What We’re Reading: Retail Banking Myths, Security, ChaseNet

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.

  • 43 retail banking myths—busted!

ABA Banking Journal

With the financial services industry changing so quickly, it should come as no surprise that many assumptions banks and credit unions believed to be true for years could actually be rendered obsolete.  Myth 1. Banks must embrace big data to be successful. Reality: Most banks and credit unions have not fully leveraged insight that is currently available within their firewalls. Account ownership, demographics, product use, and other behavior data should be used for offers and communication before adding unstructured data from outside the organization.

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  • Holidays Drove High Use of Mobile Banking Apps

American Banker

December was a busy month for mobile banking, as on-the-go holiday shoppers actively logged into their accounts to check balances or see if purchases went through. In American Banker’s monthly survey of mobile banking activity, more than 65% of respondents said that volume was up in December from a month earlier, while just 2% said activity declined. The rest reported that activity was roughly the same month to month. Several respondents attributed higher activity to the fact that their mobile banking app is relatively new.

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  • Mobile Banking: Making Security and Convenience a Package Deal

Bank Systems & Technology

The key to mobile security success is a multi-layered approach that enables companies to verify who their customers are and what they are authorized to do. The clash between convenience and security has been in motion as the world has shifted to mobile devices, but this is only the beginning. While highly-connected companies have been managing these challenges for years, the speed, scale, and scope of the ongoing business transformation are enormous.

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  • Chase’s Quick Checkout: Leveraging the Power of ChaseNet

Celent Banking Blog

A digital wallet, which stores customer’s payment credentials and shipping details, and pre-fills them at checkout. Like other digital wallets, Quick Checkout is “open” – i.e. customers can register their non-Chase cards. However, their Chase cards will be automatically available and kept up-to-date in the wallet when they get replaced in case they expire or get lost or stolen.

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  • Capital One Ups the Punching Power of ClearXchange

Javelin Strategy & Research Blog

Person to person (P2P) payments are quickly becoming a regular feature of today’s banking industry. ClearXchange, the P2P payment platform that developed as a partnership between Bank of America, Chase, and Wells Fargo, has announced that it has added Capital One to its list of owners. Capital One is the second FI to join clearXchange (the first institution was the regional FI FirstBank) and is scheduled to go live with the service later in 2014. According to Javelin data, the addition of Capital One now gives clearXchange the capacity to reach 40% of all U.S. banking adults and 53% of all adult credit cardholders.

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  • It’s Time to Uncork Commercial Relationship Revenue

Gonzo Banker

There is a brutal feeding frenzy occurring in the banking industry today: the complete commoditization of mainstream commercial and commercial real estate lending. Like a pack of vultures picking at the flesh of a potential new mini-perm deal or term loan, liquidity-rich banks are feverishly bidding down pricing into the zone of shareholder destruction. We see fixed-rate deals for 7 to 15 year terms that carry coupons lower than many banks’ net interest margins. Despite calls for sanity from every senior loan committee across the country, the brinksmanship continues. Business customers have grown savvy, and even the most loyal now send their credit needs out onto the street for competitive RFP bids. Loyalty these days seems to buy about 10 basis points for the banker.

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  • Banking Trojans emerge as dominant mobile malware threat

ZDNet

Kaspersky Lab’s latest mobile threat landscape report portends more ominous news for mobile device users as the number of new malicious programs tailored for smartphones and tablets more than doubled to nearly 100,000 malicious modifications in 2013. The vast majority of the most damaging mobile malware targeted users’ money and bank cards, according to the security software firm’s latest data, and more than 2,500 attempted infections by banking Trojans were blocked last year alone.

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Why Banking Needs Even More Disruption

Question MarksThere’s no question that in our business we’ve seen more than a few ‘disruptive’ technologies. You could even argue that the entire industry has become conditioned to the notion of disruption—every day, it seems, there’s a new startup, a new device, a new paradigm, and of course a flood of new apps, all designed to make life easier for professionals and consumers alike. All of these inventions have done their part to move the industry forward.

But what if the changes don’t go far enough?

