PTO struggles to work with an imperfect system.

I realize DataTreasury is a touchy subject for many of our readers, but I would enjoy hearing your comments. No need to put your bank affiliation in the comments section. Or for more privacy, you can email me with your thoughts. I won't reveal your identity! You can even simply comment on the state of the patent process in general.

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Industry Collaboration Vital to Banks’ Viability

Posted on April 11, 2008

I recently attended the SWIFT Operations Forum Americas in New York. While there, I had the pleasure of hearing some very influential people from the financial services industry speak. Foremost among the FS heavy-hitters (to me, anyway) were the executives who spoke during the second keynote address. It wasn't a keynote in the traditional sense, but more like a panel. Attendees were invited to hear what Bank of America SVP Len Heckwolf, Thomas Halpin, SVP at HSBC, RBS's CIO Edward Glassman and Roy DeCicco, SVP, JPMorgan Chase, had to say about how the payments and treasury management space is changing.

They spoke of numerous issues: the inefficiency of the payments systems, m-banking for commercial clients, risk management and commoditization. But I think the underlying theme was collaboration, or a lack thereof.

DeCicco, for example, said the one thing that disturbed him most was the growing fragmentation in the payments business. He said amidst all the talk of a global payments infrastructure and payments environment, there are some troubling signs of fragmentation. The industry is moving in the direction of payments harmonization, he asserted, however, there are still indications of isolationism as well. He used the EU as an example. "The EU did a fantastic job with SEPA," DeCicco explained. "They concentrated on Europe, which is fine. But I think a lot of what they did could have global implications. The EC's e-invoicing working group is developing standards to create more efficiencies in that space for Europe. I wish this would be done for all global markets." He believes the EU should approach this on a two-track level where the initiative was developed for the European market but also addressed from a more global standpoint.

Related to this is the global regulatory climate. DeCicco said that too many conflicts arise when such regionalism comes into play. "We, as an industry, need to do a better job in looking at all this globally," he said.

Even in risk management, there is growing sentiment around collaboration. "The key is to leverage the experiences of other financial institutions [in risk management]—to share," he said. "When something goes wrong for one financial institution, it can affect everyone. Sharing information and efficiencies will help us take a positive jump up the risk ladder."

However, even though banks say they'd like to do this, they just can't take that first step. BofA's Heckwolf agrees this kind of industrywide teamwork would be great, but doesn't see it happening any time soon. "I'm skeptical things will ever get to that point," he commented.

What this collaboration comes down to is banks' being able to determine what is a competitive advantage and what isn't, said HSBC's Halpin. There is also a certain fear of liability in some instances, said DeCicco. He said there has been talk in some circles around creating a watch list of troublesome organizations and customers who were terminated by a bank for cause, such as fraudulent business practices. "Right now a [terminated client] just goes to another bank that doesn't know how bad that customer was. If the second bank had that information available, they may not do business with them." However, banks might be afraid of such an initiative because posting such negative information might come back to bite them down the road.

These are all pressing issues and the collaboration idea is certainly well worth consideration. There are some shared, global initiatives in the industry. The Financial Services Technology Consortium's project on operational risk resiliency benchmarking comes to mind. A number of banks and vendors are working together there to share best practices around their degree of preparedness in the event of a disaster. However, more could certainly be done.

What do you think it will take for the industry to start collaborating on the important issues of creating a global payments infrastructure, standards and risk management? Will it ever happen? Chime in by leaving a comment or drop me an email.

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Spitzer and Kerviel: Two Sides of the Same Coin?

Posted on March 12, 2008

What do soon-to-be-former Governor Eliot Spitzer of New York and Societe General’s rogue trader Jerome Kerviel have in common? It appears that an understanding of bank risk management systems and regulatory requirements was something that both men were able to exploit, but also something that proved to be their respective undoings.

Kerviel’s knowledge of SocGen’s risk management technology enabled him to make a series of unauthorized and costly trades. In Spitzer’s case, he evidently (and allegedly) understood enough about anti-money laundering regulation and suspicious activity reporting (SAR) requirements to try to arrange his payments to the now-notorious Emperors Club in a way that they would be too small to attract attention. In a press release that went out on March 12, New York-based risk/compliance technology provider Fortent identifies this practice as structuring, “a favorite method used by money launderers to attempt to avoid detection,” according to Dr. Michael Recce, the company's chief scientist. “Due to the Bank Secrecy Act and the USA PATRIOT Act regulations, banks are required to report customer transactions of $10,000 or more to federal authorities. So in order to get around these requirements, an individual could ‘structure’ or divide payments into a set of transactions where each individual transaction is below this $10,000 threshold. This maneuver increases the chances that the individual would fly under the radar of banks’ compliance departments.”
As the world now knows in all-too-graphic detail, Spitzer outsmarted himself -– the wire transfers did, in fact, attract the attention of his (as yet unidentified) bank, which notified the IRS, which then investigated the transactions. In the Fortent press release, Recce points out, “Divided transactions raise suspicion levels, and banks have systems in place to detect just this sort of criminal behavior.” The rest, as they say, is history.
So, the system worked, seemingly better than it did at SocGen. It will be very interesting to learn the identity of Spitzer’s bank, if that information ever emerges, as well as the risk management/AML technology that was in place. As to whether or not Spitzer was targeted or entrapped as a result of any type of political gamesmanship, I’ll leave that analysis to the lawyers. As to what combinations of arrogance, compulsion, pride, neurosis and stupidity drove Spitzer to his actions, I’ll let the psychologists and comedians figure it out. However, it’s clear that there is at least one huge difference between Eliot Spitzer and Jerome Kereviel. Kerviel already has attained a kind of Robin Hood, semi-heroic stature in France, and thanks to the intricacies of French labor laws he hasn’t even been fired. Spitzer, on the other hand, is finished professionally and will probably spend the rest of his life as a punchline.

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The iPhone as Enterprise Device

Posted on March 07, 2008

Well, Apple finally did it. The iPhone is officially ready to be transformed into an enterprise application. On Thursday, the Mac maker announced it will offer full support for Microsoft's Exchange corporate server. This will enable Apple to bring push capabilities for e-mail, contacts, address lists, and other enterprise-grade features via a software update in June. This includes security features as well, like remote wipe, support for Cisco IPsec VPN, certificates, identities and WPA2/802.11x support.

The move is probably partly in response to demands by customers in the enterprise market who were looking for a more robust device. They asked and Apple listened. Whether it will knock RIM's Blackberry from its throne as the corporate mobile access gizmo remains to be see, but it certainly has a good chance of doing so due to ActiveSync technology, which eliminates the middleman (RIM server) from the process of accessing one's corporate server.

Of course, I don't think RIM and Apple will be competing much on price since the devices themselves appear to be pretty comparable in that department, depending on storage capacity. It will come down to a war of features. However, Apple might have another a battle on its hands that's more cultural in nature. The Blackberry has been the staple of corporations for years. It's tried and true, in spite of any perceived shortcomings. Will the iPhone gain the same support and loyalty from corporate road warriors that is given to the Blackberry? The iPhone is certainly pretty, but it's also chock full of handy features in a fun, intuitive interface. I know from personal experience the differences in navigating an iPhone (in my case, an iPod Touch) versus a Blackberry (my husband's). The Blackberry certainly does what it's supposed to do, but there's just something about the iPhone interface that takes the user experience to the next level.

But what will an enterprise-enabled iPhone mean for banks? Well, FIs certainly approach all tech acquisitions with security top of mind. The enterprise-enabled iPhone doesn't seem to fall short in that department (see above). I especially like the remote wipe capability. Missing or stolen laptops and other portable devices are a plague on the FS industry. Now, network administrators can zero in on a lost iPhone and prevent sensitive data from falling into the wrong hands.

Plus, with the release of a software developer's kit by Apple (also part of Thursday's big announcement), the possibilities for creating applications for the iPhone (including banking-related apps) are endless. There is an m-banking audience out there using iPhones after all.

It will be interesting to watch the iPhone evolve from a "fun" device to a practical device and take its place in the boardrooms of the world. And what you do you think about using an iPhone for work? Speak up in the "comments" section. We'd enjoy hearing from you!

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What Not to Do with Technology and Customer Service, Part 2: Too Much Technology?

Posted on January 25, 2008

A couple of weeks ago, I posted a blog bemoaning my miserable customer service experience with United Airlines. It's basically a my mini guide for banks illustrating what they should not do when a customer has a problem that needs to be resolved. My United "incident" illustrated what a poor marriage of IT and people can do to a company's reputation in the eyes of the customer.

But what if technology is too dominant at the bank? Could there ever be such a thing as too much technology? Sure.

Now I'd like to share with you what I think is an hysterical sketch from the U.K. TV program Little Britain. Little Britain is a sketch comedy show (I guess England's answer to Saturday Night Live). One of the recurring characters is Carol Beer, defined by wikipedia as a "listless bank worker (later a travel agent and then holiday rep) who processes customers' requests on her computer, usually responding with a flat and uninterested 'Computer says no ...,' and a discourteous cough at the customer."

Take a look at what happens to the hapless customer who has the misfortune of getting Carol as his rep as he seeks a loan.

Of course, this is an extremely exaggerated example. However, it's a fun way to drive home the message that technology is great, but it shouldn't drive everything at the bank. Although maybe saying "Computer says no" a bit might have saved some lenders from all those subprime risks that led to the credit crisis…

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More Regulation, Upping the Payments Ante and Revamping the Branch All Top 2008 Predictions from Deloitte

Posted on January 03, 2008

It's interesting to see the number of forecasts generated by the industry's various consulting/research firms in the waning months of a given year. In just two weeks, my email inbox was peppered with press releases illustrating where bank IT budget dollars would land and what hot trends to expect in 2008.

