American Savings Bank’s implementation of an enterprise-wide banking solution based on the Signature Bank Platform from Fiserv marks a radical overhaul of the Honolulu-based firm’s technology infrastructure.

In total, American Savings will take 22 different products from the Fiserv range. “We are implementing the core processing suite, teller, sales and service, Internet banking, bill pay, image content, capture and GL, to name a few,” notes Rick Robel, executive vice president, operations & technology with the bank. And the systems will cover an array of business areas: “All our sales, service delivery channels which includes call center and Internet banking, all of our operations, finance and accounting, reporting, and technology.”

The project was initiated when American Savings’ contract with its previous platform provider came up for renewal. As a matter of policy the bank put the contract up for tender, and after assessing the options available opted for the Fiserv platform, which it will use on an ASP basis, with some of the server client-based services implemented in Honolulu, says Robel. Cut over to the new platform is scheduled for May 2010.

A particular issue the bank is seeking to address with its new infrastructure will be the lack of automation in its processes to date. “One of the things we are trying to improve in the area of efficiency is data entry and workflow improvements,” says Robel. That means being able to enter data once in the system to cut out redundant inputting, having less screens to process, plus screen and data collection logic that is built around the needs of users in service and sales, he explains.

“With Fiserv our users will rely on one system. For example, tellers will use only the teller application, while new account/account service representatives will use the new account system for contact and basic referral processes. So they won’t use core and/or other native application screens, which is what happens today. This will improve the speed by which we can open accounts and cross sell, as well as reduce our training time.”

The bank will enhance its internal efficiencies too through the move to a more Web-based solution, notes Robel, by reducing its server dependencies in its branch delivery channels, and enabling it to speed up transaction processing times. Meanwhile, “our customers will benefit on many fronts, for example in our ability to process transactions faster, process new accounts faster, and offer more services through our Internet banking channel.”

A crucial enabler for American Savings to achieve its efficiency goals therefore is Aperio from Fiserv, says John Macaluso, chief technology officer, Bank Solutions with Fiserv. The system is based on the Microsoft .NET Framework, and utilizes the entire Microsoft solution stack – including Microsoft SQL Server and Microsoft SharePoint – around the desktop and servers. Fiserv also plans to incorporate the EnAct Enterprise Sales Management system, powered by Microsoft Dynamics CRM, into the Aperio platform for better sales force automation by the end of this year.

“Aperio is a business process engine that sits across the enterprise and allows the bank to move from transactional interaction to more process-level interaction,” Macaluso explains. “For example, this means we are able to improve significantly the process of opening an account in the traditional branch location. But because of the Microsoft architecture underpinnings, we are able to employ the same process that we use in the branch in the call center and over the Web as well.”

As a result, customers get a consistent experience in their dealings with the bank whatever the channel of contact. For the bank meanwhile, the Aperio product allows it to employ its risk mitigation controls, in areas such as customer identification, across all channels, says Macaluso. It makes processes far more efficient too, since tasks that used to require multiple people and multiple levels around the bank are now done in a single, front-to-back automated process, he adds. “So the bank gains efficiencies, it gains risk mitigation, it gains consistency for its customers, and it will have the ability to do this across all its channels.”

Improving American Savings’ Internet banking capabilities then will enable the bank to offer customers more self-service transaction capabilities, as opposed to conducting them by phone or face-to-face as happens today, Robel explains. In this way it will be able to provide more value to clients no matter where they are located. A longer-term plan is to extend those capabilities to mobile channels as well, he adds. Similarly, once the Fiserv conversion is completed the bank will revisit its long-term road maps with the goal of reaching out to new types of customers, he adds.

By Renee Wijnen Caruthers

In Europe, the Single European Payment Area (SEPA), which will effectively eliminate cross-border payments between participating European countries, is ushering in payments innovation. European banks and other large multinational banks that operate in the region are leaders in deploying the global ISO 20022 message standards for mass euro payments. If these standards are implemented quickly, the European Union estimates that SEPA and a European e-invoicing system could lead to a cumulative cost savings of EUR 123 billion in the area of payments, and EUR 238 billion in the area of invoicing over a period of six years.

The ISO 20022 standard, developed by the International Organization for Standardization, a worldwide federation of national standards bodies, is designed to provide the financial industry with a common platform for the development of messages in a standardized XML syntax. While generally hailed throughout the global financial services community as superior for the richness of data it can accommodate and its interoperability, adoption rates of the standard still vary widely. Despite Europe’s lead, in the United States ISO 20022 has so far attracted only the largest banks with much of the financial industry still waiting on the sideline.

“In the U.S. it’s almost a geography problem,” says Andy Schmidt, global payments research director with TowerGroup. “If you want to send a payment from a bank in Florida to a bank in Washington state it’s a domestic payment and it’s not a big deal like it is in Europe with cross border different payment rules. The challenge in terms of adoption is that there are a lot of legacy systems and a lot of proprietary systems in place and people are saying why do I need to go to a new system if banks can accept payments now?”

One U.S. bank that has taken an early adopter approach to ISO 20022 is J.P. Morgan. “With EMEA as a focus, grounded in SEPA, many banks and application providers are moving to support the standard but it is still relatively early days,” says Bob Blair, Asia head of channel management for J.P. Morgan Treasury Services and vice convenor of the ISO 20022 Registration Management Group (RMG). J.P. Morgan is one of the industry leaders in development and adoption of the ISO 20022 standard. The firm offers ISO 20022 payment initiation and reporting capabilities, and supports SEPA clearing and other clearing e-banking applications using SWIFT FileAct and InterAct as a transport between applications. J.P. Morgan’s corporate clients may use ISO 20022 to integrate core treasury, payable and receivable applications with their suppliers, buyers and banking partners.

