All Hail 2013: It’s Time to Change

As announcements go, it wasn’t a very big deal when the British Bankers’ Association said at the end of the year that it is urging its 200 member banks to participate in a broad, two-pronged initiative to boost the industry’s image. Part of the plan is to monitor “people’s concerns before they become massive scandals”—a worthy goal, to be sure. But this wasn’t an isolated symptom of the problem. At around the same time, a Financial Times survey of 93 Members of Parliament revealed that fully two-thirds of the legislators believe British banks should be required to create a stronger barrier between investment banking and what’s known as ‘high-street’ operations. More worryingly, this wasn’t a liberal push for more regulation—the number of Conservative MPs backing the idea is actually higher than their Labour counterparts. There’s already a proposal to create a ‘ringfence’ around retail banking, but the new research indicates that many think the changes don’t go far enough.

That’s really the recurring theme here. If 2012 was a year of major change for banking institutions and individuals around the world, then 2013 will require even more.

A tsunami of bad news throughout the year was capped off by the news late in December of massive fines levied against UBS. The Swiss banking conglomerate ponied up $1.5 billion to global regulators, including $700 million to the Commodity Futures Trading Commission (CFTC) alone, the largest such settlement in the agency’s history. The fines stemmed from the charges of manipulation directed primarily at the bank’s Japanese securities subsidiary, all part of the mushrooming Libor scandal.

Some are even calling for the company to be shut down—an action that would surely cause ripples throughout financial markets worldwide. This brought up unpleasant memories of a similar situation earlier in the year, when HSBC was accused of money laundering and other transgressions. In that case, the company agreed to pay $1.2 billion in restitution, yet calls for more stringent penalties met with strong resistance even from regulators. The reason: more criminal charges could destabilize the global financial system. Moving forward, it should be apparent that regulators, and the public at large, will lose patience with a ‘too-big-to-charge’ environment in which massive institutions are able to avoid serious penalties because of their size and clout.

Continuing with the bad news global tour, Japan got a new Prime Minister around Christmastime, and he promptly sent signals that he will bring pressure on the Bank of Japan to essentially monetize the national debt outright. Whatever the merits of his strategy—which goes beyond any stimulus spending in the U.S.—the feeling is that it goes a long way toward taking away the Bank of Japan’s independence. This is a major story that hasn’t received much attention so far. Expect that to change in 2013.

While these are established institutions, there was also evidence that new players with different business models have a hard time breaking in. TandemMoney was an interesting idea designed to meet the needs of the unbanked and underbanked by providing a line of credit that required customers to sign up for direct deposit. A combination of savings and credit would thereafter deal with unexpected expenses. The company saw itself as an innovative startup that would protect consumers from institutional loan sharks. Instead, it will be seen as a cautionary tale—unable to satisfy regulatory scrutiny, it soon shut its doors.

Despite this seeming litany of bad news, it definitely isn’t all gloom and doom. In fact, the industry as a whole is not exactly suffering—the four largest banks in the U.S., particularly Bank of America, had quite a good year, and according to reports some regional banks did even better. A few greatly outperformed their much larger competitors, and that trend is expected to continue. Cautionary tales aside, nimbleness and innovation are still being rewarded.

Other aspects of change are equally welcome, at least to non-Luddites. For one thing, the move toward mobile banking continues to escalate.

We all know about the trend in developed markets, but it seems to be spreading far beyond those borders. The State Bank of Pakistan just announced that between July and September alone, the number of new mobile banking accounts spiked by an astonishing 25%. The news provides more evidence that in developing nations where the lack of infrastructure is a serious hurdle to economic growth, the building of mobile capabilities allows them to leapfrog traditional foundations and gain a major advantage through the proliferation of mobile technologies. (Neighboring India has already taken significant steps forward in this regard.)

Also, despite the buzz, mobile isn’t the technology paradigm changing the face of the industry—cloud computing is another. To give just one example, National Australia Bank just provided an update on its highly ambitious 10-year technology transformation plan drastically improve the customer and banker experience and avoid obsolescence in the process. The bank has already upgraded its network from eight voice and data networks to one, and will virtualize employee desktops, among many other advances. At the heart of the change is the core banking overhaul, which will enable it to retire more than 100 legacy applications. In December, the bank opened a social media command center with cloud-based technologies that enable the staff to field thousands of comments and service requests every month. This is exactly the kind of ground-level change that forward-thinking banks around the world need to undergo.

In fact, one interesting trend to monitor this year will be changes in the CEO position. It’s a safe bet that those executives who get the ax will get it not because they’re resisting change but because they’re not changing fast enough.

