October 2011 Archives
With Zombie Fever in full swing, I was thinking about technologies in banks and credit unions we just can’t seem to kill. Five came to mind this afternoon:
COBOL: Plenty of software used in financial services is still written in COBOL (and running on mainframes for that matter). The cool kids don’t want to learn COBOL these days, so it’s getting tougher to find talent to support these legacy applications.
Internet Explorer 6 : Until recently, it seemed like there was always one vendor that’s holding financial services CIOs back from upgrading desktops to a later version of IE (and from Windows XP to Windows 7, for that matter)? Even my financial services blog with 8 readers still gets hits from IE6. What’s it going to take to kill this abomination?
Voice Response Unit: Even in the age of Internet and mobile banking, it’s a rare financial institution that’s currently thinking about the day they can shut down the voice response unit. Nobody’s VRU call volumes are increasing, but volume isn’t dropping quickly enough in many places to make a case for retirement.
DOS: You don’t see DOS a whole lot these days, but when you do it’s typically on the teller line where DOS-based teller applications are still alive and well (depending on your definition of “well”). With teller volume dropping, the upgrade to a web front-end isn’t easy for some to make a business case for, so DOS survives another year[1]…
PBX: Here’s another telephony technology that’s tough to kill. Mass-conversion to voice-over-IP (VoIP) telephony for the sake of standardization is tough to justify when the PBX is still depreciating, working fine, and interoperating with other VoIP systems at the Bank. Once these things roll off of the books, all bets are off.
And don’t get me started on zombie payment technologies…
For fun, I checked to see if anyone else was posting about zombie technologies, and sure enough IT World had a piece last week. I definitely would have put fax machines on my list if I'd thought of it first. So what zombie technologies are surviving in your shop?
[1] PROTIP: A good way to reduce your life expectancy is to take a locally installed DOS-based app from an experienced teller and replace it with a web-based front-end with ANY NOTICEABLE LATENCY WHATEVER ;)
Posted by Quintin Sykes on Oct 31, 2011
I was thinking about the topic of multiple deposit accounts earlier in the week, and the Bank Simple demo that Fast Company posted yesterday prompted me to post.
Banks used to have a variety of reasons for offering separate savings products (I’ll include money market accounts in this bucket) including:
- Ability to offer higher rates in exchange for restrictions on withdrawals
- Lower deposit reserve requirements at the Fed
- No PFM or other equivalent functionality for customers to set aside money for savings goals
- Source of overdraft protection for customers
From the customer perspective, the separate savings account provided benefits including:
- Higher rates
- Ability to have money set aside to meet savings goals or cover emergencies and see that balance separately
- Source of funds for overdraft protection
- Ability to set aside money for the benefit of someone else (child’s savings account, for example)
The reserve requirements problem has largely been solved with automated deposit reclass functionality available in every core banking system I can think of. PFM tools are widely available. Having checking and savings combined in a single account would mitigate the need for overdraft protection.
So, unless there’s a legal reason customers would want money in a separate account (because the funds are actually a child’s, for example), why not just adjust the interest rate structure of checking accounts and put customers in a single transaction account? Customers can use the PFM tool to adjust money set aside for savings and see what’s left (which is the concept behind Bank Simple’s “safe to spend”). Some PFM tools allow multiple amounts to be set aside for different savings goals. Interest rate structures can be tiered with typical interest checking rates for lower balances and typical savings/money market rates in upper tiers.
Dealing with a single account where possible seems like a win for both the bank and the customer. I suppose the remaining hurdle is the historic differences in interest checking, savings, and money market rate tier structures and the fact that banks have enjoyed the spread on customers that don’t optimize their interest earned. Non-PFM users may have a hard time with the concept, too, but maybe there’s a way to get them to set aside the balance in online banking without them knowing they’re “using PFM” if they’re hesitant to do so.
Posted by Quintin Sykes on Oct 28, 2011
A couple of days ago the WSJ ran a piece on Visa and MasterCard using cardholders' purchase data to target Internet advertising. Think this data might be valuable? From the article:
The trove of details about people’s credit-card activity would be a gold mine, ad executives say, because it illuminates a person’s budget, where they shop, what they buy and how they spend their time. “The combination of actual purchase behavior with attitudinal and demographic information provides an unparalleled understanding of the consumer,” MasterCard’s document says.
The article discusses potential use cases for leveraging purchase data as well as the privacy implications of linking cardholder purchasing data to that same customer’s web profile for targeting web advertising. Because of privacy concerns, the card associations' plans are either “scaled back” or in “preliminary” stages for now and they are moving down the road of selling aggregated purchasing and segmentation data.
Just because Visa and MasterCard can’t work with data at the individual customer level doesn’t mean banks can’t. I've written before about how banks can use this data to offer merchant-funded rewards, but I also agree with the take in American Banker earlier this week about how the daily deal business is ripe for disruption, too. From the article:
Banks are ideally positioned to do this targeting. They have access to customers' transaction data, which they can use on an anonymized basis to target deals. Every purchase on your card is a preference you have expressed. Amazon.com is trying to use its knowledge of your preferences to send you targeted deals via email and Kindle, and some have called Amazon the most fearsome Groupon competitor for that reason. But it pays to keep in mind that 80% of the average person’s disposable income is spent within 20 miles of home.