Blair says J.P. Morgan’s clients have expressed interest in ISO 20022 for purposes of compliance with SEPA and also because the standard is a newer and clearer common layer for data. Another benefit that has started to draw interest is ISO 20022’s potential for improving straight-through processing. “An important thread in the development of these new standards is the concept of STP to be applied not only to intermediaries but also to both ends of the chain – the originator and beneficiary of the payment,” Blair says. “The payer and payee should be capable of communicating to each other clearly across the payment chain so that when a payment arrives at the beneficiary there is clear information in a predictable format as to what obligations are being settled,” Blair says.

In addition to J.P. Morgan, other large multinational banks like Citigroup and Bank of America are forging forward with the standard, as are some multi-national corporations, like Microsoft and GE, but outside of that top tier many firms are still stalling for time.

Roger Durepos, senior manager for industry affairs, SWIFT and payments at Royal Bank of Canada, and chairperson of the Canadian National Member Group, which was part of the ISO technical committee that developed the standard, notes that in Canada adoption of the standard remains cautious, similar to that of the U.S. The lack of an industry-wide catalyst, like the SEPA initiative in Europe, has allowed firms to put the new standard on the back burner, he says.

“In Europe, with SWIFT and SEPA adopting the standard, the industry is making appropriate changes to comply. In North America it’s a business case to make the change and if other standards have been working for years it’s harder to make the case,” he says. “But it’s a better standard that’s richer and in the long run it’s a benefit to clients and financial institutions.”

J.P. Morgan’s Blair adds that the bruising economy has also slowed the process. “The economy has been painful over the last year and that slows projects down. Standards are no different,” he says.

Putting that technology to the test from a corporate treasury perspective, Microsoft has been receiving XML statement reporting from one large bank since December, using SWIFTNet FileAct, says Ed Barrie, group manager in Microsoft’s corporate treasury department. Microsoft’s treasury department is currently working to get up in production with four other banks to ensure that it can achieve uniformity of messaging when communicating with different parties.

“The standards as they have been defined are very robust and should meet the majority of needs, however I think there is a lot of room for interpretation of the rules in terms of how things should be populated in the message,” Barrie says. “We are testing with four other large banks because we want to make sure that there is not too much hybridization of the standard, and that we can achieve the benefit of using one format with five banks.”

Microsoft has begun mapping of those messaging formats into its SAP ERP system, but is not yet pushing the messages into other downstream systems to work toward improved STP. The company first wants to complete the beta test with the additional four banks and conduct a thorough analysis of where and how the SAP system will hold and sort the messaging data that is being received.

TowerGroup’s Schmidt believes that because ISO 20022 does not have some of the limitations of some of the other formats currently in existence, it will win out eventually. Once more of a quorum of firms around the world are using it, service providers like Metavante adopt it, and technology offerings for converting to the standard become more prevalent, the smaller tier firms will come on board, he says.

Indeed, service providers are starting to take issues like ISO 20022 into consideration as they help clients plan the modernization of their payments architecture. Payment servicing systems such as Microsoft’s Payment Services Factory are built upon the concept of a service-oriented architecture (SOA). A SOA-based enterprise platform uses open interfaces and industry standards to improve operations and results in an integrated, consolidated and highly available platform. Another benefit to a SOA-based payments system: as new payment services are added and made available to many applications, legacy applications can be turned off gradually, allowing a manageable path to modernization while relieving the mainframe for core banking processes.

Meanwhile, although the rest of the world may not have the push of a payment overhaul like SEPA to drive it, outside of Europe, a groundswell of support for the standard is beginning to grow. Japan has announced that it is working toward support for the standard for domestic cash and securities, says Blair. China and Brazil have also indicated that they are working toward adopting the standard, although they have not yet made formal announcements, he says. Within the U.S., the Federal Reserve Bank, has for years been working with banks and corporates to enhance its FedWire funds transfer proprietary messaging format. What has resulted is a new syntax expected to be available at the end of 2010 that is mapable to or from ISO without any data loss.

While it may be still early days, the potential of the new standard within and outside Europe is tremendous, observers say.

“Lower tier banks in some regions may need to be pushed, but it’s a superior standard,” says Schmidt. “The format allows enough information to be put into the fields available to tell you everything you need. Imagine being able to get remittance data with the payer, amount, date, currency information a single message from anywhere in the world.”

Barclays Bank has come up with an innovative way of reducing the wait times for customers and at the same time potentially increasing the customer’s business with the bank. 

As part of an ongoing program to refurbish its 1,733-branch network in the UK, Nicolas Parmaksizian, head of business development, and Deanna Oppenheimer, CEO of UK Retail Banking, paid a visit to Microsoft in Seattle to learn about new technologies that could be incorporated into the bank’s branch design. While visiting the Home of the Future and the Office of the Future, they came across Microsoft Surface. 

The surface-computing platform allows customers to grab digital information and interact with the content using their hands and objects instead of a keyboard and mouse. The camera system recognizes fingers, hands, paintbrushes, tagged objects and other items. 

“The Holy Grail is to take advantage of the multi-user capabilities to enable the banks to do collaborative selling,” says Marley Gray, industry technology strategist for banking in Microsoft’s Financial Services Group. “The personal banker and the customer work together to determine the customer’s needs, and they get into account opening and fulfillment right there on the device.”