For instance, the latest addition to my "collection" comes courtesy of Deloitte. The firm generated a large, global, cross industry report called 2008 Industry Outlook: A Look Around the Corner which highlighted key issues in 20 major industry sectors, including banking. Key findings of the banking sector report include:

• The coming year could see the emergence of global regulations around liquidity that are similar to Basel II, with regulators expecting banks to have liquidity risk management plans in place.
• Emerging markets will likely increase their investments in U.S. financial institutions.
• The subprime mortgage crisis likely will prompt additional consumer protection laws around subprime lending and predatory lending practices.
• Banks still have not taken the most important steps to take advantage of the "Big Green Picture" and created a companywide plan to make their bank fully sustainable.
• Continuing pressure on the cost-income ratio in retail payments is leading institutions to rethink their current approaches.
• There is an opportunity for the largest banks to generate revenue by processing payments for smaller institutions that lack the necessary scale to operate efficiently.

I don't think the issue around liquidity and regulation is much of a surprise given the current state of things. But will help come too late for the world's major economies? For that matter, will these expected new regulations be helpful at all, or just another burden to add to financial institutions growing regulatory pile? Even on the consumer side, just how informed will legislators be in making their decisions about how best to protect people and their homes? Good intentions often fall short. Knee-jerk reactions are not what's needed now.

The report also brings up some other interesting points. For instance, what will happened to the branch as consumers continue to lean toward self service technology? This is by no means a new question, but it certainly warrants some consideration now that mobile banking is staging a comeback. An increasing number of people are discovering the convenience of banking and paying their bills online. ATMs are becoming more sophisticated, with many beginning to sport imaging capabilities so people can deposit cash and checks without the hassle of envelopes. Throw in the mobile channel, with functionality like balance inquiries and instant account-to-account funds transfers and the branch becomes even more of an anachronism.

OK, so I'm painting a pretty dramatic picture. There is still evidence that people like going to their local bank branch. This preference might vary by customer segment, but there is still foot traffic in bank "stores." So what's to be done? The branch certainly is the best medium for engaging the customer and giving them that personalized service that many feel is necessary to engender customer loyalty. Deloitte, like others, believes that banks will continue to evolve their branches to more closely mirror a retailer model, where there are fewer tellers and more customer service reps. I'm already seeing this at my local bank. I kind of enjoy the idea of a concierge (for the few times I actually do step into the branch!). Deloitte also mentions the "coffee shop" model for branches as well. I'm still skeptical about that, however, even though there are isolated cases of banks experimenting with this idea. Maybe if Starbucks were involved, this concept might actually fly with consumers. Banks' branches will become just as crowded as Barnes & Noble stores, with people bringing their laptops with them to talk to a loan rep and then sitting down for a latte in the café section (which would be advertised as a "wifi hotspot") and checking their email. Hey, it could happen.

Payments too are addressed by Deloitte. BS&T has gone on and on about how technology in leveling the playing field in this area and how it is allowing more non-traditional players to enter the fray. Deloitte says a new threat to banks' dominance in the payments area will come from something called "search to pay." This concept looks at the true value of the transaction as the ability for the customer to actually search for and find what he wants. The payment itself is a secondary part of the transaction. Players like Google and Yahoo! hold a definite edge in this space, according to Deloitte.

Beyond such a disruptive force, Deloitte also sees more small banks farming out their payments processing to the larger ones. Banks know that they can save money by automating a good portion of their payments processing—provided they can afford to do so. Those that can't will likely outsource this service to larger FIs. It's happening now and will only increase, according to the firm.

A final point made by Deloitte has to do with the "green" movement in financial services. Sure, banks are constructing "green" buildings and reducing their carbon footprint by creating more energy efficient data centers and the like (For more on green data centers, see Nancy Feig's story in our February 2008 issue.), but what can they do beyond this? Plenty, according to Deloitte. For example, says the firm, financial institutions could become the primary investor or lend money to companies entering the green space. They could also create green consumer products, such as mutual funds whose portfolios consist of environmentally friendly manufacturers or alternative energy producers. It is also important that financial institutions understand the risks of climate change and how they could affect the financial institution's investment portfolio.

All good points and it will be interesting to follow how this particular aspect pans out in the coming years. This latest green movement in the corporate world is just beginning, after all.

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Control and Cooperation the Messages at Sibos 2007

Posted on October 08, 2007

Another Sibos has come and gone and with it, we hope, many lessons were learned. What I saw as the most prominent message at the show was the fact that corporates the world over want more control, more say over how their payments are processed and how they interact with their banks.

This doesn't surprise me, and probably won't surprise many of our readers. That kind of demanding behavior has certainly been the subject of a number of articles that I've written about so this was nothing new to me. It was obvious the banks understand they have to do something about this. But just what that "something" is happens to be the $65 million question.

The corporates certainly had a thing or two to say about this, however—faster payments processing, richer remittance information and greater risk awareness were just some of the suggestions floated around in the sessions that I attended. There was one particularly interesting session on supply chain management. Enrico Camerinelli, chief knowledge manager and European director, The Supply Chain Council, was one of the presenters and had a sort of "to do" list for banks that wish to help their corporate clients more. Items included: Helping to assess and manage risk in the supply chain; speak about solutions and not individual products; provide knowledge and expertise to help internal sales at client; and share a common language with corporates.

"Corporates are trying to close the gap," Camerinelli said. "Bank need to do the same and speak the supply chain language. Banks don't have to be supply chain experts but they should be able to talk intelligently with their clients."

At another session on corporates in SWIFT, Alex Harris, group treasurer, Virgin Atlantic Airways, said flat out that although it's a great idea that SWIFT is letting corporates access its network, the model the organization uses is "weighted heavily in favor of huge companies with the economic muscle to influence banks to meet their needs."

Those companies that don't meet the criteria to connect to SWIFT via Score must fall back on the old member administered closed user group (MACUG) model, which, according to Harris, is far more cumbersome. "Banks in general are reacting very slowly in catering to the needs of midsize corporates," Harris commented. He didn't think there were many attempts out there to standardize and streamline the MACUG model. "There are benefits to corporates in joining SWIFT, but so far, these are only being realized by the very largest corporations."

In general, there seemed to be a need for greater cooperation among the banks that are a part of SWIFT. One speaker made a very good point. He said something to the effect that every year at Sibos, banks gather in one place and vow to work together and promote ideas to help the industry and their corporate clients do business better and more efficiently. But as soon as the show is over, the bankers return to their offices and go right back to competing again.

Will this year be any different?

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Finding True Meaning In Electronic Communications

Posted on September 14, 2007

I noticed a recent editor's note from a colleague who works at one of BS&T's sister publications, InformationWeek, where he cites an article from yet another online publication, Slate. In my colleague's editorial, he poses a question to readers about whether they were impressed when they receive an email that says "Sent from my BlackBerry" at the bottom. He says that according to the Slate article that such a message shows the recipient "you're on the move but still chained to work." The InformationWeek editor, however, feels the messages are a complete waste of time, even bordering on free ads for BlackBerrys.

This got me thinking. First, let me say that I do agree that we work too much. I'm sure mine will not be the first or last article you will read on how "wired" Americans are these days. A device such as a BlackBerry is definitely a helpful tool for the busy, on-the-go businessperson, but it so easily becomes a ball and chain if one isn't careful.

But my next point is that I actually like to see someone send me an email with a note saying "Sent from my BlackBerry." Usually when I get an email sent by a handheld, it's very short and curt in tone with odd abbreviations. Seeing that it was sent via portable device indicates to me that the person sending it understands this fact and is assuring the recipient that they are not being rude or unprofessional.

Email is great in whatever form. However, I cannot tell you the number of misunderstandings I've experienced that have cropped up from emails that weren't worded just so. It's often difficult to convey to people the true meaning of what you're trying to express electronically, whether for business or personal purposes. I guess that's why we have emoticons. :)

Apparently, the Slate author goes on to say that getting a message that says "Sent from my iPhone" is more a matter of showing off. Well, at this early juncture in the iPhone's existence, maybe there is a bit of show-and-tell involved. However, I'm curious to see just how prevalent that kind of message will be in the coming years as more people adopt the iPhone and use them for business.

I don't know. For some, seeing "Sent from my (insert device)" at the bottom of a five-word email may be perceived as meaningless, but to me, it's a way of maintaining the kind of personal touch we so often lack today. Maybe I'm a bit old fashioned, but I just think a little courtesy goes a long way in a world where we often deal with one another via a computer screen. Sure, there's still the telephone, but there's just something appealing about email.

All this makes me wonder if people ever had these problems in the days when they actually hand-wrote letters to one another.

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Flu Pandemic Test Not Necessarily an Exercise In Futility

Posted on August 31, 2007

By Maria Bruno-Britz, Bank Systems & Technology

We haven’t heard too much this year about the flu pandemic. News of isolated outbreaks have been few and far between when compared with the feverish reporting during the earlier part of the year and 2006. However, the idea of a pandemic is still fresh in the minds of the financial services industry and the U.S. government as they gear up for a wide-scale test later this month called the FBIIC-FSSCC Pandemic Flu Exercise of 2007.

