FINANCIAL REFORM Sweeping changes afoot as Obama gets his Bill
A WAY WITH MERGER Wells Fargo’s Wayne Mekjian on merger management and integration
www.usfst.com • Q3 2010
BALANCING BUDGETS Managing IT costs without the cuts
The heat is on for banks to embrace social media or run the risk of being left behind
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FROM THE EDITOR 5
Hard Cell Smartphones and social media sites pose a series of challenges – and opportunities - for the financial industry.
don’t understand it. The furore over the new iPhone 4, that is. I’ve always been what’s known as a ‘late adopter’ of technology – my TV set remains steadfastly two dimensional, low deﬁnition and boxier than an angry Mike Tyson; my mobile phone has a grainy old camera and no 3G capability, and my social networking output was - until very recently when I set up a Facebook account and spent hours fending off friend requests from names I recognized but time-ravaged faces and hairlines I didn’t - restricted to a couple of group emails to buddies asking them simply: ‘How y’all doing?’ I can tell you how they were doing. They were Twittering, Facebooking, mobile surﬁng, blogging, iPodding, downloading and generally doing anything other than checking their antiquated Hotmail account from their desktop. They had embraced technology and were, like a great number of our population, only too happy to conduct their social networking, location updating and mood announcement online for all to see. This hyper inter-connectivity poses serious opportunities for ﬁnancial institutions. Granted, the entire realm of social media is fraught with pitfalls, but banks would be well advised to shed their ‘late adopter’ tag and embrace this phenomenon. Customer behavior and interaction is being dramatically altered by technological advances, and while not everybody is keen on mobile banking and on-the-move transactions, who wouldn’t appreciate a little extra service and interaction from their bank via the convenience of their cell phone? Our lead article tackles this very issue, looking at social media’s relationship with the banking industry
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and asks whether, and to what extent, banks should be embarking upon a social media strategy. This is no time for heads in the sand: this technology, and consumers’ behavioral response to it, will continue to evolve, and so banks that do not begin implementing some sort of dedicated channels for dealing with social media will be quickly left behind. Such future prooﬁng must not be done halfheartedly. A semi-committed social media campaign can be just as damaging as no presence whatsoever. Consumers are increasingly web savvy, web vocal and web conﬁdent – banks must enter this arena armed with a dose of humility, reality and willingness to change and react to consumer requests, questions and criticisms. The balance of customer relationships is changing with every Tweet, status update and blog conversation, and banks must be wary about upsetting this delicate, and still ﬂedgling, ecosystem. But most of all, banks and the ﬁnancial industry should be excited by the opportunities that this fastpaced technological and social revolution can bring. Never before have banks had such reach, such a chance to create a voice in an online community, and such an opportunity to forge long-lasting relationships with their customers. Survival of the Twittest starts here.
“The first question I would ask a CIO or a CEO of a large bank is: ‘Are you more or less likely to have to deal with the issue of social media in the future?’” Brett King, Author of Bank 2.0 (p39)
“Armed bank robberies are, thankfully, much less common than they were in Willie Sutton’s day. And we are sharp enough not to give the vault keys to a guy whose credentials are a mop and a bucket” Christopher Higgins, Bank of America CISO (p44)
Ian Clover Editor
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Survival of the Twittest? How should banks begin adopting a social media strategy?
This is a click up! Cyber criminals pose a continuous security threat that can be overcome through improved collaboration and strategy between banks, says Christopher Higgins of Bank of America
Money, mergers and motherboards Wayne Mekjian, EVP Head of Information Systems at Wells Fargo on leading a team and ensuring seamless technology integration during a merger
50 Because youâ€™re worth IT In the current economic climate, banksâ€™ IT departments can do more to show their true worth to their organization, argue industry experts
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40 Money maker Investing in the world of stocks and bonds need not be an inaccessible pastime, says ING’s Dan Greenshields
58 Payments’ new land of opportunity
58 Executive Interview 66 68 72 88 100 108 112
Jim Poteet, Brinks Ltd Tom Bolger, Methodware Al Zollar, IBM Ed Hallock, ASG Software Frank Rohde, Nomis Solutions Tom Crawford, Microgen Jay Kassing, Marquis
J.P. Morgan’s Eduardo Vergara talks new payment processes in the form of Single-Use Accounts and Purchasing Cards
64 A growing ‘app’etite for mobile banking Smartphones are changing the very fabric of banking, and they are here to stay, says TD Bank’s Paal Kaperdal
65 Pulp friction Can using less paper improve risk management?
70 Shared risk enterprise Risk must be managed across the entire enterprise of an organization, says Risk Management Association President and CEO Bill Githens
76 AML rules optimization to enhance transaction monitoring Michael Zeldin of Deloitte discusses the challenges of making an AML transaction monitoring system more effective
80 Armed and ready John Quinones, CIO of the financial planning firm First Command, outlines his company’s IT outlook
83 Transformation: The key to success in a changing world TD Bank’s Head of Operations and Technology Malcolm Eylott outlines technological transformation strategies that financial institutions should be embarking upon
96 What’s in store for data centers? Efficient, cost-effective and secure data storage is an ongoing challenge for banks, says Jim Borendame
104 Unleashing organizational potential
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Frank Wander of Guardian Life describes how the organization built a high-performing IT department
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Ask the Expert
48 56 62 78
Rob Anderson, Paetec Bob Tramontano, NCR Corporation Soren Bested, Monitise Americas Debra Geister & Kristine RegeleCechovic, Lexis Nexis 86 Mark Nashman, Clarity Systems
Industry Insight 42 74 84 94 126
Oded Gonda, Check Point Software Doug Brownridge, ACL Services Matt Podrebarac, Accenture Dave Malcolm, Surgient Steve Kartonchik, Adflow Network 134 Travel focus: Airport Lounges 138 City Guide: Berlin 142 Quote/Unquote
Next big thing 102 Bruce Richardson, Infor
110 Getting the message OMG’s VP Jon Siegel talks about how technological advances in electronic messaging can help improve a bank’s interoperability and business process management
114 Funds trust With trust in banks at an all-time low, improved confidence can be driven by the IT sector, argues First Horizon’s CIO Bruce Livesay
118 Credit where it’s due Carolyn James of the USA Federal Credit Union talks to FST about the security challenges a large credit union faces on a daily basis
122 New horizons Jerry Hermes, CIO of the Navy Federal Credit Union outlines the challenges of serving the military community and his organization’s modernization programme
128 Solutions through strategy Sherrie Littlejohn, SVP of Enterprise Architecture at Wells Fargo, talks to FST about her experiences in IT management
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UPFRONT. THE BRIEF
Regulatory reform closer to realization
ith the nation still nursing the wounds it sustained throughout the recession, the President’s ﬁnancial regulatory reform legislation is beginning to take shape. Since plans to overhaul the existing ﬁnancial regulatory system were announced by President Obama in June last year, they have attracted an abundance of attention, with so many in America hoping that the legislation will control the activities of the banks and ﬁnancial institutions they hold accountable for the economic maelstrom. The legislation includes proposals to establish a systemic supervisor, the so-called Financial Stability Oversight Council, as well as a resolution framework for seizing and winding down large bank holding companies, to implement an arbiter between consumers and ﬁnancial institutions and to impose stringent regulations on derivatives trading. However, while it is intended to minimize the risk of a future ﬁnancial crisis, it is proving unpopular with some in the ﬁnancial services sector, with scores of lobbyists campaigning for the reforms to be rejected on the grounds that the measures are too rigorous and will serve more to punish than to regenerate the convalescent ﬁnancial sector. But just what will the proposed changes mean for the ﬁnancial industry? “One of the things that made us vulnerable to ﬁnancial crisis is no one was looking at the big picture,” explains John Dearie, Executive Vice President of Policy at the Financial Services Forum (FSF), “and so no one really had a good understanding about how the risks evolving or emerging in, say, the mortgage market might affect ﬁnancial institutions and other aspects of the ﬁnancial system.” When the FSF came together back in 2000, reform of the ﬁnancial supervision and regulatory systems was a top priority for the member CEOs, Dearie explains; he is keen to point out that despite common misconception his organization is largely in favor of the changes proposed.
The provisions of the law are both great in number and complex in nature, and the intricacies of the legislation are causing controversy both within Congress and with the ﬁnancial institutions themselves. For Dearie and the FSF, there are a number of provisions that will be effective in reducing the risks of future ﬁnancial crisis. “We saw in the ﬁnancial crisis that there was no procedural framework in place for regulators to seize and wind down a large and complex entity like Bear Stearns or Lehman Brothers or AIG,” says Dearie. “Because they didn’t have that authority, they were left with three essentially very bad alternatives. The least bad was to merge a failing ﬁrm into another ﬁrm, and that’s what
you saw with Bear Stearns’ merge into J.B. Chase. The second option was to simply prop up a failing institution, and that’s what we saw with AIG. The third option was to just let a large ﬁnancial institution go bankrupt, and that’s what we saw with Lehman.” He goes on to explain that the establishment of a resolution authority will for the ﬁrst time provide that framework for regulators to seize and wind down large bank holding companies and ﬁnancial authorities without affecting customers.
THE BRIEF. UPFRONT 15
The reform of derivatives trading, an industry term that has become something of a buzz phrase with the media since the recession, has not been met quite so favorably. The legislation proposes that banks trading in derivatives should do so through open market places, with trades overseen by an independent third party regulator, and in addition would require the majority of banks to segregate their derivative-trading sectors into a separate entity. In response, activists across the country are claiming that these new regulations will be a hindrance on banking activity, and restricting a bank’s ability to engage in derivatives trading will only result in a less globally competitive ﬁnancial industry for America. “We’re generally positive about the idea of requiring a much greater proportion of over the counter derivatives to be traded on a regulated trading platform,” Dearie explains initially. “That will not only reduce risk, it will increase transparency and disclosure and will therefore have positive effects with regard to pricing.” On the other hand, he highlights that the provision to spin the particular departments into a separately capitalized subsidiary is unnecessary. Arguably the most contentious element of the legislation is the Volcker Rule, named after the former Federal Reserve chairman who initiated the measure early this year, which prohibits banks from engaging in proprietary trading and limits their investments in high risk hedge funds and private equity ventures. Dearie describes the Volcker Rule as a solution without a problem. “European and Asian banks are not going to be restricted by similar rules,” he explains, “so the Volcker Rule will have the effect of undermining the proﬁtability of the US banking companies and therefore undermining competitiveness unnecessarily in our view.” The ﬁnal provision that is giving Dearie cause for concern is the instatement of the so-called Consumer Financial Protection Bureau, a new agency inside the treasury that would operate as a regulator to oversee various consumer debts, such as mortgages or personal loans. Though the Forum is strongly in favor of enhancing consumer protection, he explains, consolidating the consumer protection duties of ﬁnancial regulators within a single bureau could be a misguided approach to the issue, and there is a concern that stringent regulations around consumer debt could have the adverse effect, making it harder for consumers to access credit. “It has long been understood,” concludes Dearie, “that the framework for supervision and regulation in this country was a mess, was outdated, it was overlapping and it was inefﬁcient. Reform has been a front burner issue for us for 10 years. Of course the ﬁnancial crisis has added a great sense of urgency to that.”
News in pictures Timothy Geithner, Secretary of the Treasury, listens to President Barack Obama address CEOs of several community banks, who have used their lobbying might in Washington to remain beyond the reach of the new Consumer Financial Protection Bureau, which will ban confusing small print on bank loan documents…unless it is from a community bank.
MPs in Europe have approved a new deal that will allow US anti-terror investigators to gain access to the bank data of Europeans they are investigating under the Terrorist Financial Tracking Program, a deal that had the ﬁerce backing of Hillary Clinton.
A jubilant Don Palmigiano is one of the ﬁrst lucky punters to get his hands on the new iPhone 4 after waiting in line for an incredible four days at Pasadena’s Apple Store before parting with $499 for the four gig-version.
UPFRONT. INTERNATIONAL NEWS
Swiss will name names
Fine by us
The IRS has successfully lobbied the Swiss Parliament to approve a deal that will see UBS, Switzerland’s largest bank, identify American citizens who hold secret accounts with them. As a famous tax haven, Swiss bank accounts have long been seen as a safe, secure and snoop-free environment for many Americans, yet this new ruling might well change all that. The Washington Post remarked that the approval “averted a renewed conﬂict between the US and the Swiss governments over bank secrecy. If the deal had collapsed, Swiss Banking giant UBS faced the threat of potentially crippling US legal action.” The result is certain to impact upon how tax regulators in the USA pursue wealthy Americans who hold Swiss bank accounts. The IRS expects this case to act as a ‘springboard’ that will force other Swiss banks to follow suit.
Young adults in Germany, along with France and the UK, are driving the mobile commerce industry in Europe, according to research conducted by the Mobile Marketing Association (MMA). The poll surveyed 1,000 smartphone users throughout Europe about their mobile commercial habits and found that Brits and Germans aged between 18-34 conducted the highest percentage of mobile transactions, at 19 and 13 percent respectively. “Rapid adoption of smartphones and the use of app stores has provided fertile ground for mobile commerce growth to date,” said MMA’s VP Peter A. Johnson. A total of 54 percent of the young Germans polled opted for monthly statements billed directly by their wireless carrier as their preferred payment method for digital content purchased.
The UK arm of Wall Street bank JP Morgan has been hit with a £33m ($48.4m) ﬁne by the Financial Services Authority (FSA) for failing to protect client money by segregating it from its own funds over a period of seven years. This ﬁne – which is the largest ever imposed by the FSA – is in relation to balances ranging from $1.9bn to $23bn of client money that JP Morgan failed to keep in separate accounts to protect it from potential bank insolvency. This misconduct was not judged to have been deliberate and the error was reported by the bank as soon as it was uncovered, resulting in a 30 percent ‘discount’ on its ﬁne from the FSA.
INTERNATIONAL NEWS. UPFRONT 17
Pain in Spain
G-20 gee up
Borrowing costs in Spain’s banking sector have been driven higher in response to speculation that the country will be unable to ﬁnance its deﬁcit, reports the Financial Times. Despite a minor drop in unemployment (put down to seasonal factors as summer arrived), May’s austerity measures have seen bank shares fall in line with conﬁdence as consumers tightened their belts. The country’s benchmark 10-year government bond fell, pushing the yield up to 4.48 percent as credit default swaps rose in response to persistent funding fears. “It seems that Spain’s troubles are far from over,” Capital Economics’ Ben May told the FT.
China has abandoned the yuan’s peg to the dollar in a move that is expected to strengthen domestic demand as a stronger yuan boosts the purchasing power of Chinese households. “Over a longer time, today’s announcement opens the door for increased yuan appreciation that will help adjust China’s economy towards a consumption-driven economy,” said chief China economist at Deutsche Bank AG, Ma Jun. The yuan was pegged at 6.83 to the dollar at the height of the ﬁnancial crisis in an attempt to shield the country’s export business. However, an independent yuan will prove stronger, which will boost China’s imports and stoke higher wages for millions of workers.
G-20 ﬁnance ofﬁcials met in South Korea in June to discuss a reshufﬂe of the global economic system in order to prevent future crises such as the one in 2008 that plunged the world into a global downturn. The main focus of the talks was the ongoing European sovereign debt crisis, which was widely agreed to be overshadowing longer-term efforts at reform, and had the potential to impact upon countries farther aﬁeld. “If something affects recovery of Europe as a whole,” said Indian Finance Minister Pranab Mukherjee, “then it will affect the world recovery.” Other issues up for discussion included a bank tax used to pay for future bailouts.
UPFRONT. NEWS ROUND UP
PayPass trials in NY and NJ
six-month pilot scheme has been launched in New York and New Jersey which will see the Metropolitan Transportation Authority (MTA), Port Authority of New York and New Jersey, NJ TRANSIT and MasterCard Worldwide utilize the MasterCard PayPass system. The PayPass initiative scheme allows travellers to simply tap credit and debit cards against speciallyequipped readers to gain instant access to the bus or train. The trial started on June 1, and will be the ﬁrst payment system to link three transit systems, and means riders will not be required to carry speciﬁc fare cards for three separate transit systems. With PayPass, travellers have the option to choose between a ‘pre-fund’ and ‘pay-as-you-go’ fare option, and on MTA and NJT services can take advantage of existing time-based fares, such as One Day, Weekly, Bi-Weekly or Monthly passes. All credit bought for the PayPass card will automatically be billed to the traveller’s Mastercard, in theory speeding up boarding transactions and making the whole boarding process simpler. “For our bus customers, particularly those who commute in New Jersey and New York every day, this program simpliﬁes the cumbersome task of carrying multiple fare cards and makes the overall riding ex-
1.98 billion: Annual riders of the New York City Transit Subway in 2009
perience faster and more convenient,” said Jim Weinstein, NJ TRANSIT Executive Director. “We’re pleased to work with the MTA, Port Authority of New York and New Jersey and MasterCard to offer state-of-the-art technology like this to our riders who frequently travel between our systems.” Source: www.nycgo.com
Better RDC = better bottom line
hen ﬂights were suspended in the aftermath of 9/11, and the U.S. paper-based checking system was basically halted, an estimated $40 billion in checks were delayed from clearing, prompting Congress to pass the Check Clearing for the 20th Century Act (Check 21) and paving the way for handling payments via Remote Deposit Capture (RDC). With implementation of Check 21, deposits could be made from the convenience of an ofﬁce and RDC was widely adopted. Now transaction methods can continue to improve and move beyond traditional RDC – by managing paper associated with payments and ensuring documents are tied to the appropriate transactions. “Using a single portal, paperless workﬂow is possible once all items have been scanned, thereby facilitating a better method of tracking checks and documents,” says Kevin May, President and CEO of Recclaim Software Solutions.
“Where traditional RDC methods provide opportunities for error due to many hands involved and the possibility of losing necessary paperwork along the way,” continues May, “using one portal accommodates all necessary information and payments, while eliminating chances for error and reducing time and labor costs. Plus, electronic checks/payments can move to a queue for the manager’s evaluation – keeping notes, documentation and other digital media with the appropriate checks/payments.” Although standard RDC allows ﬁnancial institutions and their clients to realize some savings, it does not allow them to realize maximum savings. Considering full labor costs (including compensation, beneﬁts, management and equipment) it is important to understand how a full workﬂow solution will return the maximum beneﬁt. It is possible to change transaction results and stop the insanity via a single portal, thereby saving more time and money to improve the bottom line.
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UPFRONT. NEWS ROUND UP
Square software delayed
he long publicized Square software that enables cell phones to be turned into payment card readers was set to go live at the beginning of the year but has been forced to delay because of security reasons, according to its founder. Jack Dorsey, the former Twitter founder who created Square to enable touchscreen smartphone users to accept credit card payments, announced in December, amid great fanfare, that Square would be on the market in the US early in 2010. “We’ve let our excitement get the best of us,” Dorsey explains in a letter to customers. “We realize the amount of time we’ve taken to ship our Square readers has been frustrating, sometimes confusing, and has generated a number of questions.” “There were hardware shortages reported, which have since been resolved with manufacturers in China. However, there are new concerns which have caused the forced delay.” Although the letter from Dorsey didn’t specify a new time-scale for delivery, it did highlight the difﬁculty with transaction processing, and the difﬁculty of water-tight ﬁnancial infrastructure to prevent potential losses. Square will enable anyone with a touchscreen smartphone to accept credit card payments. The scanner works with a specially-developed application on the handset that allows users to sign an electronic payment slip on the device’s touchscreen using their ﬁnger. The app then wirelessly veriﬁes and transmits the payment to the user’s online Square proﬁle, which is tied to their bank account in a similar way to Paypal. So far the app is only available for the iPhone and iPod Touch, although Dorsey said in a report by
Just 4% of UK smartphone owners ﬁnd making purchases on their smartphones a ‘hassle free’ experience
the Los Angeles Times that Square is currently developing software for Google Android, Blackberry, and even PCs. Source: 2010 Brandbank Mcommerce Content Report
Fighting online fraud
nline fraud is a major concern for many businesses with major chains such as Destination Hotels & Resorts in the US recently becoming a victim of malware being placed on their payment processing system. To combat this, Microsoft, along with eBay and Citizens Bank, have launched a new Internet fraud alert service designed to allow them to better share information about compromised accounts with each other in an effort to combat online fraud. The idea is for compromised credentials, found across a number of disparate ﬁelds like retail, ﬁnancial services, technology, academia, consumer advocacy and government, to be visible and shared. Up until now, when the security community uncovered this information there was no simple mechanism to quickly and effectively warn the
service provider or bank. Now the Internet Fraud Alert service, launched late June, will allow investigators to report stolen account credentials, such as passwords or credit card numbers, to the appropriate online vendor instantaneously. The new program is “an important new piece of our arsenal to ﬁght online fraud and protect consumers,” Nancy Anderson, corporate vice president and deputy general counsel at Microsoft said. “The institution responsible for that account...will receive an immediate alert so they can take immediate action. It’s an effort to get the right information into the right hands of the right people. “Those who trafﬁc in stolen identities often use online tools to collect, share and proﬁt from compromised account credentials, but those of us working to combat identity theft have a few tools of our own. By combining new technology and critical partnerships, Internet Fraud Alert helps alert institutions to stolen credentials so they can take action to combat fraud.”
PROFILE. UPFRONT 21
George Papaconstantinou, Greece’s Minister for Finance
urrently grappling with the challenges of having to restore domestic and global conﬁdence to his country’s public ﬁnances, George Papaconstantinou has spent most of his life studying and working in economics. Born in Athens in 1961, Papaconstantinou graduated from the London School of Economics holding a B.Sc. He also has an M.A. from the New York University, and a PhD in economics, again from the London School of Economics. He worked for 10 years (1988-1998) as a senior economist at the Organization for Economic Co-operation and Development (OECD) in Paris before being appointed advisor to former Prime Minister Costas Simitis on Information Society issues. Then, in 2000, he was appointed Special Secretary for the Information Society at the Ministry of Economy and Finance (2000-2002). Until 2004, he served as a
member of the Council of Economic Advisors and was a board member of OTE (Greece’s largest telecoms company). He was also the Greek representative to the EU Economic Policy Committee (EPC) and in 2003 he coordinated the “Lisbon Strategy” for economic and social reforms during the Greek Presidency of the EU. With such a wealth of experience, it was no surprise that in 2004 he served as economic advisor to PASOK’s President George Papandreou for three years. He was also a board member of the Institute for Strategic and Development Studies (ISTAME) and PASOK’s think-tank (2005-2008). In May 2005 he was elected member of the National Council of PASOK. Over this time, he also taught economics at the Athens University of Economics and Business, while also advising the European Commission on research and information society issues. It was in September 2007 that Papaconstantinou was elected a member of the Greek National Parliament for the Prefecture of Kozani, and as a result appointed PASOK’s Press Spokesman six months later. In June 2009, the elections for the European Parliament saw Papaconstantinou elected MEP. When he was appointed Finance Minister in the government formed by Prime Minister George Papandreou after the national elections in October 2009, he found hiimself in the unenviable position of having to deal with Greece’s ﬁnancial woes. At the time of print, Papaconstantinou was adamant that Greece would not restructure its debt thanks to the help of the ¤110 billion- ($136.3 billion) European Union and International Monetary Fund loan package. He also stressed that “there is no such scenario” that would see Greece exit the euro region and re-adopt the drachma. What is clear is that Papaconstantinou is on the front lines of whatever Greece decides to do to contain inﬂation and bolster competitiveness in the country. Whether it will be a success or not is another matter, and one that FST and the rest of the world will be keeping an extremely close eye on in the coming, decisive months.
Averting a Greek Tragedy In May this year the IMF’s Executive Board approved a three-year Special Drawing Right (SDR) Stand-By Arrangement for Greece worth $37.7 billion in order to support the economic adjustments and transformation programs being implemented by the country’s authorities. Eurozone members also bailed out the country to the tune of $100 billion, with Germany footing over a quarter of the total bill.