Barclays is the first European bank to pilot test the technology in its Piccadilly Circus branch in London. The site has been developed into the first “brand concept” bank branch in the UK, covering 8,000 square feet of retail space over three floors and making extensive use of new technology and design. 

Three surface-computing devices are installed in the Premier Lounge, an area designated for Premier Life customers. Customers can use the technology to learn about the Premier Life value proposition and the exclusive financial products and services available to them. They can access a calendar of events that may be of interest, as well as obtain the addresses for Premier Global Lounges in other cities. In addition, the devices can be used to send information to their mobile phones via SMS.

“It’s a great mix of different digital media to get across the benefits of the Premier Life proposition in a fun, informative and attractive way,” says Parmaksizian, adding that the feedback so far has been very good. “Our research shows our customers really love the design. They tell us it’s a great way to showcase a product.”

For relationship managers, the devices help to break the ice with customers and enable them to explain the benefits of products. In the future, Barclays intends to include simulation tools that advisors can use to enhance financial planning sessions.

Barclays hired New York-based Infusion Development to develop the application, which it did using its staff of information architects, designers, and developers.

“When we were working with Barclays, it was important that the application flowed,” says Christian Schneider, chief operating officer at Infusion Development. “A Surface device should not have an instruction manual with it. An individual should have a rich human being-to-machine experience that’s different from a PC and that is self-explanatory.” 

Properly integrating that experience with their other channels also is important, he adds.

Parmaksizian advises other banks that may be interested in implementing Microsoft Surface to clarify how the device is going to be used and what response it is intended to drive. “Our research shows that customers only dedicate up to five minutes to those applications, and they want to move to different things,” he says. “So it’s really about making sure that the application gives them access to the information that they need at their fingertips in a very easy and fun way.”

www.barclays.co.uk

www.infusiondev.com

BMO Financial Group provides retail banking, wealth management and investment banking products and solutions to 8.5 million customers across Canada and the United States. An important part of the bank’s strategy is to continuously improve customers’ online experience. To this end, it is launching a map-based locator to make it easy for customers to find an array of services. Not only will the locator reinforce BMO’s brand, but it will also offer cross-selling opportunities.

“We were looking for a solution that would give us a consistent look and feel, something that would integrate all our locators and be able to offer real-time data to our customers,” says Pritesh Gandhi, senior manager, Online & Enterprise Strategy at BMO.

Over a six-month period, BMO built a new locator site using Microsoft’s Virtual Earth. Customers can now search for branches, ABMs and banking specialists by typing in an address, postal code, city, landmark, transit number or languages spoken. A printed list of names and addresses appears beside a map with icons showing the physical location where those services are offered. BMO customized the locator so branches, ABMs and specialists have different icons. 

When the customer clicks an item or icon, the services offered by the branch, ABM or specialist appears. Details include the physical and mailing addresses, hours of operation, phone number, fax number, transit number, a pre-authorized debit/credit number, languages spoken and safety deposit box availability. Customers can obtain driving and walking directions. They can also email details or SMS them to a mobile device. All information is updated in real-time.

Over the long term, BMO’s locator site is expected to reinforce its brand. Customers will have accurate information available to them immediately so they don’t have to spend time phoning the call center or logging on to multiple sites. 

BMO will be able to cross-sell within the locator through banner space. “If you’re searching for a mortgage specialist, it will come up with the latest mortgage rates and connect you to a mortgage specialist in your area,” Gandhi explains. “The banner space will be smart enough to showcase either a promotion, product or service based on what you’re searching in the locator.”

The locator is tagged with (and tracked by) Omniture online business optimization software, so BMO will be able to determine whether the new locator site has an impact on revenue or enables cross-selling opportunities.

BMO considered map-based locator solutions from Google, Mapquest, Yahoo! and Microsoft. The bank chose Microsoft’s Virtual Earth platform for several reasons. It concluded the mapping and aerial imagery is superior to the other solutions. The platform contains more than 85 million addresses, and the geocoding is highly accurate. The information is available in 13 languages. In addition, the bank can customize some of the tool sets. 

Moreover, Virtual Earth has a track record in the financial services industry. Bank of America, Edward Jones, American Express, Citigroup, Wells Fargo and JPMorgan Chase are using it as well.

“We picked Microsoft based on the powerful engine, the client base and the post-sale support,” says Gandhi. “Talking to a few of the customers and having worked with Microsoft in the past, we felt that Microsoft would be a good partner.”

Implementation of the platform was a team effort involving the IT, information security and legal departments at BMO. Generally, it was a straightforward process. 

“The information is being fed into the locator so we don’t have to connect to any systems,” says Gandhi. “There were no integration issues. Even the customizations have been kept to a minimum.”

Having been through the project, Gandhi has advice to share with other financial institutions that might be considering a map locator. He points out that creating a locator site is about more than just implementing “cool technology;” it is an important part of a bank’s long-term online banking strategy. 

www.bmo.com

First established in 1808, KAS Bank specializes in wholesale securities services.

With total migration to Windows set for completion in 2010, the bank went live in September with the initial stage in the phased rollout at its headquarters in the Netherlands. Although some applications still remain on the mainframe, KAS Bank is now up and running with Windows Server 2003, BizTalk Server 2006, BizTalk Accelerator for SWIFT, and several other components of its emerging .NET architecture.

KAS, an early adopter of the SWIFT network, now relies on SWIFT for 95 percent of the transaction processing messages needed for processing payments, settlements, and corporate actions for its customers, estimates KAS Bank CIO Pim Van der Horst.