What if many of the innovations don’t reinvent the industry as much as they refine existing capabilities? What if the new technologies we marvel at are time-savers (which is surely a good thing) more than game-changers?  What if basic functionality has gotten much easier but is still too hard?

There have surely been ground-breaking advances along the way. A number of online-only banks have sprung up to offer services that are both more varied and less costly than some of their traditional counterparts, ramping up competition in the process. A full roster of mobile applications from startups and multinationals alike has changed consumers’ core perceptions of day-to-day money management. Mint.com helped shift the landscape with technology that identifies and organizes transactions made in virtually any account, boosted by search algorithm that finds personalized savings opportunities.

Simple logo

BBVA recently announced a deal to acquire startup Simple. Image source: Gizmodo.com

The innovation isn’t letting up anytime soon, and the money is there to support it. Just last week, BBVA, a Spain-based multinational whose U.S. subsidiary Compass operates close to 700 branches, announced a deal to acquire Simple, a fledgling venture that has taken numerous apps to market. By itself, the deal is not exactly gigantic—the $117 million price tag is puny compared to, say, the $19 billion that Facebook is willing to shell out for What’sApp.  (Now there’s a deal that’s got many marketers scratching their heads.)  But the Simple acquisition is interesting for a number of reasons.

First, Simple is not a bank in any sense, in fact, it doesn’t even hold customer accounts. (That function is currently managed by Bancorp, though BBVA will eventually take it over.) More interestingly, perhaps, Simple is essentially built on the notion that traditional banks do things wrong. Its founders have been loudly critical of existing practices, which is why they don’t charge fees but instead create services around data-driven behavioral patterns.

The key belief here is that while banks are content to show consumers what they have left in their checking accounts, those same consumers must also do mental gymnastics to incorporate factors such as rent and groceries before deciding what they can actually spend. Simple’s services helps with that thinking, and will in turn propel changes in end-user behavior. Moving forward, these are the kinds of innovations that the market will demand.

Some industry professionals are making the case to go even further. Aman Narain, global head of digital banking at Standard Chartered, stresses that insight into current finances does not by itself enable action. So what actually might help?

Imagine a personal finance application that estimates a user is spending too much on cabs when it rains, automatically checks the weather, and makes a recommendation via the mobile device to carry an umbrella or raincoat. There are endless possibilities: It could match financial information with health concerns to guide decisions at a grocery store or a restaurant.

Yes, the Big Brother aspect to all this is obvious. It’s a little intimidating to think that the smartphone, in its own way the most personalized computer ever, could be so personal as to make the best decisions about what we spend money on, entirely based on our own best interests. Yet that’s exactly how the best technology works—it doesn’t make decisions for us, but it changes the way we make decisions. And those products have a much, much bigger and better memory than we do.

In our business, the core product is money—it’s personal, visceral and vital, and it helps enable the acquisition of every other product. That makes comparisons to advances in other industries seem like a stretch. Our industry has good reason to be proud of the innovations we’ve taken to market. We’ve come a long way. But we can, and must, go much further.

Bribery, Corruption, Money Laundering: Banks in the Crosshairs, Part 1

Contributor Christine Moran

Contributor Christine Moran

This is Part 1 of a two-part series from FTI Consulting. Read the first part here.

The volume and pace of transactions in global financial markets – magnified and accelerated by new technologies – is mind-boggling. It has been estimated, for example, that every day there is $2.9 trillion worth of stocks, bonds and derivatives traded in U.S. financial markets.   It’s easy to see how this makes monitoring both client onboarding and financial transactions monumentally difficult.

For instance, in recent months an internal Vatican Bank investigation found that it had not been adequately vetting account holders, allowing criminals to launder money and transfer large sums via proxies. Last summer, German regulatory agency BaFin found Deutche Bank, with over €2 trillion in assets, laggard in reporting suspicious transactions to police due to inadequate internal controls.