Which brings us back to where we started. If the year just ending was a challenge, the next one will be even more so. From presidential elections and regulatory reform to emerging markets and mobile apps with startling capabilities, we’re all in transition mode. Organizations everywhere can see that there must be a transformation in foundational principles, bedrock strategies and longtime operating practices. It’s scary but exciting, and institutions that can change with the times will find more opportunities and better returns than ever before.

What We’re Reading: Holiday Edition

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 or Tweet @bankingdotcom.

  • Capital One to Donate Cell Phone Minutes to U.S. Military Members

American Banker

Capital One said Thursday it will donate 60 seconds of air time to Cell Phones for Soldiers, a nonprofit group that provides communication services to active duty members of the military and veterans, whenever someone downloads Capital One’s mobile banking app. The $302 billion-asset company also will give the group 10 seconds of air time that military members can use to view their own accounts at the bank or to transact online whenever customers use the app to view their transactions, pay bills or move money.

Read more

  • Special End of Year Issue 2012 Story of the Year Mobile

Credit Union Journal

A recently issued Bain & Co. report found that mobile banking in the U.S. has soared 50% since 2011, with 64% of mobile banking users in the U.S. indicating that the future ability to use their smartphones or tablets to check account balances would be highly valued. Still, that value proposition must be explained and marketed. Fiserv recently analyzed data compiled by Mobiliti and found that institutions that have actively marketed mobile banking have experienced an average adoption rate that is twice as high as financial institutions that have not promoted the service. FIs that didn’t market the service saw about 10% of eligible persons adopt mobile banking.

Read more

  • Twelve Things to Do When It’s Cold Outside

Huffington Post

It might not be sexy, but a balanced budget sure is useful. Use an online budget planner like LearnVest or Mint to gather all your financial information in one place so you can see where money is going each month, set budgets for certain categories and never miss a bill payment

Read more

  • Mobile Devices 2013—The New Attack Vector for Distributed Denial of Service

Javelin Strategy & Research Blog

The slate of distributed denial of service (DDoS) attacks in 2012 will be irrevocably seared into the memories of FI security professionals. The phenomenon is not new, but in response to private industry’s efforts to mitigate the effects of an attack, hackers have proven capable of developing increasingly sophisticated means of crippling IT infrastructure. According to Javelin’s newly published report- –10 Trends for Financial Services in 2013 – in the coming year, hackers will undoubtedly continue their nefarious activities. But the mobile device will provide a new attack vector that requires less technical prowess than those that recently brought FI websites to their knees.

Read more

  • Mobile banking expected to triple from 2012 to 2016

Mobile Payments Today

The future of mobile banking is strong, according to a new report from analysts at Aite Group. The Boston-based research firm said that approximately 7,000 financial institutions in the U.S. now offer mobile banking services and that more will deploy them in the years ahead, judging by growing consumer demand. Of smartphone-owning consumers more than one-third, 36 percent, use their mobile device to check account balances, with nearly three in 10 receiving account alerts to their phones, the Aite report said. Additionally, one in six smartphone owners use mobile banking to transfer funds, pay bills, and view monthly statements, the report said.

Read more

  • Cash and Debit Prevail This Holiday Season

New York Times, Bucks Blog

Roughly three-fourths of Americans are buying gifts with cash or a debit card this year, according to a survey from ING Direct. And 63 percent are spending the same on holiday gifts as they did last year. The finding dovetails with reports finding that consumers are better managing their credit card debt. The fourth-annual national survey of 1,000 adults was conducted by both landline and mobile phones by ORC International on November 23-25. The margin of sampling error is plus or minus three percentage points. (Online bank ING Direct, which is now a division of Capital One, will be re-branded next year as Capital One 360.)

Read more

  • Finance Resolutions for 2013

Unbank Blog

This may sound hard, tedious, and undesirable but creating a budget at the beginning of the New Year will help avoid mistakes that may have happened in the past. Take a look at this past year’s finances. Did you overspend in certain areas? Were you late in paying loans and credit card payments? Look at what needs to be fixed and also take into consideration new loans that might be happening within the New Year. Not sure where to start?

Read more

 

Senator Warren Has the Floor

Immediately after the election, we identified some areas that the banking industry needs to track to see what changes are coming in the era of Obama 2.0. The No. 1 topic: incoming Senator Elizabeth Warren of Massachusetts. As we asked then, “Will she seek, and get, a spot on the Senate Banking Committee?” Well, we have the answers: She did, and she did.

So what happens now?

For a junior senator who’s yet to spend a day in the Senate, Ms. Warren’s presence has stirred up strong emotions already. Even before the committee appointment, her election was tagged as a “crushing defeat for big banks.” That’s true in a literal sense—the industry at large contributed heavily to her opponent, incumbent Sen. Scott Brown, who she trounced at the polls.

