For the past several years, bank IT budgets generally remained flat. The financial crisis and ensuing fallout forced belt-tightening across the industry. In 2011, however, bank IT executives finally enjoyed some breathing room thanks to some revitalized spending power.
And in 2012, bank technology budgets should continue to increase, if ever so slightly. But with the economic recovery still on shaky legs, and with regulatory scrutiny more intense than ever, banks' IT investments are likely to be focused largely on driving efficiencies and complying with new requirements. Bank Systems & Technology identifies the IT trends and hot technologies that will change the game in the year ahead.
1. Convergence of Mobile and Online Technologies
Mobile banking started as a novelty, something only techies and first adopters felt comfortable using. But as smartphones have skyrocketed in popularity over the past few years, mobile banking adoption has increased along with it.
Initially, many banks' mobile offerings consisted of their online banking model ported to an iPhone or Android device. As mobile has grown into a maturing channel, however, banks and their vendor partners have produced richer mobile offerings that take advantage of its unique capabilities. And the rise of the tablet gives financial institutions another unique interface through which to interact with consumers (see No. 4).
"Mobile banking, when it first became a hot topic, was very much an offshoot of the online channel," says Jacob Jegher, senior analyst with Boston-based Celent. "Now mobile is maturing to the point where it is its own unique beast."
While banks are embracing the mobile channel -- and continuing to support the old standby of online banking -- they are not integrating the technologies used to build e-banking solutions, according to Jegher. But that will begin to change in 2012. "We'll see banks continue to develop solutions for these multiple channels but using a single set of technology to do so," he predicts. A cohesive set of technologies, Jegher adds, will make mobile app and online development easier for banks to manage.
Jegher points to several high-profile acquisitions, such as Brookfield, Wis.-based core banking software provider Fiserv's March 2011 acquisition of mobile banking and payments software provider Mobile Commerce (M-Com; Atlanta), as signs that the industry is moving in this direction. "The reason behind these kinds of acquisitions is because [vendors] need these tech assets that will allow them to serve their customers," he explains.
As banks continue to search for efficiencies and consolidate operations, the convergence of mobile and online technologies looks to be a prime opportunity to do so in 2012.
2. The Rise of Business Process Management
Both to increase efficiency and ensure regulatory compliance, banks need better methods of gathering and reporting data. Most banks struggle with multiple back-office systems and siloed information. To address these issues in earnest, there will be a large investment in new and improved business process management tools in the year ahead, experts say.
Especially as banks wrangle with how best to harness Big Data and the technical challenges of analyzing and reporting very large amounts of information with a quick turnaround, they will need to invest in BPM tools that facilitate integration, says David Hamilton, president of the banking business at SunGard (New York). "Many banks still wrestle with multiple back-office systems," he says. "They have to master customer data management, and I think there is a fairly considerable investment to be made in getting the basics right."
In addition, integrated data systems will help with risk management, Hamilton notes. "There's a need for good-quality risk data," he says.
Data integration also will help banks obtain a more accurate view of their customers, Hamilton adds. Marketers often talk about breaking through data silos to look at data holistically and gain a more complete view of consumers' habits, and now banks will look to do the same, he says. "These big trends, and the move for strategic cost reduction, map very clearly to bigger BPM investment," he insists.
3. Goodbye Email, Hello Message Center
The abandonment of email for anything sensitive already has begun, and the shift to total reliance on message centers -- dedicated web portals designed for secure communication between a bank and its customers -- looks to be here to stay. While organizations that have message centers today still use them inconsistently, says Aaron Higbee, CTO of PhishMe, a Chantilly, Va.-based company that specializes in antiphishing training and education, they increasingly will become the norm for communicating with customers, rather than email.
The move to message centers will be beneficial on several fronts, according to Higbee. Many organizations currently employ third-party and joint marketing campaigns that have made unified messaging difficult, he explains. They also continue to send emails with the actual messages in the body of the email or include cryptic links. These practices make it difficult for end users to differentiate between a legitimate email and a phishing email, so they will have to change, Higbee contends.
He adds that many bank employees believe only consumers are targeted by phishing scams; many are unaware that they themselves are targeted by attackers trying to compromise the organization, and they may be unprepared to recognize truly targeted phishing attacks from advanced attackers. This is in line with a November report issued by Ernst & Young that found employees within organizations and businesses are increasingly the targets of hackers rather than individual consumers.
4. The 'Tabletization' of Banking and the User Experience
Tablet banking is still a young channel, but it is rife with potential. As with initial mobile forays, it may take banks some period of trial and error to determine how to build the best banking experience for the tablet environment. But most experts agree that the potential for a great tablet banking user experience, especially with the rich interface tablets offer, is nearly unlimited.
In fact, Celent's Jegher believes that as banks realize the opportunity that the tablet format offers, they will begin to redesign their online banking experience to be more like their tablet banking offerings. "The current state of tablet banking, being very immature, you usually take what you have online and just put it into the tablet banking app," he notes. "But what if you thought about it the other way around? The tablet offers the richest interface out there. What if online became influenced by tablet banking? The functionality of online banking is very mature, but the user experience is immature."
Customers now expect a customizable, personalized experience on their terms, Jegher says. The "tabletization" of online banking and the advent of cutting-edge mobile technologies, such as mobile remote deposit capture, speak to the evolving bank user exeprience, he comments, adding, "This user experience trend is becoming more mainstream."