Governments and regulatory bodies are well aware of the difficulty of policing transactional activity, as well as violations of international sanctions against countries with ties to terrorism, or with poor human rights records. Understaffed and underfunded, these bodies would like to shift their burden to the financial institutions, seeing that as the only way to keep ill-gotten money out of the financial system and to de-fund criminals and terrorists. And they are driving this agenda with a flurry of fines.

Contributor Peter Brooke

Contributor Peter Brooke

U.S. enforcement authorities, flexing their regulatory muscles, recently have imposed fines for sanctions breaches on Lloyds Banking Group ($350 million), Barclays ($298 million), and Standard Chartered ($327 million).  In the UK, the Financial Services Authority imposed a fine of £5.6 million on RBS for similar transgressions.

The U.S. Department of Justice and the Securities Exchange Commission are using the Bank Secrecy and Foreign Corrupt Practices acts to demand greater due diligence from all parties involved in transactions, holding them responsible for both sins of commission (such as facilitating money laundering or committing sanctions breaches) and omission (failing to implement sufficiently strong internal controls against either or both). In short, governments are making it clear that they will not tolerate what they deem to be reckless conduct on the part of financial institutions, or what they see as a weak commitment to abiding by international rules regarding sanctions and money laundering.

Financial institutions argue that the expectation that they can act as a branch of law enforcement is unreasonable. They cannot, they say, monitor every transaction or client with 100 percent certainty or make their businesses risk-free. They say the investment they must make in people, processes and technology to attempt to comply with regulations and avoid being implicated in financial crime places a massive strain on their resources. And, they point out, there is a limited pool of experienced people they can draw upon to lead, manage and run anti-money laundering and sanctions compliance programs.

In this debate, financial institutions are bound to lose. They have no choice but to get smarter about both client and transactional risk, and do more about them.

This will require top-level leadership, and a risk-based approach to mitigating financial and transactional risk. In part two of this article, we will discuss how financial institutions can do this.

 

Peter Brooke and Christine Moran are Managing Directors in the Governance, Risk and Regulation team at FTI Consulting, based in London.

Peter Brooke is an experienced Risk and Regulation Consultant at FTI Consulting, based in London. With a unique blend of in-house and consulting experience, Mr Brooke has worked in financial services for more than 24 years.

As a highly experienced Group Head of Compliance, Christine Moran is an energetic consultant at FTI Consulting. Based in London, Ms. Moran has a highly collaborative, grounded and commercial approach. She has a proven track record of building enhanced and effective compliance and regulatory risk arrangements in both retail and institutional businesses.

What We’re Reading: Biometrics, Photo Bill Pay, Mobile Wallet

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.

  • U.S. Bank Pushes Voice Biometrics to Replace Clunky Passwords

American Banker 

When U.S. Bank announced Wednesday that it’s testing voice biometrics for possible use by customers to access account information, it joined a line of banks that have been testing this technology, including Wells Fargo (WF) and Barclays. Voice biometric software users log in to an application or website by speaking a word or phrase. That word or phrase is compared to a previous recording the customer has made, to verify it’s the same user. Many industry observers have been saying for at least a year that the password is dead and more secure alternatives to authentication, such as voice biometrics and iris scans are needed to verify a user’s identity when banking online or via a mobile device. Some press accounts Wednesday stated that the goal for U.S. Bank’s pilot is to improve customer data security.

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  • Mobile Photo Bill Pay Continues Shaky Start

Credit Union Times

Major players are investing in mobile photo bill pay as a natural next step to mobile deposit checking but the tool may have a long way to go to catch up with taking pictures of checks with smartphones. In the past year, 600 to 1,000 banks have installed mobile RDC and less than a dozen have done the same with mobile photo bill pay, said Bob Meara, an Atlanta-based senior analyst for the New York-based research firm Celent. “Mobile RDC is this wonderfully convenient invention and it scores highly on all the consumer surveys, but if you ask the same question about mobile photo bill pay, people just don’t get as excited about it, for a variety of reasons,” Meara said. “It’s just not as compelling.”

