Archives for September 2009

10.29.09: Celent Banking Webinar: IT Spending in Banking: A North American Perspective

Celent senior analyst: Jacob Jegher

This event is only open to Celent clients.

Please click here for more information.

SCF is dead. Long live GTS

Two years ago at SIBOS most of my interactions were around the topic of what was SCF (Supply Chain Finance). Banks were truly interested to know more about it.

Last year, at SIBOS in Vienna, the conversation was on what banks had ready (or almost so) to go to market with their SCF products and services. The questions were about pricing and what technology was best.

This year, at SIBOS Hong Kong, SCF was “missing in action”.

Apparently the term is not so “catchy” any longer. Major cause, in my opinion, is because SCF has been always confused with Supplier Finance (i.e., invoice-centric, post-shipment, payables financing). This has relegated the entire area to a subset of Trade Finance, at the very best at the same level as LC’s (letters of credit).

When I was almost there to surrender to frustration (SCF is one of my preferred areas of coverage – read my reports Supply Chain Management: A Source of Corporate Liquidity and Business Models for Supply Chain Finance Services) to my rescue came the panel with the heads of Global Transaction Services (GTS) from Citi, HSBC, BofA, Deutsche Bank.

Well, what they were taking about as the “next big thing” was, guess what?, Supply Chain Finance services. They just used a different tag: GTS.

This is not to say that GTS is a new invention. What is new, I feel, is that the services under the GTS “umbrella” (cash, trade finance, payments, FX) will be ever more offered in bundle, to cover the financial supply chain needs of corporate clients.

Bottom line for banks

  1. SCF is not (only) supplier finance
  2. GTS is the name of the game
  3. Internal organization, knowledge of business processes, and technology investments are the pillars

Bottom line for corporations

Start comparing banking offers under the light of their ability to cover the larger spectrum of the procure-to-pay and order-to-cash processes

Here Comes the Assualt on Overdraft Fees

Earlier this year, Oliver Wyman, Celent’s parent company, published a report, Insufficient Funds: The outlook for deposit fees and implications for banking institutions. In the report, the authors argued that the current deposit fee picture was unsustainable. Too few customers are paying too high a percentage of the fees, while the vast majority of customers pay no fees at all.
From the report, Insufficient Funds: The outlook for deposit fees and implications for banking institutions

From the report, Insufficient Funds: The outlook for deposit fees and implications for banking institutions

The report concludes: “Institutions that can put a definitive fee transformation strategy in place are likely to find they are well-positioned for the future. In contrast, institutions that remain exposed to the choices of regulators and consumers do so at their own peril.” It might be too late. A regulatory imperative to act may be close aboard. The Obama administration has proposed the creation of a new agency empowered to write and enforce rules protecting consumers in financial transactions, removing that power from banking regulators. But as debate for that idea simmers, more proximate danger lies ahead in the form of legislation specifically targeted at outlawing courtesy overdrafts without consumer opt-in. According to the Washington Post, Sen. Christopher J. Dodd (D-Conn.) plans to introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically. If customers decline and then try to overspend, the transaction would be rejected. A similar bill is pending in the House. But hasty changes to bank’s DDA pricing policies could be risky. A careful strategy is needed – and time is of the essence it appears. Creative solutions may be the answer. Several very interesting and creative products have emerged in 2009 that will likely put the competitive squeeze on banks that remain reliant on NSF fee revenue. These deserve a close look.
  • ING Direct now offers an online-only interest-bearing account it calls Electric Orange with free overdraft protection
  • BancVue offers a turn key rewards checking product that is taking off among community banks and credit unions. The product, Kasasa, comes bundled with marketing, training and consulting aimed at maximizing the impact of the new approach.
  • USAAis promoting its free checking product with free overdraft protection, free limited ATM withdrawls and the ability to deposit checks into your account with a home scanner or even an iPhone.
  • Bank of America, CitiBank, Wachovia and others are promoting creative savings accounts which when bundled with DDAs will likely grow average deposit balances.

