Business Online Banking Risks – Banks Need to Proactively Educate Customers

Business Online Banking Risks – Banks Need to Proactively Educate Customers
I just returned from the Digital Insight National Client Conference in San Antonio. I was invited to speak on social media for banking, and I also took some time to attend several of the sessions. One of the sessions I attended was a panel discussion with a group of four commercial businesses. These middle market firms discussed various cash management and online banking issues and described how they run their businesses. Eventually the discussion turned to security and the moderator asked the firms about their security best practices. Each firm described their setup and one of the businesses described a fraudulent incident where a keystroke logger was installed on a computer used for online banking. Three out of the four panelists were unaware of the rash of business online banking fraud that has hit the market (see my blog entries on this here and here). I asked the panel if their financial institution had contacted them recently to make them aware of some of the risks, or if their financial institution had implemented new policies or solutions that they would be required to adopt. The answer of all four businesses – a flat out no. Their banks had not contacted them recently about anything related to security. Needless to say I was not entirely surprised, but I was frustrated by the situation. Business banking is very much about relationships. Banks should be investing in these relationships and at the very least should be providing educational tools and support to their customers. Given what is going on in the market, security education isn’t an option but a strict requirement. Even with the various warnings and advisories that have come out it appears that banks aren’t doing enough to proactively educate their customers. There is a lot at stake and just this week several agencies have issued an ACH and wire fraud advisory. I agree with most of the points of the advisory. However, there is nothing mentioned regarding security education in the section called, “Actions for Financial Institutions.” Additionally, the recommended best practice for businesses is to use a dedicated computer for online banking. This is completely unrealistic and counterproductive. Before you know it we will all need to have separate computers to login to facebook, another to send email – you get the pictures. This scare tactic also has the potential to reduce business online banking adoption. Proactive and ongoing security education, smart practices (e.g. setting dual approval, limits) coupled with multiple layers of security solutions can solve a good chunk of this problem.

AFP Conference Highlights and Review

AFP Conference Highlights and Review
I spent most of last week at the AFP conference in San Francisco. Although attendance seemed to be rather dismal (I am still waiting to hear some actual figures), it was a great conference for me with very productive meetings. Most of my meetings were centered around online corporate banking and payments – hot topics these days. It did give me great satisfaction to learn that the estimates we came up with for IT spending earlier this year are on the money. IT spending on wholesale/corporate banking is skyrocketing (see the report, IT Spending in Banking: A North American Perspective) and some of the figures shared with me are staggering. I will actually be hosting a webinar on Bank IT spending on Oct 29th for those of you who are interested. Aside from IT spending growth, I noted several trends:
  • Next generation online cash management solutions are here. Bank of America, Citi, and some of the software vendors showed off some great online cash management solutions. For more info see my recent blog post, Peeking Out From Under The Hood – Next Generation Online Cash Management.
  • Online cash management will continue to evolve. Analytics, social media (primarily closed groups for corporate clients), interactive online training/education, desktop and online widgets, and MUCH more will start to peek out in 2010. I will cover some of these trends in the next iteration of our IT Spending report (due out in January 2010) as well as a future cash management report.
  • Payment hubs are transitioning from concept to reality. There has been lots of talk about payment hubs over the years, with few compelling live examples. Solutions that clean up the mess of back-end systems coupled with clean, simple and intuitive front ends are on the horizon.



Any other trends worthy of noting? Please feel free to chime in, your comments are welcome.

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

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.

Businesses Require Better Protection Online

Businesses Require Better Protection Online
Banks have taken many steps to protect customers online. Multifactor authentication (MFA) , policies for online banking, and consumer education, are among some of the sentries in place. The FDIC however issued a warning last week specifically aimed at the business online banking / cash management space. The alert relates to financial institutions that provide payment services online, and indicates that over the past year there has been an increase in the number of reports and losses related to online EFTs. The alert specifically mentions, “malicious software, including trojan horse programs, key loggers, and other spoofing techniques, designed to circumvent online authentication methods.” This is of particular concern as more banks are attempting to increase usage of the online channel for payments. For example, Celent is seeing a trend towards banks offering small businesses the ability to send wires online. Even consumers in some instances are being offered the ability to send wires online (see the NetBanker blog, “Bank of America to Eliminate Wire Transfers from Branches, Moving Volume to Online Banking.” In Celent’s opinion, small businesses and consumers are quite vulnerable since they do not have a corporate IT department that can update virus protection or teach them what to watch out for. Additionally, most small businesses have not been issued the appropriate MFA solutions required to send a wire or other payment online. Relying on the familiar image/phrase and/or challenge questions won’t cut it. I’m not saying that MFA is perfect – it too can be bypassed. However, Celent does believe in the use of tokens (hard or soft), or out of band authentication when dealing with high value payments. There are several steps banks should take:
  • Banks should implement a transaction monitoring solution (if they have not done so already)
  • Banks should adopt out of band authentication solutions (e.g. replace traditional token by sending a one-time password to a mobile phone via SMS)
  • Banks should consider offering mobile soft tokens (e.g. an application on an iPhone or Blackberry that provides a one-time password). For more details see the following Celent blog entry, “Move Over Token, My iPhone Can do The Trick
  • Banks should revise certain policies and procedures (e.g. require a token, more frequent password resets)
  • Banks should emphasize new customer education tools (e.g. training videos / blogs / podcasts on online risks, importance of virus protection, etc.)