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  • It’s Time to Rise Above the Risk and Compliance Whining

Gonzo Banker

According to The Cornerstone Report, 7th Edition, bank assets per enterprise risk management FTE decreased from $147 million in 2010 to $55 million in 2012. Furthermore, the gap between median and 75th percentile performers was much wider than the gap between 25th percentile and median performers.

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  • MCX and Paydiant Mobile Wallet – and Capturing the Consumer

Javelin Strategy & Research Blog

MCX announced it would be adopting the Paydiant mobile wallet, a cloud-based, white label platform. MCX is a consortium of 70 prominent brands with 110,000 locations representing over $1 Trillion in annual payments volume and 700,000 loyalty cards. MCX includes companies like Wal-Mart, Best Buy, CVS, Bed Bath & Beyond, Target, Exxon, Southwest, and today it extended to QSRs like Wendy’s. FIS, rated Javelin’s Best in Class Mobile Banking Vendor provides MCX with payment processing, routing and settlement for mobile commerce transactions.

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  • Study finds small business mobile banking services lacking in US

Mobile Payments Today

U.S. banks need to make a greater effort to capitalize on their small business customers’ appetite for mobile banking services, according to research by Aite Group. This will involve providing their clients with business-specific mobile banking offerings instead of rebranded consumer mobile banking services, the U.S. consultancy says. In September 2013, Aite Group surveyed 1,003 U.S. companies with revenues of under $20 million for two reports: “Monetizing the Small-Business Opportunity” and “Why Banks Should Offer Mobile Banking to Small Businesses.” The survey found that about 32 percent of those businesses bank via mobile devices, according to Christine Barry, research director for Aite Group’s Wholesale Banking practice.

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  • Banks See More Confidence But Face Threat From New Providers

Wall Street Journal Blog

After a period of sharp decline coming out of the financial crisis, the banking industry has seen a rise in consumer confidence for two years in a row, according to a new survey of 32,000 banking customers in 43 countries. The study, by Ernst & Young, showed that globally, one-third of customers reported an increase in confidence in the banking industry compared to a year ago.  This marks a rise from Ernst & Young’s prior survey in June 2012, when just 22% reported an increase in optimism. In 2011, only 13% percent reported an increase in confidence in the banking industry, compared with 44% who reported a decrease.

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Top 5 Online Banks on MyBankTracker: Winter 2014

This article originally appeared on MyBankTracker.com.

As MyBankTracker has grown over the past few years, our focus on banking has never wavered, as we have tracked 6,927 FDIC insured banks and compiled useful information for consumers to make smart banking decisions. We currently have just over 8,600 bank reviews from real bank customers for the purposes of building banking transparency.

Our criteria for picking the top rated online banks are based around report card ranking comprised of bank health, fees, technology, rates, location and mobile access. According to MyBankTracker’s reviewers, the top banks are: Ally Bank, Charles Schwab, USAA Bank, Capital One 360, and Bank of Internet.

*In determining which banks topped the list, we chose banks that each had at least 20 reviews.

 

1. Ally Bank 

ally-bank-logoAlly Bank ranked three out of five stars by reviewers, with a total of 417 reviews, an “A” grade, and an overall rating score of 83%.

Without branches, Ally is able to offer free ATM use on any machine by reimbursing customers for surcharges, and offers high yields and 24/7 customer service for checking and savings. Ally interest checking comes with no maintenance fee with higher than average interest rates — accruing 0.4% on up to $15,000 and 0.75% above that. Ally Online Savings is also free, and offers a competitive interest rate on all balances, coming in at a flat 0.84%.

2. Charles Schwab 

charles schwab logo

Charles Schwab Bank has been rated by our reviewers as three out of five stars with a total of 48 reviews, an “A” grade, and an overall rating score of 81%.

Besides checking and savings accounts, Charles Schwab offers a multitude of services, including help in saving for retirement, ways to invest, and trading tools. Consumers can stay connected by being able to talk with specialists, going online with mobile apps, and heading to workshops, such as free retirement workshops. Schwab’s High Yield Investor Savings comes with no account minimums, no monthly service fees, unlimited free rebates from any ATM worldwide, the ability to deposit checks from anywhere (Schwab Mobile Deposit) with an interest rate of 0.12%. The Schwab Bank High Yield Investor Checking Account gives customers 0.10% variable interest on any balance, and offers free bill pay, free standard checks, a Visa Platinum debit card, and a linked Schwab One brokerage account without fees or minimums.