The reasons for the wariness towards Sen.-elect Warren are well documented. She’s been a strident critic of the larger institutions, even advocating a modern-day version of Glass-Stegall, the 1933 legislation that curtailed the mingling of commercial banks and securities firms. The report she developed for the nation’s 50 state Attorneys General in 2011 alleged that many large banks had avoided regulatory mandates when servicing certain home loans. (The banks eventually settled with the government for more than $25 billion.) And of course, she was behind the creation of the Consumer Financial Protection Bureau (CFPB), the watchdog agency strongly opposed by many conservatives.

Ironically, it was resistance to her suggested appointment as head of the agency that led to her run for the Senate. Many feared that as director of the newly empowered CFPB, she would have too much power. As a senator with a seat on the Banking Committee, she might have more.

Of course, the concern may be premature. By all accounts, Sen.-elect Warren is more sober academic than hippie radical. She taught law at several universities before joining Harvard Law School, where she specialized in bankruptcy law. Throughout her career she has written extensively about the U.S. economy, and her legislative credentials are hard to dispute. She chaired the congressional panel empowered to supervise TARP (Troubled Asset Relief Program), the bailout program initiated during the Bush administration. She became a Special Advisor to Treasury Secretary Tim Geithner and also served as Assistant to the President.

So is the industry wrong to be worried?

She clearly has a strong point of view—her impassioned defense of tax fairness, captured on video, served as a foundation for President Obama’s own “you didn’t build that” campaign theme. From her perch in the Senate, she potentially has the clout to drive the changes she has long advocated.

However, the reality is more complicated. The U.S. Senate has long been known as the world’s most deliberative body, which is a nice way of saying it takes a long time to do anything. The institution’s bipartisan reputation for seniority, hierarchy and patronage is well-earned, and as a junior senator she will have to work the system before she can overhaul it. Even former First Lady Hillary Clinton had to play by the rules when she got in.

Observers point to a freshman senator from Illinois named Barack Obama as an example of someone who broke through, but he was clearly the exception. In fact, he serves as a potential template for Sen.-elect Warren’s own path to power—many have speculated that she has a White House run in her future. Consequently, she will be under constant scrutiny, with every public utterance parsed for meaning. For a variety of reasons, she is categorically not in a position to drive through major change in a hurry.

Still, the industry would do well to build bridges, if not to her then at least to her constituency. She won the election decisively, with strong support for the reforms she wants to make, and she will likely have White House support when she does make a move.

Bottom line: Working with her when she’s a junior Senator will be a lot easier than working against her if she becomes president.

What We’re Reading: Mobile, Big Data and More

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 or Tweet @bankingdotcom.

  • Integrating Mobile and Branch Banking Will Increase Customer Loyalty

American Banker

Mobile banking has finally come into its own. Almost one-third of the 5,200 consumers that Bain & Company surveyed recently used their smartphones or tablets for some type of banking interaction during the three months prior to the survey, up sharply from one-fifth of respondents in 2011. The survey finds that mobile banking is more likely to increase a customer’s likelihood to recommend his or her bank to other people than any other channel interaction. For retail bankers battling to retain customers and sell more financial products, digital channels have become a powerful means of building loyalty. Digital banking also reduces branch visits, setting the stage for major branch redesigns in order to serve a mass market efficiently.

Read more

  • $850 Million Scheme Exploited Facebook

Bank Info Security

There’s good news in the fight against cybercrime. Authorities have arrested 10 individuals allegedly tied to a global phishing scheme that exploited Facebook and relied on a botnet to compromise more than 11 million computers and steal more than $850 million. But arrests alone aren’t enough to combat online banking fraud. Experts say banking institutions need to take several important steps to support the ongoing cyberfight, including sharing more information with law enforcement and using stronger authentication and end-user security. “I think it’s a good strike against the bad guys, but it just reinforces my view that the FBI is good at coordinating the arrests,” says Dave Jevans, head of online security firm IronKey and a member of the Anti-Phishing Working Group, an international organization of online security thought leaders. “You need private companies to help you know who to arrest.”

Read more

  • How Paper Bills Could Protect You From Cyber Theft

Bloomberg Blog

Hackers are increasingly wiring money directly out of victims’ online bank accounts – without ever typing a keystroke. Three safeguards to avoid being hacked: 1) Use long phrases and symbols in passwords; 2) set up two Web browsers — or better yet, two computers — to keep sensitive data walled off from everything else; 3) on websites that offer it, sign up to receive text-message alerts if someone tries to break into your account. And a new tip that might upset anyone who has a “think before printing” disclaimer in their e-mail signature: Don’t use paperless billing.

