2012 was a year of growth, however minimal, for bank IT departments. After years of flat or declining budgets due to the fallout of the recession of 2008-09, banks by-and-large saw their IT budgets grow this past year.
As we enter 2013, IT faces a kind of transition in the banking industry. No longer off on its own, IT is playing a greater role in helping banks carry out marketing, sales and channel integration initiatives in financial services. Bank Systems & Technology asked a sampling of industry veterans and watchers what they thought will be IT's biggest challenge in 2013.
Anticipating the Future
Julie Elberfeld, Commercial CIO, Capital One
As consumers are becoming more technology-savvy banks must adapt their approach to digital platforms. We need to anticipate where technology is going in today’s rapidly changing environment and quickly adopt those solutions that best fit our industry and consumers. Customers have become accustomed to having technology at their fingertips, so we have to be more nimble in adopting and introducing emerging technologies. In commercial banking, for example, developments in portal technologies that offer enhanced data analysis and reporting are major areas of investment. Anticipating where the market is heading, how technology is evolving, and innovating ahead of our competition—both other banks and non-traditional competitors—while meeting growing security, regulatory and compliance requirements present challenges.
Banks need to focus on a structure that is scalable yet nimble and able to support future growth and increasing needs of the business. At Capital One, we’ve moved to an architecture that supports our “always on” approach to enable our customers to bank whenever and wherever. We have to deliver with increased speed and efficiency while defining the role of big data and cloud computing in our solutions. Talent acquisition continues to be important. Candidates don’t often think of a bank as a place for great IT talent – but banking is essentially an IT-lead industry and software development will become a huge need in banking. At Capital One, we have a huge appetite for the best technology minds. Banks need to show that they have the environment where tech talent will thrive and where they can get to work on the very best, latest technology.
Mobile is the Word
Doug Brown, SVP, Mobile Solutions, FIS
For financial institutions, the magic word in 2013 will be mobile. Bank customers are turning to the ease and convenience of their smartphones and tablets for mobile banking, payments and check deposit. Managing this seismic financial shift will prove challenging for bank IT departments, but those with a dynamic mobile strategy will enjoy a significant competitive advantage from those without.
Here’s the outlook next year for key elements of mobile for banks:
Scalability: Adoption of mobile will continue to soar. At FIS, organic growth in mobile banking clients is rising 50 percent annually, and the frequency of logins by mobile users is 1.5 times greater than for their online counterparts. Banks’ technology infrastructure must be ready to serve these mobile users and meet the transaction-volume challenge.
Devices: Major mobile device manufacturers are preparing major mobile product releases. New tablets will change the consumer-electronics landscape and smartphones will incorporate significant operating system and feature changes. Bank IT departments should commit 2013 budget to cope with this proliferating number of devices.
Functionality: Mobile offers a powerful model for banks to pare costs and propel revenue. Businesses will look to their IT partners to provide myriad services instantly through the mobile platform. FIS predicts mobile commerce will drive this urgency as banks counter new nontraditional competitors.
Security: It remains customers’ No. 1 concern about mobile banking. Attacks on banks’ mobile infrastructure and client devices are accelerating, explaining why security cap abilities and processes will play a larger role in a bank’s IT agenda.
Integration: Businesses will accelerate requests to their IT partners to integrate capabilities. They will seek multiple bank backend systems that deliver an intuitive mobile customer experience. They also will favor increased use of third-party specialists in mobile commerce and social media to deliver mobile capabilities. In 2013, a more heterogeneous and extended infrastructure to support mobile will become a top priority for bank IT.
Mobile will spark IT challenges for banks to meet their customers’ shifting needs, and banks must develop a winning IT strategy to manage the new mobile ecosystem.
DDoS — An Attack on Consumer Confidence
Alphonse Pascual, Industry Analyst, Security Risk & Fraud, Javelin Strategy & Research
Trust is at the heart of the relationship between a financial institution and the consumer. The massive distributed denial of service (DDoS) attacks that successfully crippled bank websites in 2012 also had a direct impact on the affected banks’ customers. In the past, consumers have shown a willingness to trust in their bank’s ability to protect their financial information, but continued success on the part of the attackers in 2013 could very well change this perception.
The hacker group responsible for the aforementioned attacks, Izz ad-Din al-Qassam, forewarned of their intentions and delivered on their promises. Targeted U.S financial institutions, or the so called “American Zionist Capitalists”, have been placed on notice by these hackers on multiple occasions since September 2012 via public posts on Pastebin.com. While communication about the group’s known attack vectors between targeted institutions has facilitated a level of success in mitigating these attacks, that success has been uneven as many banks continue to suffer website outages.
As a result of these website outages, consumers have at times been unable to access their own financial accounts. Javelin research shows that financial institutions are held in the highest trust by their own customers; but overall, brands such as Visa and PayPal garner better consumer trust numbers than other financial industry players (28% and 23% of all consumers, respectively), and they currently rate above non-traditional companies such as Amazon, Apple, Facebook or Google.
In the coming year, if consumers begin to perceive that the inability to access their financial accounts also means that they are less than secure, the resulting flight to safety will be a migration of consumer financial activity from the affected banks to trusted alternative solution providers. Criminals will have succeeded in doing what the financial crisis of the last decade could not – convince consumers that their own banks are no longer safe havens and that it is time to move their business elsewhere.
Mark Sullivan, North America managing director of banking IT strategy Accenture
The top challenge in 2013 in banking IT will be speed. The key question is whether traditional banks can bring new technologies to market fast enough to retain and grow customers. Banking IT leaders must help drive growth agendas, in addition to providing cost effective IT services.
Continued shifts in consumer behavior, as well as emerging technologies, are changing what customers expect from banks and non-banks that provide financial services. This environment is creating challenges and game changing opportunities for institutions that can get new growth-enabling technologies to market quickly.