 3. Bank of Internet

bank of internet logo

Bank of Internet has been rated three out of five stars with a total of 24 reviews, an “A” grade, and an overall rating score of 77%.

Bank of Internet is an online, branchless bank which offers high-interest checking, savings, certificates of deposit, and money market accounts. There are no overdraft fees and consumers receive things like ATM fee reimbursement, free online banking, free bill pay, mobile deposit and more. Bank of Internet’s homepage advertises rewards checking with the potential to earn up to 1.25% APY, 6 times the national average, as well as low interest rate mortgages.

 4. USAA Bank

usaa bank logo

USAA Bank has been rated three out of five stars by 220 reviewers, a “B” grade, and an overall rating score of 65%.

Established in 1983, USAA Federal Savings Bank provides a full range of financial products and services to the military community globally. USAA offers military members and their families investment products, checking and savings products, credit cards, and life insurance. Like the other banks on our list, USAA has free ATMs nationwide, and offers mobile and technological ways of accessing and managing your money, bills, spending, and budgeting. The bank advertises interest rates that are twice the U.S. average, but this does not compare to Bank of Internet’s APY of 6 times the average. Rates on USAA savings vary from 0.10% to 0.20%. USAA checking comes with an APY of 0.01%.

5. Capital One Bank

capital_one_bank_logo

Capital One Bank has been ranked two out five stars on average by 67 reviewers, but earns a “B” grade.

Capital One has some competitive features, such as no fees for opening an account and no monthly maintenance fees. They also have a savings APY of 0.85% for a minimum deposit of $100 and an APY of 0.90% for a minimum deposit of $25,000. Additionally, the bank offers many cards designed for business owners with varying features, APRs, and rewards.

 

As seen in our list of the top online banks, banking has become more competitive, with online banks now offering more lucrative features for consumers than traditional banks such as high-interest and free ATM use. The future of banking, we predict, will move even further in that direction, with banks continuing to move to the online sector and consumers growing disenchanted with the traditional approach to banking.

 

Should Banking Go To Pot?

weed plantBanking and weed: It’s easy to snicker at the very idea. But as the marijuana industry—and that’s exactly what it’s becoming—continues to grow, there will have to be a system in place in handle the finances. That’s where we come in.

The question is, do we want to?

Let’s be clear about the broader issues here. At last count, 20 states and the District of Columbia permit medical cannabis, specifically as therapy to treat a range of diseases and alleviate symptoms. This is a relatively recent phenomenon, although the cannabis plant has been used for this purpose for many thousands of years. On fact, the trend toward the acceptance and even embrace of medical marijuana was happening gradually, but it got a swift kick forward in the 2012 election when two states, Colorado and Washington, voted in favor of legalizing the recreational use of cannabis (a similar effort in Oregon came up short). Not surprisingly, other states are seeing initiatives to follow suit.

It’s still way too early to gauge the effects of the new trend. By the time the law had taken effect in Colorado on Jan. 1, 2014, at least 37 outlets were legally open for business. It was initially reported that overwhelmingly high demand was causing stores in Denver to run out of inventory, but that proved erroneous; while the novelty factor likely drove many consumers to check out the merchandise, there was thankfully no shortage.

However, what all this really means is that there’s quite a bit of money coming in, with more on the way. Most of the companies doing the selling, and perhaps even those in the supply chain—yes, the marijuana supply chain—are presumably small businesses. And just like every other small business, they need a financial services support system. And again, that brings it back to us.

It’s been reported that some of these entrepreneurs are doing business in cold, hard cash lugging bags around even to pay taxes. And of course, as volumes continue to rise, there be more money in more bags—a dangerous scenario by any measure. Of course, banks are heavily regulated by the federal government, which still has laws on the books banning not the sale but even the use of marijuana. Taking in and storing money from pot dealers sounds like the textbook definition of a criminal enterprise.