Flavor of the month

Flavor of the month
As I tour Asia there seems to be a consistent trend. Most banks in the Far East are taking a new look at wholesale services such as trade finance and cash management. The top global banks are beefing up their offerings. Top tier national banks are thinking about whether to build their own capabilities or partner with some of the global players. I have come across banks in India, Malaysia, Singapore, and Japan who are all saying much the same thing. Speaking to a top bank in Malaysia, “We don’t consider Malaysian banks as our competitors, but want to compete with the big global players.” What is driving this trend? Business isn’t booming in Asia, but it hasn’t ground to a complete halt either. Banks are looking to both gather deposits and generate fee-based revenue. Cash management fits that bill rather nicely. This isn’t an easy business and requires global infrastructure in one way or another. One way would be to partner with a global bank and use their capabilities. Another would be to build the technology infrastructure and find local partners in each market where the bank chooses not to establish international branches. Because so many banks are expressing interest, I am concerned that the market will become too crowded, driving margins down. If a bank wants to get into this business it needs to understand where it will play and why it will win. Banks haven’t yet thought that through.

The Online Corporate Cash Management Market is on Fire!

The Online Corporate Cash Management Market is on Fire!
Consumer online banking gets a lot of attention in the industry. It’s important to remember however that online banking reaches far beyond the consumer space. Businesses of all sizes bank online and they require more sophisticated solutions. We recently evaluated the vendors who provide online corporate cash management solutions. The report, The Next Generation of Online Corporate Cash Management Solutions is of particular importance for 2 reasons:
  • Online corporate cash management is taking center stage this year in the wholesale banking space.It is receiving increased attention as banks look to upgrade or augment their aging platforms to woo additional business. Growing corporate relationships is a major theme as banks aim to offset the lackluster growth on the retail side and focus on higher margin businesses that contribute to noninterest income. In fact, spending growth on online corporate cash management solutions by far exceeds IT spending growth of the overall banking industry.
  • Celent believes that a great opportunity exists for one or more vendors to stand out from the pack by demonstrating a differentiated Web 2.0 user experience. This has already started as a handful of the vendors we evaluated showed off differentiated experiences using Web 2.0 elements. Dashboards, interactive reporting, and improved user interfaces are starting to pop up as the vendors recognize the need for change and improvement.
If you want to find out how the vendors stack up using our ABCD methodology, please read my new report, The Next Generation of Online Corporate Cash Management Solutions. Celent can also customize this report for your financial institution to provide further information, and help you choose the vendor that is the best fit for your requirements. Please send me an email if you would like more information.

Cash may no longer be King, but…

Cash may no longer be King, but…
Lest there be any thought about cash going away, use of cash in the US continues to increase despite the rapid growth in the use of electronic payments. The Federal Reserve reports the dollar amount of currency in circulation has grown 88% in the past 10 years to US$770 billion in 2007 and US$889 billion in late 2008. Meanwhile, the amount of cash ordered and deposited through Federal Reserve Banks has increased 75%, to over 27 billion banknotes annually. This trend may seem reasonable in light of the US economic and population growth over the period. For perspective, per capita cash in circulation grew from US$183 in 1985 to US$2,537 in 2005 based on US Bureau of Census population estimates, or at a rate of 6% CAGR – well above the 4.2% inflation over the period. Cash usage is growing – absolutely. Meanwhile, cash usage at traditional point of sale locations has been remarkably steady alongside the dramatic growth in debit card usage. As a percentage of POS mix, cash declined from 39% in 1999 to 29% in 2008 according to recurring research by Hitachi Consulting. The data suggests debit card growth has primarily come at the expense of check usage at point of sale which has dropped from 18% to 8% over the period. There appear to be two dynamics at work. The first is our stubborn affinity for cash payments. Immigration trends as well as grey market economic activity also contribute to the sustaining popularity of cash payments for obvious reasons. Another factor has been the worsening economic conditions of late. 2008 has seen a return to an 8% CAGR of cash in circulation. The fourth quarter alone witnessed a 5.4% growth corresponding to US$45 billion in additional cash in circulation. This suggests the worsening recession impacted holiday spending, reversing the long-term trend favoring credit and debit card usage at point-of-sale. On top of that, there is clear evidence of cash hoarding as seen by the significant rise in the number of high value notes in circulation. Celent expects cash in circulation to peak in the next two years. So in addition to investments in alternative payment mechanisms, Celent encourages banks to revisit their cash logistics management systems. In many banks, there may be significant opportunity for cost savings. On the product side, a growing number of banks are being rewarded for their support of remote cash capture solutions. Remote cash capture will be the topic of a forthcoming Celent report.