Watson to Save the Day: How the Jeopardy! Genius Could Solve the Risk Management Dilemma

Editor’s Note: Congratulations to Watson on winning Jeopardy! this week.  As indicated by the recent announcement of a research agreement with Nuance Communications Inc. in the Wall Street Journal, Watson’s next task will be to improve Health Care services. Katharine Frase, an IBM researcher undertaking development of Watson’s business applications indicated the expansion of Watson to ‘other uses such as call centers, knowledge management and training of new employees in technical fields, financial sector applications and law.

This past Monday, the IBM computer program Watson began a three-day battle against human contestants on the ever popular show of smarts, Jeopardy! While battling Watson may make most reminiscent of the talents of supercomputer, cousin Deep Blue, this technological advancement also implies a variety of applications for industries other than computing.

Watson, which operates on a database and decision making platform that has the capability to learn, could possibly simplify risk management for financial institutions. With banks running a variety of complex models to streamline risk management every day, it’s hard to pinpoint the most appropriate financial decision due to a lack of real-time analysis.  Most of these models rely on discontinuous sets of data with often subjective assumptions which can lead to a large amount of uncertainty.

If a financial institution could harness Watson’s computing power, it could determine the proper actions as they happen. Watson has the ability to analyze multiple scenarios, many broader, more impossible and complex than those able to be executed on the average statistical model.  This invaluable insight, as an American Banker article notes, would  provide “visibility into concentrations of risks and risk-related activities, as they happen,” while “selecting both the statistically and operationally important scenarios.”

With the mass amounts of data available and small windows of opportunity in which it can be processed, Watson could prove an invaluable asset to the financial community.

Read the full American Banker article here.

Are Your Ideas Organic?

Forrester’s Kerry Bodine recently blogged about how Apple has affected consumers in significant ways – from what we buy and how we work – but most importantly, how we measure good design. Bodine noted that Apple has raised awareness around simplicity and attention to detail, and that customer experience professionals at other companies are beginning to take notice.

When it comes to financial services, Bodine mentioned she was fascinated by the number of companies outside of the consumer electronics industry that seem set on copying Apple. She also noted the “dangers” of un-organic ideas, including:

  • “The experience you create will not be aligned with your brand.”
  • “The experience will be one dimensional — and set the wrong expectations for customers.”

Are you your own leader? What defines your brand and customer experience? Let us know in the comments below.

Don’t Give Customers a Reason to Look Elsewhere

In all the frenzy of this past Holiday season, you may have overlooked Apryl Motley’s piece on “Smarter Service” in the December 2010 Independent Banker; it’s definitely worth a read.  Consumers today expect more from their community banks than ever before, and they want a lot of added value in the services they get. Motley stresses that a multichannel approach to user-driven technology (many of which a bank already deploys across its many operations) can help retain and cross-sell customers.

She emphasizes four key channels of customer engagement as prime examples:  integrated voice recognition systems (IVRs); ATMs; microsites; and online personal financial management tools – and Motley stresses that the bank needs to better integrate and coordinate these services to enhance the customer experience.  For example:

Presenting a Stronger Voice: Believe it or not, voice is still among the most powerful channels. With the integration of IVRs, telephone banking systems and core banking systems, customers can make deposits at the ATM and then call to verify those deposits.

Personalized ATM Service: Along with valuable information, what customers want most are high levels of speed and service, and they don’t want to sacrifice one to get the other. Smarter technology is enabling ATMs to “listen” to a bank’s customers.

Making the Most of Microsites: Stand-alone microsites (like Savehardspendsmart.com, launched by $11B Umpqua Bank in Roseberg, OR) are mini-websites that provide targeted interactive news and resources on a particular topic, product or service – customers want to rely on their bank as a trusted resource for important information.

Show Them Their Money: The ability to give customers insights about their finances without them having to do much work is driving customer adoption of online personal financial management tools; some banks are revisiting the integration of online banking and PFM applications so that customers have to log in only once to get access to a “hub for managing their accounts.”

What are you doing to coordinate your channels of customer engagement? We’d like to hear.

From Fiction to Reality: Streamlining the Financial Information Flow

Novels often look to the future to correct the problems of today. Cory Doctorow’s Makers explores how future generations could handle the mass flow of information we receive every day by automatically prioritizing alerts, emails and feeds.

Jim Bruene of NetBanker relates this ideal outlook to how companies like Google are prioritizing information via the Priority Inbox, visually directing the user to the most relevant and important emails and items. With the constant influx of financial account data and information it can be hard to find the pertinent information that you want. Bruene takes a cue from Doctorow’s novel by saying,

“I’m looking forward to the time when my bank, card issuer and/or third-party aggregator does the same for my finances: alerting me to odd transactions, excessive charges, and potential savings. And more importantly, helps me take action to resolve the issue.”

You can read Bruene’s full article here.