This isn’t just an inconvenient gap between what’s legal in one place and illegal in another. It’s a chasm the size of the Grand Canyon.

However, the feds have finally stepped up. The U.S. government just issued rules that, for the first time, allows banks to legally provide financial services to state-licensed marijuana businesses. There are still strict penalties against certain infractions: distribution to children, trafficking by cartels, shipping to states where marijuana isn’t legal, and so on. Short of those restrictions, however, financial services providers doing business with these businesses “may not” be prosecuted.

That said, the guidelines—which comes from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN)—basically just signal that banks doing business with pot dealers are in compliance with federal anti-money laundering laws. That clearly falls short of the explicit authorization the industry was hoping for.

In other words, it’s not as if the floodgates have opened. We’ve got a long way to go before the cannabis industry—medical or recreational—is comfortable with us, and vice versa. But the stage is set for the best practices to be established.

The real action may be just a little bit further down the road. For now, most of the debate seems to be focused on whether the entrants in this category can officially open bank accounts and avail of the services, just everyone else.  (Some businesses already have, with innocuous names and without explicitly saying what he business does.) But what happens when aspiring entrepreneurs come to us for startup funds? How do we even assess the viability of a business plan built around a substance that’s technically illegal in most parts of the country?

Let’s acknowledge that if we don’t provide banking services to these businesses, someone else will. This is a textbook case of an industry that has long flourished underground and is slowly coming out, with public support and government sanction. The dealers and suppliers are, in their own way, innovators and entrepreneurs. Where do we fit in?

 

Image courtesy of Paul/ FreeDigitalPhotos.net

What We’re Reading: Mobile Bankers, Millennials, Cyber-Attack Trends

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.

  • Mobile Banking Increases the Need for Mobile Bankers

American Banker

Ask a thousand bank managers what makes their bank a better choice than the competition, and about nine hundred and fifty will tell you “our people.” I won’t argue that. In an increasingly commoditized industry, our people can be one of the few true differentiators left. But the model that has them forever sitting in buildings that fewer and fewer people utilize makes less strategic sense each year. The term “universal banker” has become pretty ubiquitous. Universal bankers (usually) can handle anything from assisting with a teller transaction, to opening an account, to performing varying levels of financial needs analysis.

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  • Banking Cyber-Attack Trends to Watch

Bank Info Security

The key for banking institutions in 2014 will be to focus on detecting and mitigating multiple risks across multiple channels. “We will see more blended attacks that combine DDoS with some form of attempted data compromise,” says Doug Johnson, vice president and senior adviser of risk management policy for the American Bankers Association.

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  • Three Ways Millennial Business Owners Differ from Your Traditional Business Customers

Barlow Research

Barlow Research recently hosted a Webcast panel-discussion on the millennial generation entitled “Banking the New Face of Business: Millennials, Boomers and Dynamos.” Our panel included three very knowledgeable panelists: Himmat Randhawa from Digital Insight, and John Yarley and Alfred Chin from Visa. Through the course of the panel discussion on millennials, we learned three important things about this generation. 1. Instant Gratification Is Expected. Himmat Randhawa from Digital Insight believes that a challenge that financial institutions have with understanding the millennial generation has to do with their usage of technology and their channel preferences. “The vast majority of millennials are tech-savvy and think about the online channel as their primary channel with very little interaction with the offline channels. Millennials want anytime, anywhere access to information and don’t have an expectation to do that in-person.”

Read more

  • Top Reasons Card Data Breaches are Here to Stay

Credit Union Times

By far, the main reason thieves have begun to steal card data from U.S. firms, some experts say, is because they can. “The U.S. payments industry has become the one household in the neighborhood that has not upgraded its security system while everyone else has,” explained Karisse Hendrick, program manager in payments and fraud for the Merchant Risk Council, an international trade group that is organized to help firms fight card fraud. “When you are perceived to have security that is the easiest to beat, she added, thieves will try to beat your security.”