In June, senior editor Nancy Feig wrote about this very subject and examined just what this exercise would entail and gauge how ready banks’ IT systems were to handle a massive outbreak. The test was mandated by the federal government to ensure the U.S. financial system would escape relatively unscathed should thousands of people fall ill. The exercise will occur online via a website hosted by the Securities Industry and Financial Markets Association (SIFMA). It is set to begin Sept. 24 and will run for three weeks. Participating financial institutions will be faced with a series of scenarios that they must play out. Results will be used to determine how best to deal with such things should an actual pandemic occur.

What made me decide to revisit the subject was that I found a post about the test on Slashdot. It’s not often that I find banking-related posts on this very tech-heavy news site, but when I do, I think it’s interesting to study the reactions from the readers. After all, Slashdot does claim to be the source of “news for nerds” and I like to see what they have to say about financial services industry.

Feedback varied, of course. Most of it seemed a bit on the cynical side. Many said outright that they don’t think there is any use to banks performing a test like this. One person even said we should see how well companies hold their own during a zombie infestation.

Despite the naysayers, there were others who did find merit in the idea of a pandemic testing program. One reader said he once worked in the IT department at a financial institution that performed a disaster recovery test where employees drew colored marbles at random that determined whether they were “infected” or fit to stay at work. Infected individuals were sent home and the company operated at significantly lower staff levels. Although the reader says IT did a stand-up job operating at 50 percent capacity, if it came to do anything more than simply “keeping the boat afloat,” he wasn’t quite so sure the systems could handle it. He closed his post lamenting the fact that his current employer never considered performing similar tests.

Another reader said his company had some “pandemic awareness training.” However, it was more of a half-baked effort that caused the person to conclude that his company would be “screwed” if something real were to occur.

Any disruption to the financial system is cause for worry. Of course, a massive outbreak of disease is quite different from a wide-scale power-outage or cyber attack on our banking system. However, even with all the automation we have today in banking, there are actual human beings who ultimately make sure things operate smoothly. What happens if there are fewer people to restock the cash in ATMs? What about call center agents? A bank could face a customer service/reputational nightmare if it is unable to field questions from frantic customers. Servers go offline. Someone needs to fix these things so online banking operations can still function and people can still use their card cards.

A test in some form probably is a smart thing. The exercise may not be perfect. There may be some holes in it. However, the financial services industry should be commended for this first attempt at studying what could be a looming problem.

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Does Oxley See Sarbox Relevance to Subprime Mortgage Mess?

Posted on August 29, 2007

NOTE: This blog was written in conjunction with the 2007 Gartner Financial Services Technology Summit held in New York City from Aug. 27-29.

It was too bad that Michael Oxley, former U.S. congressman, co-author of the Sarbanes-Oxley Act and currently Vice Chairman of the NASDAQ and Advocate for Corporate Accountability, didn't take any questions after his keynote presentation Monday to kick off Gartner's Financial Services Technology Summit 2007, which wraps up today in New York City. If he had there probably would have been some interesting queries about the mushrooming subprime mortgage mess and how things could have gotten so bad, when Sarbanes-Oxley was intended to improve corporate governance.

Oxley's comments were fairly interesting as far as they went (over the years I've heard many politicians say a heck of a lot less at other financial services conferences). He talked about "the crisis in confidence and loss of trust" that was pervasive -– especially in the capital markets -– in the wake of the Enron and WorldCom failures. This crisis was made more dramatic not just because of the huge amount of money at stake -– "$8 trillion in market cap was lost" as a result of the various corporate meltdowns of the early 2000s, according to Oxley -– but also because of what he described as "the democratization of the capital markets," meaning that it was "average" citizens, not just Wall Street traders or other investment professionals, who were affected (and let their elected officials know about it).
Oxley related how his committee based much of its work on research that reported how "all the gatekeepers had fallen down -– attorneys, accountants, stock analysts, credit rating agencies." Thus "the basis for Sarbanes-Oxley was [enabling] transparency and accountability," Oxley said. "Governance [and] best practices have become the byword. Transparency was one of the least-appreciated aspects of the Act."
Sarbanes-Oxley has been a success, Oxley said, because its reforms have contributed to a "restoration of confidence" in the markets, and have improved "the ability of the average person to feel comfortable investing his or her money in the capital markets."
However, even though Oxley reflected that "the country seems to have business scandals about every 25 years" -– referencing the high-profile insider-trading cases of the mid-80s -– he did not offer any thoughts about today's subprime lending crisis. Maybe that's because this is occurring only a few years after the events that spurred the passage of Sarbanes-Oxley, or maybe the former Congressman thinks the legislation is only applicable to accounting practices and the capital markets and believes (wrongly, I think) that it has no relevance to the cap markets.
But I'm sure that, just as Enron, WorldCom et al begat Sarbanes-Oxley, so will the fallout (failed companies, workforce cuts, people losing their homes, etc.) from the subprime mess spur the creation of new or updated regulation. And once again there will be calls for better documentation, improved reporting and more transparency. It seems like there could have been many lessons learned, and it would have been enlightening to get Oxley's perspective on how so many warning signs could have been missed or ignored.

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Bank Regulation Meets the Virtual World

Posted on August 20, 2007

By Maria Bruno-Britz, Bank Systems & Technology

Typically, when a person goes online and decides to join a virtual world like Second Life, it’s to escape the every day problems of the real world. What better way to get away from it all than to create a virtual persona and live vicariously through him or her? Well, a trip to Hawaii might also work, assuming you’ve got the cash! But I digress.

We’ve been hearing over the last year about financial institutions setting up some kind of presence in the world of Second Life—both existing FIs and de novos. Banks feel this is a great way to get on the Web 2.0 bandwagon and create an online presence where they can relate to the next wave of their customers—the ever-wired Gen Y segment.

Of course, some of the financial ventures in the virtual world have proven a bit less reliable than others. It turns out that Ginko Financial, a virtual investment bank housed in Second Life, collapsed, announcing it could no longer exist as a financial entity. According to an article in Wired, the declared insolvency means Ginko would be unable to repay approximately 200,000,000 Lindens (U.S. $750,000) to Second Life residents who had invested their money with the bank over the course of its three and a half years of existence. The Linden is Second Life’s currency.

Now Second Life members are calling for more regulation and transparency in their Web world. Regulation on Second Life—who would have thought? Looks like the lawlessness and carelessness that have become the hallmarks of the Web have finally gotten people talking. But what form will this regulation take? The article argues that self-regulation would be far more preferable to the government authorities becoming involved. I tend to agree. However, if Second Life officials cannot enforce the law, then the hammer of the federal government will likely fall on the virtual world with who knows what kind of consequences.

Either way, it sounds like there actually might be some movement to remedy the situation sooner rather than later. After all, online or not, people are just a tad touchy when it comes to the security of their money.

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IT Departments Must Face the Reality of IT Consumerization

Posted on August 09, 2007

By Maria Bruno-Britz

Will the days of corporate IT’s imperious reign over all matters tech-related soon end? When it comes to the immediate needs of the end-users within a company, it will. In fact, according to Yankee Group, it’s already happening.

A report from Yankee called Zen and the Art of Rogue Employee Management says that IT’s control of enterprise applications and services is slipping because of the adoption of consumer technologies in the corporate environment, or consumerization of IT. In fact, the firm said that nearly 50 percent of employees said they felt more empowered than the IT department to control their personal IT environment at work. And it will create a mess if the techies don’t handle things the right way.

This reminds me of my recent blog about iPods in the office. I guess when you get down to it, people’s personal tech devices do have a way of wending their way into the office. USB drives come immediately to mind. Sometimes people bring their personal laptops to work and plug into the network. Who knows what kinds of security holes this practice opens?

Yankee says that IT cannot ignore this growing trend. Rather, it should embrace it and attempt to govern IT use not with an iron fist, but with a more cooperative approach—a customer care cooperative model that sets guidelines and steers users in the right direction.

In other words, it seems like IT workers will have to take the path of least resistance in order to maintain corporate policy and keep their own sanity. This might not necessarily be a bank tech problem, but it certainly does speak to the broader trend of how wired people’s lives have become. This crosses all industries, including financial services.

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Bank Statements: Paper or Pixels?

Posted on July 27, 2007

For a while now, the trend in banking is to push consumers to use electronic statements. Whether to “keep green” or to just save some money, e-statements are pretty commonplace these days. Consumers seem to have accepted them.

Then I ran across something that shows this might not be quite true. According to the Attention Span Research Study by Pitney Bowes, Americans spend twice as much time reviewing printed bank and credit card statements compared to the 3.5 minutes spent examining their Web equivalents. So people are a bit more careful when reviewing a paper bank statement and tend to skim when they’re reading one online.

The study also found that consumers pay more attention to direct mail than to “cold” prospecting e-mails. Well, that should be no surprise to the financial services industry since we live in the era of spam and phishing.

The thrust of the research, however, was designed to show companies that their direct marketing campaigns might be better served on paper and to rethink how they move customers online for self-service functions.

Although I can certainly see the researchers’ point, it also makes me wonder about the general push to digitize everything. I bank online, but I still receive a paper statement. Some months I just tuck it in the filing cabinet, and other months I’ll sit down and give it a good read to see just where my finances are, where money is being spent, etc. Do I also do this online? To an extent. But I think I’m just as guilty of skimming as the next person. You’re online, after all. You want to do everything as quickly as possible so you can move on to the next website.

Does this apparent trend of glancing at e-statements affect the bank in any way? Probably not in a direct manner. But there certainly are implications for consumers. If you receive e-statements, are you truly giving your transaction history the attention it deserves? Some proponents of e-statements say they’re safer with regard to preventing fraud since they arrive in a more immediate manner and aren’t out in “the wild” as the post office attempts to deliver them, as is the case with paper statements.