Read more

  • Using the Branch to Sell Mobile

Celent Banking Blog

American Banker published an article last week describing Bank of America’s quest to bolster the ranks of its mobile banking customer base. According to the article, the bank is outfitting its teller stations with quick response (QR) codes that can be scanned by mobile devices to download the mobile app. For too long, most financial institutions have limited the merchandizing of mobile banking capabilities. Even after investing in sought after capabilities such as mobile remote deposit capture, many banks enrol mobile banking users primarily through the online channel.

Read more

  • Mobile Banking Expected To Triple

Credit Union Journal

A new report from the Aite Group indicates mobile banking users will triple between 2012 and 2016, and that smart phones and tablets will each serve different banking functions as mobile expands. “Aite Group anticipates that mobile banking users in the United States will triple between 2012 and 2016,” predicted Ron Shevlin, senior analyst and author of the report. “Tablets will become financial management devices, and smart phones will become financial transaction devices. Financial institutions should invest accordingly.” Among smart phone owners, 36% use the device to check their bank account balances, nearly three in 10 get account alerts sent to the device, and roughly one in six use it to transfer funds, pay bills and view their monthly bill statements.

Read more

  • Intuit Survey: Mobile Banking Is Pathway to Profits

Credit Union Times

Think digital banking is only for Gen Y and younger? Think again, think older. Much older. That is the sharp message contained in a new report from Intuit on the ongoing digital banking revolution. The other key finding: mobile banking is a pathway to profitability. In an interview, Intuit senior analyst Jason Weinick elaborated that retention rates for members who use mobile banking services are sharply higher than for those who are online banking only customers.

Read more

  • 7 Steps for Millennials to Take for Gaining Control Over Their Financial Future

Forbes.com

Fortunately, one of Millennials’ greatest strengths is their comfort with technology. While this has translated into using LivingSocial and Groupon to save money, you can also use the Internet to manage your overall cash flow. Sites like Mint and Yodlee MoneyCenter will track your expenses online for free and allow you to access the information on your smartphone as well. You can then have the sites alert you by text or email if you start going over budget in any area.

Read more

  • Strike One for Retailers, But Still Up at Bat in the Payments Business

Javelin Strategy & Research Blog

Earlier this week, a federal appeals court refused to expedite a merchant group’s appeal of the recently proposed $7.25 billion settlement with Visa and MasterCard in a credit card related price-fixing case. A setback for merchants, but one that is unlikely to deter their persistence in advocating and working for change in the payments business.  According to Javelin’s newly published report –10 Trends for Financial Services in 2013 – in the coming year, merchants will continue active litigation efforts designed to address and control payment costs. Following the 2011 implementation of the Durbin Amendment, retailers have are continuing to recognize their ability to achieve broad influence and collective power.

Read more

  • How Main Street will fight big business with ‘big data’

VentureBeat

Intuit, the maker of financial management products for small businesses, currently has hundreds of engineers tasked with bringing the benefits of big data to Main Street. The company envisions a future where small businesses will be armed with data to help them make strategic business decisions and drive consumer sales. It’s turning its database of small business finances into tools to help its customers save time and money. Small businesses have a “treasure trove of data” In an intimate meeting at the company’s San Francisco office, CEO Brad Smith told reporters that Intuit is stressing three things: privacy, innovation, and the accessibility of data.

Read more

The Financial Services Industry Gives Back to Hurricane Sandy Victims

The Partnership for a Secure Financial Future has released its latest “I Am Financial Services” video. In this edition, financial services employees talk about what they have done to help the victims of Hurricane Sandy recover from the disaster.

In the video below, employees in the financial services industry were asked: What have you done, either personally or professionally, to assist the victims of Hurricane Sandy?

What We’re Reading: IT Efficiency, Wal-Mart and Mobile Payments

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 or Tweet @bankingdotcom.

  • CFPB and DOJ Sign Memorandum of Understanding

American Banker

The Consumer Financial Protection Bureau and the Department of Justice agreed Thursday to collaborate on enforcing fair lending laws to avoid duplicating efforts. Both agencies have authority to protect against discriminatory lending under the Equal Credit Opportunity Act. But the Dodd-Frank Act also authorizes the CFPB to do joint investigations with the Justice Department when it relates to fair lending. The Justice Department “welcomes the new tools and resources the CFPB can bring to the fight against lending discrimination,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division, in a joint press release.

Read more

  • Wanted: CFOs Who Know More than Accounting

American Banker

Chief financial officers who can do more than just count beans are finding plenty of opportunities to land work. A string of community banks have hired CFOs in recent weeks. While churn in this position happens with some regularity, banks are increasingly expressing a preference for individuals who are more savvy and sophisticated than those who have historically filled the post. The CFO’s responsibilities have broadened since the financial crisis, becoming more challenging and requiring executives to have an understanding of areas beyond accounting.