5. Security increasingly is A Moving Target
Mobile devices are becoming nearly ubiquitous. Many industry experts and talking heads already have proclaimed the "death of the PC" as consumers increasingly spend their time on their smartphones and tablets, including for their banking needs. But as more people conduct their banking on mobile devices, these devices also will become the growing focus of hackers and fraudsters, who are always on the hunt for ripe targets.
Meanwhile, some experts say mobile devices are more prone to security breaches since they are a relatively nascent technology; plus, many people don't think of them as the little computers they are, and don't exercise the security precautions they would with, say, their laptop computers. An Ernst & Young report released in November 2011 on the current state of security threats noted that consumers who access sensitive data, such as banking information, on mobile devices at wi-fi hotspots are more susceptible to hacks.
E&Y also pointed out that businesses face another threat as more employees bring their own technology to work, part of the trend commonly known as the "consumerization of IT." Banks especially should have firm policies in place for employees who use tablet computers or other mobile devices with work information on them, and they should be educated on using the proper security precautions, the advisory firm stressed.
Meanwhile, fraudsters are launching a new front in the security war as they begin to focus on a new target: community banks and credit unions. In an interview for BS&T's December 2011 digital issue on e-banking, Aite Group analyst Julie Conroy McNelley emphasized that fraudsters have taken note of the shift in public sentiment toward smaller banks as an opportunity to uncover new targets. "I guarantee the bad guys were aware of Bank Transfer Day and that there were fraudulent applications made that they hoped would not get noticed and fall through the cracks," she said. With an increased profile, Conroy McNelley added, credit unions likely will be targeted more frequently and thus need to be duly prepared.
6. Integrating Toward a Brave, New Post-Channel World
The days when a customer would walk into a branch to fulfill all of his or her banking needs are long gone. If a customer starts a loan application online and doesn't have time to complete it, that customer then expects to be able to come into a branch on the way home from work to finish it. However, in too many cases the same customer often will be asked to start the process all over again in the branch, due to a lack of channel integration. Banks will need to better manage the seamless integration of online, offline and mobile channels in 2012 and beyond.
But banks thus far have gotten away with a low level of channel integration, according to SunGard's Hamilton. "The banks' business should traverse delivery channels, and that's a big issue with their current channel architecture," he says.
Many industry experts say we are moving to a post-channel world where the customer is the central and sole channel. Umpqua Bank's Colin Eccles echoed that sentiment at BS&T's Executive Summit in October, noting that channels aren't important to consumers, at least not in the way banks have defined them. Customers must now be at the center of IT strategies, instead of a core platform or any specific channel technology, he said.
"Infrastructure is becoming a tapestry of decentralized delivery services," Eccles told the audience during a presentation at the Executive Summit. "The channel isn't important anymore; it's all about the customer and thinking about how the customer is coming to you." Seamless channel integration is critical, Eccles continued, and Umpqua and every other bank should be striving for it.
7. Pushing Self-Service Products to Generate Revenue
Perhaps the biggest banking story in 2011 was the decision by numerous banks to institute a fee for debit card usage -- led by Bank of America's announced $5-per-month fee -- and the subsequent consumer backlash that forced BofA and others to rescind that fee before widespread implementation. BofA, like other banks that floated similar plans for debit fees, said the fees were a direct result of the Durbin Amendment to the Dodd-Frank financial reform bill that caps the amount banks can charge retailers for debit card purchases. The cap limits the fee to an average of 24 cents per transaction instead of the previous industry average of 44 cents. BofA estimated it would lose about $2 billion per year due to the provision, and the debit card fee was a way to offset those losses.
Sans debit fees, at least for now, banks will put the focus on self-service to grow the bottom line by encouraging customers to embrace cost-saving practices, such e-statements and online bill pay, according to Celent's Jegher, who believes that banks will begin, if they haven't already, to offer consumers rewards for embracing self-service channels. For example, if customers elect to move to electronic statements, the bank may allow them to view their check images for free.
"They can offer me an incentive to do something that doesn't cost them money," Jegher says. "It's all about looking for self-service opportunities to generate revenue and cut down cost. Anything moving to electronic is a great way to cut costs."
8. Reaching the Next Level of Mobile Evolution
Mobile banking and payments saw major growth in 2011 -- from tech companies and financial institutions launching mobile wallets to consumers utilizing a mobile application to buy a cup of coffee. But 2012 will be the year in which mobile finance gains strategic direction, and banks will introduce next-generation mobile initiatives to drive balance sheet impacts, says Carl Tsukahara, chief marketing officer and VP of product for mobile banking and payment solutions provider ClairMail (Novato, Calif.).
According to Tsukahara, mobile remote deposit capture (RDC), still in its nascent stages, will become "a staple competitive feature for mobile account management." However, he also notes that new security concerns created by widespread use of mobile RDC will create tension between risk and product management teams.
Tsukahara also expects banks to monetize mobile even more. According to a Forrester report commissioned by ClairMail, banks see two areas with the most potential for reducing costs or creating new revenue within the mobile channel: fraud prevention and marketing to customers. Surveyed banks reported that mobile banking already is playing a role in reducing fraud in a variety of ways -- ranging from simple transaction and security alerts to mobile authentication for bank transfers.
"Still in its early stages, banks also report seeing mobile phones as a powerful marketing channel letting them make offers directly to individual customers at a particular time and place," Tsukahara says. But the challenges here are similar to the challenges banks face overall, he suggests. "Banks realize, though, that in order to achieve this they must integrate mobile banking with CRM systems, earn customers' trust and address privacy issues."
Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio