Q: What are the top trends, issues and challenges facing the banking industry in 2007?
Debbie Bianucci, BAI: The overarching issue for the banking industry is competitive differentiation, where institutions need to generate a superior value proposition and earnings growth. 2007 is likely to be a year in which M&A activity increases, since banks are facing more economic headwinds from slowing deposit growth and asset quality.
The free-checking acquisition engine has slowed considerably. As a result, banks will now incur potentially higher acquisition costs for core deposits, marketing, retention and overall relationship management. Mortgage and home equity portfolios may stabilize in 2007, given the significant downward pressure on home prices. The small-business arena will continue to be a battleground, but will be lucrative for those who can acquire new business in profitable customer segments.
Elliott C. McEntee, NACHA: The recent migration of a large number of cash and check transactions to electronic payments will continue. With the adoption of check image exchange and the new back-office check conversion, electronic processing of checks will accelerate. Banks will continue to wrestle with customers' expectations for the privacy and security of their personal, account and transaction information. The banking industry will need to continue its emphasis on risk management.
Ed Adams, SWIFT: An evolving payments system (European harmonization), strong growth and demand for new services within emerging markets, and demand from corporates for standardized connectivity offerings from their banking service providers are among the top trends for 2007 and beyond. Payments transformation (good governance; facilitating efficiency and effectiveness of the payments system); reducing costs; standardization; interoperability and improved risk management will remain critical issues. SWIFT is also actively involved in supporting regulatory or self-regulation moves around the world through our standards and messaging solutions.
Doug Johnson, ABA: One of the challenges that the banking industry has is resource constraints associated with expenditures in technology. It's fair to say that there will be greater levels of competition for funding of all different matters within the financial services industry in 2007 as opposed to 2006. It's that constant challenge that financial institutions have on the information technology front -- proving that their technology expenditures have some return on investment that makes them worthwhile. It's a standard refrain, but that refrain will be louder this year because of the fact that margins will be tighter.
Q: What will be your organization's top priorities and areas of focus for 2007?
Bianucci, BAI: BAI will continue to focus on retail financial services and payments to bring high-value, objective information to the industry. We work with a wide array of senior executives from banks and solutions providers to bring thought leadership and facilitate dialogue on important strategic issues, market challenges and emerging trends. This breadth of industry involvement equips BAI to provide strategic insights that help organizations compete more effectively.
McEntee, NACHA: NACHA's comprehensive risk management strategy for the ACH Network -- two years in the making -- will shift to an implementation phase. We will be asking our members to comment and vote on many of the specific proposals. Back-office conversion becomes effective in March, and NACHA will be working with the industry on customer service and training issues to facilitate a smooth implementation. NACHA will be working with its members to find additional value in the area of online payments, such as enabling consumers and businesses to make payments via their banks' online banking Web sites without disclosing their account information.
Adams, SWIFT: Our top priorities are outlined in our SWIFT2010 strategy:
1. Corporate Access
Goal: Efficient and standardized delivery channel to reduce total cost of operation for both FIs and corporates.
2. Emerging Markets
Goal: Increase message traffic in emerging markets; capture the substantial potential of emerging markets.
3. European Integration
Goal: Support European financial- market integration.
4. Alternative Investments
Goal: Expand SWIFT's reach in alternative investments; improve automation and standardization in securities and alternative investments.
These areas were identified by our community as areas of inefficiency and pain points that represent opportunities to add significant value to the industry.
Johnson, ABA: From an IT perspective, our industry is currently wrestling with how to amend our business continuity plans to envision pandemic planning. There's a fairly significant assumption that telecommuting will be one of the major pieces of the solution set. So banks must ensure that the proper level of capacity exists, not only systemwide, but also in the last mile at your financial institution and for your customer base. It's clear that during a pandemic, customers will be much more dependent upon Internet banking than they would potentially have been beforehand. This makes it crucial that our IT folks work with the telecommunication and cable industries to make sure we have the proper level of resiliency so that we can provide the proper level of customer service.
Q: What will be the most significant development on the technology front in 2007, and how will it impact banks?
Bianucci, BAI: As always, consumers will decide how far and how fast new technology will be adopted. We believe that today's increasingly mobile lifestyle is the driver of the next major development in banking: payments via mobile phones, PDAs and other wireless devices. The industry is reacting with partnerships among application developers, carriers, financial institutions and mobile virtual network operators. When security concerns are overcome, mobile payments may be a key to customer retention and serving younger demographic segments to attract lower-cost deposits via stored-value accounts.
McEntee, NACHA: American consumers will make greater use of mobile commerce. Banks will need to address how to meet their customers' needs and expectations for mobile commerce, and how to remain central to their customers' transactions.
Adams, SWIFT: Technology systems and standardized connections in conjunction with the SWIFT Corporate Access program will be among the technology developments to look for in 2007. SWIFTNet FileAct, SWIFTNet InterAct and XML standards will be instrumental in giving corporates the technological advantage they need to improve connectivity, reduce costs and improve efficiency. The SWIFT community will also begin moving to SWIFTNet Phase 2.
Johnson, ABA: The ABA conducted a survey in October asking bankers if they had achieved compliance with the new FFIEC authentication guidelines. Around 60 percent said they'd make the deadline, 10 percent said they were done and about 22 percent said that they might miss the deadline. What we are finding is that some third-party providers are having a pipeline problem in terms of getting their entire customer base up. The bank regulatory agencies are very well aware of that, so we should not be seeing examination criticism at the beginning of the year. But, obviously, the agencies will be looking for us to be moving as quickly as we can. In 2007, institutions will be working on implementation issues associated with the authentication guidelines. So we anticipate that customer care issues associated with instituting stronger authentication will continue well into 2007. Banks are also looking at ways to authenticate themselves online to their customers; customers need to have that level of confidence that the bank is who it says it is.
Q: Will there be any significant developments on the regulatory front during 2007? How will these developments affect banks?
Bianucci, BAI: On the regulatory front, changes in Congressional control will affect the issues the industry faces. This may mean more focus on predatory lending, minority lending, ATM fees, etc. There also is momentum to simplify the Sarbanes-Oxley codifications, which may provide banks with some relief in capital resources.
McEntee, NACHA: The Federal Reserve and the U.S. Department of the Treasury are required to issue regulations to require banks to block payments to gambling Web sites. These regulations could significantly impact the payments system.
Adams, SWIFT: Payments transformation being driven by SEPA is among the significant developments that continue to influence regulatory movement. It serves as a catalyst for the harmonization of market practice and standards for the banking community, and what regulators seek to achieve. SWIFT sees our role expanding in this area where we can support and collaborate with communities in the definition of their own market practice, inspired by global market practice and conditions.
Johnson, ABA: The FFIEC recently asked the ABA what types of additional regulatory guidance are necessary in the information technology space. The industry is doing a lot on the private sector side, which should mitigate the need for significant developments on the regulatory front. We're working on mutual authentication as an issue, for instance. At the same time, we would anticipate that the agencies will be revising their business continuity guidelines to include pandemic planning. Legislatively, next year we anticipate continuing to work with Congress to develop a national approach toward reporting security breaches in order to eliminate the current patchwork of state laws that tend to create confusion for banks and bank customers.