Banks and credit unions already have the attitudinal and demographic information along with purchasing behavior that Visa and MasterCard can’t directly use. So, rather than get a random Groupon offer for a colon cleanse or botox injection, I'd love to see my bank use what they know about my purchase behavior to give me a deal at a restaurant or store I might like. These recommendations can be based on customers with similar transaction history just like last.fm recommends music based on my listening history or Netflix recommends movies based on my viewing history.
Advances in business intelligence technology and continued declines in the cost of processing power and storage make the retention and analysis of this data feasible at a fraction of what it would have cost just a couple of years ago. This type of analysis can be leveraged in other flavors of offer programs, such as Foursquare.
If the data is only used within the financial institution (or sent to a trusted provider that administers the program) why wouldn’t a customer sign up for this, particularly existing users of daily-deal services like Groupon? It’s good for the customer, banks can use it to deepen relationships with merchants, and, yes, they can use it to improve checking account profitability and avoid levying new fees on customers.
Posted by Quintin Sykes on Oct 27, 2011
2012 planning is in high gear for many financial services organizations, so it’s top of mind in my conversations with technology and business unit leaders. Ron Shevlin put up a post earlier in the week that I left a comment on regarding disconnects between the CEO, CIO, and business leaders in a case study. One of my points was that the CIO (or CTO, Director of IT, or whoever the senior IT leader is) is set up to fail if they are essentially the sole owner of project prioritization.
As strategic plans and technology plans are updated, now would be a good time to think about your IT governance process and how it might evolve in the coming year. Time and time again I have conducted reviews of technology organizations where the primary source of business unit dissatisfaction was a lack of communication with IT and a lack of transparency in the IT project approval and prioritization process.
Whether you’re leading IT for the entire company or just a business unit, if you and your team aren’t out communicating with the business on a regular basis, how do you have a clue about how well your people, process, and technology are serving the business unless they complain? I couldn’t be everywhere at once, but I did make sure to have people called Technology Relationship Managers (TRMs) that were aligned with each business unit. Between me and the TRMs, we had a proactive outreach program throughout the year to communicate, understand how we were performing, anticipate needs, and assist business leaders with getting their projects through the business case approval process.
Approval and prioritization processes should be transparent. Dissatisfaction is rampant in organizations where it’s normal for business leaders to go to the CEO or CFO, get a project approved, have the project show up in the IT queue, and have the CIO prioritize. In these cases, business leaders don’t know what projects are going on elsewhere in the company and much of the time don’t know where their own projects are in the queue. With an open governance processes, leadership throughout the company participates in a rigorous project vetting and prioritization process. I've said before that this kind of process won’t prevent managers from being unhappy about where their project is in the queue (or unhappy their project wasn’t approved in the first place), but they can’t blame the CIO for these things.
These are just a couple of elements of an IT governance program that attempts to anticipate technology needs and shed light on the portfolio of projects that IT is being asked to execute on. A transparent prioritization process also makes it more likely that the “right” things are being worked on, assuming management has a reasonably coherent strategy and committee members are looking beyond their narrow interests. These elements would have helped in the case study I referenced earlier and they can help your financial institution, too. CIO’s can’t go it alone.
Posted by Quintin Sykes on Oct 26, 2011
Wow, look what just came in the mail.
Dear Bank Stanky Customer With a Balance Under $10,000,
We appreciate your continued business with Bank Stanky. Like you, we have been impacted by these turbulent times. So that we can maintain our bonuses in the wake of reduced overdraft and debit card fee income and continue to provide you with our signature “Step-Into-Stanky” Service, we have instituted new fees effective November 1, 2011:
Fire Suppression Charge: $1/month. Building codes and fire marhals require our institution to maintain sprinkler systems in our facilities. This intrusive government regulation does not come without cost to the Bank, so we must pass this charge on to the users of our facilities.
Stadium Signage Surcharge: $.50/home game. Bank Stanky is proud to support our local sports teams at Stanky Field. Your local taxes already paid for the construction of the stadium, so we’re sure you won’t mind chipping in for our naming rights. Send us a self-addressed stamped envelope and we’ll send you a coupon for a free small Pepsi next time you’re at the ballpark.
We’ll Keep The Change Program: $.01-$.99/transaction. We know it’s a pain to keep track of spending to the penny. And a bunch of tiny deposits into your savings account are a pain to keep up with. For your convenience, we will be rounding up all of your transactions to the next dollar and keeping it for ourselves. You can thank us next time you’re balancing your checkbook.
Premium Facilities Fee: $1/month. We could have put our branch in next to the Papa John’s in the Shady Acres strip mall but chose instead to establish a more substantial presence in your community. Because we have invested in a regional headquarters complete with private bankers, mahogany, rich corinthian leather, and a marble staircase it’s important we recover these costs from the beneficiaries.