I think it comes down to the fact that no matter how handy it is to do things online, human nature dictates that we enjoy holding something tangible in our hands—like a paper statement. Granted, this was a vendor-based study, but it does raise an interesting point.

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Surprise! Kids Are Going to Bank in New Ways

Posted on July 17, 2007

By Nancy Feig

According to a new Celent report, The Millennials, Financial Services, and the Web, the “Millennial” generation, born between 1982 and 2000, will represent the next mass affluent group and financial institutions will need new marketing approaches to reach them.

Wait, now banks have to worry about marketing out to seven year olds?

Celent says attracting this group is “increasingly important” because they have no long-standing ties with any financial institution.

I’m sorry to sound blunt, but DUH. We’re talking about seven to 25 year olds. That’s a wide range, but most of that group can’t even drive yet, let alone have meaningful relationships with banks.

I mean, I get it, the needs of this generation are going to be different, but exactly what is this generation? Is this a new one? I’m having trouble keeping track. A quick Google search tells me that the Millennial Generation is the same as Generation Y, but another search tells me that the Millennial Generation includes those born between 1977 and 1998. Another look tells me it’s also the Internet Generation (1994-2000). I’m not even sure where I fall in there. Right now I’m wishing I was part of a more defined generation like the Lost Generation (1883-1900) or even better, the Greatest Generation (1911-1924).

But I digress.

Below are some points that Celent makes in its report. My comments are in italics.

• Overall awareness of financial products and services has grown over the last few years in the Gen M group. Well, this makes sense, usually kids don’t become less aware of banks as they grow up.

• Gen M highly values remote channels, such as e-mail, Internet and mobile phone. That’s weird, my 12-year-old cousin sent me a telegraph the other day. I wonder if she’s heard of e-mail…

• Checking accounts and debit cards are still the most pervasive products for Gen M. Why aren’t these kids opening Roth IRAs?? Do they know the state of social security in this country?

• Investment by financial institutions in the Internet channel can pay off handsomely. No comment.

I hope I’m not being too harsh on Celent. I’m a big fan of much the company's work, but I hope they didn’t spend too much time on this research.

I can just picture the focus group now. A bunch of tweens sitting behind a one-way mirror, being drilled by researchers about how often they refinance their mortgages and their need for wealth management products.

Unfortunately, I’m too old to know the lingo they probably used when calling their proctors total losers.

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Why Aren’t The Tails Wagging The Dogs?

Posted on July 16, 2007

I'm putting this question to the readers of Bank Systems and Technology because based on feedback that I have seen, some of you have the answer, whereas I don't.

Here's what I mean about tails and dogs. For the past 25 years, core applications vendors (dogs) have been acquiring peripheral apps vendors (tails) in record numbers. In 2006, the activity came to a near halt, just because the well seems to have gone dry. The only core vendor that acquired peripheral apps companies was Goldleaf Financial Solutions, and that's understandable because GFS is the newbie playing catch-up.

But some peripheral vendors were acquired by other than core vendors. For example, Intuit acquired Digital Insight; CheckFree acquired Carreker and is in the process of acquiring Corillian.

Now what seems a little strange to me is this. If the Internet is becoming the channel of choice for the banking industry, why haven't the companies that reside on the Internet taken charge of their domain and gone hunting for the core vendors?

To throw out a wildly speculative example, should S1 or Online Resources acquire Harland Financial Solutions or Computer Services, Inc., or Jack Henry & Associates?

What do you think?

-Art Gillis
www.artgillis.com

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Consumer Mistrust in Banks Growing

By Nancy Feig
Consumers don’t trust banks. That’s what I’m hearing. New immigrants don’t trust banks because of bank failures in their home countries. Little old ladies store wads of cash in their mattresses because memories of the Great Depression still haunt them. These consumers often fall into the so-called “unbanked” or “underbanked” category, those that are hesitant to bring their money into any formal financial institution.

But now there’s another segment of consumers whose mistrust is growing. According to IBM, the most hands-on consumers are the most mistrustful of their financial institutions and that trend is even stronger in younger generations.

I see where this trend is coming from. The younger generation doesn’t trust anything. We don’t even trust each other. I can’t tell you how many times we settle disagreements end with the line, “Oh yeah, well, Google it.”

Information is so easy find on the Internet these days, that we are mistrustful of terms that aren’t right there in the open for us and we’ll move right on to the next place that will give us the information.

We shuffle our money to and from our accounts like we change purses. We check our ING Direct interest rates as often as we check the weather on Weather.com. We want our cell phones and our bank accounts personalized.

And we will switch banks. Heck, I even changed banks two times in 2006. Mostly it was for convenience, but I have friends who have changed bank accounts because of poor customer service. It’s easy to do, so why not?

So is this all a result of mistrust? Maybe. But I’d say it’s more of a lack of loyalty. It’s not necessarily the bank’s fault. My generation is used to having choices, options, and quick fixes. It’s our way or the highway.

It’s not you; it’s us.

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iPhone May Turn Into an iHeadache for IT

By Maria Bruno-Britz

Unless you’ve been living under a rock for the past month, you were among the millions of people to hear about the launch of Apple’s iPhone. The handy little device is designed to serve all your on-the-go music playing, Web browsing and movie playing needs. Oh, and it’s a phone too, so you can actually make calls and you have your address book/contact functions thrown in there as well. I know there are other features, but this editorial can only be so long!

My husband loves all things Apple, so you can imagine how much he has been haranguing me about getting an iPhone. Sorry, but the $500 price tag and the fact that I have to use AT&T/Cingular as my provider are two big turn-offs for me. That said, I had the opportunity to try a demo at the local Apple Store and must admit it is a very elegant device. I can definitely see the mass market appeal.

But what about the iPhone for the business user? Well, if you work for a company that handles confidential information or technology, the fact that the iPhone has a camera is one strike against its use in the office. Other drawbacks to the device, as stated in research by Gartner, include lack of support from major mobile management and security suites, lack of support from major mobile business e-mail solutions providers and the fact that the iPhone is a relatively unproven device from a company that doesn’t focus on the enterprise as its core market.

Gartner does state that such functionality may appear on the scene at some point, however. Whether companies’ IT departments will be pleased by this news is another story!

I suppose the issues with the iPhone are the same ones that crop up around any new technology in the consumer space: what will be involved in porting the device over to an enterprise environment; how practical can the device be for business functions; how can the new device enhance corporate operations; and just how seriously does the new device address security issues?

One thing seems certain: the iPhone is something that IT departments will be faced with in the near future, so they might want to start thinking now about ways in which to properly fit the device into the enterprise infrastructure.

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Congress Gets a Peek at ISO 27001 Security Standard

Posted on July 13, 2007

All too often, it seems I look at the news and see yet another agency in the federal government in trouble for some kind of lapse in data protection. Of course, the private sector is no less guilty, having faced its own share of security fiascos.

Fortunately, efforts are underway to implement a more universal approach to securing data, networks and all things IT.

Over the past year, I’ve been writing about the ISO 27001 security standard. This is basically an internationally accepted standard around information security that gives entities (corporates, governments, regulators, etc.) a set of criteria by which to judge the security of a given system. Slowly, ISO 27001 is being adopted by the financial services industry—both banks and vendors—as a way for them to better manage IT safety issues.

Progress could be a little better on the adoption front, however. Well, the ISO standard may have just gotten some much needed exposure. Last month, Congress heard testimony on how ISO 27001 could enhance IT security at the federal level. Paul Kurtz, COO of Good Harbor Consulting, recently appeared before multiple Congressional subcommittees to assess the Federal Information Security Management Act (FISMA), along with emerging trends and recommendations for improving federal IT security. ISO 27001 played a major part in Kurtz’s list of recommendations.

What would the implications be if the federal government were to adopt this standard? Would we see the end of data breaches? Would our personal information finally be safe—truly safe? Well, everyone knows that crooks are determined and motivated. Nothing is completely safe, given a well-funded hacker with a lot of time on his hands. However, if ISO 27001 were to get a vote of confidence from Congress, this would mark a major move in the right direction for the U.S. and its attitude toward data safety.

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Wal-Mart Bounces Back From ILC Rejection With An Even Bigger Financial Services Plan

Posted on June 21, 2007

From a competitive standpoint, banks should think about Wal-Mart as a kind of huge, unstoppable bobo doll. No matter how many times you push it back or put obstacles in its way, sooner or later it will bounce back with another plan. Somehow or other, Wal-Mart obviously has determined, it is going to be in the financial services business. If it isn't going to be allowed to enter banking through the launch an industrial loan corporation (ILC), it will figure out some other way to provide financial services to its existing and potential customers.

Hence yesterday's announcement that it will open 1,000 Wal-Mart MoneyCenters –- covering one-fourth of its stores -– by the end of 2008. In an official announcement, the company said: "Wal-Mart MoneyCenters will assist customers who are outside mainstream banking with convenient, nationwide access to low-cost money services, including check cashing, money orders, bill payment and money transfers." The company also noted, "Wal-Mart will continue to pilot and test many different products and services in an effort to provide the financial services customers need at various stages of their lives."
As BS&T senior editor Maria Bruno-Britz astutely predicted last week in a column about the Bentonville, Ark.-based retail giant's prepaid card initiative, Wal-Mart has recognized a need/opportunity to provide underbanked and unbanked people with financial services, and is determined to find ways to serve this segment of potential customers.
It's a fascinating combination of motives, resources and circumstances. This company has the resources -– and, let's be fair, the ingenuity and determination -– to efficiently and securely support a broad portfolio of financial products and services. So, I'm sure it's only a matter of time before takes the company is also in the insurance and investments business. Convergence certainly has taken a funny path.