Delivering energy-efficient data centers
odius has developed the industry’s leading software platform for uniﬁed performance monitoring and management of all facilities infrastructure number of data equipment into a single console. The solution enables servers used IT and facilities to work collaboratively to lower energy by Facebook, costs, expand capacity, and improve the availability of which process IT services by enabling users to easily analyze macro trends which can only be seen by sampling performance terabytes over long periods of time. Modius’ ﬂagship product – of information daily – more than OpenData – monitors all power distribution, cooling and environmental sensor equipment from a single con1000 times the sole, providing comprehensive operational intelligence volume of mail for uniﬁed performance analysis and metrics. “Modius combines fully-redundant 24x7 monitordelivered daily ing with continuous measurement of all of our critiby the US Postal cal data center equipment,” said Greg Bush, Facilities Service Manager for Sybase Data Centers. “Together, these capabilities allow us to drive forward our aggressive (source: Center for Network Solutions) efﬁciency optimizations to our power and cooling systems at each of our facilities with the conﬁdence that the uptime and performance of each location won’t be compromised.” For the ﬁrst time in the industry, Modius provides uniﬁed performance analysis for a shared view by both IT and Facilities via a low-cost, easy-to-install, turnkey software package. The Modius OpenData system displays comprehensive timesynchronized power and environmental intelligence in real-time across a distributed network of facilities from a single console, including all data centers, server closets, call centers and mechanical yards. Modius offers end-to-end solutions for uniﬁed infrastructure monitoring, capacity & efﬁciency analysis, and dynamic cooling management. The capacity and efﬁciency analysis solution offers a range of next-generation performance analytics for any environment, including automated power efﬁciency reporting (PUE/DCiE), outage prevention with event correlation analysis, and capacity and energy forecasting. The solution works by capturing and storing performance data continuously and natively from all mission-critical equipment, including IT devices, facilities equipment, and environmental monitoring solutions. The dynamic cooling solution goes one step further and allows you to push optimized intelligence directly to your control systems, whether a building management system or a SCADA system.
For more information, please visit www.modius.com
Green Dot Corp gets Walmart investment
re-paid debit card seller Green Dot Corp have attractIT managers ed one of the admit to lying on world’s largest companies IT audits as an investor – Walmart. After Walmart was declined the opportunity to open its own US bank in 2007 in the face of bitter opposition within the industry and among politicians, the retail giant has been looking for an ‘in’ into the industry and Green Dot Corp appears to ﬁt the bill. According to reports, Walmart will gain a one percent stake in Californian Green Dot (equating to approximately two million shares). The ﬁrm has made its money from selling pre-paid debit cards and reloading services to U.S. consumers at roughly 50,000 retail stores including Walmart, Walgreen Co (WAG.N) and 7-Eleven. “In a ﬁling with the U.S. Securities and Exchange Commission this month, Green Dot said it had issued 2,208,552 shares of Class A common stock to Walmart,” Reuters reports. In Canada, Walmart has had more success, having been approved to open Walmart Canada Bank. It also launched a Walmart Rewards MasterCard, which gives cardholders dollars instead of points, in what is widely expected to be just the ﬁrst stage of an assault on the Canadian market. Walmart is not the only retailer seeking to take advantage of public disillusionment with banks by offering its own ﬁnancial services. In the UK, Tesco has moved to take on traditional players, buying out RBS to take complete control of their joint venture and turn it into a full service bank.
1 in 5
Source: Tuﬁn Technologies
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Setting compensation expectations in a slowly improving economy
n years of growth, employees expect their total compensation to increase. Conversely, many employees did not enter this year expecting a salary increase after a dismal 2009. However, emerging signs of a recovery may lead some employees to believe that it’s time for employers to start rewarding their loyalty. Information recently published in the WorldatWork 2009/2010 Salary Budget Survey reports an average increase of 1.5 percent with an inﬂation rate of two percent. These numbers suggest that organizations are approaching salary increases with caution. They are also funding incentive plans, but are shifting more of the emphasis to long-term incentive vehicles or deferred payout plans for at least a part of the incentive payment. In an unfortunate turn of events, we may see a situation where real (inﬂation-adjusted) wages fall as a result of increasing inﬂation and lower salary increases. It will be vital for organizations to clearly – and quickly – communicate rewards expectations to employees if this possibility becomes real. If employees have set their sights on large increases, and the organizations cannot deliver above the level of inﬂation, the possible ramiﬁcations include disengagement and turnover, especially of top performers. Timely communications are, in many cases, the only tool HR can use to mitigate these consequences.
Issue In Numbers: Fiserv reports that 80% of the US Internet population now regularly bank online (P36)
Even with small salary increase budgets, we should focus attention on better performers and key employees. They are the ones that lead in good times and bad. Differentiate rewards targeting those employees. Pay for performance is not dead in recoveries, it is just more difﬁcult to communicate and enforce. Creating and distributing tools such as cheat sheets, communications guides and manager talking points are a best practice. Your managers and employees will need them as compensation discussions start taking place.
Purchasing Card spend in North America is predicted to reach $218 billion by 2012 (p59) The IT budget at most banks is typically 15% of the total operating costs (p91)
For more information, visit www.workscape.com
WorldNet provides iPhone payment option
orldNet, a Dublin-based provider of secure online and mobile payment services to eCommerce merchants, has launched an app for the iPhone to enable European users access to “virtual terminal solutions,” according to the producer. Before WorldNet produced the app, called iPay, iPhone producer Apple retained around 40 percent of the revenue on transactions carried out, yet with iPay payments can be processed by the merchant’s existing card acquiring bank without having to go via the Apple payment infrastructure. “I am delighted to announce the development of the ﬁrst open card payment library for the iPhone, as our latest product innovation for our customers. The iPhone has the potential to be a game-changer in enabling mCommerce. This innovation unlocks that potential, and opens the iPhone up to a whole new audience, allowing
eCommerce merchants to sell as efﬁciently via an app as they currently do via their web sites,” said WorldNet Head of Product Innovation John Clarke. “Currently mCommerce on the iPhone is restricted to smaller ticket items and digital goods, as the iPhone charging structure make it unattractive to eCommerce merchants. The release of iPay marks a major expansion of the potential reach of the iPhone, and a real step forward towards making mCommerce a reality. “We engaged specialist iPhone user interface designers to advise on the look and feel of the app. What we got was a very innovative user interface, which feels very different from a traditional virtual terminal application, for example ‘shake and clear’ – shake the iPhone and it clears payment details from the app, allowing input of a new transaction. The result, we think, is the best-looking, and easiest to use iPhone payment app on the market,” WorldNet said on their blog.
TIMELINE. UPFRONT 25
A brief history of our time: Cell phones The release this year of Google’s Nexus One Android phone marks 25 years of cell phone maturation; an industry that has grown from its clunky, chunky origins to become the most ubiquitous business, fashion and social accessory of our time. In homage, FST takes a look back at the history of the cell. 1985 – In the year that Back to the Future was released we were all treated to a glimpse of the real future as the Motorola DynaTAC 8000X hit the streets… and promptly cracked the asphalt. Less mobile than a narcoleptic tortoise on crutches, this cumbersome piece of kit was expensive to run and extremely basic by today’s standards, but the yuppie-set snapped it up, sensing they had their hands on something big. And they did, quite literally. 1989 – Motorola’s MicroTAC phone was mercifully smaller than its forebears and its key selling point was the addition of a small plastic ﬂap that covered the keypad, kickstarting a trend for clamshell phones. The ﬂap had its uses too – solving the problem of accidently dialling out… although it would be another year, and the introduction of MC Hammer-style pants, before anybody ever considered putting their cell into their pockets. 1998 – A decade of imperceptible advances in cell phone technology culminated in 1998 when relatively unknown Finnish upstarts Nokia released their iconic 5110 phone, a GSM-enabled handset that was the world’s ﬁrst widely used cell phone, and a real game changer. Bulky by today’s standards, the 5110 was truly portable, had a long battery life and simple interface, and introduced millions to the world of ‘Snake’ and txt spk. Gr8. Thnx, Nka! 2000 – The turn of the Millennium saw a monumental leap forward in cell phone technology – those little antennas were now obsolete thanks to the Nokia 3210. If you thought that phones had nowhere to go after such a seismic leap into the future, think again: predictive text was also introduced this year, confusing millions and no doubt ending countless relationships as thousands of ‘I love you’s became ‘H joft wov’. 2002 – The launch of the Blackberry saw the term ‘Smartphone’ ﬁrst enter common lexicon. Bucking the trend of smaller and thinner, this bulky beast boasted a full QWERTY keyboard and push e-mail connectivity, web browsing capability and even Internet faxing. ‘Sent from my Blackberry device’ quickly became the electronic calling card of the smugly connected.
2007 – Apple’s dominance of the mobile music market with their groundbreaking iPod was soon overshadowed by their throttling of the cell phone market with the launch of the iPhone. Intuitive, sleek and uber-cool, the iPhone and its apps took the cell phone world by storm, allowing its users to do pretty much anything. 2010 – And here we are. Shamelessly pilfering the best aspects of the iPhone, the Nexus One is all set to re-revolutionize the market, although it faces stiff competition from the next gen iPhone 4. Where else can Smartphones go in the next 25 years? Whatever happens, it promises to be an exciting whirlwind of smudged screens, app overload and connectivity carnage.
In the bank As CIO for Operations and Technology at New Orleans-based Whitney National Bank, Frank DeArmas is responsible for modernizing one of the nation’s oldest and most respected financial institutions. No mean feat he tells FST, but a challenge he is relishing nonetheless.
hitney National Bank recently clocked-up 126 years of service. It is a national institution, a much-loved bank that has forged strong and lasting relationships with its customers throughout the years while continuing to grow and keep apace with such a fast-moving and ﬁckle industry. Frank DeArmas talks about his responsibility and vision in ensuring Whitney National Bank’s future is as bright and successful as its past.
Technology is just one piece of what we are about. Our technology sector of the organization is entrusted with making sure that we bring the right tools and
applications to bear when it comes to solving a business problem. It is my responsibility and my staff’s responsibility to bring forward ideas around how to solve customer issues, how to best service our customers, how to improve customer service and how to turn around items quicker so that the heads of business whom I deal with have the opportunity and the tools to go out in front of our partners and customers to really get the job done.
Careers in technology have really shifted in the past few years. When I started off many years ago you had technologists that were all about technology and, every once in a while, one or two who had some business knowledge. That has really ﬂipped over today: now it is all about business people who have a lot of knowledge about technology, and I think that is an important shift. You have to understand your business in order to accomplish your aims, bringing to bear the tools you will need in order to succeed. If technology experts get a good knowledge of the business behind them and they have a good knowledge of business processes and how to shape a
INTERVIEW & TOP 10. UPFRONT 27
coherent articulation of what they are trying to do then you are better positioned. The worst thing you can do is attempt tech speak in a board presentation because they only want to hear what you have got to say from a clear business perspective.
Respecting the bank’s heritage and core appeal helps to shape its future. When you look at a bank like Whitney that has been around for 126 years, you respect the fact that it is a relationship bank ﬁrst and foremost. When someone walks into our bank and they have been a customer for years, the teller knows them. They talk to them and that is fantastic, but as you start going through time our tellers retire, our customers get older, they come into the branch less and are replaced by new customers who want to be serviced in a different way. So then you have to look at ways of servicing the new customers while retaining that level of relationship banking without that face-to-face interaction. We have to make sure that we understand what the younger generation want while retaining our identity, our brand, our reputation, our secret sauce. We don’t want to lose that.
The economic climate has given us the opportunity to ready ourselves for the recovery. The downturn has presented Whitney National Bank with an interesting opportunity. The senior management looked at the environment that we are in and could easily have looked to merely get through it, but instead we highlighted that we were behind in a bunch of different things, not just technology, but operations too. So we took a look across the organization and I went to our senior managers and board of directors and said: “We have an opportunity here to really get ourselves right so, when the economy starts taking off again, we are not only competing but we are beating our competition out there.”
Clear communication throughout the chain of command is imperative. We are constantly instilling the importance of communication between our team members. There is formal communication through monthly reporting, and there is daily communication with my peers where we discuss operational issues. It is important that we agree at the highest level because if communication breaks down as you go down the chain of command things can get ugly. Therefore, we have worked on making sure these communications happen on a daily basis and ensured that we are not only communicating but that we are also listening.
Educate and develop your staff and you will be rewarded. I have an excellent enterprise architect that I have hired three times. You develop those kinds of folks in your leadership chain and you give them empowerment to actually do the job and you are there for them to offer assistance when they hit roadblocks. Being an educator is the best way to get things done and overcome future roadblocks. My early days were spent in the military. When I came out of that, I quickly learnt that the command and control structure I was used to was not always going to work in the civilian world, so a lot of maturing happened very quickly: strong leadership helped me to mature as a leader and develop a style of leadership that is team-focused.
One of the most important aspects of building a high-performing IT team is to look for the brightest. Do not be scared of having someone on board who is smarter than you are. Make sure that when they come on board he or she is incentivized and empowered to make a difference. If you want a team that is really going to perform, employ a team that knows that everything they do, every day, makes a difference. Because if they think for one second that they are just coming in to punch in and do a certain job that is always tedious and doom and gloom, you are going to lose them. Smart people want to grow and learn. They want to constantly challenge themselves and be challenged to be the best they can possibly be. I welcome aboard, make them feel part of a team, show them their responsibilities and step out of their way, but will help them when they need help. One of my biggest strengths is knowing that I am not the smartest person in the world, but I sure can identify the smartest people and have them be part of my team.
FST US Top 10: National Deﬁcit 1. USA ($13.4 trillion) 2. United Kingdom ($9 trillion) 3. Germany ($5.2 trillion) 4. France ($5 trillion) 5. Netherlands ($3.7 trillion) 6. Spain ($2.4 trillion) 7. Italy ($2.3 trillion) 8. Ireland ($2.3 trillion) 9. Japan ($2.1 trillion) 10. Luxembourg ($1.9 trillion) Source: www.aneki.com
Don’t be afraid to surround yourself with people smarter than you.
CYBERANGEL AD.indd 1
Google shuts its Windows
he release of the Version 4.0 of The CyberAngel Security Software marks yet another advancement in the continual ﬁght against security threats, delivering increased client management tools and better usability. Version 4.0 is not just a client software upgrade but also a long-awaited upgrade to the core servers and management suite. Such an upgrade will not only provide additional security features and beneﬁts for the end-user, but will also increase implementation ﬂexibility for the IT administrator. This new software can be delivered to the endusers using industry standard deployment tools, and has client management tools that were unavailable in previous versions. Its data encryption allows for broader ﬁle coverage, while its asset tracking has increased reporting capabilities for computer recovery. “Traditionally, we have provided our product to the small to medium size companies, based on some of the deployment restrictions with our previous versions. This new version will operate at the enterprise level, as well as small to medium business and consumer levels,” says CyberAngel Security Solutions President Bradley Lide. “We have reviewed and enhanced every sector of our product and all have been strengthened to keep pace with technologies employed today.” The value that this new software can bring to the table is multi-fold. For the client, the primary goal is always to protect their company from an embarrassing breach of conﬁdential data and prevention of unauthorized remote access to their network from those computers. For the end-user, who is usually the victim in the crime – as it is their vehicle, home or ofﬁce that is broken into the majority of the time – the loss of a business computer can be extremely damaging. Hence, clients, victims and the wider community are all better served by advanced innovations and upgrades in these types of security software.
ecurity concerns over Microsoft Windows have impelled Google to shift their employees on to alternative operating systems after last year’s hacking crisis at Google’s China HQ. In a report by the Financial Times, Windows is thought to be slamming shut for all Google employees, replaced with either Linux or MAC OS X, and conveniently clearing the way for staff to install Google’s very own Chrome OS operating system as soon as it is released at the end of 2010. A Google employee told the Financial Times that “getting a new Windows machine now requires CIO approval”, and although Google has so far refused to comment, Microsoft has responded to claims that Windows is more vulnerable to attacks by hackers and more susceptible to viruses than other operating systems. “When it comes to security, even hackers admit we’re doing a better job making our products more secure than anyone else,” posted Microsoft Windows Communications Manager Brandon Le Blanc on the Windows Team blog. “And it’s not just the hackers; third party inﬂuentials and industry leaders like Cisco tell us regularly that our focus and investment continues to surpass others.” Windows is by far the most dominant operating system worldwide, boasting a 91.28 percent market share according to NetApplications. Hence, Windows is targeted far more often than other operating systems, and there are no statistics to show that Mac or Linux are more secure. Google’s decision to abandon Windows over security concerns may work in the short term as ‘security through obscurity’, but should cyber criminals decide to target Google directly, as they did with their China HQ, other vulnerabilities may be exposed.
“We have reviewed and enhanced every sector of our product and all have been strengthened to keep pace with technologies employed today”
For more information, please visit www.thecyberangel.com,
Should Fannie and Freddie be killed off?
iants of the American mortgage market, Fannie Mae and Freddie Mac have proven to be something of an enduring headache for the government since they were formally seized by the Treasury Department in September 2008 following the collapse of the housing market. These former shareholder-owned corporations had always gotten by with the tacit support of the federal government but now, as their total cost to the taxpayer is estimated at $145 billion, some Republicans in Congress are calling for the cessation of their existence. With the ﬁnancial regulation bill ever nearer to ﬁnal completion, Obama’s administration will turn next to Fannie and Freddie, hoping to revamp the pair of institutions that between them own over half of the US’ $11 trillion worth of residential mortgages. The movers and shakers in the banking and real estate sectors are largely in agreement that it is in the interest of home buyers to have the government con-
tinue its support of residential lending by enabling Fannie and Freddie to continue buying mortgages and bundling them into securities to be sold to investors – a market that can generate vast quantities of cash if functioning properly. However, lax practices and ambiguous governmental inﬂuence in the past has seriously damaged conﬁdence in the setup, leading to Republican opposition in the senate. “There will be a government role in the market whether we like it or not,” Phillip Swagel, former assistant for economic policy at the Treasury under President George W. Bush, told Bloomberg. As an insurance policy against perceived risk to the taxpayer, Republican lobbyists are pushing for a housing-ﬁnance reform that would compel mortgage lenders who bundle loans into bonds to contribute to a safety net fund that would insure against future ﬁnancial catastrophe. In further efforts to avoid another subprime crisis and limit the taxpayer’s exposure to greater risk, lobbyists would also welcome a mandate on the safest loans possible, such as those accompanied by a down payment from the borrower. However, acting director of the Federal Housing Finance Agency Edward J. DeMarco, which oversees both Fannie Mae and Freddie Mac, told Bloomberg that it was important to strike a balance that “doesn’t stiﬂe innovation.” “We’ve got over 50 million homeowners with mortgages,” said DeMarco, “and they represent all kinds of different ﬁnancial conditions. “We need to be careful about shoe-horning the entire country into one particular mortgage type.”
Web application security in the cloud
staggering 85 percent of the malicious activity on the Internet is directed at web applications used by businesses exactly like yours. Heartland Payment Systems, a company which processes payments for more than 250,000 businesses, is itself still paying for the ﬁnancial fallout from a 2008 data breach in which tens of millions of credit and debit card transactions were compromised. Heartland will disburse up to $129 million in settlements and class-action lawsuits. This damage was caused by a single piece of malicious software, put in place by a hacker using techniques – widely available on YouTube – that target web applications. Surprise and dismay are common reactions when tried and true network-level defenses are unable to deter direct attacks against web applications. Network defenses, such as ﬁrewalls, protect networks and infrastructure. Web app defenses, by design, protect e-commerce, software, and the databases associated with your valuable information. Customers must use web applications to interact with the software and information behind the network layer; such interactions require an intentional ‘gap’ in the net-
work’s defense. These intentional openings require their own kind of speciﬁc protection. Millions of Americans use web applications to ﬁle their income taxes and manage their online banking information. How do your customers use the web to do business with you? A software-as-a-service web application defense can activate within minutes. Like other cloud services, it scales dynamically to ﬁt changing business requirements, and updates occur invisibly. Typical cost of ownership is a monthly fee of $99 - $3000. To ﬁnd out how Xecuritas can defend your web applications, help you qualify for PCI compliance and protect your trusted, valuable information, visit www. xecuritas.com/xybershield.
“Nice Firewall. Looks strong.”
Meet Stefan. He used to hack for kicks, but now he’s got more than just a nasty tatoo habit to support. And he’s two clicks from your customers’ credit and transaction info.
XyberShield protects your web applications from malicious activity on the ‘Net. • Software-as-a-Service Security • Global protection from 50+ Points of Presence • Behavior-based Website Defense XyberShield defends against the top web application vulnerabilities OWASP-defined attackes, as well as aids companies pursuing PCI6.6 compliance requirements. XyberShield learns dynamically, collecting and analyzing attack data from the experiences of each customer. Advances in protection are automatically applied across the entire customer base, alleviating the need for manual updates, patches, and time-consuming upgrades. A value-priced alternative to a web application firewall appliance, XyberShield is a non-proxy software-as-aservice solution which does not require third-party hosting or any reconfiguration of your current system architecture.
Try a free 30-day demo Call 1.866.434.4257 firstname.lastname@example.org www.xecuritas.com/xyvershield
XyberShield defeats attacks the instant the occur.
No threat, no sweat
raditionally, IT security is a reactive response to potential threats. The InZero Security Platform is a proactive solution, stopping all online threats before they become an expensive pensiv problem. The technology is not about ab recognizing or understanding m malware and viruses. It proactively t creates an environment that t does not allow threats to propagate. p The InZero technology o assumes that everything is potentially harmful and therefore it is denied execution space. The InZero Security Platform combines three powerful components – the InZero Gateway, the InZero Management Console and the InZero Management Service. In conjunction they allow organizations to achieve the highest level of data security while still allowing unlimited access to untrusted resources, such as the internet and email. The InZero Gateway is the protection component of the security platform. It is a palm sized security hardware appliance, which easily attaches to a PC with a USB cable. Containing its own CPUs, OS, and a suite of applications, it is a secure PC standing guard over your PC and network. While the InZero Gateway defends critical data, the Management Console and Service provide powerful granular management capabilities over the protected network. A network administrator can quickly and conveniently establish and apply security policies, certiﬁcates, user permissions and create VPNs with InZero’s 10-click process. The InZero Security Platform is secure by design and the only data protection solution capable of stopping all online threats. This revolutionary approach to IT security, along with the powerful administrative tools, creates a combination of protection and functionality that is available exclusively through the InZero Security Platform. For more information, please visit www.inzerosystems.com
Don’t Miss… This is a click up! (p44) Cyber criminals pose a continuous security threat that can be overcome through improved collaboration and strategy between banks, says Christopher Higgins of Bank of America.
Payments’ new land of opportunity (p58) J.P. Morgan’s Eduardo Vergara talks new payment processes in the form of Single-Use Accounts and Purchasing Cards.
Unleashing organizational potential (p104) Frank Wander of Guardian Life describes how the organization built a highperforming IT department.