By increasing your checking balance to at least $10,000, you will qualify for Gold status which is exempt from the above fees. Until then, you will remain in Brown status and will incur these new fees beginning next month. We look forward to restoring our prior levels of fee income. If you have any questions, do not hesitate to contact your Stanky Banker.
Sincerely,
Bank Stanky Management
In all seriousness, the recent spate of fee announcements has been pretty ugly but it hasn’t come to this (yet). I asked the question yesterday about whether we as an industry have just given up on the little guy rather than find ways to charge for services customers value or operate more efficiently. I try not to raise a question like that without having some potential answers. Here are a few things I've thought of:
There’s something to be said for the freemium model when it comes to web and mobile applications. You can pay up for premium features and avoid advertising, or you can get many of the benefits of the premium version with a free, ad-supported version. Maybe it’s time for sponsored Internet and Mobile banking for customers that might otherwise be subject to fees. If a bank’s determined a customer is unlikely to buy an additional product, why not use the screen real estate to promote a third party product that’s of likely interest to the customer and take in some advertising revenue?
Byproducts of checking accounts such as transaction data can be used by banks to improve service and potentially generate income. Merchant-funded rewards are a recent example of a service banks can provide that gives the customer something of value and doesn’t impact the bank’s bottom line. I haven’t seen all the fee-sharing/pricing models on these programs, but why couldn’t banks make a bit from this?
Consumer insight can be gleaned from the ton of historical data that payments produce, too. With the recent advances in Big Data are banks getting value from analyzing spending behavior. Or, is there a market for aggregated, sanitized transaction data—are there audiences that would pay for access to purchasing trends? Can banks find value in their payment data to cross-sell merchant services more effectively? Seems to me there’s gold in there somewhere—is the value of this transaction information figured in anywhere in profitability models?
Finally, customers will pay for things they value. Maybe it’s a dumb example example, but has anybody piloted or looked at the P&L for some sort of overdraft notification service, where a bank could send a message to subscribers when they will overdraw unless they make a deposit by the close of business? If the fee income from a monthly/annual service fee exceeds the lost overdraft income, the customer gets something they value (the ability to avoid overdrafts by being warned in time) and the bank wins, too. Probably small potatoes on this one, but you get the idea.
Those are just a few examples. As I said yesterday, banks have probably put some thought into these recent fee increases. I'm just not completely confident that we as an industry have looked at other options besides increasing fees on basic checking and payment services that have historically been free. The answer could be premium-priced services, it could be other parties footing part of the bill, or it could be efficiency improvements. There’s more than one way to change the checking profitability equation. This guidance might also serve those institutions that are the beneficiaries of runoff from large banks so that they can take on these new relationships profitability.
Posted by Quintin Sykes on Oct 25, 2011
By now I could fill a warehouse with the commentary on recent fee moves by large financial institutions and the wisdom surrounding them. Schools of thought include:
- Large banks are clueless, recklessly pursuing additional fee income to fill the hole left by Durbin, overdraft, CARD act, and other fee-limiting legislation; and
- Large banks have an adequately-thought-out plan to make unprofitable relationships at least marginally profitable or run them off
I’m in the latter camp (along with Ron Shevlin, who did a nice math exercise earlier in the month) but banks’ performance in communicating the increases leaves much to be desired. Large banks are waving the Durbin-hurt-me flag as they make their moves, but what they don’t understand is nobody cares what Durbin did to them. And nobody’s going to start caring. That said, large banks have every right to set fees as they see fit (and Rep. Peter Welch’s claims of collusion on the recent round of fee increases are nothing more than an extension of Durbin’s populist spew).
While I think the large banks believe the increases will induce desired customer behavior (pay fee, expand relationship, or leave), are there alternatives to these increases that many will see as punitive and arbitrary? Banks certainly don’t have any sort of bailout-related fee obligation, but after the U.S. taxpayers were kind enough to ante up a ton of bailout cash, why would these banks poke them in the eye again? Have we as an industry exhausted other avenues of actually providing new or enhanced services to these customers that they would value (and pay fees for) as opposed to slapping fees on products and services that have been free for years? Has the industry done everything it can to get impacted customers to leverage self-service vs. assisted service channels to improve the profitability of these relationships while at the same time improving customer convenience?
The scale of the exodus of customers to community banks and credit unions remains to be seen, but there will be a considerable number of fee refugees. So, a second debate now rages on the potential profitability of these customers. As these customers are onboarded, these institutions have an opportunity to put them in a checking/relationship product that both fits customer needs and encourages desirable use of self-service channels, minimizing expense.
Adding a substantial number of potentially unprofitable relationships is a risk, but perhaps this is an opportunity for institutions interested in retail growth to take a look at their front and back-office technology, process, and organizations to ensure they are running as efficiently as possible, allowing additional growth without a comparable increase in staff, improving both service levels and the profitability of all relationships.
Free checking, free debit card, etc. isn’t a God-given or government-given right (yet). I’m just trying to get my head around the question of whether the industry has done everything it can to try and serve these smaller relationships profitability. So, are these fee moves clever, clueless, or did large banks just give up because that’s the perceived easy, quick-fix answer?
Posted by Quintin Sykes on Oct 23, 2011