Read more

  • Credit Unions Outperforming Community Banks in Mobile: Report

Bank Systems & Technology

Javelin Strategy & Research finds that more credit unions offer mobile banking services than community banks. Credit unions are outperforming community banks in mobile banking, according to new research from Pleasanton, Calif.-based Javelin Strategy & Research Javelin examined the top ten community banks and top ten credit unions, by deposit size, and found that nine out of the ten credit unions offered web-based mobile banking, while three out of the ten community banks reviewed do not offer a single form of mobile banking. Further, According to Javelin, among the top 10 credit unions, 50% offer what the firm refers to as “the triple play;” mobile web, app, and text banking. Meanwhile, that figure is at 40% at community banks. Despite this, the percentage of consumers actually using mobile banking at credit unions is only 19%.

Read more

  • Is it really that Simple?

Finextra

Banksimple, a website whose name says it all.  Now renamed Simple.com. For the benefit of those who are not yet familiar with Simple.com, it’s a cool front-end service that simplifies banking for customers. It connects with them through social media and eases money management. Which is something that banks have not yet been able to achieve. Will these types of services spell the end of traditional banking? Certainly (Bank) Simple thinks so, judging by its aggressive tag line – “get ready to leave your bank.”

Read more

  • Citi Takes Major Step Toward IT efficiency

IDC Insights

Citicorp announced today plans to significantly reduce expenses related to its global IT and operational footprint, and reposition Bank operations through a reduction in workforce of 11,000 bank employees. The results of these actions are forecast to yield as much as $900M in expense benefit in 2013 and $1.1B in annual expense savings beginning in 2014. Defining these as fundamental and long tail changes, Citi’s newest Chief Executive Officer Michael Corbat said “These actions are logical next steps in Citi’s transformation. While we [Citi] are committed to – and our strategy continues to leverage – our unparalleled global network and footprint, we have identity areas and products where our scale does not provide for meaningful returns. And we will further increase our operating efficiency by reducing excess capacity and expenses, whether they center on technology, real estate, or our operations”

Read more

  • Wal-Mart Would Love To Have A Banking License, But It Doesn’t Necessarily Need One

International Business Times

Wal-Mart Stores Inc. makes no bones about its efforts to expand into retail nonbank consumer financial services. Over the years the world’s largest retailer has entered the market for prepaid debit cards, credits cards, payroll check cashing, money orders and wire transfers, but for years it has had its sights on a holy grail: full-fledged retail financial services. Having a bank charter would first allow Wal-Mart to lower its cost of processing credit and debit card transitions, for example. It could also potentially engage in the many services offered by your local bank branch – from auto financing to mortgages.

Read more

  • As Mobile-Payment Giants Bicker, Startups Step Up

Read Write

The mobile payments industry is stuck in neutral. The ability to pay for your goods and services at brick-and-mortar locations from your smartphone is a dream of technologist and financial companies, but the realities of a complicated industry with billions of dollars at stake and too many moving parts has stymied progress.  The leaders in the mobile payments space are not MasterCard or Google. The real leaders are little startups like Square, ShopKeep, Dwolla and LevelUp.

Read more

What We’re Reading: Mobile Banking, Online Banking and Trendspotters

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 or Tweet @bankingdotcom.

  • To Customers, Mobile Banking Apps All Look Alike: Study

American Banker

Consumers make little distinction between their experiences in leading financial services players’ mobile apps and mobile browsers, finds a survey published Thursday by Ann Arbor, Mich.-based research firm ForeSee. Based on 4,500 customer surveys, Mobile Satisfaction Index: Financial Services Edition evaluated American Express, Wells Fargo, Chase, US Bank, Bank of America, Citibank, credit unions overall, Discover, Capital One, MasterCard, Visa, Charles Schwab, Fidelity, E-Trade, Scottrade and TD Ameritrade. The firms’ satisfaction scores ranged only from 73 to 80.

Read more

  • Banks Cling to iPhone as Consumers Take to Android

American Banker

According to Javelin Strategy & Research’s latest consumer survey (the group polled 3,000 consumers this quarter), Google’s Android smartphones and tablets now claim 48% of the U.S mobile market, up from 34% last year. Apple’s mobile device market share is 32% this year, up from 27% last year. (RIM dropped from 25% last year to 12% this year; Windows Mobile dropped from 13% to 8%.)

Read more

  • Fintech Startups – Coopetition or Competition? Business Models Are Shifting.