Company index Q3 2010 Companies in this issue are indexed to the first page of the article in which each is mentioned. Accenture ACL Services Adﬂow ASG Software Alertsite Bank of America Barclays BNP Paribas Brinks Ltd Check Point Software Clarity Credant Cyber Angel Deloitte e-DMZ e-Docs Guardian Life First Command First Data First Horizon IBM Imperva Infor ING InZero Javelin Strategy & Research J.P. Morgan Lexis Nexis Marquis McAfee Methodware Microgen Modius Monitise Americas Morgan Stanley Motorola Navy Federal Credit Union NCR Nomis OMG Openlink Paetec Recclaim RMA Sallie Mae Skybox Security Surgient TD Bank USA Federal Credit Union Wells Fargo Whitney National Bank Workscape Xecuritas
4, 84, 85 6, 74, 75 126, 127 88, 89 132 44 90 90 66, 67 42, 43 86, 87 124 28, 29 76 107 141 104 80 60 114 72, OBC, 73 54 102, 103 40 33 34 58 IFC, 78 112, 113 52 8, 68, 69 10, 108, 109 22, 23 62, 63 65 12, 117 122 56, IBC, 57 100 110 99 48, 49 18, 19 70 90 120 94, 95 64, 83 118 34, 50, 96, 128 26 24 30, 31
INZERO AD.indd 1
Social media.indd 34
With social media here to stay, banks should be fully exploring the possibilities this medium bring, but what is the best strategy to adopt in order to stay ahead? Ian Clover investigates.
he year is 1909 and Henry Ford’s Model T motor vehicle – released the previous fall to widespread acclaim - is rapidly transforming the fledgling motorized transport industry. Ford, a revered visionary and eloquent orator, had not only kick-started the automobile market in the States but was also something of a pioneer in customer service, happily regaling the media and the wider public with the thinking behind his business decisions. There is one particularly memorable quote attributed to him that year (something about the color black), but there’s also another, lesser-known quote that goes: “If I had asked people what they wanted, they would have said ‘faster horses’”. Even a century ago, captains of industry were of the belief that while customer feedback was valuable, it was they who understood the customer better than the customers understood themselves. Fast-forward to 2010 and, while the various mediums available for customer interaction are far more sophisticated, attitudes towards consumer relations can often appear to be stuck in the past, especially in the finance industry. Banks have been dictating to their customers for centuries: introducing products, raising rates, closing and opening branches and generally behaving in a manner that is best for them with nary a cursory thought given to how their customers would respond. Dialogue between customer and bank has been played out behind the literal dividers of bulletproof glass and telephone anonymity for decades. For the banks, such control has suited them just fine. Until now. The rise of social media is a phenomenon that has swept through every sector of commerce in the past couple of years, slowly but surely transforming the manner in which companies deal with their customers, who now not only have a voice, but a terrifyingly far-reaching soapbox upon which to spout their various ills or thrills. Poor social media strategies have had a deleterious impact upon a number of global giants, including perennial fall guys Nestle and new bad-kid-on-the-block, BP. There is little a company can do to smother bad publicity in the social media sphere, but they can assuage it so long as they adopt a proactive, positive approach. Banks, in particular, are precariously positioned as we enter an age where the customer is now not only always right, but always online and connected. With confi dence in the banking industry lower than the opening box office figures for a Ben Affleck movie, bridges need to be built, and social media – for all its potential pitfalls – must be embraced. “The fi rst question I would ask a CIO or a CEO of a large bank is: ‘Are you more or less likely to have to deal with this issue in the future?’”, says Brett King, Author of Bank 2.0 and renowned banking sector advisor. “‘Is there a chance that this is going to go away, or is there a chance that you are going to have to deal with this at some point?’ I think we all know the answer to that. So the sooner banks learn about the challenges of integrating social media strategies into their business, the better off they are going to be.”
Web of buys There appears little use swimming against this onrushing tide. Consumers have moved on from simply purchasing goods and holidays online; they are now proffering feedback in the form of reviews, comments, recommendation and criticism. Positive postings for hotels listed on TripAdvisor do wonders for that establishment’s booking figures; restaurant reviews from real diners now dictate the blogosphere; and the explosive combination of Twitter and smartphones means that instantaneous customer feedback is being broadcast every second of every day, right across the globe. The banking sector has been slow to pick up on the possibilities of social media, and perhaps with good reason. Security and fraud issues are obvious concerns, as results from a recent survey revealed. Technology analysts Forrester Research conducted a study on this very issue and found that – of the 5000 US adults they surveyed (online, naturally) – 71 percent had little or no interest in accessing their bank accounts through social media channels like Facebook. Their main worries were the threat of hackers (60 percent) and the issue of privacy (59 percent), while more than half wanted to keep their social and fi nancial lives
Social media.indd 35
separate (56 percent), or did not trust social networks’ security (43 percent). A mere 17 percent said that they were interested in banking through social media sites. “We can see that people are growing more comfortable with social media but they do not yet see a direct connection between social media and banking,” says Mark Schwanhausser, Senior Analyst for Javelin Strategy & Research. “There is a disconnect for them there – they do not see social media as a place for conducting banking activities.” King, however, disagrees. “We are certainly more reliant upon interacting with the bank via technology these days. The metrics have changed. Traditionally banks made strategic decisions around how convenient it was for customers to get to their branch. Today, that convenience element is shift ing towards electronic interaction. “There have been three phases to this shift . The fi rst was the introduction of the Internet, which produced a shift in transactional behavior. Essentially customers began undertaking day-to-day transactions and transfers, balance checking, bill payments and the like, so much so that Internet banking is fairly well accepted now. Indeed, in a recent Fiserv report, 80 percent of the US Internet population now regularly bank online. In Sweden in 2009, 88 percent of retail banking customers never even set foot inside a branch. The second phase was the mobility shift , the fact that we realized, with the introduction of smart-phones, that we had the capability to do everything online, on the move. “The third phase is mobile payments technology, conducting person-to-person or person-to-business payments through the mobile device, which further reduces the reliance on banks cashing your checks and conducting your transactions.” Mobile payments are relatively well established in the banking sector, and the practice of making transactions via a social media forum is something that is edging ever closer to becoming widely accepted. Schwanhausser believes that neither the consumers, nor the banks, are quite ready to take this step just yet. “It is a rarity at this stage. There are one or two examples of transactions taking place through these forums, but it is not something that has been fully embraced yet.” So if banks and consumers are not using social media to conduct actual banking, how is the medium being utilized? “Right now,” continues Schwanhausser, “banks are primarily looking at branding and communication. Some are branching out into Twitter and building a presence on Facebook, getting comfortable with these mediums and protecting their own turf, while other banks are being more proactive and using LinkedIn, YouTube and their own specially created forums for aggressive marketing strategies.” One such bank that has fully embraced the potential of social media is Wells Fargo, which has developed a sizeable presence on Twitter and through a number of specialist blogs. “We started our online channels in 2006 and I think that we were the fi rst major bank with a dedicated social media team,” says Ed Terpening, VP of Social Media Marketing at Wells Fargo. “We have launched six blogs to date and if there is an idea for a new blog we give it careful consideration, asking ourselves questions such as: ‘Is it sustainable? Do we really have a longterm conversation here? How is it going to help our customers?’ We see it as a long-term commitment to our customers.”
Getting social Creating a social media presence is merely the fi rst step. It needs to be augmented, managed and tailored to suit the audience it is trying to attract, converse with and serve. A silent presence could be more
Ed Terpening is the VP of Social Media Marketing at Wells Fargo and he spoke to FST about the bank’s online strategy and presence. FST. What are the unique challenges you face in relation to Wells Fargo’s social media activities? Ed Terpening. Two of the big ones are security and privacy. Often the activities we do in social media are a little more public than normal, so that is certainly a challenge which we face by setting expectations with our customers that when we are in social media forums such as Twitter they should not share account information or private information. On our Twitter channel we seek out customer issues, let them know that we are listening and want to help them, but ensure that we always drive them into a secure existing phone bank or other existing server channel, because we do not want them to share that kind of information on social networks. FST. Banks and social media networks do not seem to be the easiest of bedfellows, so how is Wells Fargo helping to change that perception? ET. I think that social media has actually been the solution to one issue that many companies - particularly banks - face, which is how to humanize your brand online. Most websites do not feature real team members, and I know that our blog receives lots of comments from customers who appreciate the fact that there is a human face behind the corporation. So for Wells Fargo it has been more of a solution than a challenge, and this is how to humanize our brand, how to be where our customers are when they need us – they spend more and more of their time on Twitter and Facebook so if we are there too then we are able to learn from them and help them. FST. How else is Wells Fargo nurturing and encouraging long-term feedback from customers? ET. All of our engagements in social media are long-term sustaining. For example, the student loan blog has been in existence for close to four years now. We want to have a long-term relationship and conversation, so
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everything we do is measured by its sustainability and ensuring it is a conversation rather than a one-sided broadcast. This is what really differentiates our social media from other online channels – we are not just putting up a brochure or product information; we are having a conversation with the customer about how we can help them. FST. Do you utilize customer comments and feedback to help drive and steer your own product launches, or is Wells Fargo’s social media presence purely customer service-focused? ET. Well we do listen to customer’s needs. Wachovia had a popular product called Way2Save and so when we announced the merger and launched the Wells Fargo Wachovia blog in January 2009 we heard lots of conversations in the blog about the desire to keep Way2Save. This feedback made its way to the product team and so we had a discussion and decided to keep it. This is just one example of how social media has enabled us to gauge customer sentiment. FST. How do you deal with the inevitable negative messages? ET. If they are on topic and meet our community guidelines we publish them because we are open to criticism and constructive feedback, as you need to be in this medium. I think you cannot really survive in social media without this level of transparency or being thick-skinned. So of course there are some negative messages that we can react to and help customers with, and sometimes it might simply be customers venting frustrations about an issue that may or may not be solvable. However, I think the fact that we publish these comments too shows that we are very transparent and shows that we have a real commitment to listening to the good and the bad. Negative comments, while inevitable, are a surprisingly small percentage of overall comments – a percentage that is low generally because I think customers really appreciate the fact that we are there and we are listening to them. FST. How do you manage, monitor and oversee the feedback given by Wells Fargo? ET. We have a listening platform. There are a couple of different vendors who help us listen to social media conversations and we use that feedback in many ways to explain to various product groups and regions and people within the company how Wells Fargo is being viewed in terms of sentiment, especially in reaction to news and things that might be happening in our industry. We can provide a real-time pulse on what is happening to our communicators, but in terms of employees entering the social media conversation, that does happen and we have rules around that. Our number one rule is that if you do enter a social media conversation and it is any way related to Wells Fargo, you must disclose that you are employed by us. We want that kind of full disclosure. FST. How do security concerns dictate what you do in social media? ET. Security is obviously very important. For example, every day in our Twitter channels we remind our customers not to tweet any kind of ﬁnancial or personal information. For our part, we never use URL shorteners like bit.ly on Twitter because we do not want to have our URLs controlled by other entities. Everything we do in social media has a security review – we look at all the things that could go wrong and try to plan accordingly, or at least eliminate some features if
we need to because of risk. It is an ongoing concern because Twitter has had some recent malware incidents with links that have been distributed, so it is something we continue to watch. FST. How will social media come to shape banking in the future? ET. When we ﬁrst started tweeting on Ask Wells Fargo and offered services to customers, it was a pleasant surprise because most of our customers did not expect it, and I think eventually it will become more and more expected, as it should be. I think when you ask the question “Where do you offer service?” the answer should always be: ‘Wherever the customer is and whenever they need it’. So this means having ATMs, stores, online and phone banking, all these different channels. I think social media is another channel right now, albeit one that is for customer service and education, but I cannot really imagine it replacing the store channel. All of the various channels are complementary, and I think of them as an ecosystem of choices, and the choices really depend on the customer situation. For example, our stores have safety deposit boxes, so as long as people want safety deposit boxes, we will continue to have stores.
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damaging for a bank’s reputation than no presence at all. “Banks, like Wells Fargo, need to have a plan before diving in,” warns Schwanhausser. “I think there are some banks and companies out there thinking that they have to do something, anything, just to get involved. There is no downside to listening to your consumers, whether on a street corner, in a survey, at the teller, or on Twitter. The danger comes if you are unresponsive. Being part of the conversation, starting the conversation, showing that it goes somewhere, being responsive, committing to your social media agenda – this is what banks should be doing.” They should be doing it to the right audience, and on the correct forums, too. “There is a time and a place for banks to be involved in social media,” says Stephen Cheliotis, Chief Executive of the Business Superbrands Council. “If you are not wanted there, do not go there. Some groups will, however, appreciate your presence. If you spot that a customer has a particular problem or issue, you can not only seek to resolve that but say ‘hey, if anyone else has got a similar problem then get in touch, we can help’. Th is is a cost effective, reactive and proactive way of building trust and interacting with your customers. It also enables your customers to follow up with additional questions, where word of your good customer service will spread through the site. From a customer service and complaint handling point of view, there is no better medium.” Social media can indeed work wonders for a wide range of companies. The power of positive feedback is worth far more than any advertising campaign, while viral advertising can reach a much wider audience than traditional methods. Cell phone companies, drinks companies, sports shoe companies and a number of smaller, niche companies now see social media as their foremost marketing tool. The very idea of a company like Nike for example having no social media presence is a laughable one. Banks might well feel that this sphere is no place for them; the stuff y, uncomfortable-looking uncle at a hipsters’ party springs to mind, yet social media is not merely a communications tool, it is also a great method for branding and rebranding. ‘Core Millenniums’ is a term the industry is using for describing those who are aged 18 to 24,” explains Schwanhausser. “Th is group is more open-minded; they view social media as something that has more potential for banking. Our research shows that 27 percent of them see it as a medium for communicating with their bank, and 14 percent are looking at it as a medium for conducting balance checks and transfers. These ‘Core Millenniums’ are joined by ‘money hawks’ – the folks who regularly receive fi nancial alerts – and they both have a high degree of openness to connecting to social media with banking.” Banks are touch points throughout the key moments in our lives. From that fi rst savings account set up by gramps which consisted of little more than a dollar, a crisp savings book and some sage old-timer advice, through to that first student account for the college-bound, the purchase of that first car or house and, fi nally, saving for retirement – banks
UK Social networks receive more hits than search engines
52% of companies using social media have no social strategy
Social media users spend more time with overall media
are with you for the duration of your life, so it is important that customers bank with a brand they feel comfortable with. The proliferation of social media makes it imperative for banks to be seen to be embracing this medium or run the very real risk of being left behind. “Shift ing to social media requires quite a different philosophy,” says King. “Traditionally, banks were only interested in a one-sided conversation where they tell you their message and you buy their product. They are now having difficulty shift ing to an engagement model where there is a live dialogue, especially the larger banks. “Th is is where social media represents a challenge because it is as much about listening as it is about speaking.” In order for banks to become more user friendly to an increasingly connected, social media-savvy audience, King believes that they have to set up a valued listening post for their customers. “Th is would be a mechanism – such as a blog, a forum, a Facebook page or a Twitter account – which monitors what is happening in respect to their brand and what people are saying about them. Then as soon as there is an issue raised, use this opportunity to demonstrate their service capability by addressing this issue quickly; even small successes right from the off will be talked about by the customers. There are a few banks at the moment that are trialling this engagement model where they are saying to their customers: ‘Come and tell us what you think.’”
Banks have to ask themselves this question – do they have a senior executive in the business right now who is in charge of social media?
Where there is potential, though, there are also pitfalls. Banks that actively engage in social media activities are opening themselves up to a world where they no longer control the discourse. They are merely a voice on an equal footing with thousands of other voices and, what’s worse, they are all potential targets, as Schwanhausser warns. “I think that all banks realize that there is the potential for something to go dramatically wrong, particularly if something goes viral. As with any medium, there is always the worry about messing up, but the fallout can be much more rapid and damaging with social media.” King recognizes these concerns but believes that a dedicated restructuring of a bank’s marketing arm could quite easily help dispel any doubts about dealing with social media. “Banks have to ask themselves this question – do they have a senior executive in the business right now who is in charge of social media? In most cases, the person responsible for social media will be the head of interactive or head of digital: it is rare to fi nd a job role for someone who is solely in charge of social media. “The first thing banks need to be doing is appointing somebody who is senior enough to affect change within the business based on input and feedback they are receiving from their social media activities. Th is is where the challenge is for most banks.” Financial institutions that fail to take these steps risk not only being abandoned by their existing customers, but also in failing to attract the millions of youngsters that come to market each year looking for their fi rst bank,
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a bank that is going to be able to serve their needs in a manner in which they are comfortable. “Banks should forget about ROI for a moment,” continues King. “Their social media strategy should be, to some extent, defensive, because a lot of what they will be doing will be about customer retention and attraction. There is far less loyalty to big bank brands at the moment, especially in the wake of the global fi nancial crisis.” Younger bankers, while more inclined to choose a bank based on their social media presence, pose a unique set of problems. For them, convenience is king and other concerns, such as security, often play second fiddle. “The convenience is the driver for the younger age groups,” says King. “These are the people that are prepared to accept that there may be security issues but, at the end of the day, the convenience that social media brings [for them] from an interaction perspective makes it worth the risk.” Th is is where banks have a secondary challenge, argues Schwanhausser, to educate their customers about the potential risks of exposing sensitive data online. “We have some fraud data that would suggest that ‘Core Millenniums’ have some issues with taking precautions. Th is is where it is going to be an important area for fi nancial institutions to be taking charge, engaging their customers in dialogue about the risks and educating them how to bank conveniently but safely.”
Forging the future As technology and the fi nancial industry evolves, so will attitudes towards social media and banking. Currently, the surface has been scratched and most larger fi nancial institutions have set upon some sort of social media strategy. There is still some way to go before there is complete consumer confidence in undertaking the bulk of one’s banking via these forums, and in many ways not much will change aesthetically or structurally – people are still going to require local branches, 24-hour hotlines and traditional websites. Where the shift is likely to occur – if it has not already – is in how a bank attracts, communicates and interacts with its customer base. Marketing departments face the greatest challenge in not only adapting to this new opportunity, but also moulding it into something that the banks can control once more. “We see it already in geo tagging, geo location through Foursquare and apps like that,” says King. “Th is next intersection of social media, mobile banking and traditional banking is going to be very interesting. Banks will start targeting individuals who they feel have social media influence in the hope that they will then cascade their experiences through the site, and in turn customers will adapt. “Interfaces are changing. Mobile devices are owned by Apple or Nokia or Google, and banks are becoming one more step removed from the customer, so unless they can figure out a compelling way to get messages to the customer that are really relevant based on the unique set of knowledge they possess, banks run the very real risk of becoming little more than the backend processor of financial transactions.
If social media is not a bank’s top investment priority, if they are placing their emphasis elsewhere right now, I wouldn’t necessarily fault them
“Banks with marginal customer engagement propositions are effectively just going to be squeezed out of the marketplace.” While King believes that banks should be acting now in order to get their social media strategies in place, Schwanhausser is a little more reticent. “Social media will become a great forum for banks to show that they can solve problems, so it is certainly invaluable in rebuilding and creating trust between consumer and bank. Having a plan is important, but it is not the be all and end all cure for banking at this stage. If social media is not a bank’s top investment priority, if they are placing their emphasis elsewhere right now, I wouldn’t necessarily fault them.” Listening to what your customers want is an age-old strategy for large companies, banks included. Consumer feedback is undoubtedly more instantaneous, far-reaching and potentially damaging today than it has ever been. Social media platforms give consumers a potent voice and these voices should not be ignored. There is, however, a danger in listening too intently to what your customers are saying, particularly if it detracts from the overriding focus and strategy of a company. Henry Ford was right in giving the customer a product that they themselves could never had envisaged. His knowledge, expertise, steadfastness and experience stood him well. Granted, he never had to deal with the twitterings of millions, but he was under pressure to deliver. “In Ford’s time, the only method the public knew was the horse,” concludes Schwanhausser. “Sometimes people have a hard time imagining what is best for them, particularly when compared to those that are deeply engrossed in a project. Ford was half right in what he said, but it’s worth remembering – customers do not design or dictate for you, but by listening to what they are saying you can at least anticipate their needs and tailor your service accordingly.” Th is approach appears, for now, to be the best course of action for banks to take.
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MONEY MAKER Dan Greenshields has a vision: to make the often-complicated world of stocks, bonds and other investment vehicles accessible to everyone.
t’s been a confidence-sapping couple of years for the average armchair investor. The financial nightmare on Wall Street not only knocked the self-belief of the big banks; it also dented investor confidence in the ability of traditional brokerage houses to accurately read the markets. The near-collapse of our modern financial system, a severe worldwide recession, unprecedented government stimuli and a historic rebound in financial asset prices from panic-inducing lows was finally capped off by the 995-point freefall in the Dow Jones Industrial Average on May 6; all contributed to a sea change in the investing habits of the man on the street. Self-empowerment became the new investing mantra, and while the faint-hearted retreated from the market in search of safety, the canny investor recognized that there were some great opportunities out there – provided you know where to look. “It’s certainly been a wild two years,” acknowledges Dan Greenshields, President of ShareBuilder from ING DIRECT USA, with a wry grin. He’s being disingenuous: the Seattle-based online brokerage service has seen explosive growth in the use of its services over the past 18 months, not least because its user demographic – largely made up of 20 to 40-year-olds with an average balance of between $5000-6000 per account – is both younger and less risk averse than that of many of the fi rm’s competitors.
“A 20-year-old or 30-year-old reacts very differently to a downturn than a 50 or 60-year-old does,” Greenshields explains. “They are very aggressive in their trading habits and are not scared of buying in volatile times. For example, normally our buy-to-sell ratio runs right around 50/50; but the day after that big 1000-point drop in May we saw that ratio go up by 10 percent. So instead of 50/50 it was more like 62/38 buy-to-sell that next day. What that tells us is that our customers reacted to the volatility in the market by saying, ‘You know what, this is a great time to buy’.” Older investors, he says, typically don’t have that same level of aggression. “The downturn was much more punishing to them because they had more in the market, and it showed up in the transactions we witnessed and the survey work we did.” Greenshields believes the company has also benefited from a change in the way people interact and engage with the investment experience. “Around 50 percent of the people we inter-
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viewed for a recent survey told us that they were going to rely less on their advisors in the future and more on their own ability to read the news and pay attention to what’s going on,” he says. “The tools have gotten so much better, it’s really changed the game. The ability for a retail investor to buy stock on the same terms as an institution is better than it ever has been in the last 100 years.” And providing such tools – along with the added transparency and empowerment they offer – is what ShareBuilder is all about. The company promises to make investing easy, affordable and accessible for both new and experienced investors, offering a range of services such as automatic investing, real-time trading, options trading and margin borrowing. All transactions occur online and are entirely at the discretion of the account holder, making it an execution only service. And the fi rm does not have brokerage sales representatives or advisors; instead, account holders can either do their own research or use ShareBuilder’s online research tools to investigate stocks. “Customers are increasingly going to want access to their account on their own terms,” says Greenshields. “They want to access information wherever they are; they don’t want to have to go into an office or a branch, and that’s what’s really important to them.” A prime example of this is the current revolution in mobile devices, with Greenshields citing the emergence of the digital native over the digital immigrant – along with advances being made in mobile technology itself – as the catalyst for the coming transformation in the way investments are made. “I think the mobile revolution and how people transact with their institutions is something that’s going to be pretty interesting over the next few years,” he says. “Those that have grown up with comput-
ers and mobile phones and the internet are just coming into their peak earning years, so we think it’s a real positive opportunity for us.” Such a move will demand that fi nancial institutions cater to this changing clientele – or risk extinction. “People are going to want to transact with institutions from their phone, be it their bank or their brokerage, and be able to move money around whenever and however they want to,” continues Greenshields. “And the great thing about the internet is that it allows you to really monitor and get much better real time information about what customers really want. Customers will drive
The ability for a retail investor to buy stock on the same terms as an institution is better than it ever has been in the last 100 years” the terms of how they want to interact with a fi nancial provider. And as a fi nancial service provider, if you don’t meet them on those terms you’re going to lose.” Such a fast-moving environment presents something of a management challenge for Greenshields and his team. For one thing, the market volatility combined with changing patterns of investment from a younger and more aggressive client base meant the company had to add more resources in order to cope. “There was a huge spike in volumes for online players like us,” he says. “We had a big increase in both new customers and general trading, and that forced us to add resources to make sure we were able to meet those needs. It was a big challenge for us.” The other issue has been around providing users with the right tools. “We’re really trying to improve the usability experience,” says Greenshields. “Technology allows us to monitor real time what they want. We can actually ask them what they want and then we can watch how they use the interface and try to improve that. So we’re always trying to make that better.” Ultimately, ShareBuilder is about taking complex fi nancial concepts and making them simple. So what advice does Greenshields have for those looking to get started on an investment strategy? “As an investor you’ve got to be really careful not to get whipsawed; you should have a solid strategy, and what you’re looking to do is just post up solid returns,” he says. “It’s not about hitting the home run. Here in the United States we suffer from a little bit too much of the superstar mentality; everybody wants to be number one. But in investing sometimes it’s okay to be right in the middle of the pack. If you have super-high returns, chances are you’re taking too much risk.”