Bank CIOs must provide the technology to win the heated competition over who can provide an experience that is relevant to customers’ needs. That superior experience is often lacking today. The customer experience must be fueled by data. The value of this data hinges largely on its speed - the amount of time it takes from collection to insight, and from insight to action.
The technology capabilities now exist but banks must quickly implement them. If they don’t, new entrants, without the burden of legacy systems, may prove to be more nimble and offer more differentiated services to customers.
Regulation the Biggest Challenge
Judd Caplain, advisory principal, Banking and Capital Markets, KPMG
Banks are dealing with profound changes as a result of the financial crisis in 2007-08 and many are reinventing themselves as a result. Banks are grappling with how to replace lost revenue resulting from changes in customer behavior, how to adjust the cost base given lower revenues, and how channels for consumer interaction and delivery are being thought about and used, all of which create challenges for, and demands on, IT organizations. However, the biggest challenge bank IT departments face is ensuring their institutions are meeting, and complying with, various new regulatory requirements coming out of the Dodd-Frank Act, Consumer Financial Protection Bureau, Basel III, etc.
Although some of the new regulatory mandates change the business model and profitability for banks (e.g., reduction of ATM debit fees due to the Durbin Amendment, elimination of proprietary trading due to the Volcker rule, increased capital requirements due to Basel III, etc.), many new requirements exist that are very data, operational and IT driven.
Some examples include:
- Sourcing, ensuring accuracy, and automating the reporting of data for new liquidity requirements (e.g., Fed’s “4G” requirements), Basel III capital, and private fund (Form PF) reporting requirements
- “Operationalizing” and automating the new annual Resolution and Recovery Planning (RRP) and stress testing (CCAR) requirements
- Improving AML systems as the Fed and OCC require banks to bring more rigor to transaction monitoring
- Creating new functionality and interfaces in order to meet the requirement that derivatives are centrally cleared.
Banks need to meet these new non-discretionary regulatory requirements, many of which have a large impact on their operations and IT infrastructure. Banks can better manage this endeavor by inventorying requirements and needs and prioritizing where automation can improve the reconciliation, accuracy and reporting of the data.
Data Is Key
Barry McCarthy,SVP, Financial Institutions, First Data
Ongoing seismic shifts in the industry – such as regulatory changes, the need for new technology investments, and increased competition from alternative providers – will require banks to devise creative strategies to maintain profitability during 2013 and beyond.
Many institutions are succeeding with data-driven strategies for identifying new opportunities and enhancing value with their customers. Through predictive modeling, progressive institutions are using meaningful incentives to increase usage of revenue-generating products. Through sophisticated customer segmentation, data can indicate which products or services a financial institution should offer and in what sequence.
Banks can also enhance the customer relationship with sophisticated promotional management platforms that enable consumers to attach deals, coupons, and loyalty programs to payment cards or to their mobile wallet. Such offers reassert the value of the financial institutional relationship and encourage activity on that card or wallet.
As they face a rapidly evolving industry, it is essential for all financial institutions to use data to better understand consumer needs. They then can use that knowledge to enhance their core offerings and better meet those needs.
Cyber attacks a great threat
Luge Pravda, SVP, NetNames
One of the biggest IT challenges for banks in 2013 will undoubtedly come from ongoing DDoS cyberattacks by so-called "hacktivists" that block customers from accessing their online banking services. DDoS, or distributed denial of service, is an attempt to make a network unavailable to its intended users.
We saw these attacks occur on a massive scale in 2012 when a hacker group with Middle Eastern ties claimed responsibility for causing mass chaos at Bank of America, PNC Bank, JP Morgan Chase, SunTrust, U.S. Bank and others.
This was far from being an isolated incident, with the attacks escalating as the year draws to a close. DDoS attacks will probably not only increase in number, but in severity; they are positioned to increase at a growing number of application levels (so-called ‚Äúlow and slow‚Äù DDoS attacks); and they will become worse against smaller banks and businesses, who have less sophisticated security measures in place.
The DDoS threat also seems to be increasing in sheer bandwidth, as botnet digital muscle becomes ever cheaper -- it can be hired by the hour for less than your average latte. Banks will need to ramp up their awareness of impending attacks and immediate response in order to warn customers of slowdowns and non-access, and shield themselves using a combination of dedicated and cloud-based DDoS mitigation against savvier attackers.
With hackers devising new strategies daily, it is key that any solutions are scalable, robust and regularly updated, and consulting with security experts can help identify the next area of vulnerability for the bank.
Luge Pravda is Senior Vice President at NetNames USA, Inc. He can be reached at Luge.Pravda@NetNames.com
Big Data, Big Challenges
Michael Langenkamp, CCG Catalyst Consulting Group
A key challenge facing the banking technology community in 2013 is everyone’s favorite buzzword—“Big Data.” Bankers realize that to remain competitive, they have to understand their customers like retailers do, with the ability to predict and behavior offer the right products at the right time.
But the challenge is this -- bankers have long since realized the importance of data. Some have installed data warehouses, others have tried to implement profitability modeling, CRM, or data analytics all with varying degrees of success.
While bankers are still defining what big data really means in financial services, any data-related project must have heavy volume (either in terms of size or record count), high speed (real time or close to it), and incorporate multiple sources (for a bank, this would include their own internal data like transaction volumes and channels, as well as external data like social presence). All too often, approaching a project of this magnitude is simply overwhelming and remains undone.
Big data for banks may mean first connecting the dots among the data they already have. Think how much data runs daily through the bank—transaction history, channel preferences, communication preferences. Banks should invest in the technologies that integrate the data they already have, and then use that as the foundation to build “bigger.”
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