Peeking Out From Under The Hood – Next Generation Online Cash Management

It’s been about a year now since I wrote the report, Web 2.0: A Quantum Leap for Wholesale Banking. I predicted it would take a good 12-18 months before we would begin to see cutting-edge corporate online banking sites complete with Web 2.0 elements. Alas, we are starting to see some interesting solutions peek out from under the hood. At SIBOS this week, Citi unveiled CitiDirect BE, its next generation online banking platform. “BE” stands for Banking Evolution, and there are certainly evolutionary components to the new solution – electronic bank account management, the use of a dashboard, a video section, etc. The new solution leverages Microsoft SharePoint. This announcement is material for several reasons:
  • Banks must emphasize innovation. In order to remain competitive and take a leadership position, banks need to work on innovation. It is important to recognize customer requirements, and stay one step ahead of them.
  • Banks need to focus on customer experience. Innovative banks are on a path to improve the overall online customer experience of their core cash management products. Cash management features are mature for the most part. Customer experience and ease of use is where the real challenge lies.
  • Banks must embrace online trends, not shy away from them. The online world moves at lighting speed and banks need to keep up with some of the trends. A great example is the use of media (e.g. video, blogs) to further knowledge and emphasize education.

Further details and some screenshots can be seen in the following video clip with Gary Greenwald (Chief Innovation Officer at Citi). Gary Greenwald’s efforts have not gone unnoticed – he was named yesterday to the Bank Systems & Technology Elite 8.

Citi wasn’t the only bank to come out with interesting news at SIBOS. Bank of America signed a deal with Fundtech for its Global PayPlus platform. The goal is to create a payments hub that will be part of BofA’s next generation cash management solution. It’s all about efficiencies, and when everything is said and done, Bank of America will have a single payments processing platform. The payments hub will support payments initiated across all channels. It sounds pretty impressive and I look forward to learning more about this when it goes live (target is second half of 2010). American Banker published a good article that highlights both of these initiatives.

Baucus’ Plans Holds Hope For Healthcare Banking

Senator Max Baucus’ (D-MT) long-awaited healthcare reform bill Chairman’s Mark (draft) was finally released today. I haven’t had chance to dive into the details, but a few interesting healthcare banking-related points jumped out:
  • The worst-case scenario did not materialize: FSAs, HSAs and HSAs are not targeted for extinction.
  • However, there will be limited contribution amounts for FSAs (there weren’t any before). Also, there will be stiffer penalties for misuse of HSA funds. Furthermore, HSA contributions from employers and/or salary reduction contributions from employees will be figured into calculations for excise taxes on “gold-plated” health plans.
  • Something that makes me very happy — healthy lifestyle incentives! The bill draft reads: “The Chairman‘s Mark would authorize and appropriate $100 million over five years for the Secretary to establish an initiative to provide incentives to Medicare beneficiaries who successfully complete certain healthy lifestyle programs. Programs would target the following risk factors: high blood pressure, high cholesterol; tobacco use, overweight or obesity, diabetes and falls. The Secretary would establish a system to monitor beneficiary participation and validate the results, as well as set standards and health status targets for participating beneficiaries. Prior to establishing the initiative, the Secretary would review evidence concerning healthy lifestyle programs and providing incentives to individuals for participating in such programs. The initiative would be implemented on January 1, 2011”.

FFIEC Guidance on RDC Risk Management: Are We any Safer Now?