DAN GREENSHIELDS ED P126-127.indd 41
An efﬁcient new approach to data loss prevention Oded Gonda reveals how new technology can empower users to prevent data loss in a number of organizations.
ending an email to the wrong recipient or attaching the wrong fi le are common mistakes that we have all made at some point. For organizations, the prevalence of email for mass communication, combined with high-speed computing and data communication networks, has made the risk of data loss considerably high. In this increasingly digital environment, the question is how can organizations efficiently prevent data loss incidents and secure their informational assets? How can you mitigate the risk of having employees selecting and sending sensitive data to the wrong email recipient? How can you stop people from accidentally uploading confidential information to a public fi le sharing website? Check Point proposes a new approach to help businesses efficiently tackle the challenge and protect their data from intentional or unintentional loss. As many of the traditional data loss prevention (DLP) solutions have shown, technology alone cannot address the issue of data loss. What companies need is an innovative solution that combines the power of technology in order to analyze and correlate content, with users and processes in order to provide contextual background on each sensitive communication. In addition, the solution needs to be simple to deploy, simple to use, and of course, reliable. The new Check Point DLP solution pioneers a new era of data loss prevention. Without disrupting the company’s daily flow of business, the solution moves data loss from detection to prevention, and avoids false-positives by engaging users to remediate. For example, Check Point DLP can block an email containing sensitive fi nancial information to an external recipient. It will alert the user in real time of the potential breach and ask him to either discard the email, confi rm the sending - if it is a valid communication - or further review the email to understand the issue against the corporate data policies in place. Not only does Check Point’s DLP solution efficiently prevent data loss, but also it educates users on corporate policies while enforcing them. In the same scenario, other traditional solutions will typically create an event and block the communication until an IT security administrator reviews and remediates the potential breach. Th is process can take days until it tracks down the context of the communication and involves the user and his manager. In addition, the IT staff member dealing with the incident will be exposed
“The solution moves data loss from detection to prevention, and avoids false-positives by engaging users to remediate”
to sensitive data he or she was not authorized to see in the fi rst place. Check Point DLP relies on sophisticated detection technology that looks at multiple parameters and data types such as credit card numbers and personal identifiers, as well as a collection of words or numbers, which could represent a sales forecast or a payroll list. Each enterprise can easily select and create data types and configure their DLP rules to closely match their corporate data policies that govern what data can be shared with whom. The Check Point DLP solution addresses many of the problems that have dogged DLP in the past. It gives employees a valuable second chance to catch that email before they accidentally send it to the wrong person or attach a confidential fi le, and avoid what could possibly have been a data breach for their company. Check Point DLP comes as a soft ware blade that can be deployed on all Check Point security gateways, and is also offered as a stand-alone appliance, DLP-1. Both solutions are centrally managed through Check Point single security management console to reduce complexity and operational overhead. Thanks to its ease of configuration, as well as the built-in policies and rules it features, the Check Point DLP solution can provide protection within a matter of days.
Oded Gonda is vice president of Network Security Products at Check Point and is responsible for driving the vision, development and delivery of the company network security product lines. Since joining the company in 1999, Mr. Gonda has held several leadership positions in Check Point’s Products Organization. He has played a central role in the initiation, design and development of key architectures and products bringing them successfully to market. For more information, visit www. checkpoint.com
Did I just send that file to the wrong person? Check Point DLP prevents data breaches before they occur Have you ever accidentally sent an email to the wrong person or attached a document that wasnâ€™t meant to be shared?
Check Point makes DLP work by combining technology and processes to move businesses from passive detection to prevention, before data breaches occur.
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ÂŠ2010 Check Point Software Technologies Ltd. All rights reserved. Check Point, the Check Point logo, and Check Point Endpoint Security Full Disk Encryption are trademarks or registered trademarks of Check Point Software Technologies Ltd. or its affiliates.
CHECKPOINT AD.indd 1
THIS IS A CLICK UP!
As cybercrime becomes ever more sophisticated, continuously evolving strategies, technologies and partnerships are required in order to stay one step ahead of the bad guys, says Bank of America’s CISO Christopher Higgins.
reporter once asked the famous bank robber Willie Sutton why he robbed banks. He replied, “Because that’s where the money is.” Sutton didn’t actually say that — a reporter made it up to spice up a story — but Sutton was one of the most successful bank robbers of the “gangster era.” From the 1930s through to the ’50s, he stole more than $2 million, which in those days was an enormous amount of money, the equivalent of more than $30 million in today’s dollars. While he always carried a gun in his straightforward “stick-’em-up” robberies (he famously quipped, “You can’t rob a bank on charm and personality”), he was actually most successful using identity theft and social engineering. He accomplished some of his most successful heists by dressing up as an armored car guard, a letter carrier, a messenger, a maintenance worker, even a policeman — whatever personality he could borrow to get through the door and into the vault. Our industry has successfully dealt with the Willie Suttons of the world. Armed bank robberies are, thankfully, much less common than they were in Sutton’s day. And we are sharp enough not to give the vault keys to a guy whose credentials are a mop and a bucket. But we are dealing with Sutton’s successors - bad guys who are far more dangerous than he ever was. They’re increasingly sophisticated and organized, often internationally, and they have an even wider and far more elaborate array of tricks, disguises and deceits that they use against unsuspecting victims every day, around the globe. We – the banks – are still where the money is. And, perhaps even more important, we are where the information is – customer and company information that is currency to modern criminals. To protect both the money and our information, we must combine two efforts: innovating relentlessly to holistically manage information security risk, and building effective partnerships to share information and best practices, uniting in common cause against a common enemy.
More than policy Many companies, including in fi nancial services, position their Information Security as a policy setting function. But we believe that effective information security requires more than policy — it requires comprehensive planning and action in analyzing threats, creating in-
novative controls and monitoring for compliance with mandates. For example, some companies currently focus primarily on watching the perimeter for attacks, fighting them off, then installing controls to prevent them from recurring. Indeed, this is a model that has served us and our customers very well. We are proud of the extremely effective perimeter Bank of America’s information security team of technology professionals and risk managers has built. But at the same time, we believe this model is not the future. Th ings have changed. Many security experts say the very notion of building a perimeter to keep the bad guys out is no longer enough, because Internet and mobile services have taken banking beyond our perimeter. We must, and we will, continue to vigorously defend our perimeter. But that is yesterday’s task. Today’s task is securing our applications — and tomorrow’s will be to secure all data, regardless where it is, how it is getting there, and who is using it. So, led by Information Security Executive Chad Renfro, we are advancing our Information Security. Though we retain the capability to react when necessary, we are well underway in moving from a reactive model of “detect-respond-control to remediate,” to a more active model of “analyze-control to prevent-monitor.” We have aggressively integrated our Information Security within the larger Enterprise Information Management function, with other capabilities like data analytics and risk management, to augment and direct the work of our IT, Information Security, resiliency and other subject matter experts. We have developed a “web of controls” to identify, prioritize and manage threats, consistent with our company’s fact-based risk management approach. We have built a patent-pending combination of advanced information analytics and Six Sigma methods in process, control and risk management, and we are applying it from end-to-end throughout the information lifecycle, from data acquisition through its management and storage, through use (access and availability), to final disposal. The resulting control portfolio has four inter-related segments: applications, infrastructure, insiders, and suppliers. In applications, we are scoring risk and setting priorities by applying proprietary methods to combine multiple considerations, like Internet exposure and data sensitivity. Even after investing whatever is needed to manage top-tier
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“To keep pace with the creativity and persistence of our adversaries, we invest heavily in innovation, the sure and sustainable route to solving problems and creating value”
Banking Bandits ‘Slick Willie’ was just one in a long line of slippery, deceitful and sometimes downright ingenious American bank robbers of yore. Here, FST resurrects a few more. Jesse James – Active between 1866 and 1876, Jesse James is perhaps the most romanticized of America’s great outlaws. Suave, handsome and with a terrifying propensity for knee-jerk violence, James was something of a ‘smash n’ grab’ bank robber, using force rather than deception to get his hands on relatively modest sums of cash. He met a violent end on April 3rd 1882 when he was shot in the back of the head by trusted ‘friend’, Bob Ford.
John Dillinger – If Jesse James was romanticized, Dillinger was sensationalized thanks, in part, to the age in which he was most active: Great Depression-era 1930s Midwest. Violent and unpredictable, Dillinger’s crimes ranged from the murder of police ofﬁcers to impersonating alarm salesmen and ﬁlm company location scouts to gain access to banks. In total, it is believed that Dillinger got away with more than $300,000, approximately $4.1 million in today’s dollars, before being gunned down by police in July 1934.
Pretty Boy Floyd – Charles Arthur ‘Pretty Boy’ Floyd was an immensely proliﬁc bank robber who got his ﬁrst taste of criminal life aged 18 when he stole $3.50 worth of pennies from his local post ofﬁce in Kansas. Alas, Floyd would go on to commit countless more bank robberies over the course of his illustrious ‘career’, including a daring prison escape in 1930. So far, so comical, but his actions took a darker course later that year as he was implicated in the murder of a gang rival. The law ﬁnally caught up with him in an Ohio cornﬁeld in October 1934 when the newly formed FBI claimed its ﬁrst big scalp.
risk, we still invest in lower-level preventive controls that are less expensive and scale well to match our risk appetite in lower-tier applications. And we place emphasis on educating our associates on the importance of writing secure code and enforcing standards. In infrastructure, we again set risk priorities by combining and scoring risk parameters, including factors taken in combination across hardware, operating systems and databases. In our insider space, we set priorities with a sensible, disciplined approach that takes into account the simple but important fact that not all situations embody equal risk. We have built a proprietary tool that assesses risk by pulling data from multiple systems, looking at such factors as access levels, privileges, and the activity of bankowned devices. We correlate results against dynamic lists we can customize with algorithms we can change in minutes. Real-time alerting allows investigation within hours. The tool’s reports are followed up by information security specialists. Finally, we have built assessment methods to rate the risks of our suppliers, so they are as prepared and protected as the bank itself. We evaluate and test our suppliers to ensure they handle Non-Public Information to our exacting internal information security standards. In all, we have a deliberate and disciplined process to anticipate and prioritize risk through data analysis and process discipline. Using algorithms built by our PhD-level experts, we build controls to prevent risk effects by priority, and we monitor outcomes to assure results and to adapt our controls to the changing environment. To keep pace with the creativity and persistence of our adversaries, we invest heavily in innovation, the sure and sustainable route to solving problems and creating value. We’ve fi led for patents on many tools and processes, such as the process to import multiple frontline security controls to risk-rate activity and differentiate malicious from normal. We have also implemented a data visualization system that lets us — and, crucially, our business partners — ‘see’ the risks in real time so we can better prioritize and remediate them. Additionally, we have also built a Control Automation Tool to collect and distribute all aspects of a control, including discrete management and corresponding metrics. We created another tool that provides personnel, organizational hierarchy and access management functions.
We’re all in this together Much of what we have accomplished internally has been the result of effective partnerships among subject matter experts, risk managers, and business partners across the enterprise. We have established an information security governance board, bringing together leaders from every line of business and support organization, to foster enterprise-wide thinking, and, more importantly, to help establish strategy, tactics, resource allocations and accountabilities at the business level.
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Company overview Bank of America is one of the world’s largest ﬁnancial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other ﬁnancial and risk management products and services. The company provides unmatched convenience in the United States, serving approximately 58 million consumer and small business relationships with more than 5900 retail banking ofﬁces, more than 18,000 ATMs and award-winning online banking with nearly 30 million active users. Bank of America is among the world’s leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world. Bank of America offers industry-leading support to approximately four million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients in more than 150 countries.
Because we know fi rst-hand the power of effective partnership, we are also working to build partnerships of all kinds outside the company as well, to share information and best practices, and to seek opportunities for mutual action to protect our customers and clients, our companies, our nation, and the international economy. We are committed to broadening our situational awareness and partnerships —across the fi nancial services industry; across industries in the broader economy; and fi nally, and very importantly, within the public sector as well. Across our industry, we participate in the Financial Services – Information Sharing and Analysis Center, (FSISAC), our industry forum for collaboration on critical security threats facing our fi nancial services sector. We participate in the Financial Services Sector Coordinating Council for Critical Infrastructure Protection and Homeland Security (FSSCC), the group of more than 30 private-sector fi rms and fi nancial trade associations that works to help reinforce our sector’s resilience against threats to the nation’s fi nancial infrastructure. We also contribute to many other cross-sector industry groups, such as the President’s National Security Telecommunications Advisory Committee (NSTAC), because we know interdependencies among critical sectors make a secure information infrastructure essential. And we have named Greg Garcia as our partnership executive for cybersecurity and identity management. Greg, who was assistant secretary for the Office of Cybersecurity and Communications in the Department of Homeland Security, will focus on developing our partnerships as well as expanding our work with the public sector. We need and welcome even more partners. We need to pull together — as a business, as an industry, as partners in a global economy. And we need to continue making partners of our customers and clients, helping educate them so they can contribute to the active defense against predatory criminals. Anyone reading this magazine is in a position to be a partner, advance information sharing and best practices. We are all in a position to help make common cause against a common enemy. I invite you do just that, and join us in this important work. And should you think that such partnerships are unlikely or unworkable across business lines, across industries, across public-private or international boundaries, there is a fi nal lesson from the great robber Willie Sutton. Sutton’s last job was “legit”: He was a spokesman for a credit card with picture ID — a product developed to help fight identity theft . Willie Sutton went into partnership — with a bank!
“We are committed to broadening our situational awareness and partnerships – across the financial services industry; across industries in the broader economy; and finally, and very importantly, within the public sector as well”
Christopher P. Higgins is the Enterprise Information Management Executive for Bank of America, and serves as the company’s Chief Information Security Ofﬁcer. Higgins leads a team of professionals responsible for managing the company’s information assets, including storage, security and analytics. He also is responsible for the enterprise data management program and managing the company’s data warehouse. Higgins joined Bank of America in 1993 and has served in a variety of leadership roles across technology, operations, risk management and audit functions at the bank.
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ASK THE EXPERT
Is your network safe behind just a ﬁrewall? When looking at how to combat malware and protect data, IDPS service is a great place to start, says Rob Anderson.
“Statistics show that organizations that face a major security breach have a 90 percent chance of going out of business within two years”
alicious soft ware (malware) is easily the biggest network security threat facing fi nancial institutions today since cybercriminals target enterprises that hold a great deal of money or conduct a high volume of transactions on a daily basis. The growing malware threat has a profound effect on a company’s ability to maintain privacy, making the risks to organizations far more significant than before. A network intrusion can cost an organization as much as $5 million, depending on the type of malware and information that was stolen, and the risks that companies face are not only fi nancial. Organizations are trusted to keep private information secure. If that trust is broken, the resulting impact on the company’s reputation can be severe. In fact, statistics show that organizations that face a major security breach have a 90 percent chance of going out of business within two years. Therefore, it is important for financial institutions to build upon their firewalls and anti-virus programs with an Intrusion Detection and Prevention System (IDPS). A firewall is not enough to protect a network from a malware attack because today’s malware is so advanced that a firewall alone will leave a network vulnerable. An IDPS solution keeps these sophisticated malware threats outside of the network, and is supported by a team of security engineers that provide remedy options for security breaches. Intrusion Detection Systems (IDS) and Intrusion Prevention Sensors (IPS) are also helpful in keeping a firm safe from malware. Just as federal regulators have made efforts to protect privacy through statutes such as HIPAA, Gramm-LeachBliley, and PCI DSS, compliance standards in the fi nancial industry will soon make it mandatory for fi rms to have an IDS or IPS solution. For example, Massachusetts passed the “Massachusetts Privacy Act,” which requires fi nancial firms to have either an IDS or IPS. With the malware trend growing at an astronomical rate, some experts anticipate that all of the remaining 49 states will follow suit with similar legislation within the next two years. Malware acts like a parasite on a network. A wellintentioned employee may accidentally download malware - such as Zeus (Zbot) - from a Web Site or open it via an e-mail attachment. When a computer in the firm becomes infected with the Zeus worm without an IDS, IPS, or IDPS solution in place, the worm is not recognized as a virus or a Trojan infection. It slips past the network security measures in place and actually hides against the fi rewall along with
the firewall of the other computers in the network. It stays there, collecting the digital traffic and absorbing the private information passing through, including credit card numbers, account numbers, and social security numbers. The Zeus worm will send that information back to the host, who can then sell it to criminals. Now, let’s look at the same scenario, but with an IDPS solution in place. The Zeus worm attempts to sit up against the firewall in order to feed off of the network information. However, the IDPS acts like a bouncer standing outside of a bar: it detects the malware and prevents it from hanging out along the fi rewall. With the PAETEC IDPS solution, the malware threat is caught at the company’s security operations center before it reaches your network. The PAETEC security engineers identify what the malware is, fi nd where it’s located, and help customers fi x the problem. Working in conjunction with a firewall, the PAETEC IDPS solution is a complete system that protects the network, while eliminating the need for its customers to hire additional IT staff, complete extra levels of certification, or incur capital costs associated with maintaining multiple security devices and information security providers. The best way to secure an organization’s data is to stay informed on threats, analyze vulnerabilities, and work with a partner that can help you build the layers of your security solution. With PAETEC IDPS, financial institutions not only get a network provider, but also a trusted teammate that can manage the security of the network. This synergy between solutions means greater business continuity for the customer and stronger protection from malware. PAETEC, a FORTUNE 1000 company, is personalizing business communications for enterprises nationwide.
Rob Anderson is a Senior Product Manager at PAETEC, responsible for management and innovation of the company’s line of security products. He is focused on the expanding demand for securing business networks, as well as security compliance. Anderson joined PAETEC in 2004. He graduated from Clemson University with a B.S. in Technical Marketing and Computer Science. For more information, please visit, www.usfst.com/article/ paetec-idps/
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HOW DO YOU STOP CROOKS WHO USE CODE INSTEAD OF CROWBARS?
Malicious software or “malware” has evolved beyond common viruses or spyware, making it harder to detect. Since cybercriminals target enterprises holding a great deal of money or conducting high-volume transactions, malware is one of the biggest network security threats facing financial institutions today. The manpower and capital resources required to protect against malware is significant; however, by leveraging PAETEC’s Intrusion Detection and Prevention System (IDPS), you will receive powerful network protection in-the-cloud and a good return on investment. Working in conjunction with a firewall, IDPS protects your network while eliminating the need for additional staff or capital costs. Protecting your customers’ personal information from being stolen and sold on the black market may seem like a difficult task, but not for PAETEC. Let our expert security engineers personalize a robust, layered security solution for your institution.
SECURE YOUR NETWORK WITH PAETEC’S IDPS. DOWNLOAD OUR FREE WHITEPAPER: WWW.USFST.COM/ARTICLE/PAETEC-IDPS
© PAETEC - 1571542
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Money, mergers motherboards Having worked in banking since leaving high school, and at Wells Fargo in its various incarnations since 1978, Head of Information Systems Wayne Mekjian has overseen several mergers and has helped revolutionize the bankâ€™s IT infrastructure. He tells FST about the art of achieving a seamless merger and what he has learnt about effective team management.
Wayne Mekjian 50
s EVP and Head of Information Systems at American’s fourth largest bank – Wells Fargo – Wayne Mekjian holds responsibility for a vast network of IT systems spanning over 6000 branches and supporting 276,000 employees. The technology department of the bank alone comprises a workforce of 15,000; a situation that has become ever more complex with the recent merging of the bank with Wachovia Corporation. Naturally, Mekjian says his main focus is to integrate the two banks’ IT systems. “The aim is to link the two systems together so that we can conduct sales and provide services from any location. We need to get the company ready so that we’re ready to service customers and sell to them and build products that can go forward on either system.” He goes on to say that it would be virtually impossible for the two banks to continue with two separate systems. “You couldn’t possibly do a merger and have multiple systems in place. You could do it with bridges but you’d have to have the electronics to support that.”
Wayne Mekjian 51
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Have You Bought Your Bond? Liberty Loan Poster by Adolf Treidler
Old timer It is a daunting task, but for Mekjian, who has been in banking since leaving high school and joined Wells Fargo in 1998 when it acquired his then-employer Norwest Bank, it is the latest in a long line of technology transformations the company has undergone. During his long service with the company he says he has seen the role of technology within the business change dramatically and become a key driver of change. “Technology has become more and more critical to the operations and functionality of the corporation. Today we link so many companies together and sell products across so many channels. It used to be that back office processes and technology were similar functions. But it has evolved so that technology is very much on the front line of the business. Technology is more of a focus for customers and is therefore a higher priority within the organisation.” One of the biggest changes Mekjian has witnessed in the banking world is, he says, the transition from cash and check payments to the widespread use of cards. “Even in Vegas, they’ve gotten rid of cash. Most of the devices there now take cards.” Technology has also dramatically increased the speed with which banks can process customer applications for products such as brokerage, insurance or mortgage products. “Up until about 15 years ago if you tried to take a home equity loan they’d take your information and get back to you in three or four days to tell you whether you qualified. Now the entire procedure is instantaneous. You key in the information, it goes out to a
Even in Vegas, they’ve gotten rid of cash. Most of the devices there now take cards
decision engine then it comes back and you’ve got the loan. There has been such tremendous progress.” As technology has become such an integral business driver within Wells Fargo, Mekjian says he has had to adapt his own role and experience to work on the business side of the bank from being a back office technology operator. Having held several different roles within the bank has helped with this transition – the most useful experience having been that of taking up the role of project manager, he says: “I think the biggest learning experience I had was becoming a project manager. When you’re in operations you own people – there is a direct line from you to them so you manage differently from when you are in a project management role. When you learn how you can motivate people indirectly, that’s how you start to get stuff done.” He goes on to say that in order to motivate employees and also senior management, he has learnt the importance of putting technology into a business context – rather than using complicated and arcane tech-speak. “If you use technical jargon people just kind of glaze over and say ‘I haven’t got a clue what you just said.’ It’s more effective if you focus on what the technology does for the customer or what the company is going to see from a profit standpoint as a result of this technology.”
Leading a team Mekjian’s experience of motivating employees to get excited about technology means he has developed a
Wayne Mekjian 53
IMPERVA AD.indd 1
you have to back off a little. Once I’d learnt that I became much more productive.” Part of his strategy when it comes to gaining the committment of his team is never to refer to himself as a ‘boss’. “I learned a long time ago that the word boss is a really bad thing to say. No one I’ve ever met likes the word boss, they use it in a derogatory sense. I like to think of myself more as a coach or mentor. I say to people ‘I’m not better than you, you’re not better than I am. We’re a team. Let’s make it happen’.” Unusually he believes that the economic downturn has had a positive effect on staff morale and development within Wells Fargo as reduced turnover encourages greater staff loyalty. “When the economy is bad it does one thing for all of us; it stops turnover. You get to keep people and the longer you keep people on a job, the more knowledgeable they become.”