Posted by Kathy Burger

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Going Global Requires a Subtle Hand

Posted on June 01, 2007

By Maria Bruno-Britz

On May 31, I was up in Beantown for the annual TowerGroup Financial Services Conference. The theme of this year’s event was globalization. A fitting subject in today’s world. Right from the start, the presentations weaved the main idea of our ever-shrinking world in ways that apply to the financial services space.

That said, the conference was decidedly bank-focused—which was great as far as I was concerned, but also had me feeling a little sorry for my colleagues from Wall Street & Technology and Insurance & Technology who were there as well! Granted, there were several tracks dedicated to the securities and insurance sectors, but if you were from a bank, the Westin Copley Place Hotel was the place to be.

Things kicked off with chief analyst Bob Egan. He made an interesting point of comparing success in today’s world of finance with the midnight ride of Paul Revere and…William Dawes? Yes, there was actually a second horseman (actually three) there the night the British made their move on the colonies. I am ashamed to admit that I had no idea (along with many of those in attendance). See? You learn something every day, even in the most unlikely places.

The point of Egan’s metaphor was that Revere, a highly socialable person, went down in history as the man who warned the colonists of an imminent threat. Dawes, on the other hand, was someone who, in comparison, generally kept to himself and did not receive the renown of his more gregarious counterpart. According to Egan, the ability to network, to expand your circle of knowledge and to display some foresight as to what is coming down the pike is what can spell success or failure for anyone in today’s marketplace. It is critical to develop your network, he said, and to manage your relationships in the organization “right down to the consumer.” In today’s global economy, this kind of networking must span continents and time zones, languages and cultures.

Speaking of cultures, Karen Cone, TowerGroup’s president & CEO, tried to drive home the importance of culture to a global business. I think of the American automakers that, years ago, sold cars with the steering on the left side to customers in Japan. They refused to change the way they did things because that’s just how we do things ‘round here. They expected the consumer to change instead. It didn’t quite work so well for Detroit and I think they’re still paying for that attitude today.

The same holds true for banks—don’t force the consumer to change, especially when they are outside your national footprint. “When you go into another country, you need to respect the local culture,” Cone reminded everyone.

Do your homework, in other words, if you plan to expand outside your home country. Not only do you need to understand the dynamics of the people themselves, but the local infrastructure as well. There are many parts of the world where the power routinely goes out, where the telecommunications systems leave much to be desired and where people use technologies differently.

Cone rightly stated that anyone with a plan can simply go out there and become “global” but their success ultimately depends on how well they fit in with the locals.

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The Competitive Edge: Dimon and Kovacevich to Chair Competitiveness Commission.

Posted on May 24, 2007

By Maria Bruno-Britz

Keeping the U.S. at the forefront of technology and innovation seems to be on the agendas of many committees and conferences these days. Earlier this month, the Technology Innovation and Manufacturing Stimulation Act of 2007 was passed by the U.S. House of Representatives. The legislation earmarks new funds for the National Institute of Standards & Technology (NIST), reauthorizing several of NIST’s competitiveness and innovation initiatives.

This drive to remain competitive is certainly not lost to the U.S. financial services sector either.

James Dimon, chairman and CEO of JPMorgan Chase, and Richard Kovacevich, chairman and CEO of Wells Fargo, were named co-chairs of The Financial Services Roundtable’s Blue Ribbon Commission on Enhancing Competitiveness. The commission was created at a spring meeting of the Roundtable’s board of directors as a means for developing “regulatory principles that deliver more balanced, consistent, and predictable outcomes; identify alternative ways to modernize U.S. financial services charters to meet the challenges of global competition; and create a financial services competitiveness reform agenda.” Areas on which the commission will focus include securities litigation, U.S. and international accounting standards, anti-money laundering, Basel II capital rules, consumer lending and investor protection. This commission will bring together some of the brightest figures in U.S. the financial services space to examine recent losses in market share to foreign securities markets and ensure the place of U.S. financial institutions as global leaders.

This reminds me of what we’re seeing in the banking space in general in terms of M&A activity. More and more, we’re witnessing the acquisition of U.S. banks by foreign financial services entities. In fact, I remember conversations I’ve had with a number of analysts who believe that at the current rate of consolidation, there will only be a handful of banks globally within the next decade or so—and most will be based off America’s shores.

There are a variety of reasons for this prediction but I look to the technology argument. Some have said that to a certain degree, some foreign financial services firms are more advanced in their IT operations than their U.S. counterparts. In Asia, for example, some firms have had the opportunity to leapfrog from extremely antiquated systems to the latest in banking automation. In Europe, forces such as the advent of the single euro payments area (SEPA) are driving financial institutions there to seriously re-evaluate and even upgrade their IT systems. Furthermore, many operate core systems that can accommodate multiple currencies. In contrast, financial institutions in the U.S. have managed to do quite well by squeezing as many miles out of legacy infrastructure as they possibly can--a definite situation of “If it’s not broke, don’t fix it!”

But analysts say that time is running short for banks’ older IT systems. And there are those financial institutions in the U.S. that are realizing this and are starting to replace or consider replacing their systems.

Of course, there are various factors that allow one country to dominate others in any space, but in financial services, it can be said that technology is probably the key. Technology has opened doors and new opportunities for other competitors to step into an existing market and fill a gap there. They’re often more nimble and have the wherewithal to deal with a new type of customer constituency. Technology gives you an edge, whether you’re the bank down the street, a bank overseas or even a non-bank player like a retailer elbowing its way into the financial services space.

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Going Green: Two Financial Giants Take Steps to Minimize Their Colossal Footprints

Posted on May 21, 2007

By Nancy Feig

The other day, prompted by all of the recent press on global warming, earth day, and Al Gore, I took a test to measure by “carbon footprint.”

A carbon footprint, according to carbonfootprint.org, is “a measure of the impact human activities have on the environment in terms of the amount of green house gases produced, measured in units of carbon dioxide.”

Considering the fact that I don’t own a car, live in a small apartment, drink tap water and use energy-saving light bulbs, my carbon footprint is relatively small, but not as small as I would have expected. I still use plenty of paper at work, fly a few times a year and take pretty hot showers.

It turns out some of the largest banks are also considering their impact on the environment. In the past few weeks, Citi has made two announcements about how it plans to go green in the coming years. Last week, Citi ($1.88 trillion in assets) unveiled a 10-year plan aimed at making its organization more green and offsetting its own large carbon footprint.

More recently, New York-based Citi also announced that it is committing $1 billion to the Clinton Climate Initiative (CCI), a project of the Clinton Foundation, to implement the new Energy Efficiency Building Retrofit Program in partnership with large city governments.

Citi will provide expertise and financing for the first generation of projects in CCI's landmark program aimed at significantly reducing energy use in public and private buildings, which are responsible for between 50 percent of greenhouse gas emissions in most cities and over 70 percent in large cities, including New York.

Back in March, Charlotte-based Bank of America announced a $20 billion initiative to support the growth of environmentally sustainable business activity to address global climate change. Like Citi, the Bank of America's 10-year initiative encourages development of environmentally sustainable business practices through lending, investing, philanthropy and the creation of new products and services.

What about other banks? Will going green being a competitive necessity in the coming years? Already banks are looking for ways to save in energy costs related to the data center. But let’s be real, that’s to save money and space, not necessarily the most altruistic of reasons.

Let's hope these banks have set the bar for the rest of the industry. While they are certainly not the first ito institue green iniatives — smaller banks have been building green branches for years — their visability will bring much needed publicity to the cause. Because for all the bus rides I can take, I certainly can't do as much to save the environment as those large powerhouses can.

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Fraudsters Hunting Smaller Game Online

Posted on May 10, 2007

By Maria Bruno-Britz

When asked in an interview what she saw as some of the most significant trends in security in the financial services space, Gartner’s Avivah Litan, VP, distinguished analyst, said that one of the most visible is that fraudsters such as phishers “are moving downstream to smaller banks. The attacks just don’t stop.” An increasing body of evidence shows that if you’re a small or midsize bank or credit union, or small or midsize business period, you are more likely to be in the sites of spammers and cyberfraudsters today than ever before.

New evidence has shown that the criminal and junk email elements are starting to widen their horizons from just targeting large, well-known firms and are going after the smaller guys. The reason, say experts, is that smaller enterprises are perceived as having little in the way of security savvy. Whether this is true or not depends on the financial institution. Some of the smaller banks are actually quite nimble in how they operate and are forward-looking on the information security side, primarily because they lack the complexity of their larger counterparts. On the other hand, many do not have the resources—whether funding or manpower—to implement comprehensive information security programs and leave themselves open to attack from all quarters.

Security solutions provider Vasco Data Security just released results of a study in which it found that small and midsize enterprises (SME) were increasingly bearing the brunt of spam and malware attacks. In the period between January and December 2006, Vasco charted the Internet dangers that its aXs GUARD product neutralized at the e-premises of 400 SMEs (those with five to 250 users) by measuring the companies’ Internet and e-mail traffic. Among the findings:

• In January 2006, 64 percent of e-mails sent to the investigated companies were identified as spam.
• In December 2006, the spam amount rose to 85 percent of the total amount of e-mails.
• There is an upward evolution of attempts to get into a company’s Local Area Network (LAN) and send spam on behalf of the “host,” from 15 percent in January to almost 40 percent in December.
• The techniques used by spammers and fraudsters to get access to a company’s network are becoming more complex. In January, approximately 6 percent of controlled e-mails were blocked via content scanning. In December, the amount of e-mails blocked due to their content grew to 26 percent.
• In January 2006, 3 percent of unaccepted surfing requests were related to employees stepping into a phishing/malware-related trap. In December, 77 percent of all blocked surfing requests had to do with phishing/malware.

