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

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.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.