How are you trying to show the most relevant financial information to customers?  What do you see as the biggest problems, and which tools are trying to solve them? Let us know in the comments below.

What We’re Reading This Week

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below.

  • Breaking Up Silos Could Help Banks Thwart Identity Theft

American Banker

Technology is driving down the rate of fraud for banks, though the cost to consumers for identity theft crimes is going up. Banks are finding it easier to block fraud attempts if they have invested in systems that show all customer relationships at once, analysts say. At the same time, more banks are shifting costs to consumers by not covering as many expenses related to identity theft on debit cards. “While a zero-liability policy is in place at most banks for credit card transactions, only 44% of the top 26 [U.S.] banks we surveyed had a zero-liability policy in place for PIN debit purchases,” said James Van Dyke, the president and founder of Javelin Strategy and Research, and one of the report’s contributors.

Read more

  • More than half of all computers aren’t traditional computers anymore

BuddeBlog

According to professional services firm Deloitte’s Technology Predictions 2011 report, non-PC computing devices such as smartphones, tablets and non-PC netbooks are predicted to outsell traditional PCs for the first time. This year is set to be a turning point for how people use computers and information.Non-PC devices put a world of information and computing power at peoples fingertips. This unprecedented capability will lead to breakthroughs in everything from operating systems and enterprise computing to government services, privacy and regulations

Read more

  • Will Tablets Change Banking?

Celent Banking Blog

Tablet computing is on an obvious growth trajectory, but is this trend something banks should be acting upon, and if so – how? Said another way, led buy Apple’s iPad, will tablets change banking? We see tablets contributing to financial services channel delivery both inside the branch network and as a viable self-service channel on its own…. As a self-service channel, tablets will likely emerge as yet another development opportunity. No one really wanted another delivery channel to manage, but this one looks like it’s a keeper.

Read more

  • US identity fraud plummets – Javelin

Finextra

The number of American identity fraud victims dropped by 28% to 8.1 million in 2010 with total losses also down $19 billion on the previous year, according to an annual report from Javelin Strategy & Research. The survey of 5004 US adults, sponsored by Fiserv, Intersections and Wells Fargo, shows a three million fall in the number of victims from 11.1 million in 2009. Total annual fraud was down from $56 billion to $37 billion, an eight year low. Javelin partially attributes the drop to the more stringent criteria financial institutions are applying to authenticate users and determine credit risk, as well as more Americans monitoring accounts online and using protection services that can provide updates to mobile devices.

Read more

  • Free checking now harder to get, keep

Belleville News-Democrat

Reversing a trend that began in the mid-1990s, big banks are imposing new fees on their least-profitable customers — those who want just a bare-bones checking account. Those who can’t maintain fat balances or don’t use other services that make them more lucrative to a bank, probably will need to cough up about $100 a year if they want to stay put. Blame the financial crisis. As part of the reforms adopted after the banking system’s near-meltdown in 2008, the federal government has made it more difficult for banks to impose credit-card late fees, debit-card overdraft penalties and other charges.

Read more

  • Ditch the App Store

Slate

Over the last few months the tech industry has been inching toward e-book nirvana. For one thing, gadget makers keep improving e-readers while slashing prices. (I’m going to renew my bet that Amazon will begin selling the Kindle for less than $100 by the end of the year.) The bigger story, though, is the explosion of e-book purveyors. Two years ago I lamented that Amazon looked certain to gain a monopoly over the e-book market, an outcome that would have been terrible for writers, publishers, and readers.

Read more

  • Study: Card Issuers Face $25 Billion Revenue Hit

Wall Street Journal

New card regulations could cost U.S. card issuers up to $25 billion a year in lost revenue, according to a study from Boston Consulting Group that is one of the first to add up the total cost of various regulatory changes. The consulting group said various changes from the CARD Act, the Durbin amendment and Regulation E will take away 29% of the revenue that U.S. issuers, mostly retail banks, collect from retail card transactions. Moreover, the new rules may open the door for more regulations, including possible changes to credit cards. The consultants said that, in response, issuers will transform the card industry, selling more products to each consumer and moving further into mobile banking.

Read more

How Much Did Your Customers Lose Today?

Editor’s Note: Gene Marks is a small business management columnist, author, and speaker who also owns and operates The Marks Group PC, a highly successful 10-person firm that provides technology and consulting services to small and medium sized businesses.  The Marks Group PC, launched in 2004, has grown to help more than 500 companies and more than 2,000 individuals throughout the country. Gene writes weekly online columns for The New York Times and Forbes, as well as monthly and bi-weekly columns for Bloomberg Business Week and American City Business Journals. Intuit has, on several occasions, contracted Gene to provide marketing-related services. Here, Gene offers advice to bankers on how to find ways to strengthen their relationships with their small business customers.

 

How Much Did Your Customers Lose Today?

Psst! Want to help your customers make an extra $5,000 – $10,000 next year?