On a somewhat brighter note, Vasco found that the number of viruses has declined slightly, from 111 in January 2006 to 95 in December. However, don’t get too excited. The company goes on to say that the threat will rise as the total amount of e-mail traffic among surveyed companies rises. According to Vasco, total e-mail traffic of the 400 surveyed companies grew from approximately 6 million in January, to almost 20 million in December 2006.

The bottom line, says Gartner’s Litan, is that if a bank wants its security strategy to work—whether a large multinational or a community bank—support is needed from the top. Security has to be about more than the technology—processes and people play a large role in keeping financial data safe these days.

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Convenience or Security?

Posted on May 03, 2007

By Maria Bruno-Britz

Security is on everyone’s mind these days. And how can’t it be, with all the media attention given to various data breaches and phishes over the past year? So it’s no surprise to see security technology vendors go on the offensive and introduce new solutions to the problem.

For instance, digital security services provider VeriSign just announced a partnership with Innovative Card Technologies in which it plans to design a credit card with a built-in password generator. The premise is that the one-time password would not only increase the safety of online transactions, but it would also be convenient. Banks and e-commerce sites would be outfitted to accept these cards and passwords, according to the company.

Today, in order to provide customers with such a capability, it’s often necessary to distribute tokens of some sort that would generate the disposable password. VeriSign, like others in the industry, feels that people just don’t want to have to carry around another key fob or card in their wallets. Building the password generator into a Visa- or MasterCard-branded credit card--something people are more likely to keep on their person--is a handy, more secure alternative that’s bound to increase adoption, by VeriSign’s reasoning.

I can see the company’s point of view on this. I’m sure if any one of us looked in our wallets or purses right now, they would be overflowing with plastic of all kinds. Banks are constantly trying to maintain a balance between security and convenience, especially in their retail operations. One would think a solution such as the one proposed by VeriSign would be a good way to meet both requirements. After all, the safest security measures consist of something you have and something you know. For the most part, when it comes time to log in to an online banking site or e-merchant’s site, the security is solely based on something we know. Having a physical mechanism in one’s possession in addition to procedures that are already in place, argue experts, is probably one of the best ways to secure electronic transactions. Sure, someone can highjack your user name and static password, but it will be useless without the second factor of dynamic, hardware-based authentication, and vice versa.

Whether consumers will adopt this new card remains to be seen. First, however, VeriSign has to convince financial institutions that this hybrid card is a good idea. As with any hardware-based security deployment, there is always some cost involved. Will the VeriSign cards be cost prohibitive given the numbers of customers banks would need to outfit with the cards? After all, this is not your average credit or debit card. One would think the company is taking this into consideration as it further develops its plans. Also, the initiative would be limited to those banks and online merchants that are in the VeriSign network. Many good ideas have been stifled by such exclusivity with regard to who will accept the new protocol. Will this be the case with the VeriSign card or will the vendor’s idea be so compelling that banks and merchants will flock to join the network in droves?

Whatever the outcome, there’s no doubt that more can be done to keep people’s transactions and personal data safe. Don’t expect chip cards to appear in the U.S. any time soon. But perhaps something such as this password-generating card might do the trick. Experts say Americans don’t want to be forced to carry around any more plastic trinkets than they must. However, the security problem isn’t going to get better any time soon. Eventually, we’re going to reach a point where people in this country are in fact willing to give up a measure of convenience for peace of mind.

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The Bank of the Future

Posted on March 29, 2007

By Nancy Feig
There are no secrets at the branch of the future. As soon as customers step through your door, you’ll know they’re there. You’ll know what accounts they hold and how much is in them. You’ll know the depth of their pupils and the ridges of their fingertips.

I learned all of this in a run-through of Accenture’s bank of the future a few days ago. When I attended Accenture’s High Performance Banking Showcase on Tuesday, I was intrigued. The innovations that I saw were, for lack of a better word, “cool.” A pen that captures form information and enters it into the system? Neat. A tablet that can allow the customer service rep to bring the CRM system around the bank straight to the customer? Convenient.

There’s no doubt that I saw some pretty interesting things in Accenture’s mock bank. Apparently, some banks are already using these innovations. Maybe my bank is too—I wouldn’t know though, because I’m never there.

Does anyone go to the branch anymore? Accenture and industry experts all say yes. And I’m sure they do. But are these the same people who are going to be excited about a digital pen and biometric finger scans? I’m not sure. The last time I was in a branch to get cash (because I lost my debit card—again) every eye in the place was glued to the CNN report on Anna Nicole Smith’s will.

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State of the Union: What's an HSA?

Posted on February 07, 2006

Health Savings Accounts? Sounds innocuous enough. But what is it really?

Previously, the tax code provided preferential treatment for health insurance paid by an employer, as well as a portion of other medical expenses for those who itemize. Insurance companies get to invest these funds in return for paying for the medical care of the insured.

Now, this transfer from the employer to the insurer of tax-free funds is being divided into two separate streams. The first stream replicates the old model, compensating the insurance companies for providing high-deductible plans. The second stream goes from the employer directly to the employee, or more specifically, to the employee's Health Savings Account maintained either at a bank or specialty financial institution.

As a result, the investment decision for a portion of the total funds earmarked for healthcare spending has shifted from the insurance companies to the individual. This raises several interesting problems.

First, the consumer will bear the responsibility for making the decision to "allow" or "deny" any particular procedure. One could expect that on average, people as a whole will make the appropriate choices. However, in specific cases, individuals will make horrible choices, moreso than trained professionals making decisions on consumers' behalf. On one end, hypochondriacs will spend their entire savings on dubious cures and practices, while on the other end, the miserly will jeopardize their own health (and the health of others) by foregoing routine expenditures in order to bolster their rainy-day accounts.

Second, the transaction costs involved with moving a significant pool of investment funds from a concentrated handful of insurance companies to an entire population will be significant, making the economic justification for expanding HSAs even harder to justify.

Third, healthcare providers and pharmaceutical companies are going to benefit from the expansion of a direct-to-consumer market in a way that does not necessarily lead to a desirable outcome. If every working American has a pot of money in an account that can only be used for either (a) savings or (b) healthcare spending, then the aforementioned healthcare providers and pharmaceutical companies are going to direct their formidable energies toward separating fools and their money. Aside from the dubious media programs their marketing will support, this unchecked outpouring of the medical cornucopia will create an unhealthy tension between fear of today's illness and fear of tomorrow's financial ruin.

Fourth, the number and cost of items that may be classified as healthcare expenditures will do nothing but rise. For example, there's a bright future for bioengineered foods that have been modified to fit the genetic profile and the dietary requirements of the individual. Such innovations require not just the invention of the food itself, but also the distribution and communication infrastructure required to move it from farm to lab to plate. Will all of this effort, a mammoth yet worthwhile undertaking involving entire sectors of the economy, be given tax-advantaged status? And as the tax-advantaged sector expands, what's left to support, run and operate a viable government?

Banks are being given the chance to get in on the ground floor of the multi-billion-dollar HSA opportunity. But before boarding an elevator, it's always a good idea to check whether it's headed "up" or "down."
___

On the Web:
U.S. Treasury F.A.Q. on HSAs

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BS&T: The Movie

Posted on January 24, 2006

I've always wondered why the lawyers get all of the attention in Hollywood, when banking is obviously the more exciting industry. Finally, Hollywood has recognized what we've known all along, with the upcoming release of a new film for the Bank Systems & Technology set, a film with the Harrison Ford seal of approval.

From the "Firewall" Web site:

Computer security specialist Jack Stanfield (HARRISON FORD) works for the Seattle-based Landrock Pacific Bank. A trusted top-ranking executive, he has built his career and reputation on designing the most effective anti-theft computer systems in the industry, protecting the bank's financial holdings from the constant threat of increasingly sophisticated Internet hackers with his complex network of tracers, access codes and firewalls.
...

But there's a vulnerability in Jack's system that he has not accounted for: himself.
...

Leading a tight team of mercenary accomplices, Bill Cox [played by Paul Bettany] seizes control of the Stanfield house, making Beth and the kids terrified hostages in their own home and Jack his unwilling pawn in a scheme to steal $100 million from the Landrock Pacific Bank.

With every possible escape route shrewdly anticipated and blocked by Cox, every potential ally out of reach and the lives of his wife and children at stake, Jack is forced to find a breach in his own formidable security system to siphon funds into his captor's offshore account -- incriminating himself in the process and eradicating any electronic evidence that Cox ever existed.
...

Plausible? A matter of concern? How would you or your organization respond in this situation? Do you know how to handle a gun? Explosives? Fast cars? At the very least, do you think you could defeat your attorney in hand-to-hand combat? The moviegoing public wants to know.

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Heroes and Villains

Posted on December 13, 2005

It's celebration time -- today's the day of CMP's annual holiday party.

As such, upon arriving to the office this morning, each employee at CMP received a gift from our new CEO, Steve Weitzner. He's already made a real impact on the company as a communicative leader who knows what has to be done, as someone who's come up through the ranks.