Clock wise from the top: First Ofﬁce of Wells Fargo Bank, Wells Fargo Bank HQ, Wells Fargo bank branch in San Francisco.
wealth of experience in management best practice. He says his favorite and most oft-repeated tip for effective management is good communication. “My number one hint would be to communicate. Listen to what your employees’ issues are and what they need in order to get their jobs done. And part of good communication is telling employees where you want to go with the technology but not necessarily how to achieve it. If you pass that responsibility on to them it becomes their project and they take pride in what they do so they are not going to fail. Getting recognition and having pride of ownership is very key to success.” Such effective management has been key to Mekjian’s successful delivery of projects he says, having learnt that it was only through delegation that he could achieve his goals. “You learn real fast when you’re doing a project that you can’t do everything yourself. If you want to succeed
Wells Fargo & Wachovia merged on 31st December 2008
The merger brings together 11,000 branches across the US
It’s the type of knowledge that can become remarkably invaluable to the company during a period of transition – such as the merger between Wells Fargo and Wachovia. The partnership, which was completed in 2008, will create North America’s most extensive distributor of fi nancial services, with 11,000 branches and 12,260 ATMs dotted throughout the country in easily accessible locations. Currently the company is in the midst of a complex three-year merger integration with Mekjian at the head of ensuring the two companies’ systems merge seamlessly – particularly from the customers’ point of view. “When a merger happens you need to wire the two companies together and the fi rst thing you wire is the electronics. You start with the ATMs then you go into the branches. Certain systems are going to stay and certain systems are going to go away.” The pressures of achieving a seamless integration between the systems of two of America’s biggest fi nancial institutions would leave many in Mekjian’s position fl ailing. However, he says he has learnt with time how to manage his stress levels and, unusually for an executive in his position, believes in switching off once the working day has ended: “I don’t always travel with my PC. I don’t always turn my Blackberry on. I have a phone and that’s the only way you’re going to get hold of me. It’s not all about you and your PC and you don’t have to do it 24/7 to be successful and productive. I love walking away for an hour and clearing my head then coming back and jumping right in. I don’t mind being on my PC but I’m not going to answer all those things that can wait. Do I stress out? Not anymore. I used to get really stressed out. People stress out because they’ve got to prove themselves. I’m past that.” It’s a comfortable position to be in and Mekjian says he has no plans to change anything about his working life for now. After all, he reasons, what’s not to like? “There’s enough stress out there and it’s kind of nice to wake up in the morning and say ‘I’m going to work and, you know, what’s the downside?’.”
Wayne Mekjian 55
ASK THE EXPERT
Proﬁtable convenience Bob Tramontano tells FST how banks are responding to ever-increasing consumer needs for multichannel transactions and interactions. “If the bank knows which consumer is coming into the branch they could increase sales by up to 25% by planning ahead”
oday’s consumers are time constrained, less loyal and digitally enabled. Therefore, it is essential that banks put consumers at the center of their retail strategy, responding to their preferences - what channel they want to use for a particular transaction; and presence - where they want to connect with the bank. Consumers want control and they want choice, wherever they happen to be. They are becoming multichannel users and expect consistency, whether they’re interacting with banks via the Internet, cell phone, ATM or branch, from home, their place of work or even on the move. When banks understand a consumer’s preferences in the context of their presence they can offer the right mix of multichannel options for interaction – and there are benefits. Investment in multichannel service delivery generates enhanced consumer loyalty, or ‘stickiness’. Jupiter Research believes that multichannel consumers are 20 percent less likely to defect to another supplier. That’s not all. The creation of more opportunities to interact with the consumer in a way that is convenient to them also means more selling opportunities. Remote Deposit Capture is one example of technology being used to enhance the consumer experience, enabling the consumer to conduct a transaction according to their preference and presence. Checks remain popular, but they have not always been a convenient payment mechanism for the recipient. With Remote Deposit Capture there is now no need to take someone away from their core activities at the end of the day. Businesses can deposit checks from their own premises, whether that is in a corporate office or at home, using a check scanner and PC to make payment via their online banking portal. They don’t even have to be in a specific physical location. A builder working off-site can deposit the check there and then, capturing the information with a phone’s camera and sending it to their bank as part of the mobile banking experience. 24x7 availability, from the office, from home or on the move, is a significant improvement for check deposit services. There is more than just check deposit, too. As alternative ways of doing business become available, consum-
ers are becoming comfortable using the channel that best suits their lifestyle. They may start a transaction on one channel and complete it on another, and always expect consistent service. The challenge to banks is to allow consumers to combine multiple channels in innovative ways, transforming their interactions into effortless experiences. Enabling personalization of communications according to where consumers are and their stated preference can drive higher levels of response, intimacy and loyalty. Consumers can now book an appointment at a time and branch convenient to them through the Internet. They receive confirmation via e-mail and then an SMS reminder on the day of the appointment. What’s more, when the consumer arrives at the branch and logs their presence at a self-service kiosk, a targeted promotional campaign can be delivered via digital signage in the waiting area. Banks have sophisticated models that provide data on a consumer’s profitability and buying behavior. If the bank knows which consumer is coming into the branch they could increase sales by up to 25% by planning ahead and reviewing the information before the consumer arrives for their appointment. The multichannel reminder functions have also been shown to lower wait times by approximately 50 percent and reduce missed appointments by around a third. NCR is working with banks around the world to make this happen. Whether it is Remote Deposit Capture, driving marketing campaigns across channels or simply using the latest technology to make transactions easier and more secure, we use our experience of multichannel delivery across industries such as retail, travel, healthcare and entertainment to transform the way consumers bank. Now is the time for banks to look for more ways to connect remotely with their consumers, accommodating their preference and presence for their fi nancial transactions. As consumers’ lifestyles and needs change, great opportunities are arising for innovative financial institutions to give them more choice as to where, when and how they conduct their transactions. Bob Tramontano is vice president of ﬁnancial industry marketing at NCR, a leading global provider of payments, assisted and self-service solutions, with over 125 years of experience and knowledge.
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U PAYMENTS’ NEW LAND OF OPPORTUNITY Eduardo Vergara explains how the ﬂexibility, security and advanced control of single-use accounts and purchasing cards is garnering widespread appeal in commerce and banking.
ntil recently, the prime focus for Treasury had typically been targeted at two ends of the payment spectrum. Plastic has traditionally been used for travel and entertainment (T&E) and a number of low-dollar expenses, while Automated clearing house (ACH) has been reserved for the high-ticket, direct suppliers. Check processing, renowned for its high cost and no revenue benefit, was utilized to fi ll in the remaining gaps. Now, however, companies see a new land of opportunity: the fertile ‘middle ground’ of payment, which encompasses a wide field of transactions that have, until this point, been handled by paper. By targeting this broad landscape, companies gain on every front; they leverage working capital, increase float and raise their revenue from rebates. And by adopting automated channels, they slash indirect processing costs, a one-time investment that produces perpetual results. Companies now are following two key strategies towards capturing this profitable middle ground:
Eduardo Vergara 58
• Implementing single-use Accounts to hold on to cash longer, pay suppliers sooner, increase rebates and reduce accounts payable (AP) manpower costs. • Extending purchasing card to cover new spend categories to drive compliance, greater rebates and deeper integration with e-procurement systems.
What’s been missing? Clearly, the will to transform is stronger than ever, but companies may have felt uncertain about launching new solutions and waiting for products and technology to catch up to the marketplace need. Automation, after all, has been the X factor in AP transformation — and for good reason. Companies have embraced automated payment through the use of ACH and wire transfers, and procureto-pay represents the future. The efficiencies are tremendous. Yet these channels do little to help companies leverage their working capital, and unlike card programs, they produce no rebate revenue. On the other end of the automation continuum, checks are notorious for being the most costly and inefficient way to pay. The average cost to process a check is $89, according to RPMG Research Corporation. Fraud is an issue with the paper process, which also offers no rebates and does not leverage float. Reducing the volume of checks has been a long battle for AP professionals, but they have been hampered by the lack of advanced payment alternatives. Purchasing card usage has emerged as the best tool for indirect spend, yet companies have been conservative in deploying the cards, and suppliers have needed time to recognize the benefits that they gain from card acceptance. Now, companies are spotting new opportunities through a portfolio of sophisticated products and technology tools. Payment can, in fact, be highly customized, as well as automated, with fi nely calibrated controls at each step of the transaction. Faced with this landscape, companies realize that they can take a broader view in managing payment to command a larger percentage of their transactions. The will is there and now there’s a way — through adopting single-use accounts and expanding purchasing card penetration.
Checks are notorious for being the most costly and inefficient way to pay. The average cost to process a check is $89, according to RPMG Research Corporation
Who beneﬁts? All manner of companies can benefit from using single-use accounts. Car dealerships, for example, can use single-use Accounts to automatically assign a unique credit card number when a car dealer or repair facility requests approval for repairs covered under their vehicle service agreements. Usage parameters based on the service order are automatically assigned to each credit card number — the name of the payment recipient, the exact dollar amount available and the approved type of repair. Once repairs are completed and the credit card number is used, the claim is automatically paid if the service center’s name, dollar amount and repair type match those in the system. If these
How single-use accounts work 6 Matched reconciliation ﬁled
(purchase = transaction data)
Single-use accounts gains traction Single-use accounts has become a simple, effective alternative to check payment for medium-sized transactions. Although it has the flexibility of a commercial card, single-use accounts is an electronic AP tool with special security, antifraud and reconciliation features. It operates with the ease of a ghost (virtual) account, which is an account number assigned to a specific vendor for highvolume purchases with larger spending limits. However, single-use accounts has the advantage of being transaction-specific, and, therefore, can deliver strict controls at the point of purchase and automatic reconciliation on the back end. Single-use accounts, in fact, performs like a check but works like a card. Each transaction is given a unique
16-digit account number, which is assigned to a specific invoice and vendor. Th is account number is active for only a defi ned time frame and is electronically matched to pre-purchase information. The number can be used at any point in the purchasing process: at time of order, invoice or receipt of goods. Merchants work through the Visa or MasterCard network to accept and settle the Single-Use Accounts transactions. Consequently, instead of having a general ghost account number for all of a corporate customer’s charges, the supplier receives an account number for each single payment with purchasing parameters embedded in the system. Single-use accounts allows companies to lock down purchasing controls as they see fit. They can establish unique spending restrictions, including limits on transaction amounts, dates and merchants, thereby reducing or entirely eliminating fraud and misuse. On the back end, automatic electronic remittance allows suppliers to get paid faster and companies hold on to cash longer, gaining greater power over their cash flow.
CLIENT’S ERP SYSTEM
Transaction data VISA OR MASTERCARD
J.P. MORGAN 2
Response ﬁles 4
E-mail is sent to vendor with payment information by J.P Morgan or client
Authorize and settle VENDOR
Eduardo Vergara 59
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UNSHACKLING THE PURCHASING CARD
Payment choices have evolved, giving companies targeted solutions that deliver revenue and automation beneﬁts, capturing an increasing range of corporate spend.
Companies that have removed the tight constraints around purchasing card usage are seeing positive results. Here are just a few J.P. Morgan clients who have broadened their purchasing card programs:
Check/Wire/ACH e accoun Single-use accounts
New spend categories on the card With the wider acceptance of the purchasing card, a major media company has expanded its use of the card to capture new categories, including temporary employment services, on-premises security, utilities, employee drug screening and background checks, and E-Z Pass toll payment subscriptions. Result: The company broadened its data capture and gained new controls.
A global soft drink distributor engaged J.P. Morgan’s expansion services consulting team to help identify ways to increase card usage in commodity spend categories that in the past had not been seen as applicable for card transactions. More merchants were enrolled, resulting in $17 million in card volume, and new commodities, such as legal service providers, equipment manufacturers and utilities, were added, generating an additional $45 million in spend on the purchasing card program. Within one year, the company’s spend volume on the purchasing card program grew nearly 26%. Result: After three years, purchasing card volume increased nearly 100%.
Expansion of purchasing cards As purchasing cards have evolved, they have become a standard payment tool for corporations and public sector organizations. Initially, the focus had been to use the purchasing card for low-dollar invoices, but its usage has been on the rise. By 2012, purchasing card spend in North America is predicted to reach $218 billion (nearly double its $110 billion volume in 2005). Now that companies have seen what the purchasing card can deliver, they are ready to extend its reach. The purchasing card has expanded on many fronts as companies have added new categories of spend, enrolled more suppliers, broadened distribution of the card within the organization, raised transaction amounts and taken the first steps toward globalizing the program. For example, having originally designated the purchasing card for
asiing Purchasing d card
Advanced technology drives evolution of payment
Targeting nontraditional suppliers
parameters are not met, the dealership is alerted and the payment is held. Another example from the healthcare sector: if a distributor of healthcare products and services seeks quick automation of its payments process due to the cost, time and effort required to process its large volume of invoices, it can utilize single-use accounts to meet its objectives. While single-use accounts are being implemented, interim ghost card accounts can be established to capture spend. At the same time, efforts can be made to enroll additional suppliers, leading to a more efficient operating process.
Indirect costs in focus A world-famous cosmetics brand grew its purchasing card program to $50 million within a year of its launch. In addition to traditional spend categories, the business uses the purchasing card to pay for indirect costs such as modeling agencies, in-store security services and retail employee uniforms. Result: More than 1500 of the company’s top vendors now accept the purchasing card as payment.
Single-use account rebates can be signiﬁcant; consider earning 100 bps on your larger, indirect purchases.
Single-use accounts can be deployed as a batch or real-time solution.
Unlike ACH, single-use accounts utilizes a standard ﬁle format, making it easier to manage supplier changes as needed.
MRO areas such as office supplies, electronic equipment and maintenance, companies are now focusing on services, moving expenditures with consulting companies, advertising agencies and temporary labor agencies on to the card. Globalization represents another new frontier for savings through purchasing cards. According to MasterCard, although only 27% of companies have multinational programs, corporations that have reaped the benefits of greater purchasing card spend in the United States are expanding usage internationally. As more fi nance organizations adopt the shared services model, many of the nagging issues around globalization (e.g., multiple currencies, VAT tax reclaim, technology integration and regulation) are being successfully addressed. Companies that have expanded purchasing card usage are seeing an increase in the benefits that have always followed the transition from checks to card, benefits such as improved compliance, rebates, increased flat, early pay discounts, process savings, detailed reporting, payment integrated with e-procurement systems, and support in the effort to reduce the number of suppliers and tighten relationships with a group of preferred vendors. In effect, the purchasing card has proven that it has broad shoulders, and with supplier acceptance growing, it has become a lucrative tool for companies committed to reducing their paper processing. Eduardo Vergara is the Global Commercial Card Executive at J.P. Morgan
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ASK THE EXPERT
The mobile banking leap What are the necessary building blocks for the evolution of mobile banking? Soren Bested provides pieces to the mobile puzzle.
obile banking is here to stay. Research by Towergroup predicts that 53 million people in the US will be using mobile banking by 2013. This is, however, merely the beginning – if due attention is paid to the strategic implementation of mobile banking to ensure the rails for mobile commerce are built now, mobile banking service providers will develop and provide pragmatic services for today while keeping in mind that the current state of mobile banking should create the infrastructure future commerce will leverage. Imagine: On the way to the station, you buy your train ticket by sending an SMS message. Payment is debited from your account, and your ticket is sent directly to your mobile phone as a 2D barcode. You buy your coffee at your usual shop by flashing your phone in front of the proximity reader. Then you are informed that you have received a ‘buy one, get one free’ coupon. As you sip your coffee on the train, you pay a couple of utility bills and send $200 dollars to your son’s prepaid card. Upon arriving at the office, you hand your free coffee to the receptionist – and your wallet never left your pocket. While this scenario can become a reality in the near future, Monitise Americas believes that a certain set of key frameworks must be put in place in order to enable mobile money to flourish and create these opportunities. A key importance is for solutions providers to enable FIs to maintain their direct relationship with the end-consumer. If the FI fails to be custodian of the association between the
customer’s account details and their mobile phone number, there are plenty of new players on the scene who will seek to disintermediate the FI and reduce them to the role of a bit-pipe. Based on the real-time connection, ubiquity, and interactivity of the mobile phone, it is imperative that mobile banking becomes much more than just re-rendering of existing services on a mobile device. While the first wave of mobile banking saw a number of FIs take the easy route of re-rendering internet banking, FIs are now increasingly recognizing the limitations of this approach in terms of customer reach (only internet bankers), service range (only a subset of IB services) and proposition (not tapping into interactivity as illustrated in the scenario above). Strategically it does not deliver the critical account/cell number association referred to above. As institutions roll out more mature solutions, it is key that the channel leverages existing banking infrastructure and adheres to appropriate security standards (e.g. PCI DSS and SAS70). In setting your institution’s mobile strategy, some important considerations should be kept in mind. Firstly, SMS, browser, and mobile applications should not be considered different services, but complementary channels that together create a best-of-breed solution. SMS is unbeatable for simple information services and alerts, whereas more complex FIs benefit from the superior user-experience and security of the downloaded application. Secondly, customers want a single mobile solution that consolidates alerting and management of bank accounts, healthcare accounts, prepaid cards, bill payment, remote check deposit – not a mobile point solution for each service. Thirdly, what really represents a valuable mobile service? Consumers are unlikely to manage mortgages through their mobile phone, but will greatly benefit from a low account balance alert combined with the ability to transfer funds or take out a short-term loan. And finally, how do the mobile offerings fit together to create customer value? Is it really easier to flash a mobile device in front of a reader instead of running a card through? How does this scenario change when we combine the mobile payment with mobile couponing, loyalty management, and the ability to manage the source of payment based on the user’s preferences? By keeping in mind the above considerations, FIs will be positioned to take the first steps on a long-term mobile strategy that avoids costly and time-consuming pointintegrations and cul-de-sacs.
Soren Bested is currently Monitise Americas’ Managing Director. His primary responsibility is to extend the Monitise Ecosystem within the US by expanding relationship with cellular carriers, financial processors and institutions, card issuers and transaction networks. Prior to his current role, Bested spent more than 10 years in various high tech industries, most recently leading Operations for Monitise Americas and, before that, MONILINK, now fully-owned by Monitise plc, the world’s leading mobile banking and payments partner.
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and take your finances with you!
Provide your customers with a new level of convenience and freedom with the power of Mobile Money from Monitise Americas Mobile Banking is all about making your finances easier, and it’s perfect for consumers’ busy, on-the-go lifestyles. Offer your customers an unmatched user experience with simple SMS services or mobile browser and App solutions. You can empower your customers to manage their finances, check account balances, transfer funds, pay bills, and so much more! All from the convenience of their mobile phone. And because our solution works on virtually any handset, your customers are never more than a few minutes away from going mobile!
Monitise Americas is a veteran in the mobile financial services space – working with financial institutions and service providers to design and implement superior, modular and configurable mobile services.
Learn more at www.monitiseamericas.com. t: (401) 276 8340 email@example.com
©2010 Monitise Group Limited. All rights reserved.
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A growing ‘app’etite for mobile banking Anytime, anywhere banking is a reality thanks to the widespread use of smartphones, explains Paal Kaperdal to FST.
s the Senior Vice President of the Online Channel at TD Bank Financial Group, Paal Kaperdal leads the team responsible for creating a memorable online experience for TD’s 11 million customers. His team’s vision is simple: to be a world-class fi nancial destination. Not an easy feat, acknowledges Kaperdal, but “It’s a journey that will be a top priority for TD over the next few years.” The integrated Online Channel team was formed in November 2009 to support TD’s customer-facing businesses: personal and commercial banking in Canada and the U.S., insurance, and wealth management. Since then, there has been a noticeable impact on TD’s digital footprint with the most recent initiative being mobile banking. Launched in April 2010 in the Canadian market, the TD mobile app for iPhone and iPod touch was downloaded by more than 100,000 customers in just over a week. A short time later, TD expanded its offering to include a mobile app for BlackBerry and Android devices making TD the first fi nancial services provider in Canada with mobile apps for the most in-demand smartphones. “We’re seeing double-digit increases in the number of smartphone users and more than half of active mobile bankers use smartphones, so this presents a terrific opportunity for fi nancial institutions to engage their customers in new ways,” says Kaperdal. “The mobile market has changed significantly – and quickly. We used to have to focus our energy on creating multiple wireless operator relationships while supporting lots of mobile devices, including those from single device manufacturers. Now, we’re able to devote our resources to key devices such as iPhone, BlackBerry and Android that clearly command the lion’s share of the smartphone market. “Smartphones have become full functioning computers with GPS and location awareness, innovative touch input, a high-quality camera, and even a check image scanner for bankers. Plus, we’re seeing a host of other features that will guarantee future innovation in fi nancial services,” continues Kaperdal. The introduction of the iPhone and the creative relationship Apple struck with AT&T is a key turning point that unlocked the potential of mobile fi nancial services. Combined with the creation of the iTunes app
store, Apple demonstrated how an expanded ecosystem that combines hardware, soft ware, and a robust application development community would accelerate the smartphone market. Some would say that Apple controls too much of the ecosystem, even down to the user experience and which applications can be distributed in the iTunes store. That may be the case. At this stage Apple’s approach is injecting a healthy focus on quality and a consistent user experience that customers clearly embrace. In contrast to the Apple approach, the Android market is bringing a unifying operating system to diverse device manufacturers. “Whatever model you prefer, smartphones will have significant impact on how companies like TD engage our customers in the future,” adds Kaperdal. “As the industry begins to quantify the opportunity mobile banking provides, we can’t lose sight of the fact that the mobile phone remains with the customer all the time. Th is means the ability to interact with the customer just went way up,” continues Kaperdal. “Mobile banking opens doors to many self service options and could very easily become a cross channel enabler, not to mention the promising potential of mobile payments and mobile commerce. We know this is where the financial services industry is going and we want to be a leader in this space. “When it was fi rst introduced, the industry would say online banking is a game changer because customers could do their banking anytime and anywhere. Th is wasn’t entirely true. We should have been saying anytime and anywhere as long as you can get to a computer. The anytime, anywhere tagline was beyond its years, but now with mobile banking, I think we’ve found it a new home.”
Paal Kaperdal is Senior Vice President of Online Channel, Direct Channels and Distribution Strategy for TD Bank Financial Group (TDBFG). TD Bank Financial Group is the collective name for The TorontoDominion Bank and its subsidiaries and is headquartered in Toronto, Canada, with 74,000 employees and 17 million customers. Kaperdal joined the company in September 2008 with 18 years of business and online experience.
A world without paper? While banks are just coming around to the idea of conducting business in a paper-free environment, there are still many realms where paper will continue to play an essential role...
Can using less paper improve risk management?
Kin dle For all your iPa ds, bsites, we ine eBo oks and onl and s bo oks, new spa per go aw ay. ma gazines will never rta ble po ay, Tactile, throw aw nt media’s pri the and inexpensive, n if eve ure versatility will end in te ina dom dig ita l comes to the future.
or many companies, the masses of paper that they use are not only detrimental to the environment but also a security risk. Over the past 12 months, the banking world has been under intense pressure to examine its practices and, as a result, there has been an increase in the need to review bank charges and clerical expenses; reviewing an extended history of client’s accounts is now a necessity. By pushing for paperless banking, not only do consumers create a system which allows easy options for companies to choose the green solution and develop initiatives aimed at encouraging in-house paper saving, but costs and security breaches can also be vastly reduced. Speaking at a recent FST US summit, Madhavan Rhagamacharvi of Morgan Stanley said: “Data Document automation will aid in freeing up staff, reducing costs and maintaining 100 percent data accuracy. Changing compliance regulations, non-integrated technologies, and the complexity of the document life cycle are the main document management challenges integral to the fi nancial services industry. Big business discussed how they would reduce costs and eliminate wasted resources, ultimately saving money and streamlining processes.” Particularly within the financial industry,
there has been a lot of support for the idea because the promise of savings, an environmentally sustainable banking system and improved customer relations are a strong lure. However, the pressure will be put on consumer majority and digital storage capabilities who will have to successfully implement the technology and make sure it is adequately secure. At the FST US summit, the likes of Jeanne Capachin (Research VP, Global Banking, IDC Financial Insights), Rein Hofstra (Bank of America), Leon Wilson (BB&T) and Madhavan Rhagamacharvi (Morgan Stanley) led the discussion on how more value can be generated from data repositories and how productivity levels can be improved as a result, in addition to the overall reduction of compliance risk. Furthermore, discussions at the summit also covered the debate of efficiency and business speed, with many arguing that by streamlining information sharing and information access across all business lines, the pace of operations would not just increase productivity but reduce operational costs. By eliminating paper waste, companies eliminate the costs associated with it and organically support green initiatives that promote environmentally responsible practices.