Celent Banking Blog

Should startups go after consumers/businesses directly? This is the most popular model, with most firms taking this type of approach. Examples include Square, Simple, PayPal, etc. It’s also one of the hardest models as it’s quite difficult for a newly minted organization to establish a brand and build critical mass on its own. Can startups be successful at enabling others in addition to going after their core market? This is becoming an increasingly popular model as startups seek out new streams of revenue. It’s particularly popular in the payment space as it allows for a potentially increasing stream of transactional revenue.

Read more

  • We All Can Be Trendspotters

Celent Banking Blog

As the festive season approaches, this is the time of the year when Celent analysts reflect on what kept us busy through the year and what the future might hold for the next 12 months in our respective coverage areas. We usually publish the results of this thinking and analysis in various trends reports – from Top Trends in Banking to Top Trends in Payments to IT Spending. Intelligent Environments, a digital banking software company, was launching Interact, its new platform for “connecting money to people.” One statistic stood out and was probably unexpected to many people in the room – according to the latest research by IE and YouGov, 51% of UK consumers now see digital channels as the primary driver of their bank loyalty, even ahead of customer service.

Read more

  • Are banks wasting money on mobile and online innovation?

Computer Weekly

The research jointly done by Infosys and banking association Efma found that 70% of 330 banks questioned respondents are planning to increase their spending on innovation, with the mobile and online channels seen as the most important delivery channels for innovation. It is very important for businesses to be able to identify where they can actually differentiate through technology. Even new services which are business critical, might not offer the opportunity to differentiate. Peric at Swift says an example of this is mobile banking. All banks want to offer mobile banking to consumers so they can reach every corner of the world.

Read more

  • The Future of Online Banking: When Worlds Collide

Financial Brand

Mobile banking is generally thought of as a new channel or product, yet it is actually a reiteration of an old product: online banking. These two worlds have been viewed and treated as separate platforms, but financial marketers would yield the most by combining the best of both to create a unified “product offering of the future.” So what are the building blocks of the future? There are some notable areas causing a great divide between the two worlds.

Read more

  • Mobile Banking Adoption Grows

Media Post

Javelin Strategy & Research’s latest report evaluates the 25 leading U.S. retail financial institutions (FIs) mobile banking offerings by comparing features, mobile access, app, Web and text banking, and mobile alerts. Mobile banking is on the rise — now used by 33% of mobile consumers, up from 24% in 2011. Of the top 25 U.S. financial institutions by deposit, about half are offering mobile person-to-person (P2P) transfers and mobile remote deposit capabilities, a figure that has more than doubled since 2011. One area of concern is that the number of consumers reporting problems accessing mobile banking services at their bank has more than tripled since 2009 from 4% to over 14% in 2012.

Read more

  • Applying Developing-Market Mobile Banking Models in the Developed World

Mobile Financial

A U.S. federal report released in September found that 8.2 percent of households in the country are unbanked. That’s nearly 10 million households, and 17 million adults. Another 20.4 percent are underbanked—or 24 million households, and 51 million adults. Those numbers add up to more than a quarter of the population of the U.S. The percentage of both unbanked and underbanked has increased slightly since the last survey (conducted in 2009). Americans are also using alternative financial services more, including payday loans, check cashing, money orders, pawn shops, etc. Both increases are most likely due to the economic recession and resulting high unemployment rates.

Read more

U.S. Banks: Too Small To Succeed?

As the clock ticks down to the ‘fiscal cliff,’ it’s been interesting to see the response from the banking community. For example, it was reported that at the urging of CEO James Gorman, more than 15,000  Morgan Stanley employees, nearly a third of the company’s workforce, had just sent letters to Congress asking for a “balanced” approach to the eventual deal (if there is one).

Of course, when it comes to the government, the industry has more on its mind than just a looming rise in tax rates and drop in spending. The separate-but-perhaps-related issues were on full display just a day earlier when the same CEO spoke at an industry conference—as comments will surely be of great interest to those same lawmakers currently huddled in negotiations.

“The economies of regional banks don’t add up,” Gorman noted. “There will be more consolidation.” While many bemoan the ‘too big to fail’ shape of the industry as it now exists, the U.S. banking industry actually needs larger financial services institutions with more assets and greater reach. Some recent deals prove his point. In November alone, Jeffries Group was acquired by its largest shareholder, Leucadia National Corp (LUK.N), specifically to assure investors of its staying power, and Stifel Financial acquired boutique investment bank KBW.

Despite its own impressive asset base, Morgan Stanley itself is far from immune to these pressures. The investment bank’s credit rating was downgraded earlier this year, in part because of concerns that it can’t compete with the likes of JPMorgan Chase in specific businesses. And at the same conference, Gorman acknowledged that Morgan Stanley is getting out of some markets, though he maintains that the company is not looking for a buyer.