Since I make it my business to know about all sorts of things before they happen, the gift was not exactly a surprise. But I certainly didn't expect two gifts: a small blue box with a "Celebrate CMP" sticker, plus a red-gift-wrapped book. Had someone in corporate headquarters upped the gift stakes from simply a tchotchke, to a tchotche and a book? What could it be? A desk calendar? An inspirational tome? A guide to the world's telephone exchanges? I had to know!

I ran my thumb along the top of the book and gently tore open the wrapper to reveal: "How to Be a Villain: Evil Laughs, Secret Lairs, Master Plans And More!" by Neil Zawacki (Chronicle Books, 2003).

"Wow," I thought. It would certainly be a groundbreaking approach for a company to encourage each employee to embrace his or her inner malevolence. If so, we'd have no problem scooping the competition and beating forecasts for 2006. Or maybe it was a test. Would we see through the irony, and strive to become better people as a result? Tempted with the powers of evil, would we become heroes?

As an HR strategy, it's pure brilliance.

But then I read the card. The book was from one of my co-workers. She stopped by to say, "I saw this book and thought of you."

The real gift was a squeeze toy and a gourmet cookie. No death traps, no doomsday devices, no demented clowns. Well, it's probably better that way.

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Bye-bye BAI?

Posted on December 01, 2005

From the Financial Insights report: "BAI RDS: R.I.P.?"

RDS has been in decline since the shows of 1999 and 2000. Institution attendance continues to spiral downward. Participants are by and large not technology decision makers. There are no 'hot' technologies to spike interest. In short, "No buzz—No bodies". Competing with RDS (and winning) are vendor client conferences that attract senior executives and have recently shown signs of becoming collaborative efforts of non-competitive, partner vendors.
- Christine Pratt, Financial Insights

However this business shakes out, I, for one, would miss the bazaar-like industry conference, which levels the metaphorical playing field for anyone with enough money left in the business plan to pay for a booth and a business card. At the same time, the decline of the bazaar happens to make Bank Systems & Technology that much more important as an intermediary between technology providers and industry decision-makers. So I'm not complaining all that loudly.

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Housing-Price Futures? At What Price?

Posted on November 10, 2005

The Chicago Merc has announced that it will introduce housing price futures in April 2006. This may shift the speculative frenzy away from real-estate into a financial instrument that measures the level of speculative frenzy in real estate. A fine distinction, but one worth making.

Personally, I don't like the idea one bit. It's one thing to have a futures contract on a bushel of wheat or a company's stock. There's an underlying commodity in a liquid exchange, and it's both very difficult and very illegal to manipulate the price of that underlying commodity. For example, if I buy futures on wheat expecting the price to go up, I can't cause a drought to further my interests. Similarly, if I sell futures on a stock, the only way I could manipulate the price of the underlying stock would run afoul of SEC regulations.

But with housing-price futures, what's to stop someone from buying their way into City Hall in order to influence local politics in such a way as to introduce distortions — either positive or negative — to housing prices? There are just too many ways for unscrupulous operators to manipulate local home-price levels in ways that would be harmful to communities. For example, if I placed a huge, pure-play bet that home prices would fall beyond expectations, I'd have an incentive to throw money at local politicians who'd cut budgets for schools, police and fire. Or, if I wanted home prices to rise, I'd want to pay off the mayor to not make any decision that could possibly jeopardize the rise in local home prices, no matter the impact on residents.

That's not to say such unscrupulous behavior isn't already happening. It's just that making it so easy will bring a great deal more money to the table, which might make for a rocky future for those living in one of the 10 cities slated for coverage by housing-price futures.

- AP article.

- CME's Sept. 27th announcement

- CME's earlier announcement of a letter of intent with MACRO Securities Research and Fiserv/CSW.

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Unfrozen Caveman Developer

Posted on November 03, 2005

Before becoming a chronicler of the banking industry, I worked as a database developer. I mostly worked with an obscure hierarchical database tool called Omnis, which had the claim to fame of being the first cross-platform (Mac/PC) database for the first GUI version of Windows. Subsequently, I left the programming game to get an MBA and then, to make a long story short, here I am.

Now that I'm also managing the Web sites for CMP Media's financial industry publications, I've found it necessary to bone up on my technical skills. Thus, I've been taking evening classes on how to develop web-based database systems using Oracle and ColdFusion.

So for the first time, I'm using a true relational database system instead of an outmoded and theoretically unsound hierarchical method of structuring data. I'm using SQL instead of procedural code, and with the help of Joe Celko's excellent book on SQL Programming Style, I now understand the difference between the two. What used to take me a really long time and a big bundle of code can now be done in a single statement.

Similarly, as an old-school thick-client developer, I have found the Web to be an exciting method of deploying applications relative to distributing code updates to each user. I know, this is stuff that was a big deal about 8 years ago. But it's one thing to read and write about it, and another to build something in a day that used to take a week.

Which leads me to the question of the day: Is your IT staff trapped in the ice? Take it from this cro-magnon developer, this is a fast-moving industry, and if you're not staying on top of the trends and constantly challenging yourself, you're going to be obsolete in no time.

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Banking Media Hot and Cold

Posted on November 01, 2005

Technology pundits have been debating about whether Apple Computer's video iPod, and by extension, video cell phones and other video-enabled mobile devices, will take off. I wouldn't bet against it, but not because I think that we'll watch repurposed television programs on these devices. Rather, it's because there's an enormous potential to create custom media clips designed expressly for the new delivery channel. While the focus has been on Disney/ABC programs and music video, it's business-related content that may eventually drive adoption.

When evaluating a new form of media, I have found it to be a worthwhile practice to go back to "Understanding Media" by Marshall McLuhan. Among his oracular pronouncements, he defined the dichotomy between "hot" and "cold" media. A "hot medium" -- such as a photograph, hi-fi music, or a film in a movie theater -- overloads a single sense with data, a practice which in its extremes can induce a degree of hypnosis. By contrast, a "cold medium" such as a book, a cartoon or a small-screen television show provides only low-definition data such that the viewer or listener has to "fill in" the gaps. This has the effect of tending towards an imaginative response, or to its extreme, hallucination.

The iPod works so well because it completely overloads the auditory sense, leading to the hypnosis that is all too visible in its users. It is a hypnosis that continues uninterrupted through playlist after playlist from an inexhaustible collection of music. But is not in the nature of a small, hand-held device to overwhelm the visual sense. Absent a pair of white wraparound glasses that project video on the interior of the lens (which would render the wearer virtually blind to the non-virtual world), the act of watching iPod video simply cannot have the same hypnotic effect as sitting in a darkened theater.

Thus, the Video iPod is a hybrid: a hot medium for audio but a cold medium for video. So, for best results, the audio should be "cooled down," so to speak. Plain speech, for example, is considered a low-definition cool medium. By combining an audio track of people talking with low-definition video, content producers will be able to generate clips that take best advantage of portable, hand-held video players.

It just so happens that the combination of speech and low-definition video is a perfect combination for the trade press. Our parent company CMP Media has already taken the lead in new-media innovation with The News Show, a daily Internet webcast that joins webcam video with entertaining editorial interviews and features. (Incidentally, The News Show just won a "gold" in the MarCom Creative Awards, which recognize outstanding achievements by marketing and communication professionals.)

Bank Systems & Technology is right there on the pulse of the emerging trend. Soon, you'll be able to select from a library of business-related content to build a portable collection of video clips. These could be anything from elevator pitches by new companies to interviews with industry leaders. You'll be able to bolster your knowledge of the industry, using video as an adjunct to print and the website.

Already, IBM has started down the podcasting path, with a banking-themed discussion featuring Mark Greene and Rusty Wiley. It's not a big stretch to envision an enhancement to this offering that includes pictures, slides, and video. You'd watch, you'd listen, but most of all, you'd imagine how your own business could benefit from the technology strategies discussed.

That's just one part of the equation. The next question is determining what kind of content a bank should offer to its retail and business customers. Banks are no strangers to content generation, especially in the "cold media" world, from mailed brochures to Web sites to financial calculators.

That's not to say banks should enter the realm of broadcasting, i.e. generating content for mass markets. Instead, banks have to focus on "narrowcasting," or generating content for the smallest possible group of people. More specifically, what does an iPod video bank statement look like? How about a mobile-phone video financial planning walkthrough? Or education programs about how to finance a home purchase?

This is one of those situations where the technology already exists, and it's just a question of which banks have the vision to take advantage of it.

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Don't Be Evil

Posted on October 27, 2005

When banking regulators expressed concern about borrowers getting deeper and deeper into credit card debt, the major card-issuing banks increased their minimum payment requirements from two percent to four percent of outstanding balances. But one bank's making a high-profile move in the other direction.

Citibank's new "Simplicity" credit card will automatically waive the late fee for customers that use the card during the billing period in question. Essentially, this neuters the requirement for a minimum balance payment, at least for those people who agree to drive themselves into even more debt. Apparently, regulatory arbitrage is still part of the Citibank playbook.

The no-late-fee service is no doubt a boon to the well-off and forgetful, as it is portrayed in the marketing materials. But as is usually the case when discussing credit cards, it will work best for those who pay their bills in full each month. At the other end of the income scale, "Simplicity" is simply financial poison.

To illustrate the danger, suppose a customer makes a $10,000 balance transfer onto the Simplicity card. Sure, a $10 purchase that month would eliminate the late fee. And yes, it's easier to make a purchase (and get something you want) than to scrounge up a $400 minimum payment.

However, that $10 purchase could end up costing a lot more than what a bunch of pop songs are worth. As is typically the case, the bank applies payments to low APR balances before higher APR balances. So you'd have to pay off that entire $10,000 -- which for many people, is a time best measured in years, not months -- before knocking out that higher-rate charge for the $10. The bank will make up in interest charges what it loses in late fees.