Anywhere from 50,000 to 100,000 SWIFT messages flow through the bank each day. “This demands an environment of high availability and high reliability,” says Sheida Hadji-Ashrafi, Microsoft’s worldwide industry manager for payments.

Traditionally, KAS used a mainframe running Adabas, a database from Software AG, to handle this huge messaging volume. Over the past 20 years, the bank has built myriad applications running in this environment, amounting to 5 million lines of code. Yet maintaining and updating all of this code has proven time consuming and costly, according to Van der Horst.

Upon deciding to adopt a new approach, the bank recently set about evaluating different solutions. After extensive testing, Microsoft’s proof of concept solution topped those of its competitors in both performance and cost, says Van der Horst.

“Operating expenses [are reduced] because the bank is buying a package and not building code,” he says. Windows is “relatively inexpensive” compared to other systems, adds the CIO.

Meanwhile, BizTalk Accelerator for SWIFT is able to deliver updates for regulatory compliance automatically, reducing risk and eliminating the need for time consuming manual updates. The bank receives an annual message pack from Microsoft containing a new version of BizTalk Accelerator for SWIFT, with all the needed regulatory changes built-in, according to the KAS Bank executive.

SWIFT supports a number of regulatory standards that are increasingly important in the European market, including Single Euro Payments Area (SEPA), TARGET2, Basel II, and Markets in Financial Instruments Directive (MiFID).

“SEPA is the new driver in Europe right now,” says Microsoft’s Hadji-Ashrafi. SWIFT’s value proposition for SEPA calls for developing standards, products, and services that will provide the common denominator between competing clearing and settlement mechanisms across Europe.

TARGET2, on the other hand, is a settlement system based on the Single Shared Platform (SSP) developed by three European banks. Operating this system on behalf of the Eurosystem, the TARGET2 participants are utilizing the full set of SWIFT’s messaging services, including FIN, FIN Copy, InterAct, and Browse.

Basel II has set up requirements meant to make sure that a bank holds capital reserves appropriate to the amount of risk the bank exposes itself to through its investment and lending practices.

MiFID demands that banks confirm “best execution” in transactions, for example. “It is now easier for us to provide MiFID-related information to our customers with more data from the system,” Van der Horst says.

The back-office mainframe systems slated for phased replacement at KAS include MINT, a system from SunGard for connecting to SWIFT and a SWIFT gateway; Mercator, for mapping SWIFT messages to proprietary systems; and IBM’s Merva for sending messages to the mainframe. KAS Bank is already implementing an IBM MQSeries adapter for BizTalk, according to Hadji-Ashrafi.

The bank also has started using SQL Server Reporting Services for formal reporting. The reports are available much faster now, and queries can be created by end users, instead of just IT professionals, Van der Horst says. Up and running at KAS Bank, too, is Microsoft SharePoint to support a new portal application.

Meanwhile, a team of internal developers at KAS, trained by Microsoft, is using Microsoft .NET C# for conversion of some legacy applications to the .NET environment.

Along the way, members of the Microsoft Europe, Middle East and Africa (EMEA) team also have been working closely with KAS employees to provide expert knowledge of the various systems being implemented by the bank and to help with systems integration.

Two Microsoft partners – Atos Origin and Inter Access – have assisted with benchmarking, along with auditing of volume and reliability tests.

“Every day we are moving closer to having all operations in the new environment. We have been impressed by the performance of Microsoft technology,” says Van der Horst.

www.kasbank.com

How technology, data, and analytics have protected credit cards from a financial storm.

At the beginning of the year, articles and news reports were already warning about an impending credit card crunch, with the suggestion that the credit card industry would fall to a fate similar to the mortgage industry. It didn’t happen. That doesn’t mean that the industry is without potential pitfalls. In the third quarter of 2007, credit card balances increased by 7 percent, on an annualized basis, compared to the average annual increase of 2 percent over the previous six years, according to the market research firm TowerGroup. And that was the beginning. Consulting firm Innovest StrategicValue Advisors predicts that banks will charge off $18.6 billion worth of credit card receivables in the first quarter of 2008 and $96 billion in 2009, representing a 261 percent jump from 2007 and a 131 percent jump from the amount expected by the end of 2008.

Originations, meaning new account growth, are also on the decline.

“Just overall there is some declining origination growth and tightening of lending standards,” says Linda Haran, senior director of solutions marketing and management at Experian.

But credit card issuers have been on alert, using predictive analytics to aggressively monitor their businesses and relying on their technology to adjust business rules in ways that will help them ride the shifting tides adeptly.

Finding New Customers

Indeed, the decline in originations is not only due to market circumstances but also attributable to cautious strategies of card companies.

“If they are taking in additional accounts right now they are carefully tailoring the right products to them,” Haran says. “They are targeting the right customers to convert on the books and drive revenue. Every new acquisition needs to have value in maximizing capital dollars.”

This may mean using several types of analytical products in concert. In Experian Decision Analytics’ case that may include Marketswitch Optimization, a mathematical decisioning solution to set credit terms and pricing at origination, or Strategy Management, a business rules engine that can assess the full potential value of customer relationships across the enterprise and support decisions to maximize those relationships. In addition, the company’s STAGG Attributes identifies predictive credit attributes and includes more than 440 available credit attributes to support strategies. This is noteworthy as clients tend to increase the number of attributes they consider for each prospect in more cautious times.

Others in the credit card industry note that on the acquisition side a cautious attitude has meant companies are focusing more on cross-selling with their existing customer base than on looking to outside prospects.