It’s easy. It’s common sense. So naturally I rarely see business owners doing this. But if your customers are in the service, manufacturing or distribution business they could be letting some significant dollars slip away.

Here’s what you can tell them to do:

  • Take out their payroll register from last year (and try not to let them get to upset when they’re reminded how much they’re overpaying some people).  Add up all the hours spent last year by production and service employees.
  • Next, take out last year’s tax returns (and also try not to let them get too upset over how they’re overpaying) and add up all the overhead expenses incurred last year, like utilities, maintenance, office expenses, etc.
  • Now, have them divide the overhead expenses by hours to come up with an overhead rate per hour.

Finally: tell your customer to create a little spreadsheet. Have an admin person in their office find out the materials cost used and the time spent for each job that shipped the day before. This is not a tough assignment as long as the admin person knows how to use a phone. Have that person enter this information plus the selling price and shipping cost on a pre-designed spreadsheet that includes the overhead rate per hour. Let the spreadsheet calculate profit.

Tell your customer to get a copy of that spreadsheet every single day! Every….single….day! And start getting surprised.

Some jobs (or products, or classes, or services, or projects) that they thought were making money didn’t make as much. Other jobs may have been more profitable than they estimated. And many probably came in line with what they expected.

Now your customer can make some adjustments. Yell at some people. Stamp their feet. Throw something at a wall. Go back to their customers and re-quote future orders. Find new customers who would take more profitable jobs.

It’s not perfect. The numbers probably aren’t exact.  But it’s going to be pretty close. And it’s also not a six figure job costing system that some consultants would recommend.

Your customers may find themselves getting reacquainted with their production people and their customers. They may be relieved to get rid of those customers that they always suspected were unprofitable. You may find themselves taking advantage of some vendors that for years were taking advantage of them.

How did I come up with a $5,000-$10,000 savings? I figure if a company bills out half a million or a million a year, and they increase their job profits by just 1%…well there’s your answer.

By Gene Marks

Check-In…at your Financial Institution

Don’t miss Cornerstone Managing Director Quintin Sykesinsightful look by at how financial institutions will increasingly adopt and integrate location based services technologies into how they engage with customers. To-date, “financial institutions haven’t really been playing with location based services (with Citi’s standalone mobile shopping application being a notable exception), other than branch and ATM locator applications built into some of their mobile banking offerings.” However, the proliferation of smart phones, the introduction of increasingly sophisticated location awareness technologies (GPS), savvier marketing by banks and credit unions, the growing ease of mobile payments and, finally, social networking, will all conspire to spawn smart applications in service to better customer service.

Sykes explores five market drivers and what each will contribute to bring about new location based innovations for financial institutions.

Is your financial institution utilizing location services? Let us know in the comments section below.

Banks’ IT Spending: Progress Report

Even as banks are reporting improved financials, they continue to be slow in re-engaging on IT investments.  American Banker reports that there are some financial institutions that are spending on specific projects, but not many are confident enough to move forward on the big investments that tech vendors have been waiting for.  “Banks are going to really look to that as one of the latter things they do when there’s uncertainty around their capital structure, credit quality or regulatory environment,” said Darrin Peller, a vice president who covers technology vendors for Barclays Capital.

Bank information technology spending in North America is expected to increase 3.9 percent this year to $53.4 billion, according to a report that research firm Celent released in January. But, what’s interesting is the discussion around where banks are actually spending: very specific areas such as mobile banking, bill payment services and Internet systems.

Are you planning to invest money into IT projects in 2011? Let us know in the comments section below.

Connecting Online Banking and QuickBooks

Donna Arce at Barlow Research recently examined the opportunity for financial institutions to deepen business customer relationships by making the download of accounting information to solutions like QuickBooks easier and readily available.

Arce writes, “availability of synchronization services (known as Web Connect and Direct Connect) is not widely available in the market. These offerings are mostly found at top banks. However, even among banks offering these services, capitalizing on the potential can be a challenge.”

Arce spoke with Nadilee Russell, senior vice president of business banking solutions at Intuit Financial Services about how banks can better provide these services to their customers.  Tips include awareness and education, and delivering a good first-use experience. One forward-thinking suggestion Russell offers is that banks   deliver even greater value by making access to the most useful business information contained in solutions like QuickBooks available right within the flow of the online banking experience. “Imagine the customer response if a bank could help a business see their profit-loss report and then offer a much-needed line of credit to help them through a lean patch – all within the same session. Relationships are built on relevance and the customer is the one deciding. If a financial institution can’t meet these needs, businesses will go elsewhere.”

Does your institution offer accounting software synchronization services? Let us know in the comments section below.

Video Interview: CeCe Morken, Intuit Financial Services

CeCe Morken, President of Intuit Financial Services, discusses how the banking industry has evolved rapidly over the past decade. She also highlights how regulatory and economic requirements, more non-bank competitors, disruption of the established business model, and a dramatic shift in customer behaviors and mindset will continue to fuel change in the banking industry.