Printed media may find that its spiritua l home becomes the bathroom, where it will be joined by another enduring mainsta y – toilet paper. Unless, of course, that seashell system featured in 1993’s Demolition Man can be made reality... but we’re still waiting.
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Pay now, pay later With all the new payment options available – such as mobile and contactless payments – it is unlikely that a ﬁnancial institution is going to have the ability to support them all. Assuming that is true, the question becomes: where is the right place to focus? Jim Poteet explains.
What is driving the current renewed focus on payments? Jim Poteet. I would describe what is happening now as ‘back to basics’. Over the past several years, the focus was on high-yield investment products. Now it’s shift ing back towards payments, which offer a way to deliver value for both commercial and consumer customers – and produce a stable annuity stream of income for the banks. Regardless of the size of the commercial business or the socio-economic status of a consumer, they both need payment mechanisms to transact business. How are new payment options impacting the landscape? JP. The statistics show we are not only adding payment methods, but none of the existing payment options are going away in the near term. Take cash as an example. A few years ago people were predicting a cashless society. Today, cash spending totals $1.6 trillion and is projected to be $1.8 trillion in 2013. So the challenge is to figure out how to accommodate this diverse payments landscape where there is no clear preference for one payment type vs. all the others. A variety of factors will need to be weighed before adding new payment types, including costs, the risk of fraud and consumer acceptance. How is technology influencing the future of payments? JP. The future of payments will likely revolve around cash, credit, debit, contactless, mobile, and probably other mediums we’ve yet to even consider. US consumers want it all and expect options and convenience when it comes to how to purchase. Not all transactions are the same and technology-based solutions are often much more expensive to process. For example, a cash transaction costs 53 cents to process, a debit transaction costs 55 cents, and a credit card transaction $2.60. As new technology is intro-
the costs to serve will further challenge banks to provide competitive payment options to their customers. With fi nancial reform, these costs will likely be shared, and in some cases passed on to, consumers in the form of higher fees for services that may have been viewed as ‘free’ in the past. Where are the opportunities for ﬁnancial institutions? JP. The opportunity lies in picking a strategy to match your business plan and the customer segments you are trying to serve. If you don’t have the resources or the appetite for risk, this might be the ideal time to look outside your organization and fi nd those partners who have the expertise to help you accomplish your goals. Non-FIs are investing in new technology and in some cases are progressing much more quickly.
“A few years ago people were predicting a cashless society. Today, cash spending totals $1.6 trillion and is projected to be $1.8 trillion in 2013.” duced, consumers will assume every retailer and fi nancial institution is ready to accommodate them. One challenge will be overcoming consumers’ perception that there are no costs associated with payment options. How will the pending ﬁnancial reform legislation impact the payments environment? JP. The looming financial reform legislation poses significant challenges for banks. One likely outcome: FIs will not be able to charge as much in fees for certain payment types. More-over, the compliance hurdles will be higher to meet and
What will the payments landscape look like in 5 or 10 years? JP. Right now, there’s a focus on electronification and convenience of payments. If the remaining paper – cash and checks – can be eliminated from the payment supply chain, money can be deposited faster and transactions can occur more rapidly. But it’s not just about checks and cash. Across the board, retailers are looking for ways to consolidate payments at the point of sale to make them more secure and cheaper to process. However, to meet the consumer desire for choice, most retailers still want to be able to offer as many payment options as possible to get new sales, but still reduce costs.
Jim Poteet is Vice President of Product Development for Brinks, Inc. He has more than 17 years of banking experience in treasury management and payments. Prior to joining Brinks, Poteet was Senior Treasury Support Manager at Fifth Third Bank and has also worked at Wachovia and Bank of America. He is a member of the AFP and TAWPI.
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A game of risk? Placing greater cultural importance on the implementation of enterprise risk management is an important step in an organization’s growth and security, argues Tom Bolger.
Tom Bolger is the vice president of global marketing for Methodware, which provides risk, compliance, audit and investigations software to more than 1800 clients. He uses 15 years of experience in ﬁnancial services and risk management to help guide Methodware’s market strategy and solution direction.
What is the biggest challenge organizations face with regards to risk management? Tom Bolger: The primary obstacle to a truly successful implementation of an enterprise risk management program or a full-scale governance, risk and compliance (GRC) initiative is the corporate culture, especially in fi nancial institutions. Specifically, not enough focus is placed on making changes to that culture in order to accommodate the required shift in thinking. The core change is to stop viewing risk, compliance and audit as overhead activities, and therefore less important to the business. Rather, they should be considered fundamental to the success of the organization, and made an integral part of every business unit. Th is does not mean adding dedicated resources across the organization, but it does mean increased awareness and cooperation from the rest of the team. Many organizations struggle to align the diverse functions that make up a GRC program. There are many similarities within those activities, but differences as well. To maximize the return on your risk management investment, your culture needs to bridge those differences. How have other ﬁnancial institutions embedded and reinforced a risk management culture? TB: The key to the culture is consistency – common defi nitions, processes, measurement metrics and management behaviors. Corporate buy-in must be both top-down and
bottom-up. Executives need to lead by example, and business units need to realize that GRC activities are a key part of their daily activity, not a nuisance to be set aside or hurried through. One way to accelerate this process is to introduce incentives and tie compensation directly to the success of the risk program. Th is delivers a crystal clear message from the executive team – this is important, and you will do it well. Another option is to apply a broad GRC framework gradually rather than all at once. Th is provides quicker wins to the organization and creates showcases to convince other business units of the tangible benefits risk management can provide. Finally, fi nd ways to minimize the burden on your business units. Your soft ware tools should provide this benefit when they incorporate the key elements of your GRC program. How does my GRC software ﬁt into this? TB: Soft ware applications are tools to facilitate – for GRC, you need the soft ware to help with efficiency, flexibility and decision making. For your cultural change to be successful, the process of performing a risk assessment or participating in an audit cannot be laborious for your business units, and your risk and audit teams need to be able to do more with fewer resources. The soft ware needs to streamline the process, so your commercial lenders don’t have to provide the same information multiple times just because someone else is asking the question. Using soft ware to manage the workflow and make the process understandable and easy to use makes risk management routine. Many organizations that developed or purchased SOX soft ware solutions are now fi nding them to be inadequate for the current needs of the business. Your soft ware needs to be flexible, so you can include operational losses, key risk indicators and internal audit along with your compliance monitoring. Your institution continues to evolve as the market changes and new regulations arise. You need a soft ware solution that will keep pace. To get the full value out of GRC, executives need good information in a timely manner. Financial institutions know that risk management means identifying risks and consciously deciding to pursue good risks and avoid or mitigate bad risks. If your system can produce reports that highlight opportunities and weaknesses in realtime, you can make well-informed decisions quickly and confidently.
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SHARED RISK ENTERPRISE Bill Githens stresses the importance for organizations of all sizes to actively manage and understand their enterprise risk management strategies, particularly in light of the current economic climate.
he recent financial crisis underlines the importance of enterprise risk management in institutions of every size. Credit risk, market risk, and operational risk must be determined at the business level and then calculated into the overall risk faced by the enterprise. Only an enterprise-wide focus on risk allows institutions to understand how interrelated risks can impact the organization. Risk management creates value for the enterprise. It was true when the Risk Management Association (RMA) was founded almost 100 years ago, and it is still true today. Throughout the many business cycles of the past century,
About RMA Founded in 1914, The Risk Management Association is a not-for-proﬁt, member-driven professional association whose sole purpose is to advance the use of sound risk principles in the ﬁnancial services industry. RMA promotes an enterprise-wide approach to risk management that focuses on credit risk, market risk and operational risk. Headquartered in Philadelphia, Pennsylvania, RMA has approximately 3000 institutional members that include banks of all sizes as well as nonbank ﬁnancial institutions. They are represented in the association by 18,000 risk management professionals who are chapter members in ﬁnancial centers throughout North America, Europe and Asia/Paciﬁc.
“Risk management creates value for the enterprise. It was true 100 years ago, and it is still true today”
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Risk reform At the time of going to press, in a bid to overhaul the US ﬁnancial system and to better regulate banking and minimize risk, President Obama had seen his landmark bill approved by the US House of Representatives. At the time of the bill’s passage in the House by 237 votes to 192, President Obama said in a statement that it will “make our ﬁnancial system more transparent, so that complex transactions that escaped scrutiny in the past will now be done in the light of day.” President Obama campaigned during the elections on the promise that he would “hold Wall Street to account” for the global economic downturn and, as such, the bill will aim to impose strict limits on banks’ abilities to make risky speculative bets on certain markets. The legislation will see the creation of a new federal agency designed to oversee consumer lending and outlines new regulations for complex ﬁnancial instruments. It will also have powers to clamp down on abusive practices by credit card companies and mortgage lenders. It will also see the implementation of the Volcker rule, named after former Federal Reserve chairman Paul Volcker who proposed it. This rule will aim to ban banks from risky entanglements in the ﬁnancial markets. As such, US banks will be barred from taking big trading bets on markets. All US banks will also be limited to investing a maximum of three percent of their capital in speculative businesses such as hedge funds or private equity funds. Treasury Secretary Tim Geithner said the bill that had emerged was “strong” and described it as “the most sweeping set of ﬁnancial reforms since those that followed the Great Depression”. The bill will now go to the Senate but that vote will not be carried out until mid-July. The Senate vote is expected to be extremely close.
RMA has remained relevant for its members. Why? Because we provide an opportunity for the industry and its practitioners to learn from each other’s experiences and to share sound practices. Since 1914, RMA has helped risk managers meet the challenges posed by the economic environment and new regulation. Our members participate in studies and peersharing events, such as roundtables and conferences, and guide us as we develop educational programming. We don’t lobby, but our Community Bank Council and Regulatory Relations Council meet informally with the regulators to discuss issues of mutual concern. We act as a liaison between the industry and its regulators. For at least two years leading up to the crisis, RMA warned that the environment would soon become more challenging, and that proved to be quite an understatement. Many were well aware that underwriting standards had declined markedly across the board amid an intensely competitive environment awash in liquidity. There was also ample warning that financial engineering techniques were producing exotic instruments that many in the industry did not understand. Yet risk management organizations within a number of institutions clearly failed to intervene. Why? This is the most important question going forward, and answers are beginning to emerge. First, organizations need to institute a strong risk culture, one in which risk becomes the responsibility of everyone in the organization not just the chief risk officer. Stronger risk management expertise at the board level of financial institutions is clearly needed. The board should help management sets its risk appetite, and to do so it must have a clear understanding of the risk/reward ratio the institution seeks to achieve. Only then can it align the organization’s strategy with it. Compensation schemes also must be aligned accordingly to ensure that incentives are tied not just to return, but to risk-adjusted reward.
Get help with your risk management Annual Statement Studies – The only source of comparative data that comes directly from ﬁnancial statements of the small and mediumsized business customers of RMA’s member institutions. eMentor – RMA’s webbased, comprehensive knowledge and information tool. This tool powers RMA University Online, our new online training. eRAS – Commercial credit risk benchmarking for community banks, a web-based, subscription service. RMA-Credit Risk Certiﬁed – This professional designation validates and recognizes the skills and experience of those who pass a rigorous exam on commercial real estate lending.
“Organizations need to institute a strong risk culture, one in which risk becomes the responsibility of everyone”
Surveys and studies – Including recent surveys of enterprise risk management, risk appetite, and counterparty credit risk.
Another lesson is that while risk management analytics have made tremendous strides over the past decade, models cannot be allowed to replace sound judgment. Without a doubt, advanced modeling is necessary, but it cannot drive strategic decisions in a vacuum. The crisis has underlined the global nature of banking and risk, so RMA is increasing its presence in Europe and Pan Asia where we are offering courses, performing research, and establishing chapters. While the current environment is certainly stressful, it offers a unique opportunity for risk management professionals. We encourage our members to take advantage of these products and services, developed with the help of members for the benefit of themselves, their institutions, and the industry.
Securities Lending Quarterly Aggregate Composite The RMA Journal – Published 10 times per year, The RMA Journal features articles written by industry practitioners that advance sound practices.
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Securing the smarter planet Al Zollar, General Manager of IBM Tivoli Software, discusses building security into the fabric of the IT infrastructure. What does IBM see as the next challenge for technology leaders? Al Zollar. The rate at which business, politics and technology continues to accelerate. We are not talking about mild, episodic change. We are talking about ‘turbulent change’. Economic disruptions, cyber attacks, political upheaval, technology leapfrogs and natural disasters can occur almost without warning. Even anticipated change, driven by new partnerships, mergers and acquisitions, or management initiatives, requires leaders to make decisions in the face of uncertainty in order to ensure continuing economic growth and expanded stakeholder value. In the face of this uncertainty, how do we anticipate and prepare for everything that might happen? Organizations have to learn to embrace change, and thrive on it. Every person knows all too well the complexities and challenges that technology is creating in a world that is becoming more aware, more interconnected and smarter every day. Our planet is growing smarter because of the sheer magnitude of the data that we can collect about the events and activities in our everyday lives; our ability to interconnect, collect and share that data in a world where billions of devices have built-in intelligence; and because of our ability to use this data to understand and control what is happening in the environments around us.
Al Zollar, General Manager of IBM Tivoli Software, is responsible for the strategic direction and ongoing operations for the Tivoli brand, which manages today’s dynamic infrastructures, giving customers the ability to manage resources and risks, optimize human capital and manage service levels and business processes.
What progress has IBM seen within enterprises in the ﬁnancial services industry adopting a secure-by-design strategy? AZ. Recently we worked with a worldwide financial services conglomerate, whose IT operations team was drowning in a constant stream of change requests across services designed by 25 different application teams. Their operations staff resource budget was frozen and they could not keep up with all of the issues reported about performance, deployment errors and manual workarounds, and had a current backlog of 2500 priority one requests. We helped them implement a service lifecycle process that discovered the interdependency of assets in their live topology so they could create a reference architecture. They also automated their workflow so that it could be re-used time and again for a repeatable and 10 percent accurate deployment. The result was a vastly reduced backlog of issues, cost savings through consistent deployment, compliance and traceability of work activity and the ability to capture, document and formalize best practices.
How is IBM helping clients build security into business practices to keep ﬁnancial services infrastructures secure from the start? AZ. To realize the promise of future innovation we will depend upon the safe and dependable operation of the systems that will gather, transmit and analyze data, and communicate and act upon the results. This type of security must be considered from the early stages of development through deployment. The reliability of these solutions must be secure by design. Th is concept means that cost-effective security begins with the creation of secure systems from the start. Time-to-market, maintenance and the devastating costs of publicized breaches are reduced through the benefits of integrating secure practices early in the development lifecycle. It is a long-standing axiom that functional defects identified during system development are orders of magnitude less costly to repair than those found in production systems, and these benefits and savings are even higher when it comes to security. Current models show us that the average data breach costs an organization roughly $6.6million, and that the average cost per lost customer data record is over $200. These numbers are staggering.
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The rise of the risk-intelligent audit leader The recent ﬁnancial crisis and our industry responses have produced a surprising misconception – that risk is the opposite of reward. It is not: loss is the opposite of reward. Risk represents the possibility that a loss or reward will occur, explains Doug Brownridge.
or too long, audit leaders have been relegated to the tactical execution of the annual audit plan; but they are well-suited to provide risk insight given their unique visibility across the organization’s activities. For audit executives, this point marks a critical distinction from the traditional audit role. Business success will be determined by risk intelligence at the strategic level rather than risk aversion on a tactical level. So too, internal audit’s ultimate value will be determined by strategic contributions to the business rather than tactical accomplishments alone. Amid the economic uncertainties facing fi nancial institutions and the mounting pressures bearing down on internal audit functions, this much is certain: audit executives have a unique opportunity to assume and/or solidify their role as a strategic business partner to the CEO and CFO. Those who leverage this opportunity through strategic risk management endeavors, continuous auditing activities, board committee relationships and other strategic priorities can help lead their companies to greater success while enjoying more rewarding career opportunities. Given the regulatory and economic conditions particularly for financial institutions, as well as the recent, postSarbanes-Oxley focus on internal controls management, all internal auditors will be required to do more work with fewer resources; conduct their activities in more complex technology and data environments; and work with increasingly ‘audit-aware’ operational partners whose demands for real-time audits and risk information are swift ly growing.
A critical juncture Speaking to CEOs and CFOs about their top needs is a sure way to assess the current state of internal audit. The challenges that keep C-suite executives awake at night help explain why audit executives face a critical juncture. CEOs and CFOs say that they want their internal audit leaders to cut costs, reduce headcount, teach the business how to take ownership of internal controls monitoring, reduce compliance costs, ‘find money – fast’, enable real-time auditing and risk management, redeploy current internal audit staff and, above all, add value. These demanding and, in some cases, seemingly contradictory requests should sound familiar to anyone who has served as a senior internal audit executive in recent years.
“When internal audit uses analytics and automation, it demonstrates its value as a highly effective and efficient contributor to the company’s overall risk management program and its bottom line”
Efﬁciency demands confront everyone The vast majority of CAEs and audit executives face a similar set of challenges that require them to ply their craft with greater efficiency and effectiveness. Addressing these widespread challenges, as IIA President and CEO Richard Chambers laid out in a keynote address, requires numerous steps, including aligning internal audit coverage to meet new expectations; realigning skills to address new requirements; coping with diminished resources; demonstrating value and adding to the bottom line; maintaining stature with the audit committee and, perhaps most importantly, leveraging technology to achieve greater efficiencies. Why is the final priority so important? Because technology can help internal audit functions achieve each of the other priorities. “When internal audit uses analytics and automation, it demonstrates its value as a highly effective and efficient contributor to the company’s overall risk management program and its bottom line,” notes Vice President John Verver, from ACL Services Ltd. Randolph-Brooks Federal Credit Union (RBFCU) Internal Audit department understands the power of analytics. Seeking improved business insight by implementing full-population data tests, they were eager to drive additional efficiencies throughout the organization using technology. The Audit department wanted to develop a systematic process for communicating, tracking and escalating exceptions across multiple business divisions and branches. Now with their business assurance technology from ACL, the team has a reliable way to efficiently distribute and track control violations. There’s a clear audit trail that makes it easier for auditors to manage potential issues, instead of spending hours searching reports for exceptions. Whether or not the current risks confronting CAEs today turn out to be rewards or losses tomorrow depends, largely, on how effective – and sustainable – their responses are today.
Doug Brownridge is VP Marketing with ACL Services Ltd., the leading global provider of business assurance technology for audit and compliance professionals. In addition, he is on the board of Coast Capital Savings, where he serves on both the Audit and Risk Committees, and previously served on the board of Citizens Bank of Canada. Brownridge’s 30 year career has spanned executive roles at P&G, Cadbury, Motorola, PMC-Sierra and Intrawest. For more information, please visit www.acl.com
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AML rules optimization to enhance transaction monitoring After a short period of dormancy, the US regulators have been growing more active again. Based on analysis of recent enforcement actions, inadequate monitoring of customer transactions and detection of suspicious activity is the most frequent examination ﬁnding highlighted by the US examiners, says Michael Zeldin.
he focus in the industry has shifted from the deployment of a solution to its effectiveness, given the monitoring needs identified in the institution’s risk assessment. Initially, the implementation of an anti-money laundering (AML) transaction monitoring solution appeared enough to satisfy an organization’s monitoring needs. With the passage of time, solutions and regulators have all become more sophisticated and the bar for what constitutes an acceptable solution has been raised substantially. A secondary, but no less important factor motivating the search for higher-quality monitoring has been the recognition that poorly performing systems may impose excessive compliance costs on an institution.
Management Oversight 7%
Record Retention 3%
Monitoring & Detection 21%
Regulatory guidelines According to the guidelines provided by the Federal inancial Institutions Examination Council (FFIEC), financial institutions now need to not only select an effective software program compliant with applicable laws and regulations, but also must apply due diligence to assess quality and functionality of a system to maximize its value to the particular institution’s needs. Such due diligence must be applied during the selection process as well as on an ongoing basis. As a result, regulators have cautioned against installing ‘off the shelf ’ compliance systems without fine tuning these products to meet the risks present in the bank. In order to evaluate the quality and the functionality of the product, financial institutions must analyze the risks and benefits of the proposed software solution as measured against its customer base, geography and products and services. In the European Union, the Third EU Money Laundering Directive calls for an effective system to be in place which monitors customer relationships on a risk sensitive basis and allows a financial institution to respond to the inquiries from the Financial Intelligence Unit (FIU) fully and rapidly. The solution, therefore, needs to be commensurate with the size and “footprint” of the financial institution. (Electronic systems are recommended for credit institutions and larger financial institutions.) In summary, current regulatory guidelines require that the transaction monitoring solutions become more effective while business requirements further demand that they also be more efficient. Financial institutions should, therefore, consider assessing their surveillance systems against a comprehensive set of requirements and questions related to their risk profile.
SAR/CTR Reporting 15% KYC/CDD/ PEP 11%
Independent Testing/Audit 13%
Common themes and issues Recent enforcement actions and examination fi ndings point to several gaps and shortcomings in the transaction monitoring systems deployed by the financial industry. Two recurring examples of common issues recently highlighted by the examiners include: 1) over-reliance on third party vendors; and, 2) lack of independent validation. In the area of “over reliance on third party vendors”, problems can arise when a bank places an over-reliance on the vendor to establish rules and thresholds designed to ensure that the system put in place is actually effective and best suited for the individual bank’s risk profi le. The rules and scenarios (and critically, their initial parameter values), should be driven by the risks specific to the business activities of the bank but the vendor, typically, is not familiar enough with the bank’s unique institutional risk matrix to apply bank-specific red flags. Additionally, the thresholds, scores and other underlying parameters driving the detection rules and scenarios need to reflect the bank’s specific customer base segments and population groups and their specific historical and expected transac-
Risk Based Approach 15%
Chart 1 Analysis of examination ﬁndings from US enforcement actions Source Regulatory actions involving US regulatory agencies including FinCEN, FINRA, FRB, OCC, OTS and USDOJ.