This premise clearly runs counter to conventional wisdom, which holds that too many banks are already too big to fail. This was at the root of numerous debates during the recent election cycle, with continuing controversy over the massive bank bailouts initiated during the Bush administration. The promise, of course, was ‘never again.’ But when some institutions inevitably hit hard times and by dint of size alone threaten to jeopardize the entire financial system with an imminent collapse, what then?

It’s tempting to look overseas for pointers. Canada serves as prime example—it has a high degree of consolidation, yet was largely unaffected by the financial meltdown. By contrast, France remains a source of worry. A few banks there, also very consolidated, carry a huge amount of debt, and that may prove to be a problem both short- and long-term. The U.K. banking system has related concerns: The Bank of England just sent out a warning British banks need greater capitalization to defend against a euro zone fallout. In other words, they need to be bigger.

Of course, we’re not going to get the answers from any single source, especially one that’s overseas. The U.S. system is simply much larger than, and more competitive than, any other to make a direct comparison. It’s also subject to both regulatory compliance and free-market pressures that are essentially unique and always evolving.

The current angst over the fiscal cliff will eventually fade. Either a deal will get done with neither side being too happy about it, or a deal won’t get done and the spending cuts and automatic tax hikes will kick in, and Congress will be forced to develop new mandates. They may even find a way to kick the can down the road and put in temporary measures that don’t solve anything.

Whatever happens, there’s no question that we need a long-term outlook—the current agonizing over the Bush tax cuts and Obama stimulus packages serve to shine a spotlight on the state of the economy as a whole, and the banking industry’s role in it. Those writing in to Congress to ask for a ‘balanced’ approach are surely right. However, what that approach might mean for us—how big and how regulated we should be—remains a question in search of an answer.

Small Business: Respect and Dedication

In a recent blog on Banking.com, we explored how small businesses don’t always get the respect they deserve from the banking world. There’s no question that this sector of the economy is always vital, and increasingly optimistic. In fact, the number of businesses that report being ‘better off’ jumped from 16 percent in 2009 to 33 percent in 2012. This is also a market rich with possibility: on average, small businesses hold deposits four times greater and loan balances 15 times greater than retail banking customers.

And yet, this market continues to rank near the bottom in banking satisfaction.  So what’s going on—and what can the industry do to make thing better? The new J.D. Power and Associates 2012 US Small Business Banking Satisfaction Study, a comprehensive research report that identifies and highlights the situation described above, digs deeper into the problems and identifies many of the pain points.

As mentioned in the previous blog, credit is still the primary issue, but it’s not the only one.  The J.D Power study lays out more fundamental problems too. In particular, while small businesses are sometimes lumped in with retail banking, there are major differences between the two.

First, small businesses expect greater competence and responsiveness from their bank, since their needs are more complex needs and they bring greater value. Second, relationships are everything: they want an account manager who understands their needs and provides customized solutions. In both these areas, the study shows, banks come up short.

In routine transactions conducted both face-to-face and on the phone, small business customers say their experience either mirrors that of retail customers or doesn’t even rise to that level. By the numbers, 21% of retail banking customers have problems in a given year; 36% of small business customers say the same. Similarly, only 43% of small business customers say their assigned account manager (if they actually have one) ‘completely’ understands their needs. The latter problem is particularly acute: the J.D. Power study outlines the ways in which a good relationship with an understanding account manager makes a significant difference in terms of discussing loan options, receiving regular updates, etc.

The problems extend past business issues to even more basic headaches. The data shows that small business customers are less likely to experience in-person best practices than retail customers when they visit a branch, are less likely to be greeted by name, and are more likely to experience longer wait times.

The study does take into account equivalent concerns on the banks’ side: It’s perhaps unrealistic to expect that every account manager will have a full understanding of every small business account they handle, and it is only natural to assign bank personnel to accounts where they offer the greatest value. However, there’s also no question that there is plenty of room for improvement here.

The study does lay out some remedies. First, while there can (and should) be some discussion around whether to have a dedicated commercial-only window in particular branches, there needs to be more training staff-wide on paying greater attention to small business customers. Second, in the era of Big Data, we have more information at our fingertips now than ever before on each account and the market in general. This should be used more effectively to develop a greater focus on this critical market segment. Finally, while many institutions fully intend to create small business specialists within call center groups—with experienced representatives and specialized training—the final product often falls short. If, as the J.D. Power study makes clear, “a dedicated small business team is established—and the data suggests it should be—it needs to be sourced and managed appropriately.”