The Federal Financial Institutions Examination Council, FFIEC, issued its long-awaited guidance on remote deposit capture risk management in January 2009. The document clearly precipitated a flurry of activity among virtually every bank engaged in RDC. To many banks, the guidance was akin to raising the homeland security threat level from Green to Orange. RDC must be risky – I’d better do something! But a question arises now, some nine months since its release; did the guidance help banks better manage the risks associated with distributed capture? Are we any safer now? Celent offers two data points that suggest the FFIEC’s efforts, while well intentioned, did little to impact the operational readiness of banks’ RDC programs. What Really Matters Celent conducted a survey of US financial institutions in August 2009, generating 174 responses among RDC deploying banks, thrifts and credit unions. Respondents were a mix of product managers, executives, sales managers, operations and IT personnel. The survey sought to better understand the state of the industry and gauge future opportunity and adoption trends. One question asked respondents to rank various aspects of their RDC program in order of importance. The question was a forced ranking, so respondents couldn’t say that everything was important. The specific items on the list were drawn from multiple bank interviews that preceded the survey. The results were telling. With so much on their plates, and with so much unrealized opportunity in RDC, regulatory compliance was considered among the most important activities to be undertaken. Matters of customer service and reducing operational risk were judged to be less important. Interesting. The reported focus on regulatory compliance – second only to maximizing deposits (the very reason RDC exists for most banks) was reinforced in post survey telephone interviews. Banks have been so demonized by the press, administration and elected officials, the last thing banks need is any further risk of bad PR or regulatory punishment. Hence compliance is nearly Job #1.
Compliance Ranked a Close #2

Source: Celent FI survey, August 2009, n=174

What Specific Actions has the Guidance Caused? Another question in Celent’s August 2009 survey specifically asked: “What specific activities, if any, have you undertaken in response to the FFIEC guidance on RDC risk published in January 2009?” The question invited an open-ended response. Virtually every bank took action. A very small number of responding FIs asserted that no action was required because, after reading the guidance, they found themselves to be 100% in compliance. Hardly. The table below groups the open-ended responses and lists them in order of frequency. The top 3 actions account for the majority of responses. Specific Activities Undertaken as a Result of FFIEC Guidance • Reviewed and revised policies and procedures • Performed an internal risk assessment • Tightened up deposit services agreement for RDC • Ensured process and product in compliance • Implemented deposit limits and improved reporting • Implemented spot check of client retention and destruction procedures • Tightened underwriting • Increased security guidelines • Improved intra-day deposit review Source: Celent FI survey, August 2009, n=174 Thus, the FFIEC guidance has precipitated significant effort among thousands of banks – at great cost – to document and formalize what many banks were already doing. Tangible new efforts that would arguably identify and mitigate risk (deposit limits, improved reporting, intra-day deposit review, etc.) were relatively infrequent responses to the guidance. Hopefully, now that the dust has settled on the FFIEC guidance, financial institutions can get back to creating new ways to better serve their customers.

Now Accepting Nominations For Model Bank 2010!

Our Model Bank Report is one of our most popular reports – and for good reason. It showcases and profiles innovative and exemplary efforts in banking. In addition to having their best practice case study publicized in the report and in the media, each featured bank will receive an award at Celent Innovation & Insight Day in NYC (May/June 2010, exact date TBA). We anticipate featuring initiatives from 20-25 banks in case studies of 100-200 words. We are now accepting nominations for the 2010 Model Bank report. Our online nomination form is at If you would like to read the 2009 Model Bank Report, it can be found here. If you have any questions regarding Celent’s Model Bank initiative please post them here, or contact me on Twitter @jjegher .

How Healthcare Reform May Breathe New Life Into Rewards

Last week, I came across an intriguing Op-Ed piece written by Michael Pollan in the New York Times. With the backdrop of healthcare reform and universal coverage (i.e., anyone, even with pre-existing conditions will receive health insurance), Pollan states that insurance companies will have more of an incentive to control behavioral-based conditions, such as diabetes, coronary disease and some forms of cancer. Pollan further argues that given that many of these diseases are linked to obesity, the health insurance industry may go after the agro-food business, as a way to limit the production/sale of unhealthful foods. Taking on the agro-food business and its lobbyists in DC would be a monumental task, even for the powerful healthcare industry. Rather than pursuing this path, health insurers may have a far easier option — wellness rewards. To illustrate my point, let’s do some simple, back-of-the-envelope math, just focusing on Type-2 diabetes. (All) Diabetes sufferers comprise about 8% of the population and require on average (according to Pollan) $6,600 a year in medical treatment. 8% of the 45 million uninsured population to possibly receive healthcare coverage under reform would be 3.6 million people, with a total annual treatment cost of $23.7 billion. Yikes, that’s a lot of money, >$500 per currently-uninsured person. What if health insurers gave $250 to everyone who visited the gym 100 times a year? What if they gave $100 to everyone with Type-2 diabetes who kept the glucose levels under control? The savings (i.e., reduced need for medical care) would be significant. Rewards could be applied to any number of other conditions, pre-conditions or lifestyles — they all hold the potential to save insurers money. Of course, wellness rewards are nothing new and have a number of regulatory/legal considerations (for more, please refer to Celent’s report, Fit to Be Paid: The Dynamics of the Wellness Reward Market) . However, what is new is that whereas employers have historically funded rewards, healthcare reform may mean that insurers will start funding rewards as well. If so, it may mean new lines of business for wellness reward players such as Citi Prepaid, IncentOne and WebMD.

