6. Modern to the Core
At the base of any bank's ability to serve customers, conduct transactions and run day-to-day business is its core banking platform. And as banks offer more choice in terms of online and mobile channels, in particular, and a wider product portfolio, that increased level of service means a higher demand on core systems. Core banking renewal also comes with the prospect of delivering on the promise of conducting business in real time. And some of the nation's biggest banks are taking the plunge in 2011.
"When you look at the U.S. market, four of the top 20 banks are doing a core systems replacement over the next 12 months," according to Fiaz Sindhu, an executive and core banking expert with Accenture's North America banking practice. "We expect another two to four to take the jump in North America."
Core banking modernization or replacement represents a major investment in terms of budget dollars; the risk of systems downtime as work is being done; and the cost of dedicating staff time to building, testing and supporting new systems as they launch. But conversely, continuing to do business with legacy systems has a cost of its own, such as the price of siloed customer service across channels or of privately maintaining systems after vendors cease to support them.
While expensive up front, core replacement or renewal ultimately can simplify a bank's processes while adding flexibility, be it in product bundling, real-time capabilities, or systems unification following a merger or acquisition, Sindhu relates. "The key question that I ask up front is, 'Do I feel the need to grow revenues?' " he says. "Core banking is a way to do that." --M.G.
7. Analytics: The Next Generation?
For at least the past two years, bankers have been urged to recognize the value of analytics tools to help identify and manage risk, enhance customer insight, and improve product, pricing and channel efforts. As a growing number of banks invest in business intelligence-related systems, analytics will continue to be a hot technology in 2011 -- but more because of market developments rather than new technical capabilities.
Or, as Richard Martino, SVP, market analytics & performance solutions, U.S. Bank, said in a presentation at BS&T's 2010 Executive Summit, "At the end of the day, analytical competitors try to improve the odds of success [by leveraging] customer data for multiple uses and actions, [including] treatment strategies, retention tactics and capital allocation."
For example, with new regulatory restrictions on interchange revenues and other transaction-related fees, banks will start using analytics tools to look at "transactional data" -- how their customers are using (or not using) their credit and debit cards, according to JJ Rorie, director, product development, First Data Corp. (Atlanta). With the understanding of which customers are using their cards mainly for big-ticket items and which ones are using them to purchase day-to-day items, banks can identify patterns and then tailor their marketing efforts more profitably, she says.
With potential applications of analytics expanding, the biggest obstacle to optimizing these investments could be a lack of skilled professionals with specialized expertise in this area. U.S. Bank's Martino referenced economist Hal Varian's prediction that "The sexy job in the next 10 years will be statisticians," adding that, "The real trick isn't doing the math, but telling a story -- what can I do with [this information]? That expertise is scarce."
First Data's Rorie notes that banks' investments in analytics systems increasingly are being initiated by the chief marketing officer or line-of-business executives in areas such as cards and payments. "Everyone's starting to get more sophisticated about analytics and knowing the power of it," she says. --Kathy Burger
8. Mobile Payments Set to Soar
Mobile payments, distinct from mobile banking as a whole, will follow a meteoric trajectory next year. While payments made from mobile phones in 2010 amounted to $16 billion, Aite (Boston) research director Gwenn Bezard predicts these types of payments will experience a 68 percent compound annual growth rate over the next five years, which pegs the volume of mobile payments at $46 billion next year and at $214 billion in 2015.
Bezard says the recently announced Isis mobile payments joint venture between AT&T, Verizon and T-Mobile (see related article, page 9) will have a profound effect on mobile payments adoption next year. But he also envisions major participation by banks. "Banks will have a very significant role," he insists.
Taking advantage of the Near Field Communication (NFC) contactless payment chips that handset manufacturers are embedding in their phones, the mobile wallet solution that Isis is developing will replace credit and debit cards, loyalty cards, and coupons, Bezard adds. Other mobile payments initiatives that sprouted this year -- such as a pilot of microSD chip-based mobile payments by Visa and DeviceFidelity along with Wells Fargo, Chase, Bank of America and U.S. Bank -- will fade away in favor of more ubiquitous plans, such as the Isis initiative, he contends.
Mobile operating system (OS) providers will get in on the act next year, too. Google CEO Eric Schmidt announced in late November that the search giant is partnering with third-party payments processors to create "bump for everything" mobile payments technology that will be baked into the next Android release. And Apple has indicated that it wants the iPhone 5 to be an "iWallet."
Still, Bezard doesn't advise banks to rush into mobile payments. "I don't see an urgency for banks to be the first provider," he says. Rather, he adds, they should find ways to work with providers while steering clear of intermediary technologies. --P.C.
9. Collaboration: It's a Small World After All
The ability to work together in real time with colleagues and clients on the other side of the world used to be the stuff of science fiction. But with the rise of new collaboration technologies -- be they based on the web or in the cloud, and whether they are powered by videoconferencing, voice, wikis, software or hosted solutions -- collaboration tools have reached a point where cost and familiarity are no longer a barrier to adoption.
Collaboration technology is reaching consumers in the form of smartphones like Apple's iPhone enabled with video chat and web apps such as Google Docs. It's hitting the enterprise in the form of telepresence, videoconferencing and enterprise content management. For many banks, collaboration begins with ECM -- not only as a means to work across departments or across the world on a document, but to be able to track internal or customer documentation and information across a longer lifespan.
"Having files here in a vault wasn't practical," explains Andrew Weibel, assistant vice president of information systems for Westfield, Mass.-based Westfield Bank, which primarily serves commercial clients. "We had to allow staff access to these documents."
For other banks, such as Umpqua Bank, videoconferencing could be a means to connect customers in one location with experts in another branch. Umpqua -- a leader in building a connected and integrated customer experience through technology -- expected to have videoconferencing in seven to 10 of its banks by the end of 2010. --M.G.
10. Loan Automation: A Long Way to Go
Banks have been talking about bringing more automation to the lending process for several years, but that goal will take on additional urgency in 2011. According to a recent study by financial analysis software company Sageworks (Raleigh, N.C.), 57.2 percent of the financial institutions surveyed said they plan to make more or significantly more commercial loans in 2011 compared with 2010; 31.4 percent of respondents said they plan to make the same number of loans.
However, fallout from the subprime mortgage crisis will continue to shape banks' lending strategies, as revelations about shoddy foreclosure practices are directing renewed scrutiny on banks. Meanwhile, the average timeline of the mortgage origination process actually is increasing, while customer satisfaction has declined, according to the J.D. Power and Associates' (Westlake Village, Calif.) 2010 U.S. Primary Mortgage Origination Satisfaction study. The study found that the time from application to approval increased to 27.5 days in 2010 from 20 days in 2009, and the time frame for the entire origination process increased to 52.1 days in 2010 from 46.9 in 2009.
"Servicing the loan efficiently gives you a loyal customer," according to Christine Pratt, senior analyst, Aite Group, who discussed how banks can revive the small-business lending channel at a recent Aite conference. Whereas banks have been focusing on analytics to manage risk in the lending process, "There will be a shift in 2011, … a positioning for growth," Pratt said. "There will be a migration to technologies that speed up processes around decisions." For example, she noted, "There are some wonderful new iPad applications that speed the loan process."
Of course, automation of lending processes is no simple task, as it potentially could involve a whole portfolio of solutions, from core systems to data aggregation capabilities to risk management/compliance systems to fraud detection tools to imaging and content management. In growing the small-business loan portfolio, Pratt advised banks to, "Consider alternatives like managed services and cloud [computing] that won't take huge capital investments to move forward." --K.B.