“Current regulatory guidelines require that the transaction monitoring solutions become more effective while business requirements further demand that they also be more efficient”
tional behavior patterns. Once again, vendors oftentimes are not able or are not retained to undertake the complex and relatively voluminous data analysis required to determine the appropriate thresholds and other underlying parameter values. Absent this, an institution will fi nd itself relying on ‘default values’ based on generic industry trends. A common unintended consequence of general rules is that the institution can be faced with a large and sometimes unmanageable volume of false alerts as well as significant gaps in detection capabilities of the deployed surveillance system. With respect to independent validation, regulators have suggested that transaction monitoring systems need to be validated, preferably by an independent agent. System enhancements often require a probationary period during which the parameters and alerts are tested and adjusted along with the quality of the system itself. Th is process needs to be repeated as part of continuous ‘system tuning’.
and thereby improve the detection ability of the monitoring scenarios. Any threshold adjustment, especially in the upward direction, however, requires a thorough analysis with documented results supporting the decision for audit and regulatory analysis. Simply moving up the minimum threshold without adequate documentation because ‘there was too much volume’ is a risky proposition. Secondly, a fi nancial institution should be reviewing the monitoring system as a whole. Th reshold changes are not the only way to reduce false positives. Financial institutions also should consider whether there is a way to change the logic of some of the rules to mitigate false positives, suppress analyses of particular scenarios on specific clients because of past investigations, or eliminate or temporarily suppress certain parameters. ‘Sunsetting’ of ineffective or duplicative rules has become a trend in the last couple of years. Such sunsetting or rule elimination also should be documented and based on the same rigorous analysis as parameter changes. In addition to the attempt to reduce the noise coming out of the transaction monitoring systems, the banks need to be open minded to thinking outside the ‘black box’. Vendor system is certainly not the cure all to performing surveillance. In line with the examiners’ critique of application of black box technology to businesses to which they don’t apply, there has been an increasing trend, especially in the broker-dealer and other non-retail areas, to write additional proprietary rules and scenarios targeted to address the unique risks of the business. Making an AML transaction monitoring system more effective is an ongoing challenge. Financial institutions should consider all necessary changes to adapt their systems to the AML and terrorist fi nancing risks they face. Nearly ten years after the passage of the USA PATRIOT Act, fi nancial institutions should implement a monitoring system tuning schedule that allows for the continuous enhancement of their system‘s performance. Th is can be done in a variety of ways, including periodic workshops when all rules/scenarios are reviewed on an annual or semi-annual basis, or a rotational review of individual rules/scenarios on a monthly basis. Failure to do so can expose the fi nancial institution to unwanted risk, audit/regulatory criticism, and compliance costs.
Making your system more effective Financial institutions should look at different options to make their systems more effective. First of these should be a standard tuning process. In order to reduce false positives and/or to avoid gradual growth of false positives over time, the banks should consider performing periodic reviews of closed alerts just above a threshold to determine whether these alerts are still producing reports of suspicious activity needed for their Suspicious Activity Report (SAR) fi ling obligations or leading to other previously undetected issues. If the answer is “No”, a good argument can be made to increase the minimum threshold value and, hopefully, reduce the false positive population. Similarly, periodic analysis of historical alerts just below the threshold should uncover opportunities to lower the thresholds
Michael Zeldin, Georges Korsun and Miriam Ratkovicova are members of the Deloitte Financial Advisory Services LLP anti-money laundering/ economic and trade sanctions practice. About Deloitte As used in this document, ‘Deloitte’ means Deloitte Financial Advisory Services LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/ us/about for a detailed description of the legal structure of deloitte LLP and its subsidiaries. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, ﬁnancial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualiﬁed professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.
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Leveraging automation to meet the challenges of the proposed prepaid access regulation Debra Geister and Kristine Regele-Cechovic discuss the challenges posed by the proposed prepaid access regulation for the AML sector.
he scope of anti-money laundering (AML) and suspicious activity tracking took another step with the June 28, 2010 release of the Notice of Proposed Rule Making (NPRM) from FinCEN regarding Prepaid Access.i Under the proposed regulations there will be greater customer and transaction information record keeping requirements as well as potential suspicious activity reporting requirements not only for prepaid issuers, but also for the sellers of prepaid access cards. Th is NPRM effectively brings the world of prepaid under the AML regulatory umbrella, treating the sector much like other fi nancial institutions that are subject to the Bank Secrecy Act (BSA).ii While many issuers have already put certain components of AML programs into place, the new rules implement such parameters for the sellers of these instruments as well. Final requirements for customer information data gathering, know your customer, and the filing of Suspicious Activity Reports (SARs) will evolve and be shaped over the next few weeks as the comment period of this regulation plays out. Regardless of the segment or line of business in financial
“One of the current trends emerging in financial services is managing the AML risk rating processes at account opening and throughout the customer lifecycle”
services, the balancing act continues. One of the current trends emerging in financial services is managing the AML risk rating processes at account opening and throughout the customer lifecycle. With increased global scrutiny on AML, Foreign Corrupt Practices Act (FCPA) and other processes, financial institutions are finding previous methods of risk rating unworkable. A priority for many financial institutions of all sizes is finding a systemic method of creating such ratings, moving from manual and subjective processes to automation - not only for time savings but for consistency across raters. Providers that can give AML officers the assurance that they can programmatically create dynamic risk ratings based on the risk policies and profiles of the organization are gaining more traction. Traditionally risk rating systems focused primarily on internal transactions; in other words, the behaviors and attributes of the client. Refreshing risk rating exercises based upon external risk factors – typically found during initial due diligence – are often only triggered following client-initiated information changes. The gap is obvious: if someone does not want you to know about a change of address or new
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employment in a high risk industry, they certainly will not volunteer that information. AML operations departments are now looking for other external risk factors to get both a clearer and broader view of risk that an entity brings to the organization, including discovery of risk factors not disclosed by the customer. Foreign political affiliations, political office, income source and other factors can help give the organization more information as to the true risk of money laundering, corruption or fraud. Creating a systemic method for this risk rating provides a number of advantages to the organization that could explain the sudden rise in activity and research on these kinds of solutions. Customer due diligence (CDD) and in particular risk rating processes have been subjective and relied heavily on human assessment to help define risk levels. In some cases, financial institutions had analysts that would sit in the back office and look at the factors on a system or spreadsheet and assign values. It could be a high, medium or low designation and for some it was a numeric scale that was manually fed into the transaction monitoring system. That rating, in turn, drove the level of due diligence that may be required by the customer as well as driving the amount of transaction monitoring and review that occurred. The challenge with the process is that it is time consuming, labor intensive and exposes the institution to risk. There are obvious opportunities for inconsistency in the ratings using this methodology that can open the organization to regulatory scrutiny. These issues can all be effectively managed and addressed with an automation system that allows a financial institution to remove subjectivity and manual process while effectively managing risk according to their policies. There is another notable limitation to risk rating that relies on information provided by customers. A challenge exists in balancing customer service and providing a positive experience for the client without being overly invasive, yet gaining a clear picture of the risk to the institution. According to their annual banking study, JD Power says that “Only 34 percent of customers surveyed said this year that they “definitely will not” switch banks in the next twelve months, compared with 46 percent in 2007.” iii That makes balancing the satisfaction and service ratings against institutional risk imperative. A systemic solution that can supplement internal data with external data can, in many cases, alleviate some of the challenges of intrusive questioning. It can also help the organization discover unknown risk. For example, a customer may pass a Customer Information Program (CIP) assessment and be accepted quickly. This will help expedite and streamline onboarding. If that same customer is identified to have eight social security numbers and relatives that are suddenly added to a corruption watchlist, an automation system can escalate that kind of risk to the staff. By leveraging automation, the bank gains a valuable alert regarding a change in risk with minimal impact to the customer. By utilizing outside information, these risk rating systems can be leveraged not only by the AML systems, but the Fraud Detection platforms as well. Multipurposing allows maximum ROI out of such a system. Increasingly, financial
Debra Geister is the Senior Director of Fraud Prevention and Compliance Services at LexisNexis Risk Solutions and is a seasoned fraud and compliance expert, a national speaker and long-time advisor to ﬁnancial institutions across the country. She is a recognized industry thought leader through her work with the American Bankers Association (ABA) banking and fraud prevention groups as well as the regulatory community.
Kristine Regele-Cechovic is the Senior Compliance Analyst, AML Compliance Solutions at LexisNexis Risk Solutions and specializes in data integrity through process control, data testing and analysis, and source identiﬁcation and validation. Regele-Cechovic is certiﬁed with the Association of Certiﬁed AntiMoney Laundering Specialists (ACAMS).
institutions are recognizing the synergies between fraud detection and anti-money laundering. By taking a “loss prevention” attitude, it helps move the AML department out of a cost center status and maximizes transactional and operational efficiencies. By monitoring fraud attributes and triggers, transaction monitoring systems can really help prevent loss of risk as well as managing reputation risk. Making an initial investment in a reliable automation product may save your institution from incurring much larger regulatory and reputational costs in the future. Besides the potential revenue drain caused by civil money penalties in the millions – such as those incurred by ABN Amro, Riggs, and AmSouth – an institution can also lose millions daily from damage done to its reputation. For instance, a publicly announced cease and desist order can cause investors and customers to lose trust in an institution leading to funding withdrawals and business loss. In addition, according to a McKinsey Consulting study, a regulatory fine can have an immediate impact on a financial institutions stock value of an average 5.5 percent. iv And the long term cost climbs even higher over an average 18-month period after the fine event, the true cost of the event amounted to a staggering 12 times the actual fine amount. v Corrective actions typically mandated in enforcement actions can far outweigh the price of proactive compliance. A good example of this is the ‘lookback’, which has recently been a favored demand by regulators in cease and desist orders. These transactional reviews done by independent consulting firms can be a huge drain on a financial institution’s budget, contributing significantly to the 12 times variable. This is what makes a regulatory fine one of the top five loss events for a financial institution. Another regulatory operation that is moving into the AML domain is the Foreign Corruption Protection Act (FCPA). By utilizing watchlist management and some additional risk types and detection rules, many institutions can also monitor against corrupt activity and gain efficiencies from such a system as well as tying potential bribery activity back into the rating and monitoring systems. Foreign corruption and money laundering are very real threats to financial institutions today, and regulations designed to mitigate through prevention, detection and reporting continue to increase. Regardless of whether you are new to these regulations, as the sellers of pre-paid access, or have been a subject for years, maximizing operational efficiencies and cutting costs has become critical in today’s tough economic conditions. By making sure the tools and systems that you choose have the flexibility to allow you to manage risk levels and pull in other risk and compliance functions, you can definitely turn the investment into an effective risk management and operationally efficient solution for your entire business and make it a benefit to your customers. i) Federal Register, 31 CFR Part 103, http://edocket.access.gpo.gov/2010/ pdf/2010-15194.pdf, (accessed June 28, 2010) ii) The comment period closes Wednesday, July 28, 2010. iii) JDPowers 2010 Retail Banking Study, http://www.jdpower.com/ ﬁnance/articles/2010-Retail-Banking-Satisfaction-Study iv) Dunnett, Robert S., Levy, Cindy B., and Simoes, Antonio P., “Managing operational risk in banking”, The McKinsey Quarterly, 2005 No. 1, pp 9 v) Ibid
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From helping to insure soldiers on the frontline to advising middle America on investment decisions, ﬁnancial planning ﬁrm First Command has a wide remit. Here the company’s EVP and CIO John Quinones describes how technology is helping it to meet its customers’ many demands.
John Quinones.indd 80
aving started out life in 1958 as a resource for US military personnel, First Command has evolved into one of the country’s most diverse fi nancial planning organisations with its sights set fi rmly on the Middle America market. Describing the organisation’s focus today, First Command CIO John Quinones says: “Our organization originally started out as a primary fi nancial planner for the military. It has grown since then. We’ve expanded since 2004 to middle America, providing fi nancial planning services to the mid market segment of the US. We deal in all areas, which includes investments, banking and insurance, to include disability and long-term care. Our primary focus is wealth accumulation.” He goes on to say that the organization is very focused when it comes to the customer segment it is targeting, emphasising that it does not seek to compete with the likes of Merrill Lynch or Charles Schwab. “We have a strong military heritage and we look to market segments that are really geared to having those same characteristics. They are very conservative, mom and apple types, very patriotic. You’ll fi nd our customers tend to fit those characteristics.”
War on risk Quinones says he believes this very defi ned customer segment has helped the company to weather the fi nancial storm of recent months – in addition to the fact that it focuses very much on risk adverse fi nancial planning, steering clear of any volatile investment products. As a registered Investment Advisor AIM, First Command advises clients on selecting investment, insurance and core banking products and services. It currently holds $14.7 billion in managed assets, $615 million in core banking assets and $51.7 billion in insurance policies for members of the US forces. “One unique thing about our company is that it was designed totally to support our fi nancial planning customers. We did not go down the road of shaky investments,” says Quinones. “We don’t provide mortgages and those sorts of things. We have providers that do that for us but they are very, very conservative. We’re very careful about how we choose and we stay well away from any risky sorts of ventures. Th is is all based on the fact that we are a registered investment advisor which means we have a fiduciary requirement or responsibility for our clients.” Quinones goes on to say that he believes First Command’s clients have been protected from the worst of the economic downturn because they have adhered closely to the advice given to them by the company’s advisors. “Like everybody else, our clients have suffered from the downturn of the markets. However, we have protected them from any of the shaky investments as long as they have adhered to the advice of our people and they are now beginning to see the markets come up.” As CIO, Quinones’ key role is to ensure that technology is used to help the company meet its business objectives and streamline its processes. Keeping abreast of the latest technologies available on the market is key to its success in this and Quinones says he is currently looking out for solutions that will enable the company to build better relationships with its clients and boost efficiency. “One of the biggest things we are looking for in terms of technology is primarily, solutions to give us a
John Quinones.indd 81
better understanding of the complete picture of our clients and anything that would help us in terms of growing efficiency and in the business process management arena. We are also looking at business intelligence and core banking. Just more efficient systems overall.”
Building blocks The organisation has also been involved in an ongoing process of rebuilding its IT infrastructure to fit a service orientated architecture (SOA) model. Th is, says Quinones, will better enable it to meet the demands of its clients as it evolves to reach the needs of a new customer segment from its traditional military customer base. “Starting in 2002 when I joined the organization we looked at building an overall service orientated architecture that truly and methodically looks at the architecture so we can build a flexible one going forwards. So we have a roadmap and it’s not just about components around whatever comes to mind. It’s about truly looking at it and designing it to move forwards to build the organisation that we see for the next four, five or six years in terms of technology.” One of the biggest challenges the organization faces going forwards, says Quinones is meeting the needs of a customer base which includes a wide range of ages: “The biggest challenges we’ve had are the differences between the ages. Today, in the financial planning area you have the baby boomers that are totally different from the generation X customers in terms of how they want to be serviced. It’s about figuring out how they want to be serviced and making sure that whatever services we deliver really are those that they desire to have. Each generation is different and each one of them wants a little more hand holding than the next.” Naturally First Command’s ‘Generation X’ customers want to be able to access as many services as possible via the web, and the company plans in the coming months to greatly boost its web presence. Quinones believe, however, that there is still strong demand for face-to-face contact with advisors from even the organization’s youngest customers: “We’re looking at the future of the web for us in terms of each of the generations. We’re fi nding out that even the older generation use the web for certain things. But there are other things that they won’t touch the web for and they still want that personal one-on-one meeting with an advisor. One of the unique things that we’ve learnt in the past year or so is that even the youngest clients that do everything for themselves over the web fi nd that fi nancial planning is so complicated that when they hit a roadblock they want that senior advisor talking face to face with them.”
Frontline security The personal contact and relationship First Command enjoys with its customers means trust is a key component of retaining their loyalty. Data protection, therefore, is a high priority for Quinones and his IT department. “Trust is paramount in our business. If customers don’t trust us with their data they are not going to continue to do business with us.” With financial institutions and other
Security is the leading cloud concern among ﬁnance CIOs
73 Million mobile bankers worldwide
Only 3% of Americans use mobile payments
Cloud computing raises big questions for us in terms of the fact that, while it can create a lot of efficiencies, it can also create a nightmare on the flip side
corporations increasingly migrating their IT services to a cloud-based infrastructure Quinones and his team are researching whether such an approach would suit his company’s needs. He says, however, that he has strong concerns about security and whether a cloud-based infrastructure would provide adequate protection for his customer’s data: “Cloud computing raises big questions for us in terms of the fact that, while it can create a lot of efficiencies, it can also create a nightmare on the fl ip side. We want to ensure that we look at all aspects of it to make sure that on the security side that it’s going to provide what we need. There are some things that we would maybe consider using the cloud for. And there are others that we would say, absolutely not at this point.” Quinones says he is keen to utilize a private cloud, yet he is concerned about the potential security vulnerabilities inherent in the use of a public cloud. “There are some things that we would maybe consider using the cloud for. The question for us is where does the data reside and how secure is it if it’s a public cloud? Private clouds are different and you can even have your own internal cloud, which we’re going to use for sure. Going public though is a different story.” Like every CIO, Quinones has had to fight his corner when it comes to ensuring IT is perceived as a crucial business driver within the organization. His military background helped, however, when it came to mounting his defence and ensuring his technologies were adopted on the front line. “I am the type of CIO who does what’s needed. When I first walked into the organisation I needed to be more of a nuts and bolts type of person because there was an absence of an architecture or path for the technology to take the company forward. I believe that IT is truly a differentiator in business now and today we’re at the point where directors are very much more handson every single day in this area. My role is about looking at new technologies and how they will perform in terms of facilitating business. Every now and again I fi nd myself regressing back to some of the nuts and bolts side of things but CIOs today tend to be more business-orientated, with business built into the role.” One of Quinones’ key aims is to introduce technology that will help the business to grow but will also ensure cost efficiency. “Because of the environment we’re in, as much cost reduction as we can achieve will increase the efficiency of our business. The other thing is how technology will facilitate business growth over the next three to five years. And that’s going to be challenging because we don’t believe that we’re going to see a huge growth in the stock market and in business as I think everybody kind of has a wait and see sort of attitude.” And he says he is greatly helped in his role by the fact that technology has a key place today in board level discussions about how to take his business forward. “I’m fortunate in that I have a seat at the table with the rest of the executive team which really does help in terms of educating the other executives about how IT is truly a business entity.” It is a position at the board table that he plans to use as a springboard for the organization’s ongoing IT overhaul.
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Transformation: The key to success in a changing world Malcolm Eylott discusses the need for ﬁnancial institutions to transform their operating models in order to stay competitive and meet future expectations.
inancial services institutions are facing a period of unprecedented change. Recent economic events are driving the need to re-evaluate the way we structure and manage our businesses and motivating us to look inward at our organization, processes and technology. In order to adapt to this change, we need to ‘transform’ our service delivery models. As an industry, however, we are not experts at executing this level of change. Transformation is a daunting undertaking and very few fi nancial services fi rms have been successful at it in the past. Typically, change has been managed incrementally and by relying on people-intensive processes to handle the shortfalls of our automated processes. As an industry, we will fail to meet the future expectations placed upon us unless we modify the way we drive change. At TD Securities we have started this journey and have adopted an approach that will move us towards a significantly improved operating model. The key principles of our approach are understanding our high level target operating model (i.e. where we want to get to); defi ning the rules around how we manage moving towards the target operating model (i.e. how to stay on a path that gets us to the target operating model); and aligning our change priorities to be delivered in a way that meets the other two objectives. For example, a number of fi nancial institutions still employ unstable legacy technology platforms that lack the capability to meet future industry standards. These platforms will eventually have to be replaced or their businesses will suffer from certain problems commonly associated with service delivery in a fi nancial services institution, such as unstructured data of questionable quality, lack of fully automated controls, low transparency of the business process, and inflexible functionality that is expensive to change. By reviewing this problem set, TD Securities has been able to defi ne a target operating model (organization, process, data and technology) that would address these issues and also meet the control and transparency needs required in this new, highly regulated world. The defi ned solution will replace technology components that do not meet functional and non-functional requirements, and there will be an implementation of re-usable services that can be leveraged for other business lines. Additionally, a common operational portal, a workflow for managing exceptions and rules-driven
data repair will also be instigated, along with a central reconciliations service, a common BI service, real time dashboards and a business case driven to deliver tangible value to the business. The key to this approach is not just to replace weak business functionality with improved business functionality, but at the same time meet the significant focus on control and transparency. The need for timely delivery (which means real time in many cases) of high quality information requires a focus on services, such as reconciliations and monitoring. We have created an approach called M3 (Metrics, Monitoring and MIS) to deliver enhanced control and performance information around our service delivery models. The key to this has been the introduction of real-time control dashboards (similar to the dashboards found in many other industries, such as the control rooms for railways or power stations), which provide managers with the real time ‘pulse’ of their business processes and alerts them to any abnormal activity. Th is allows them to proactively react to potential problems as opposed to reacting after the problem has occurred as we generally do today. As we move forward on our transformation journey, we will continue to incrementally identify priority business process changes and apply a consistent set of approaches and tools to the way we change those processes, while always migrating towards our target operating model.
As Global Head of Operations and Technology, Malcolm Eylott is responsible for providing operations and technology support for all of TD Securities’ businesses worldwide. Prior to joining TD Securities in January 2009, Malcolm held senior executive roles with large global organizations in Canada, Germany and the UK. With over 30 years of experience in the banking industry, he has extensive in-depth knowledge and experience of creating and implementing operational transformation and integrated technology solutions involving process, technology and behavioral change.
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Growth through strategic cost management As banks reach the point of diminishing returns with their ongoing cost reduction initiatives, a new approach promises to accelerate savings while enabling investment in growth, ﬂexibility, and customer centricity, says Matt Podrebarac.
Tapping the present to fund the future
ith market challenges and more burdensome regulations bearing down on banks in recent years, many have implemented wide-ranging cost reductions. However, according to recent Accenture research, North American bank executives believe that such cost-cutting initiatives are falling short. In fact, in some cases costs remain as much as 40 percent too high, and some cost cutting is hampering long-term growth and fi nancial performance. The time has come for banks to reconsider across-theboard cost cutting. Instead, they must devise new strategies that balance their ongoing need for lower costs with their longer-term growth and performance goals.
Ongoing cost pressures Accenture recently surveyed 1405 executives, including 500 at fi nancial institutions, to understand their approach to cost management. North American banking executives indicated they have been pursuing significant cost reductions and that these efforts will continue at a pace exceeding most other industries in the coming year. However, many executives also suggested that their current approach to cost cutting might not be sustainable or have the desired long-term effect. Looking to the future, at least 65 percent of bank executives said they will initiate further cost management actions, which is much higher than respondents from other industries. However, the motivation for upcoming cost management actions appears to be shift ing. 70 percent of banking executives said that future cost reductions will aim to enhance profitability rather than simply help them survive the economic downturn, possibly signaling renewed favor for long-term, strategic actions over short-term tactical maneuvers. Th is is good news indeed, as banking executives have stated that the cost reductions already made in areas such as IT, customer service and R&D have actually harmed more than helped their achievement of long-term business goals.
Matt Podrebarac leads Accenture’s North American Banking Finance and Strategic Cost Management practice. He has 25 years of experience in both management consulting and outsourcing. Matt advises senior executives of multinational and large organizations on cost management programs including ﬁnance organization strategy, streamlining ﬁnancial and procurement processes, shared services strategy, outsourcing and enterprise performance management.
Accenture believes that this emerging focus on a more balanced, sustainable approach to cost reduction will be critical to banks’ long-term growth and high performance. Th is approach, which we call strategic cost management, should incorporate three key components. First are the short-term, tactical cost cuts already ongoing at many banks, such as headcount reduction or a focus on procurement must be balanced with more strategic, longer-term initiatives. The savings generated by these actions should, in turn, be reinvested in ongoing strategic cost management and growth initiatives. Second, to help guide that reinvestment, banks should develop proactive cost governance models that more closely link cost reductions to corporate strategy. Such models should include metrics that ensure cost management programs are aligned with larger business goals, and they should encourage a renewed organizational focus on efficiency, cost effectiveness, and continuous improvement. Finally, banks should invest their savings in operating model and business process changes that will sustain cost reductions, improve their customer responsiveness and help support growth. For example, banks could invest in simpler, componentized product structures that allow fast, cost-effective product tailoring. They also could invest in operating model enhancements that boost responsiveness to changing customer demands—such as optimized blends of self-service and branch-provided service—or that increase the proportion of variable costs through outsourcing. Other potential investment areas include streamlining and automating key processes, de-layering organizational structures and upgrading technical architecture to support more advanced analytics, new mobile capabilities, and enhanced risk management.