Rumor Mill: Intuit to Acquire for $170 Million

An interesting post on TechCrunch caught my eye this morning. They are reporting that Intuit is a few days away from announcing the acquisition of The deal is valued at an estimated $170 million. It is certainly a great feat for, and outspoken CEO Aaron Patzer. At the 2008 Celent Innovation & Insight Day, I had the pleasure of having Aaron sit on a panel I was moderating on Web 2.0 (see the following summary in Bank Systems & Technology). What are the ramifications of this deal? It’s a bit of a bizarre acquisition since Digital Insight (an Intuit company) already has a PFM product called FinanceWorks that they are offering to financial institutions, as well as Quicken Online which is a consumer-direct product. There is however no doubt that Intuit is all-in when it comes to PFM. They clearly want to control the market as Mint claims well over 1 million users and Quicken has been quick to boast that it is not far behind. It’s also the final jab at the already dead Microsoft Money. How Intuit will add to this product suite remains to be seen, but is certainly not immediately apparent. There are a few challenges with this acquisition:
  • There is a big difference between number of users and number of ACTIVE users. Total number of users is a meaningless figure. Anyone can sign up for an account, try the service, leave, and never come back. The number of active users is not a publicly available figure and they are the ones that really matter here. Intuit will obviously acquire Mint’s user base as part of this deal and it would be useful to know more precise figures regarding active users.
  • Mint’s business model is questionable. Mint has always been clear that they believe consumers should take care of PFM with them instead of with a bank. While they have been successful at growing their user base, it’s unclear if they have actually been able to generate revenue. They started off with a model based on referrals and suggestions (e.g. suggest a new credit card that may be better than the one you currently have). In May announced that they “may begin to sell anonymous consumer data” (see my blog entry, The Risks of PFM Revealed), a practice I am very much against.

I would also like to point out that this could be good news for banks who are looking at their PFM options. A combined Mint/FinanceWorks solution offered to financial institutions could prove to be a compelling option. This could be particularly appealing to midsize to large banks who want to work with an experienced vendor like Digital Insight / Intuit.
UPDATE 11:43am. Intuit confirms acquisition

Obama Speech: No Red Flags (Yet) For HSAs

Like many of you, last night I watched President Obama’s address to Congress regarding healthcare. I was particularly attuned to any information that might reveal the administration’s views regarding consumer-directed healthcare (CDH) and accompanying tax-advantaged accounts, such as HSAs. One passage of President Obama’s speech (that raised Republican heckles) mentioned that the details still have to be worked out. Some of these details presumably include the definition of minimal sufficient coverage and whether CDH plans such as HDHPs (high-deductible health plans) meet the actuarial equivalency test — something I’ve blogged about before. Having said that, I didn’t hear President Obama ruling such plans out. In fact, he made references to “affordable options” and “low-cost insurance” — could these be euphemisms for high-deductible health plans (HDHPs)? President Obama also stated his position in support of individual and employer mandates — if this comes to pass, tens of millions of new insurance customers (many of them low-income) will enter the market. Combine all of the above and HSAs have a chance to really flourish. As an aside, I was disappointed that there was no mention of Americans’ personal responsibility toward their own health — something that the Republican response at least alluded to.