With a big-budget, multimedia ad campaign supported by low-rate balance transfer offers, I'm sure the card will find its way into the hands of all manner of desperate families who cannot afford their minimum payments due to illness, job loss or Mother Nature. Sadly, they won't be able to afford this false lifeline either.

The "Simplicity" card. Brought to you by Citibank, the inventors of the "Dr. Evil" trading strategy.

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All Together Now

Posted on October 18, 2005

With the FFIEC's guidance stating that banks should implement two-factor authentication for Internet services that involve sensitive customer information or movement of funds, the status quo in information security in banking has been quickly overturned.

The FFIEC guidance raises the minimum standard by mandating two-factor authentication by the end of 2006. Now, a bank that may have held off on implementing a two-factor solution for the fear of getting too far ahead of the mainstream market can move ahead without fear of losing customers to security laggards. There may still be laggards, but the differences won't be as stark as they were in the past.

The 2006 deadline means that banks not only have to figure out how to deploy two-factor authentication, but also to figure out which alliances and standards bodies they should join for deployment. In the absence of some level of industry consensus, customers will be asked to adopt a different authentication technique for each bank they do business with. One result could be "token necklace" syndrome, where someone has to carry around several different identification dongles. Or worse, a single customer may have to use a USB token for one bank, a smart card for another, and a one-time-password device for a third. Someone in either situation would be likely to get frustrated and end relationships with the financial institutions having the most troublesome authentication methods; which, counter to the intent of the FFIEC guidance, would reward the banks adopting the minimum standards.

An alternative is for the banks to decide upon a common, interoperable standard for authentication. Since the choices of method are numerous, with debatable merits and variable costs, I don't really expect this to happen.

But there's another option: Instead of each bank deciding which form of authentication it wants all of its customers to use, perhaps the choice should be that of the customer. Imagine if every single Internet banking customer received the same letter in the mail:

Dear Internet Banking Customer:

In order to protect your information and secure your funds, please select one of the following authentication methods as the one that you will use by the end of 2006:

• USB token


• Smart card


• Password-generating token


• Password-generating mobile phone


• Biometric reader

You will be able to use this authentication method for all of your banking relationships.

Signed,
The Banking Industry

How's that for putting the customer first?

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Katrina and the Titanic

Posted on October 07, 2005

When the lookout on the Titanic warned the officers on the bridge that the infamous iceberg was looming ahead, first officer William McMaster Murdoch had the engines stopped and reversed. He then ordered the quartermaster to turn the ship hard to port. Bad move. The iceberg sliced through the first five of 16 transverse compartments of the hull. If the ship had hit the iceberg head on, the ship likely would have limped home, and we would have been spared the sight of Leonardo DiCaprio on the bow of the ship claiming to be the king of the world. Some king. The ship sank.

With Hurricane Katrina playing the role of the iceberg, the deck officers of the United States of America are relatively fortunate in that they have the time to figure out how best to distribute the damage.

The industries that you might initially think would have suffered the most are instead poised to do rather well. In insurance, premiums will rise and more capacity will enter the market. The oil companies will simply pass on their costs to everyone else, even while raking in extranormal profits from the supply squeeze. Even hotels did fine, with insurance settlements bolstered by increased bookings from storm refugees.

But what about the banks? Depositors facing financial ruin are withdrawing their funds to pay for essentials. Meanwhile, many financial institutions are staring down serious impairments on the asset side of the balance sheet. With firms and families experiencing severe financial distress and possible bankruptcy, the financial institutions holding their loans are poised to absorb a significant share of the uninsured losses in real estate and business assets.

Thus, the banking lobby has requested a bailout, suggesting that the federal government set up a special fund to purchase impaired loans of borrowers affected by the disaster — purchased at above-market rates, I presume. That's hardly fair. Consider two businessowners who have been completely wiped out — one with no debt, and one with a bank loan. Why should the Federal government play favorites between the 100 percent owner of the first business and a creditor of the second business? Why should taxpayers make the banks whole, but not the businessowners?

If containing the financial damage means that some banks fail and their investors lose out, so be it. The FDIC guarantee will cover most depositors, and the financial markets can handle a head-on hit. Municipalities, hospitals and small businesses cannot. Scarce reconstruction funds have far better uses than to prop up banks with an undue concentration of geographic risk. Furthermore, there are plenty of other banks that can step in to finance the reconstruction, as well as hire all of the displaced bankers who know the area.

We live in a troubled age where disaster must be expected and planned for, not ignored or wished away. This does not bode well for the community-based financial institution, which from a financial perspective, can no better withstand a large local disaster than can a family-owned restaurant or laundromat. To be sure, the community banks were as capable as anyone of restoring service after the storms. But if banks in affected areas are going to need a federal bailout every time there's a hurricane, earthquake, plague, pestilence or dirty bomb, they're doing more harm than good.

Banking is a risky business — take the hit and keep moving.

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Back In The U.S.S.A.

Posted on September 27, 2005

I just flew back from Europe, and boy, are my arms tired - from shlepping my luggage from place to place. It was a three-week, seven-country tour of Europe where I freely mixed business and pleasure. (If you like your work, it's always a pleasure.)

Seven countries, seven currencies. That's not so easy to do in Europe these days. But even in the areas where you can use a common currency, it's a bit more difficult to break out a debit card from an out-of-country bank, or to make a payment across borders.

Indeed, the "topic du jour" at Sibos in Copenhagen was SEPA, the Single Euro Payments Area. SEPA is the directive that would require banks within the Eurozone to price payments among EU countries the same as payments within a single EU country. The strategic and operational implications are profound, and BS&T will be exploring the topic in upcoming issues.

Incidentally, this reminds me of the time I went to a fancy French restaurant and asked the waiter, "What's the soup du jour?" He replied, "It's the soup of the day."

From Copenhagen I embarked upon a tour of Sweden, followed by a cruise to Helsinki and a train ride to St. Petersburg, where I spent three nights. Then it was back to Helsinki and a hop over to Tallinn for a flight to Geneva, where I spoke at the 4th International Conference on Standardization and Innovation in Information Technology (SIIT). The final stop was London for some meetings.

Throughout all of my travels, I was able to stay informed about the gloomy humanitarian crises in Louisiana and the Gulf states, as did just about everyone I met, whether Danes, Swedes, Finns, Russians, Estonians, Lithuanians, the Swiss, the Brits, or the French. I was frequently chastised for the deplorable state of emergency preparedness in the U.S., as well as other perceived diplomatic and political failings of our government. This became a predictable reaction whenever I revealed my nationality, to the point where I figured I'd make more friends by saying that I was an Israeli.

Regarding our national response to Katrina, there wasn't much I could say other than, "We'll do better next time."

However, "this time" isn't over yet. The New York Times just ran a bankruptcy story that points out, as I did in my Sept. 7th editorial, that Katrina victims will have numerous bureaucratic hurdles stemming from the new bankruptcy law that will impede their massive struggle to rebuild what they have lost.

Predictably, the victors of the epic battle to get the bankruptcy bill passed are not ready to concede any of their hard-won ground. But considering the public mood, that stance may prove to be short-sighted. The tree that does not bend in the wind breaks, and the winds are definitely picking up.

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Broken by Katrina

Posted on September 07, 2005

Those whose lives were irrevocably ripped apart by Hurricane Katrina face numerous pressing issues, including but not limited to finding water, food and shelter, locating one's family members, and coping with the shock and grief stemming from the immense scale of death and displacement. There's also the matter of determining whether the loss of property is total or partial, and making the decision on whether to uproot from the Gulf Coast or plan for rebuilding.

As families max out their credit cards to pay for essentials without the benefit of home equity or a job, the question of personal finances will soon become unavoidable. Even with the banking industry offering forbearance on loans and mortgages for those affected, the benefit of such measures is dwarfed by the devastation to the Gulf Coast economy and the ability to earn a living. Thus, for many, the road to recovery will necessarily go through bankruptcy court.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 takes effect on October 17, 2005. Among its provisions is the requirement that a consumer seeking Chapter 7 relief from debt will have to undergo financial counseling six months before being able to file for bankruptcy.

It is an obviously bad idea to force the victims of Hurricane Katrina to attend financial counseling and then wait six months to obtain relief. It would be utterly devoid of sympathy and humanity to hold people to the letter of the law under these circumstances, and I fully expect that Congress or the courts will make the appropriate allowances.

The scope of the suffering wrought by Hurricane Katrina is certainly larger in scope and deeper in its effect than most human tragedies. Nevertheless, every single day people fall victim to situations entirely outside of their control, whether it's job loss, illness or family crisis -- all common triggers for financial distress and bankruptcy. Although these personal tragedies play out one household at a time rather than on CNN, it is cruel under any circumstances to put someone in a demeaning, six-month holding pattern before offering the prospect of a lifeline.

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Hurricane Katrina

Posted on September 05, 2005

The horrifying devastation wrought by Hurricane Katrina on the Gulf Coast calls for a unified and rapid response. From humanitarian assistance to financial forebearance, the need is great and the solutions are difficult. What's certain is that the lives, homes and businesses of the people across an entire region of the country will certainly need the support of the financial industry.

Several questions come to mind: How has the disaster affected you and your institution? How can banks help people to rebuild their lives from scratch? How will the region's banks shoulder the financial burden of what looks to be substantial amounts of uninsured losses and bankruptcies? What are the operational implications for banks, mortgage companies and credit card companies during the crisis and its aftermath?

Please share your thoughts with us.

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