“When you cross-sell to your customer base you are targeting a known entity. Rather than relying on credit bureau information you are looking at the relationship you have with a customer, and can spot changes in how the customer has handled other parts of the portfolio that make up that relationship,” says Randy Barker, a senior consultant with Microsoft partner CSC’s National Financial Services Practice.

Jim Sheahan, vice president of issuing solutions with Microsoft partner Metavante, notes the stepped up interest in cross-selling as well. As many of Metavante’s clients for full service outsourced credit card processing tend to be community and regional banks, cross-selling has always been a strong focus, with a limited amount of new acquisitions. That emphasis has been heightened since credit problems first surfaced in the marketplace.

“It has always been a cross-selling type strategy but in many, many cases they have tightened up their policy,” Sheahan says. “There’s tighter lending, smaller lines and tougher qualifications. While in most years we see some efforts to acquire new customers, most have not dabbled much in doing direct mail outside their customer base this year. We haven’t seen outside solicitations as firms tighten up their standards.”

Reassessing Existing Customers

While firms may be pulling back on acquiring new customers, some in the industry say they’re seeing
companies spending extra to more proactively track the customers they have.

“When it comes to existing portfolios, we’re seeing clients using technology to rescore their portfolio, meaning taking

 their current card holders and running through to see where they stand in terms of risk,” says Vinnie Calo, president of Fiserv Credit Processing Services. Fiserv is a Microsoft Gold Certified Partner. “They’re pulling credit bureau reports sometimes for ten thousand customers and that isn’t cheap, but they’re reviewing their risk tolerances.”

Calo says he also sees clients looking more carefully at predictive analytics and it might not necessarily be defaults in other relationships that they are looking for. Signs such as customers who have begun paying utility bills with credit cards may be an early indicator that an account should be watched carefully, he says.

John Focht, president of issuing solutions at Metavante, notes that with clients for whom credit cards are part of a cross-selling strategy, tightening might mean looking at the whole portfolio and assessing where to tighten the relationship.

“Tightening the way the portfolio is managed might mean adjusting rates or credit limits relative to other accounts and products,” he says.

Adds Metavante’s Sheahan, “We are definitely seeing bigger monthly balances now. Clients are using Fair Isaac-type tools to tighten risk levels.”

Metavante issuing solutions’ core base of community and regional banks generally does better in down times because they have relationships with customers on many fronts. But some banks are adjusting their thresholds, so that where they may have previously begun contacting customers who were 30 days past due, they might now have moved that limit up to 15 days. This type of tightening might also mean a halt on the use of past due cards that might come earlier in the cycle than it once did, Sheahan says.

“It’s a very dynamic market,” adds Experian’s Haran. “We are trained to look at past behaviors as indicators of the future but some of those trends are changing. We have seen customers who used to pay their card before their mortgage now doing it the other way around, and we’ve seen prime customers with historically good credit going delinquent.”

Haran says Experian has encouraged clients to take in more attributes, such as geographic footprints of parts of the country that are particularly troubled. Experian also encourages the use of bankruptcy profiling products for its clients’ existing customer bases as a way to spot risk areas early.

Meanwhile, CSC’s Barker notes that the technology is available for profiling and predictive analytics to be as detailed as anyone could possibly need, but issues such as privacy come into play.

“At the end of the day, when it comes to profiling specific locations and merchants it goes into privacy concerns so it’s not something companies are going to want to be doing,” he says.

The Delinquencies

For managing those segments of customers that have made the progression from risky to troubled, Experian’s Haran predicts an increased emphasis on recovery and the use of data analytics in the recovery space.

“Collections are going to become of interest to credit card companies,” she says. “With delinquencies trending upward, companies are going to try to understand what will help them in the collections area.”

Haran says Experian has several tools that score behaviors and attributes to help prioritize both the accounts that are most likely to be responsive, as well as the techniques that are most likely to provoke responses for different default scenarios.

“We have a recovery score that I’d advocate the use of, but I’d also advocate the use of a bankruptcy score in the recovery and collections area,” she says. “If you have an indicator that a customer in workout is about to file for bankruptcy, that’s important information.”

Firms are definitely more proactive in working with customers, according to Barker.

“They are offering options like a one-time fee waiver, delaying billing for a month or reducing minimum payments. There are a lot more options coming at people when they miss a payment,” he says.

Internal Efficiencies

A silver lining to challenging times is that it forces firms to streamline, and those firms that come out of the lean years turn out to be leaner, meaner and better positioned to compete for the opportunities that lie ahead.

“A lull in activity is a good opportunity to look at streamlining from an operational standpoint,” says CSC’s Barker. This may mean making efforts to consolidate the management of different accounts held by the same customer, or it may involve seeking ways to reuse technology or use the technology that is already in place more effectively, he says.

“It might be about bringing a barely used system to the forefront, or on the IT side there could be a movement to lower cost technology,” an area where Microsoft could find opportunities to make greater inroads, he says.

As providers of complete outsourced services, Metavante and Fiserv can offer a value proposition to their customers. With outsourcing, the cost of credit card processing is more quantifiable, and costs of certain processing functions might be lower because of the service provider’s economies of scale.

CSC’s Barker notes that full-service outsourcing offerings can yield cost savings when it comes to upgrading technology or conforming to industry standards. He points to the PCI (Payment Card Industry) standards, which were designed to help credit card issuers prevent credit card fraud and identity theft, as examples of standards that might present compliance challenges for smaller banks.

Modern Fraud Sleuthing

While dealing with shifting economic markets and consumers under financial pressure, lenders must also continue to keep a watchful eye on another ongoing and evolving threat: fraud.