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  • Ally Bank launches app for Windows Phone 8

Finextra

Ally Bank, the direct banking subsidiary of Ally Financial Inc., has expanded availability of its popular Ally Mobile Banking app to include a version designed exclusively for Windows Phone 8 users, enabling even more customers to access and manage their money “on the go” using the Bank’s award-winning app.

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Financial Institutions Need a Can-Do Attitude

 “Don’t mistake activity with achievement.”
– John Wooden, former UCLA basketball coach and 10-time NCAA Basketball Champion

Target, Neiman Marcus and Michaels recently compromised sensitive customer data to hackers, joining Facebook, Gmail, Twitter, and Yahoo!. And those are the ones made public.

Financial institutions (FIs) aren’t safe either: Global Payments (processor for Visa and MasterCard), Bank of America, Citibank, JP Morgan, and Fidelity National Information Services all suffered data breaches recently. Hundreds of millions of dollars stolen and boatloads of personal data exposed to criminals.

Companies, especially FIs, are not doing enough to safeguard sensitive information. FIs scramble to buttress their systems to thwart attacks, while criminals easily elude the safeguards.

If you shop online your information could already be on a hacker’s hard drive, waiting to be bundled and sold to another criminal, making you vulnerable to identity theft and other crimes.

The protection plans offered by credit card companies and FIs do provide additional protection. But, if it isn’t enough, why would consumers pay for safeguards that should be provided automatically? The “safeguards” aren’t really all that safe, in truth.

EMV (Eurocard, MasterCard, Visa) (covered on this blog) would be a step in the right direction, erecting additional layers of protection between FIs and hackers. EMV has been adopted by most of the world, but not in the U.S.

EMV replaces the magnetic strip on cards with a microchip used for authentication, encrypting the information during the transaction, making it more difficult for thieves and card skimmers to steal. Security is further bolstered when used with a PIN or signature. However, it is by no means a panacea.

Retina scans and fingerprints could also thwart criminals. Those systems require expensive investment in hardware and new software to support them. FIs and their customers should implement anything that makes it more difficult for hackers.

Dual-factor authentication (2FA) is another, more feasible, option. It adds another level to the standard password login. The FI would send a code via text message to your mobile phone, which then is entered by the user to execute the transaction.

Ninety-one percent of Americans already have a mobile phone, according to Pew Research. Convenience alone makes 2FA via text message a logical solution.

Sending out text message codes would require investment in software, but the cost is meager compared to implementing a scanner or other hardware solution. Twitter, Google and Facebook already support 2FA as an option at login. It should be made mandatory.

2FA has been around for decades but never took hold. If a mobile phone was compromised, it would carry frightening ramifications. And, transactions are susceptible to Trojan horses, Man-in-the-Middle attacks, and other malware. In fact, all computers are vulnerable to these types of attacks.

Tokens like RSA’s SecurID, 1Password, Toopher, YubiKey and the like that provide one-time passwords have weak points as well, which can serve as gateways for criminals. If breached, could expose every one of the user’s passwords, all at once. Not good and hardly safe.

So what’s the answer?

Disappointingly there isn’t one that ensures total protection in all situations. Hackers are clever and will continue to exploit weaknesses in any, and every, system.

2FA is easy to implement with current technology and is a formidable additional security layer.

Coach Wooden said, “Do not let what you cannot do interfere with what you can do.” FIs need to heed this advice.

About David Sutton: David has a BA in economics and a MS in business journalism, and his articles have appeared on Forbes.com and in the Boston Business Journal. David has had a bank account since he was three.

Banking on (and at) the Post Office

It’s hard to think of an institution more archaic than the U.S. Postal Service. In a sense, it predates even the Declaration of Independence—Benjamin Franklin was named the first Postmaster General a year earlier, in 1775, and the Post Office Department, a Cabinet-level agency, was chartered in 1792. For the record, it’s been quasi-independent since the Postal Reorganization Act of 1971, but it’s still commonly perceived as a government bureaucracy, in part because it has long been dependent on government credit. It is not often associated with innovation, efficiency or even operating profit.