Ultimately, of course, any list of best practices runs the risk of being too generic, the same problem that frequently afflicts this market. The small business market is undeniably both vast and fragmented. It’s also vital—and for the banking industry’s purposes, potentially very lucrative.  It deserves respect, and that will come through customized solutions backed with knowledge and dedication.

* Now in its seventh year, the U.S. Small Business Banking Satisfaction Study measures small business customer satisfaction with the overall banking experience by examining eight factors: product offerings; account manager; facility; account information; problem resolution; credit services; fees; and account activities. The 2012 study includes responses from nearly 7,246 small business owners or financial decision-makers who use business banking services. The study was fielded from August 10, 2012, through September 10, 2012

For more information about the J.D. Power and Associates 2012 US Small Business Banking Satisfaction Study, please contact: Holly Zagresky at (248) 680-6319 or via email at Holly_Zagresky@jdpa.com

What We’re Reading: Weekend Edition

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 or Tweet @bankingdotcom.

  • Banks Cling to iPhone as Consumers Take to Android

American Banker

According to Javelin Strategy & Research’s latest consumer survey (the group polled 3,000 consumers this quarter), Google’s Android smartphones and tablets now claim 48% of the U.S mobile market, up from 34% last year. Apple’s mobile device market share is 32% this year, up from 27% last year. (RIM dropped from 25% last year to 12% this year; Windows Mobile dropped from 13% to 8%.)

Read more

  • Smartphone Seen Driving Cielo Returns to New Record

Bloomberg

Associated Newspapers has launched a free personal finance management website. OnTrees enables users to track recent transactions on their bank accounts, view a breakdown of their spending and set up budgets and spending limit alerts. The website launched last week after a two-week trial period with Mumsnet and the National Union of Students. The service is available via iPad and smartphone apps and OnTrees says the service has ‘bank level’ security. The website has been developed using technology from American financial software provider Yodlee.

Read more

  • Mobile Payments Are Surging to $1 Trillion: Are You Mobilized?

Forbes.com

Disruptive mobile technologies are shaking up traditional payment processes and mobile E-commerce is expected to exceed $1 trillion in worldwide volume by 2017, a new study says. But another study says competing mobile platforms, including Near-Field Communications, could pose a challenge for banks and other financial institutions trying to devise the optimal mobile-tech strategies that will allow them to exploit this seismic shift to their full advantage.

Read more

  • The Big News For Banks Next Year: Smaller Profits

Forbes.com

Moody’s warns that profitability at the nation’s banks will decline for the next 12 to 18 months. That’s without the possibility of the country slipping back into a recession. The main culprit behind the banking sector’s less-than-stellar performance? Low interest rates and sluggish loan growth. The combination is taking a toll on banks’ net interest income which is a major contributor to banks’ earnings. For instance Wells Fargo and Citigroup derive more than 50% of their net revenue from from net interest income, according to the quarterly update from Moody’s. Making matters worse is that the cost of deposits is already so low that banks can’t push them much lower to widen the spread. But consider this: Banks have been reporting net income in the $25 to $35 billion range consistently every quarter since 2011–levels not seen since 2007. In the third quarter last year net income passed the $35 billion mark reaching $35.2 billion. The last time banks reported levels like that was in the second quarter of 2007.

Read more

  • Holiday shoppers flock to websites

Los Angeles Times

Consumers hopped online for some more Internet shopping on Cyber Monday after last week’s post-Thanksgiving Black Friday frenzy came to a close. Many started early this year: Online spending on Black Friday topped $1 billion for the first time as some shoppers turned to their computers instead of braving the crowds in person. This Cyber Monday, up to 129 million consumers were expected to hit Web merchants to take advantage of discounts, promotions and free shipping, according to the National Retail Federation. For the last two years, Cyber Monday has been the year’s biggest online spending day. That’s up from 12th place in 2006. Last year, Cyber Monday sales totaled $1.3 billion, and ComScore predicted they could hit $1.5 billion this year.

Read more

  • Mobile Banking Adoption Grows

Media Post

Javelin Strategy & Research’s latest report evaluates the 25 leading U.S. retail financial institutions (FIs) mobile banking offerings by comparing features, mobile access, app, Web and text banking, and mobile alerts. Mobile banking is on the rise — now used by 33% of mobile consumers, up from 24% in 2011. Of the top 25 U.S. financial institutions by deposit, about half are offering mobile person-to-person (P2P) transfers and mobile remote deposit capabilities, a figure that has more than doubled since 2011. One area of concern is that the number of consumers reporting problems accessing mobile banking services at their bank has more than tripled since 2009 from 4% to over 14% in 2012. Without access there is no mobile banking. One of the most difficult issues facing mobile banking.

Read more