“There has been a dramatic shift in the types of fraud occurring during the 18 years I’ve been involved in the payment

 card fraud area,” says Stephanie Cook, vice president of payment solutions and fraud manager for Metavante. “Traditionally, the majority of credit card fraud could be attributed to lost and stolen cards, with counterfeit and other fraud types making up the difference. Now we are seeing just the opposite.”

Cook estimates that fraud attributed to lost or stolen cards used to make up 60 percent of total credit card fraud losses. “We’ve seen fraud shift from opportunistic to organized. Counterfeit and Internet or card-not-present fraud now account for the same amount of fraud we saw as a result of lost or stolen cards. There has been a complete reversal,” she says.

While lost or stolen card fraud generally involves one card number at a time, counterfeit fraud can result in much larger losses if not spotted quickly. Hackers and other perpetrators have obtained full magnetic stripe information through security breaches and then sold that information online in underground chat rooms. In these sophisticated underground markets, the price for data can vary depending on whether there are card numbers only, full magnetic stripe, or PIN data for sale. They can also be sorted by type and expiration date. Platinum cards might be priced higher than other product types because credit lines are generally much higher. Likewise, cards expiring farther out might also demand a premium, Cook says.

Spotting fraud today requires much more sophistication. Detection systems need to use detailed profiling to determine any type of anomalous behavior – profiling that can be used to spot a single lost or stolen card, as well as more wide scale intrusions. Different clients may have varying tolerances as to how quickly they want to put a temporary block on the use of a card once the activity is identified.

“We provide a multi-layered approach to detection, including neural network technology and rules-based algorithms that help identify the type of activity a client wants to flag.” In addition, fraud systems that look across the enterprise can help issuers identify the more sophisticated fraud types, Cook says.

CREDIT CARD STATISTICS AT A GLANCE

■ In July approximately 65 percent of domestic banks indicated they had tightened their lending standards on credit card loans over the past three months, up sharply from 30 percent in April. – The July 2008 Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices.

■ In June 34 percent of U.S. cardholders say they spent less on discretionary expenses, such as eating out or shopping at the mall; 46 percent say they spent less on major purchases, such as appliances or furniture. – CreditCards.com “Taking Charge” survey.

■ In the first quarter of 2008 consumer bank card delinquencies rose 13 basis points to 4.51 percent. This is above the five-year average of 4.40 percent. – The American Bankers Association.

www.metavante.com
www.fiserv.com
www.experian.com
www.csc.com

WFS: What are your first priorities at the bank?

Livesay: As CIO I have full responsibility for delivery of information services to our customers, both within the organization as well as customer-direct via alternative delivery channels. My priority is very clear – I intend to make the best bank in the region even better. At First Horizon, it all starts with our culture and our people. This culture is a true differentiator that translates directly into improved customer focus and service.

The technology organization is no exception. I will conduct a full review of the organization to establish an action-oriented three-year plan. No topic is considered off-limits. I also intend to review our alignment and service delivery model to make certain the technology organization is properly positioned to deliver optimal services. First Horizon has seen a number of changes over the past year, and it will be critical to properly align the IT organization with the broader organizational changes.

I also intend to spend quite a bit of time simply listening to our employees and our customers. While I review our service delivery model, it will be equally important to understand and act on the highest priority needs voiced by our internal and external customers. The industry is facing a time where every moment matters. Each tactical project must be assessed and clearly linked to the broader goals and objectives of the overall organization.

WFS: How has the current crisis changed your thinking around risk management?

Livesay: I’m joining First Horizon at a time when the industry as a whole is presented with an abundance of challenges and opportunities. Risk management for technology organizations in the financial services industry has always been a top priority. The nature of our business requires excellence in all facets of information risk management. The current crisis has not changed any of my thinking around the basic building blocks that are necessary within any financial institution. There is obviously more intensity around credit information analytics and loan underwriting and processing, but the fundamental practices of any sound business remain the same as always. Relationships are the key to success. Knowing your customer and clearly understanding their needs so you can offer appropriate products and services is the most important process for growing the business and ultimately managing risk to the business.

WFS: What do you see as the biggest lessons to be learned?

Livesay: As much as anything, the ‘biggest’ lesson is the most basic: focus on your customers, your employees, your shareholders, and the communities you serve. These fundamentals of any sound business become even more critical during challenging times. The other significant lesson is the need for a constant review and balance of the risk/reward fundamentals of your business model. Investment banks were operating under a much more leveraged and riskier operating model. They’ve struggled to survive in this economic environment. Commercial banks with heavy mortgage portfolios have also struggled. Despite those challenges, the basic operating model behind the business of banking remains strong and sound.

WFS: This is a time when cost cutting is critical but it also is a time when banks must meet the demands of increasingly sophisticated customers both on the Web site and across other channels like mobile banking. What would you say is the right approach to striking that balance?

Livesay: No financial services organization is immune to the need for efficiency and effectiveness, especially today. One of the ‘tablestakes’ mandates is an efficient and effective IT operation. A key challenge facing the bank will be to move the organization forward towards delivery of our strategic plan while simultaneously maintaining solid operating service levels and a low-cost operation. We’ll use the following fundamental tenets to strike an appropriate balance between efficiency and our investment decisions:

■ Grow our core product lines,
■ Remember that the customer is the boss and strategies
must result in winning customers, and
■ Set stretch goals that are achievable only with a sustained process of innovation.

First Horizon is not unique in facing this challenge; however, I have a high sense of optimism and enthusiasm. We have a proven track record and solid fundamentals to build upon. We have tremendous depth within our technology organization and a committed senior leadership team with a clear vision for excellence on the basics. The institutions which will emerge stronger from the current challenges of the marketplace will be those with a strong employee culture and intense customer service commitment.