And of course, there’s the core product: mail, which many now describe as snail mail. At a time when even e-mail seems antiquated compared to the many social channels available, who needs a delivery system for all that paper? In the end, who needs it?

Try the financial services industry.

Post Office Man

On first glance, it makes for an odd partnership. We like to be on the cutting edge of innovation, and high-tech tools represent a critical element in that equation. Sure, our industry puts out a lot of paper, and we probably to our part to keep the postal service busy delivering some of it. But that’s about where any connection ends. Many in our field would take it as an insult if our services were described as being anything like the Post Office.

But there might be some changes coming. A brand new report from the Office of the Inspector General of the U.S. Postal Service suggests an interesting form of cooperation, and it is generating considerable buzz.

The report, “Providing Non-Bank Financial Services for the Underserved,” points out that the Post Office, by virtue of its ubiquity alone, is uniquely positioned to Postal Service is well positioned to provide certain categories of financial services to communities around the country whose needs are currently not being met by our industry.

Before delving into what this is, let’s be clear about what it isn’t. The Post Office is not suggesting that it wants to compete with banks in any way, neighborhood or otherwise. Instead, the report proposes that services could include reloadable prepaid cards with money-saving features and mobile capabilities, financial products that assist underserved communities and international money transfers. Moving forward, it could even expand into microfinance, replacing the predatory loan sharks who prey on these neighborhoods and charge obscene rates of interest.

Before descending into snark—and there’s surely rich potential for that—it might be wise to take an alternate look at this scenario. Much of the coverage of the Postal Service’s report focuses on such a move might benefit the institution and the communities it serves. But we should consider what’s in it for us.

This idea is being floated because more than a quarter of the U.S. population has no bank account at all, or have one but still need to rely extensively on check-cashing storefronts, pawnshops and the like. That’s because, to put it bluntly, we’re not there. With our operating model, having a brick-and-mortar outlet in many of these neighborhoods simply doesn’t make fiscal sense. However, while the average “unbanked” family makes about $25,500 a year, it spends nearly 10% of that amount on fees and interest for access to some form of financial services some of it to unscrupulous lenders. Getting into this market won’t just be good for them, it might be good for us, too.

And there’s more. As we’ve documented extensively on this blog, bank branches are shutting down everywhere, a logical outcome of the digital, mobile and cashless economy. But this migration leaves behind vast swathes of the population, and the Post Office isn’t going anywhere. By becoming a physical representation of our digital offerings, it could arguably complement our offerings.

This is not to say it’s going to be easy, and resistance to the idea has already emerged. Some industry groups are decrying the proposal, and the head of the Independent Community Bankers of America memorably described it as the worst idea since the Edsel. However, at least two senators, including Consumer Financial Protection Bureau (CFPB) advocate Sen. Elizabeth Warren, estimate that the U.S.P.S. could make nearly $9 billion a year by proving key services to millions currently left out of the system.

Despite the obvious obstacles, this is an intriguing idea. And in this market, in this environment, that makes it welcome.

Image courtesy of Boians Cho Joo Young/ FreeDigitalPhotos.net

Are You Creating a Safer Internet for Your Members and Customers?

As more banking customers interact with their financial information online, it becomes ever more important that they know how to conduct themselves responsibly online.

Tomorrow, on Safer Internet Day, February 11th, ConnectSafely.org is asking Americans to spread an epidemic of kindness and share the #OneGoodThing  they’ve done, or seen somebody else do, to make the Internet a better place. Safer Internet Day (SID) is a global campaign to promote safe, effective use of the Internet and mobile technology. Hosted in the United States by ConnectSafely.org, Safer Internet Day is commemorated each year on the second Tuesday of February.

SID is a great opportunity to take the time and think about how you’re educating customers and members to be safe online, and reflect on the positive ways technology impacts the way we bank and interact with our finances.

Share your #OneGoodThing on Twitter, Facebook or submit here to spread kindness and celebrate the ways that the online world helps us every day so we can create a better internet together.

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