WFS: What are the next steps for your Web site, mobile banking?

Livesay: Customers are becoming increasingly demanding for banking services via traditional channels of delivery, such as branches, as well as alternative channels such as online, ATM, and mobile. One significant initiative underway at First Horizon is a review of our digital strategy. Our Web presence is already award-winning. Consistent with our legacy of innovation, our digital strategy will not be limited to our Web presence alone. We’ve only begun to tap the potential of some of the evolving channels of delivery such as mobile phones. We’ll use the tenets above to make certain new products and services are specifically targeted to meet the needs of our customers. We will leverage our enterprise service bus engine to deliver a seamless cross-channel, cross line-of-business experience tailored specifically to the needs of each customer.

WFS: How far off would you say something like Microsoft’s Surface is at your branch locations?

Livesay: Surface is a very interesting new solution where the possibilities for gaming, retail and hospitality are pretty obvious. The new interactive touch displays open up enormous possibilities for customers to learn about products and services, compare product offerings, and choose and customize tailored solutions. The potential within the retail banking space is very exciting. Viewing interactive maps for branch and ATM coverage, customizing products and services for each customer, and ultimately finalizing purchases are obvious uses for the technology. Linking this technology with the social networking solutions that are available (and still evolving) really opens up a new world of potential for the community of our financial services customers and constituents.

We discussed risk management and privacy information earlier. The very nature of this shared user interface presents both challenges and opportunities around customer privacy and identity management which need to be resolved before we’ll see the real ‘killer’ apps within branch locations. A consumer version is not anticipated to be available until 2011. I would expect to see some great practical financial services applications evolve within that same time period, if not sooner.

www.firsthorizon.com

CenterState Bank has a small regional bank dealer department based in Birmingham, AL, that has about 250 bank clients ranging from $20 million to $1 billion in total assets. The role of the investment department for CenterState Bank is to manage interest rate risk for its customers by using fixed income investments while utilizing asset/liability management tools.

The bank uses data from HighlineFI to produce peer group reports that compare several banks based on about 18 key measures including their interest margins, profitability, and efficiency ratios. “We run every customer through a set of criteria that we monitor on a quarterly basis,” says Jared Ellis, a financial consultant at CenterState Bank of Florida. “We are in contact with the banks and know what’s going on in each market, and this tool reaffirms what we hear. It’s a way of getting true ratios and numbers that we need to serve our customers in a timely manner.”

According to Scott Clemmons, head trader at the bank, the HighlineFI product is one of several tools used to do this analysis, but it is the only one that allows the bank to identify trends and pick up red flags. During the financial crisis, for instance, the bank has been closely watching the Texas Ratio, which measures non-performing assets as a percentage of capital. “If a bank went from a 20 percent Texas Ratio to a 200, a 10-fold increase on a Texas Ratio in six months, clearly we need to be very careful when extending certain services to that customer,” he says. “This Highline data is the best and most efficient source that I’ve seen that allows us to do trend analysis like that.”

Similarly, in construction lending it looks at customers’ 1-4 family construction lending divided by their capital. A bank that has a 200 percent ratio needs to be monitored closely because of the economic slowdown in housing. Net income is another indicator that is monitored, but this number needs to be taken within context: a 2-year-old bank may not be expected to be profitable, whereas a 30-year-old bank would be.

HighlineFI provides on-demand access to 40 consecutive quarters of historical data, key ratios, and ratings, combined with the earliest access to new data. The software also provides historical and up-to-date access to publicly traded U.S. bank data, M&A activity, and detailed branch market financial data. “HighlineFI gives you that data as quickly as you can get it,” says Clemmons. “All this information is available free online on the FDIC Web site, but nobody has time to pull it out.”

Before deploying Highline software, the asset/liability department sourced its data from a hardbound book. There was no way to compare a particular bank to another bank. All they could do was compare CenterState Bank with a group of banks with similar asset bases.

In the past, Highline sent the data on a CD-ROM, but there was almost a three month lag time; third quarter data might not have been available until mid to late December. With the online version, CenterState Bank gets more data much faster, and it is easily accessible. Moreover, it can be exported into Microsoft Excel where it can be manipulated using the sorting, macro and graphing functions and published in a customized report.

“With some of the tools that are on this online version, it saves us hours and hours each quarter when we start culling the data to present to our loan committees,” says Ellis. “It’s a huge time saver.”

The potential exists to extend the use of the software to review holding company and peer market branch data. The bank might use it, for instance, to find out why a competitor down the street is growing deposits at a faster rate and whether a trend is developing. It might also use the data to determine whether to open a branch on a particular street corner or within, say, a two mile radius of it.

Implementing HighlineFI is straightforward, so that was another benefit for the bank. “It took a 20-minute conversation with a help coordinator to explain some of the add-in features and maybe an hour of playing around with it,” says Ellis. “We didn’t miss a beat.”

www.centerstatebank.com

According to Danny W. Jett, executive vice president of the bank, this has a lot to do with the institution’s high-touch customer service. “Our objective is to be a different and better banking alternative for our market and to provide a relationship banking alternative that exceeds anything currently available for businesses, as well as entrepreneurs, while meeting all of their banking needs,” says the executive VP.

To help meet its evolving customer requirements, Georgian Bank selected Harland Financial Solutions’ Microsoft Windows-based core processing solution, the Phoenix™ System.

The Phoenix System’s focus on relationship banking was a huge draw for the bank, according to Jett. “In order for our Relationship Managers to provide a truly different and better banking alternative with our target high-touch service, we must have easy access to complete customer relationship information,” he says. “We believe the Phoenix System provides the architecture to help us accomplish that objective.”

To this end, Georgian Bank sought a partner rather than a vendor. “We know that technology costs are one of the most significant items in the non-interest expense schedule and in order to get the greatest return on that investment, it requires a partner relationship,” notes Jett. “We felt that the potential for developing that partnership exists with Harland Financial Solutions,” he says.

The Phoenix System’s XML-based middleware engine provides the bank with Web services that integrate information from several different solutions, both internally and externally. “This allows us to offer real-time integration between all of our data sources rather than using the old methodologies, such as file flinging,” says Marc McGrath, IT manager and information security officer at Georgian Bank.

Getting rapid access to information is also critical for a high-touch culture. Consequently, the bank is in the initial stages of rolling out the Phoenix Report Model for Microsoft Reporting Services, a reporting and analytics solution that makes it easier for non-technical staff to build reports. Ultimately, the use of Report Model will allow Georgian Bank’s users to create result sets that are accurate, without intricate knowledge of the data source itself, according to McGrath. “This creates an environment that better utilizes the specialized knowledge in our IT group for the complex management reporting needs of the organization and gives our users a sense of empowerment,” he says.

Beyond Phoenix Report Model, Microsoft’s Reporting Services helps the bank in its efforts to get a complete picture of its relationship with each customer, one of the key business challenges facing financial services institutions today.

“Georgian Bank has taken an active stance on creating a complete relationship picture to ensure we are providing the appropriate solutions with top-notch customer service to all of our customers,” says McGrath. “The use of Reporting Services has been the key in creating the all-encompassing picture every organization so desperately desires. Now that we have created the overall picture in 2008, it will continue to evolve and we will look to drill into the information to better understand the finer points of our customer relationships.”

The bank also uses Microsoft Reporting Services to aggregate, manipulate and provide all the necessary data for its Risk Management and Compliance groups.

“The use of Reporting Services is a significant change over the tools we used in the past, and it allows us to mitigate associated business risks, as well as ensure compliance with many of the regulations of which we are bound,” notes McGrath. “This tool, combined with outstanding personnel, is one of the many reasons Georgian Bank has not been significantly impacted by the current state of the economy.”

Meanwhile, Georgian Bank has already started using its online presence to provide a feature-rich solution to all of its customers – both retail and commercial. “The changes made during 2008 have been significant and are positioning our institution to continue providing top-notch service as well as remain in-line with the expectations of our increasingly Web savvy customers,” says McGrath.

www.georgianbank.com
www.harlandfinancialsolutions.com

So far the credit union has benefited significantly from the upgrade. The institution can now process teller, back office, and administrative functions from one consistent platform. Several core system modules are now single sign on for easier access. The account opening wizards and numerous workflow enhancements have been widely adopted.

“Before, we had several applications sitting on the desktops,” says Greg Lanigan, vice president of IT at USA Credit Union. “You had to open up the application and sign in to the application for each different environment. All those things have now been combined, so everyone can get to any one of the applications via that one platform.”

Lanigan also points out that the new system permits easier window navigation and management. It allows the user to have multiple tabs open at one time for increased usage and productivity. The user interface is much more organized and intelligently developed with the high power users in mind.

But the high-powered solution did not come without some effort. According to Mike Nicastro, Open Solution’s senior vice president and chief marketing officer, the company realized it needed to do more to remain competitive. “The market keeps changing, and institutions are met with new challenges all the time,” he says.

To this end, Open Solutions recruited a human factors expert who specializes in analyzing the user experience with a piece of software. The goal was to better understand what a teller, customer service representative, and branch manager do on a daily basis, as well as to identify potential process and workflow improvements.

Next, the company invited 40 non-users – amongst them tellers, teller managers, branch managers, and customer service representatives – to participate in a focus group. During the sessions, participants explained how they do their jobs and the challenges they face performing key tasks. After that, Open Solutions also conducted a focus group of its customers.

This extensive study was invaluable when it came to creating the next-generation DNA relational core-banking platform. The new release of DNA capitalizes on the strength of Open Solutions’ universal data model and design and its client-centric processes, while greatly enhancing workflow, flexibility, navigation and productivity. Most notably, more than 550 end-user screens were reduced to less than 300, making it easier for users to run through their routines and service their customers.

Open Solutions embedded a Shared Application Framework (SAF) in its data model and through the architecture. The SAF enables better integration with Open Solutions’ complementary systems for Internet banking, loan origination, collections, and telephony. That means users (including third parties) can obtain a single view of the truth across all platforms and delivery mechanisms in real-time. As Nicastro says, “The worst thing in the world in this industry is when one system has one record of your client, and another system has a second record of your client, and the two things don’t match up.”

The screens, workflow and screen wizards were built utilizing Microsoft .NET technology. It allowed Open Solutions to separate the application into multiple tiers to significantly improve performance and reduce deployment time. Users find the revamped screens more dynamic so it is easier to interact with them. In addition, wizards accelerate the time it takes to build new processes and reduce the time-to-market for new products.

“Using an open platform allows us to regularly examine (and re-examine) the best hardware, database solutions and operating systems on the market and efficiently move to better solutions with relative ease,” Lanigan says. “I believe Open Solutions’ platform will continue to evolve as Microsoft and the other business partners continue to expand and improve their product offering,” he adds.

www.usafcu-onlineusa.org
www.opensolutions.com