Finding a new balance Going forward, banks must ensure that their costreduction initiatives continue to fi nd traction while supporting profitable growth and customer responsiveness. By carefully integrating and balancing long-term and short-term cost reduction programs—and by enacting effective governance—banks can aggressively drive down costs while investing in the capabilities necessary to drive growth and high performance. For more information, please visit www.accenture.com/ costmanagementsurvey.
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The trouble with spreadsheets in budgeting and planning
Mark Nashman outlines the biggest hurdles the Ofﬁce of Finance faces when relying on spreadsheets during the budgeting and planning process and explains how you can have your cake and eat it too.
preadsheets like Microsoft’s Excel have revolutionized how businesses – especially their fi nance departments – operate. That is because they give people the ability to automate calculations and quickly create fi nancial models and reports. Yet, versatile as they are for individual productivity, spreadsheets were never designed to be a platform for repetitive, collaborative company-wide processes such as budgeting, planning and periodic reporting. In this role spreadsheets have three serious problems. Problem one is that spreadsheets contain mistakes: on their own, desktop spreadsheets are notoriously errorprone. Over the past 25 years, dozens of academic and corporate studies have repeatedly confirmed this. Some of these show that even when spreadsheets are carefully audited, mistakes in data and formulas remain. Half of spreadsheet users fi nd major errors in data and formulas in the most important spreadsheets they use in their job, and that addressing these errors consumes a noticeable amount of their time. Problem two is that desktop spreadsheets were designed as an individual productivity tool, not as a way to support company-wide processes. When used collaboratively to collect and manage data, desktop spreadsheets must be linked up and consolidated, tasks that even highly experienced spreadsheet users fi nd difficult and timeconsuming. Worse, when they are used as a distribution platform for, say, budgeting and planning, dozens or even hundreds of spreadsheets are emailed across the organiza-
tion to be fi lled out and returned. The original spreadsheets may contain errors that go undetected, or those entering data or doing subsequent calculations may make mistakes, or both. In any of these cases, it is difficult for anyone reviewing the data to spot an error. Problem three is that desktop spreadsheets are an awkward reporting platform because they possess a flat fi le structure. A flat fi le is one in the form of rows and columns, with no relationships or links between records and fields other than the table structure that is defi ned by the row and column headers. Th is architecture is two-dimensional, which works well for accounting tasks. Yet businesses inherently are multi-dimensional. ‘Dimensions’ are the ways in which information about business operations can be characterized. For example, people typically want to look at sales over a given time period by business division, by geographic regions, by customer, by product. Pivot tables are the main way businesses attempt to overcome the lack of dimensionality in desktop spreadsheets. These work reasonably well with a small number of dimensional views but they become increasingly unwieldy if you want to do extensive multi-dimensional analyses of the data. The paradox of spreadsheet use is that despite all of their shortcomings, business users overwhelmingly embrace them as their tool of choice and do not want to give them up. (“You can take my spreadsheets away when you pry them from my cold dead fi ngers,” seems to sum up the attitude of many.) The source of this paradox is the extensive training and experience many people have with spreadsheets. With CLARITY 7 it is possible to have the best of both worlds. CLARITY 7 is a single, unified corporate performance management application that integrates fi nancial budgeting, planning, consolidations, analytics, scorecards and dashboards. It offers an Excel look and feel so people can work comfortably in the familiar spreadsheet environment. Yet because it is designed from the ground up for enterprise-wide use it eliminates most of the problems of spreadsheet errors and the difficulty of pulling together information from multiple sources. Spreadsheets are a handy, versatile tool. But they were not designed to do everything. Today, companies using them to perform repetitive and collaborative tasks wind up wasting time overcoming spreadsheets’ inherent shortcomings – valuable time they should be devoting to more important work.
“Spreadsheet architecture is twodimensional, which works well for accounting tasks. Yet businesses inherently are multidimensional”
Mark Nashman is the President and Chief Technology Ofﬁcer at Clarity Systems, the leading provider of software solutions to the Ofﬁce of Finance. Prior to founding Clarity Systems, Mark was a management consultant specializing in information technology and ﬁnance.
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Complete end-user service alignment: IT’s bottom line value to the business Ed Hallock explains why focusing on the end-user experience is the key to IT service alignment.
Ed Hallock is the Senior Director of Solutions Management for IT Infrastructure and Operations at ASG, where he sets the strategic direction and marketing initiatives for all of ASG’s performance management and operations management solutions, including the ASGTMON family of products. Prior to ASG, Ed served as Director of Product Management at Mobius Management Systems and for Candle Corporation’s OMEGAMON® product line.
IT continues spending money to address complexity, yet research shows the end-user visibility gap continues to grow. How does ASG view this challenge? Ed Hallock. We view this as service alignment, or having a complete understanding of what the end-user is experiencing. The bottom line for the business is that the enduser, whether an internal or external customer, gets an acceptable response time. The end-user doesn’t care about infrastructure performance and availability as long as they are able to access applications and complete whatever they need to get done. The challenge for the business is to understand the true end-user experience and to proactively manage the delivery of business services to customers. Too many organizations focus on managing technologies and trying to infer the end-user experience based upon performance and availability of multiple technology components. ASG recommends taking a different approach, with the ability to understand different end use response times for different applications, across platforms and increasingly across different geographic locations. What needs to happen to ensure your complete set of end-user experiences are continuously being met? EH. Today’s applications span multiple platforms, web technologies, servers, network infrastructures and database technologies. The key is monitoring all of these components and correlating them to understand what is actually happening, before the end-user experience is negatively impacted. ASG’s approach is a solution we call Network and End User Service Alignment, which is an end-to-end, application performance solution that centrally manages and monitors the performance of the entire IT infrastructure to ensure a superior end-user experience. ASG’s technology ensures business continuity with complete enterprise-wide visibility and the ability to map the end-user experience to the real-time performance of the underlying infrastructure and components. In today’s economic climate we see accelerated M&A activity and new regulatory requirements that increase the challenge of managing the performance of applications built on different technologies. How is ASG addressing these issues? EH. We are increasingly seeing this M&A issue causing companies to have duplicate processes built on different technologies. Often we see companies with web applications built on both J2EE and .NET frameworks. The challenge is to
consolidate and optimize the performance and availability of the applications built on these two architectures. To be successful you need to discover the entire structure of web applications, measure actual usage and transaction response, and centrally monitor complex distributed applications across multiple environments. The bottom line is simplifying management of complex technologies to ensure the desired end-user experience.
“The initial adoption of virtualization technologies is yielding benefits for low-risk workloads, including test and development and non-customer facing processes.” Many organizations are looking to virtualization technologies and emerging cloud strategies to reduce costs and optimize IT investments. How does ASG see this evolving and its impact on service delivery? EH. The initial adoption of virtualization technologies is yielding benefits for low-risk workloads, including test and development and non-customer facing processes. However, organizations have been hesitant to extend virtualization into mission critical processes and applications. Th is hesitation is driven by unknown expectations around managing the performance and availability of applications in virtualized environments. Again, it gets back to understanding the end-user experience and being able to monitor and correlate IT infrastructure across both physical and virtual environments. What you do not want is to invest in another set of monitoring technologies for virtual environments. What is needed is a good monitoring solution that can guarantee service assurance across both physical and virtual infrastructures. Do you have any ﬁnal perspectives or recommendations? EH. ASG believes that building an integrated business services solution around an organization’s end-user experience and aligning management products to directly support those objectives is the right approach for any IT organization to truly align with the business. ASG’s unique Network and User Service Alignment solution can give any organization real-time assurance to know what the enduser is experiencing as they consume business services.
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Because youâ€™re worth Financial institutions are being forced to cut costs throughout their operational structure, but CIOs have a duty to ensure IT is not one of them, as FST discovers.
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hen Lehman Brothers Holdings Inc. collapsed in 2008, there was a sharp collective intake of breath throughout the fi nancial world. The fi rst of the ‘too big to fail’ banks had done just that, setting in motion, or so it was thought, a precarious sequence of events whereby banks were veritable dominoes, each stood nervously in line as they watched and waited for the next one to fall. The metaphorical house of cards upon which the crisis was built was all too real – subprime mortgages were the literal symbol of a fi nancial world too flush and confident with easy credit, fast-thinking speculators and a general public gone soft after years of having it all too easy. Buy now, pay later had become the accepted norm. We bought then, and we are paying now. Although widespread collapses of the like suffered by Lehman Brothers never materialized, the past couple of years have been highly injurious to the banking industry. Consumer confidence is at rock bottom; credit is more elusive than an agoraphobic fox; interest rates are sky high and cost-cutting measures are now so woven into the fabric of most banks’ strategic set-up that they are beginning to resemble sinking ships battling desperately to bale out the poisonous presence of superfluous sectors and staff. Extra buckets might help to keep necks above water in the short term, but a ship will sink if the holes remain unplugged. Getting to the heart of the problem is something that banks have dragged their feet on since the credit crunch took its fi rst bite back in 2008. Knee-jerk reactions and panicked responses came to characterize the typical emergency actions of a number of banks, yet the smarter ones have taken this opportunity to undergo important and cost-effective restructuring, often led and assisted by visionary IT departments implementing their own cost-efficient strategies that have proved invaluable as the
FAST FACT The IT budget at most banks is typically 15 percent of the total operating costs waves continue to crash down. Challenging times lie ahead for fi nancial institutions that do not adapt to the new economic climate, believes Charles Abonnel, Managing Director of IT at BNP Paribas. “If you are not looking ahead two years from now and are simply trying to cut immediate costs you are going to fi nd yourself in very difficult waters as the crisis progresses. “At BNP Paribas, we have seen some competitors trying to make large cuts to their bottom line, giving little thought to what or who goes, or when. Moving the cost out has become a prime objective.” Abonnel believes that, rather than looking at a bank’s IT sector as an expensive drain on the overall margins, CEOs and decision makers should be embracing the cost-saving possibilities that a fully integrated, supported and stable IT department can bring. “The IT department has to be a valued partner to the board through the bad days as well as the good. In that way there is at least an understanding of the value that sector brings and people begin to understand the work it does. As long as people consider IT as little more than a cost then they are on the wrong side of the equation. “The value of IT is extremely high in actual dollar terms, but in a business process sense you must refer to the true value that you bring to your company, giving your business partner the sense that he or she can see, for themselves, the value of IT.”
Advertising IT Old attitudes die hard. Banks are now ultra high-tech realms, but this was not always the case. And while IT departments have been successful in implementing technological innovations throughout the industry, they have perhaps not been so hot on self-promotion, of showing their true worth and value to their organization. “I’m not so sure that CIOs and IT heads have done such a terrific job in the past in getting out there and stating how they bring value to an organization,” admits Abonnel. “There are a lot of
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costs in IT, and IT has the capability in itself to rationalize its costs because we are IT, but I think we need to lead the way in looking at costs at our end. There are a lot of old fortresses that need to be broken down and I think IT could be saying ‘okay, we could actually have some good ideas to lower our maintenance.’ We have to show our value and cost-saving strength. The idea of looking to outsource everything into a country where salaries are low is not going to cut it any longer.” Avoiding the squeeze during the recession has been of paramount priority for a number of departments throughout the banking, fi nancial and commercial world. IT managers may be disadvantaged by their innate lack of self-promotion, but while they may be meeker by nature, they should be able to use their smarts to show their true worth in a number of quantifiable and useful ways. “We have managed to prevent our IT organization from being squeezed by simply being incredibly efficient and as transparent as possible,” says Rakesh Nigam, Global Head of Technology for Barclays. “There was certainly a time a while back when people thought that technology was just a pure cost, but fortunately that has been turned on its head by the value that we demonstrate, the natural advances in technology and the increasingly important role technology now plays in the entire banking process.” Forced to act resolutely as a result of the fiscal constraints the current fi nancial climate is imposing upon banks, business leaders have to make decisive, authoritative actions and are understandably exerting more pressure on every department within their organization. The trick, says Nigam, is to enter into a business conversation that is sensible and balanced. “You can’t leave yourself to get bullied or to get pressurized into going against your principles. You need to stick by them and demonstrate that you know what you are doing while also recognizing your inner commercial environment.”
Negotiating IT Playing the role of businessman, HR manager and IT specialist all at once could have a potentially draining effect, but it is a challenge that Nigam believes needs to be met by IT heads in order for their departments to survive. “We do get squeezed; we’re asked to do things more efficiently; we’re asked to look after our budgets and so part of our exercise is to respond to these pressures by looking at how things can be done quicker and more cheaply, whether that be by using different technologies – which is a decision someone in IT is always comfortable with; or by using third parties or cheaper locations.” While the latter is a decision that is traditionally taken by different departmental heads, Nigam thinks that CIOs and IT heads should be the ones making such calls. “The term ‘run the bank’ relates to what needs to be done in order to keep the lights on as it were, and there are many ways you can do that more efficiently by using different technologies but also asking other companies to maybe come in and provide support, using services or tool sets or different components from other areas that
FAST FACT Average IT salaries in the banking industry range from $60,000 for a median IT position to $100,000 for project leaders. A CIO’s average salary is $130,000 (Source: InformationWeek Analytics’ Annual IT Salary Survey) have developed and are more mature than the ones you have at your disposal, bringing those in and sharing a framework of support.” Such decisive outsourcing not only saves on cost but also demonstrates business nous, which is an invaluable commodity to possess during any recession and is something that business leaders will certainly take note of. CIOs can go one step further, too. “Whatever money has been saved from your initial cost-cutting initiatives could be put back into the company as a longer-term investment, which will allow your department to develop more and deliver more,” says Nigam. “Th is puts a level of pressure on your development community because they need to make sure that they do not deliver poor quality soft ware that can be expensive to look after moving forward, but to be able to demonstrate this constant cycle of improvement in your department is invaluable.”
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Taking charge of budgetary and commercial issues from within your role as CIO or IT manager is one of the surest ways to protect your department against external squeezes and influences. Karen Kotowski, CIO for Sallie Mae – a large student loan servicing provider – ensures that she manages her department’s core metrics intelligently, particularly during these lean times. “I ensure that the money we spend on IT every day – which is a huge part of the overall business – is as efficient and as cost-effective as it can be, so that it comprises only a small percentage of the overall spend of the company. Th is is achieved through contract negotiation, employing the right people, improving our processes, spotting and rectifying the root causes
FAST FACT 48% of IT management heads in the banking sector have responsibilities outside of IT (Source: InformationWeek Analytics’ Annual IT Salary Survey)
of problems and generally working really hard, with efficiency our main aim.”
Securing IT Kotowski echoes Nigam’s claim that smart investment with any additional budget that is left over will not only benefit your own department but is an invaluable way of demonstrating to the CEO and the board that the IT department is much more than a room full of techies. “I make sure that what we do in our IT department is as closely aligned with the business as possible, focusing on the most important thing for the enterprise as a whole rather than funding somebody’s pet project. “My budget isn’t my budget. It belongs to the business, and it is smart investment of this budget that makes the business capable of doing what it does. However, if I am taking sums out of the IT budget I want to ensure that it is invested, with full business approval, into a smart area of the business. I want to protect what is still an IT investment because that will allow me over the course of year two and year three to implement a much more forward looking plan. Th is collaboration with my business partners ensures that the IT department is not viewed as a cost centre but a valuable cog in the business.” With belts tightening the world over and no end in immediate sight, business rations will keep on coming. No department is safe, particularly not in the fi nancial industry, but CIOs and IT managers should not lay low and hope that the budgetary restraints and squeezes will pass them by. Now is the time to seize an opportunity
FAST FACT 87% of IT managers believe that aligning business and technology goals is the most critical skill to possess (Source: InformationWeek Analytics’ Annual IT Salary Survey)
to show the true worth of the IT department, aligning technical innovation with commercial concern and business savvy. “One of the most senior people in the business came to me recently to talk about parental controls on his cable TV at home,” concludes Nigam. “You know, this wasn’t part of my remit as Global Head of Technology, but it was great that he was prepared to come and speak to me about this and basically ask for my help, which I think only happened because we have cultivated a concept within the company of being a trusted advisor to the business.” Possessing trust, business acumen and that all-important technical know-how – that is possibly the safest ticket in the house right now.
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Transforming enterprise IT with the private cloud Dave Malcolm explains how ﬁnancial organizations can reap the beneﬁts of the cloud safely behind the corporate ﬁrewall.
imply put, organizations that are able to closely align IT initiatives with core business strategies are more agile, more responsive and more effective than their peers. The accelerating growth of user demand for infrastructure, coupled with everpresent restrictions on IT budgets and staff, has created a dilemma for the modern IT organization: How do you cost-effectively scale operations to serve the rapidly growing needs of your user base, all while staying aligned with the core business? The obvious solution is a transition to a cloud-based infrastructure delivery model: The promise of better utilization, higher productivity, and truly dynamic IT is impossible to ignore. But what makes sense for your organization – a public or private cloud? The private cloud is the clear choice for enterprise organizations looking to reap the enormous benefits of cloud computing without compromising critical security policies or overall system f lexibility.
First and foremost, the private cloud gives you total control over your data: who has access, where it lives, and how it is transferred. Organizations that deal in private and proprietary data (especially fi nancial services, healthcare, and government institutions) simply cannot risk thirdparty access to sensitive data, and even face legal ramifications for breaches. John Merchant, Assistant VP of the Hartford Financial Services, was recently quoted as saying, “as a Fortune 500 company with highly regulated data and a very conservative outlook, it’s going to be difficult for any insurance company or any fi nancial institution of any size to migrate any data to the [public] cloud.” Th is perspective is widespread in enterprise and government organizations, and for good reason. Public cloud offerings are simply unable to adequately address the security and
privacy needs of data-sensitive organizations. The private cloud offers a way for these organizations to transition their existing data center investments into a much more scalable, user-friendly model while maintaining complete control over private data. Second, the private cloud is a force multiplier for IT resources. Enterprise organizations have already made investments in the internal data center. Typically they are very large ones, with thousands of servers, supporting infrastructure, and management soft ware. Clearly, these investments will not be retired overnight. Rather, these organizations need ways to transform their powerful, albeit static, base of infrastructure into a highly dynamic, fully automated cloud that still conforms to existing security and privacy policies. With a true enterprise private cloud, administrators receive two major benefits. The first is a dramatic increase in the utilization of existing infrastructure, which drives down costs and limits the need for future purchases. With cloud-based capacity management, administrators can increase utilization from approximately 40 percent (with virtualization alone) up to 75-85 percent, and they have detailed insight into exactly how that infrastructure is being used. Additionally, because of the powerful automation engine enabling the private cloud, administrators can break the cycle of never-ending hands-on provisioning and reclamation to focus on strategic functions, such as IT service design and policy management. With a private cloud, administrators can support more users with far less busywork. Finally, you know your business and its needs better than anyone. With a private cloud, you defi ne exactly how things will work, taking into account your technology, your standards, your applications and your users. You are able to leverage the technology you want, and can easily switch if necessary. In the public cloud, vendor lock-in is a reality, and you are at the mercy of the providers and their choices about technology, vendors and standards. Because of the ability to fi nely tune the private cloud, your end users benefit from a true self-service experience that takes into account their needs and functions and how they can directly contribute to company results. At the end of the day, it is critical that enterprise organizations maintain high standards for security, privacy and cost management, while transforming operations into a dynamic, flexible environment. The best solution is clearly a private cloud.
With 20+ years of experience, Dave Malcolm is responsible for software development, product management, and datacenter operations for Surgient cloud automation products. His team is responsible for multiple cloud patents and 150+ successful private cloud deployments. Malcolm graduated from the University of Oklahoma with a bachelor’s degree in computer science.
For more information on Surgient private cloud automation, please visit www.surgient.com.
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Jim Borendame speaks to FST about the various strategies ﬁnancial institutions face when meeting the challenge of storing data efﬁciently, securely and cost-effectively.
wentieth century British politician Herbert Samuel once remarked that ‘a library is thought in cold storage’, which is a phrase that succinctly encapsulates the challenge of organizing, compartmentalizing and enabling easy access to a vast wealth of information. Here in the 21st century, the challenges of delivering accessible storage to data have evolved in line with the explosion of technological advances and customer-driven demand for information, service and speed. There are vast quantities of data that carry an ever-growing weight of importance and sensitivity, particularly in the fi nancial sector. The problems associated with storing such a wealth of information are manifold, not least the issue of cost and energy efficiency. “Managing data centers for energy efficiency is one of the key efforts in helping Wells Fargo obtain its greenhouse gas emission reduction goal and operating efficiency requirements,” says Jim Borendame, Wells Fargo’s Executive VP of Enterprise Hosting Services. Wells Fargo has a goal to reduce its US-based greenhouse gas emissions by 20 percent below 2008 levels for 2018, and has looked at a variety of ways in which to do so, starting with its data storage strategies. “To drive efficiencies in our data center, we take the approach to stabilize, standardize and optimize. “We’ve successfully employed standardized service offerings and accomplished strides in server, storage and network virtualization, with over 10,000 virtual devices currently in place,” says Borendame. A more efficient and optimized approach to data storage has proven beneficial on many levels, not least cost. “The benefits from these efficiencies are remarkable, including decreasing costs – up to $250 million in avoidance by negating the need to create a new data center alone – while increasing computer power and reducing energy consumption.”
Longer storage life Although cost is often seen as the key driver for optimizing data storage, there are a number of secondary benefits that result from reducing energy output and streamlining the data server environment. “We try to manage and extend the life of our data centers by increasing energy efficiency through our Service Life Extension Programs, ‘right tiering’ applications, consolidating and retiring less efficient or secure facilities, benchmarking data center operation and design to industry standards and continuing to optimize data center use and operations,” says Borendame. A service life extension program focuses on renewing and renovating existing data space in order to update and modernise pre-existing centers along the lines of current design techniques while simultaneously harvesting and recycling sections of the previous data center with newer technology. Wells Fargo is committed to maximizing the life cycle of its data centers as part of its future growth plans. “By leveraging size and scale, eliminating redundancy and inefficient processes in our data centers and focusing on standardization,” says Borendame, “the infrastructure will be strategically positioned for continual increase in transaction volume.” Such streamlining is just one aspect of the innovation that has helped create a whole new way of thinking when it comes to data storage. Culturally, attitudes have shifted dramatically as technological storage needs have increased, accelerated by mobile computing, to levels never seen before. “By installing energy-efficient and virtualized servers we are combating
the issue of under-utilization, which reduces energy consumption by as much as ten to one,” says Borendame. “Th rough server virtualization we enjoy a simpler operating environment, which in turn reduces our power, support and maintenance costs. “During this time of integration we are also making many optimization choices between our investments and the need to stay nimble and flexible – customizing where it counts, standardizing whenever possible. Our infrastructure is on the front line of the customer’s experience and we continue to stay focused on the end-to-end picture, utilizing technologies that provide robust benefits of availability, time to market and energy efficiency.”
Lean and green There are also green concerns too, which can have a huge impact on how customers view their bank. “Green technology is a factor in data storage and all of our IT initiatives,” continues Borendame, “because it supports our customer experience and efficiency requirements. Green IT allows us to deliver better availability, simplify our environments and help us make the right investments, which is crucial as we execute on one of the largest fi nancial mergers and technology integrations in fi nancial services history.” Wells Fargo and Wachovia merged in late 2008 and were immediately faced with the challenge of ensuring that their data center power and space would be of sufficient standard, size and cost-efficiency in order to not become a drain on the new partnership’s overall objectives and goals. Allied to Wells Fargo’s pre-existing commitments to energy reduction and a greener future, a sizeable challenge now faces the bank, not least in terms of changing the culture of the IT department. “Wells Fargo’s GHG reduction goal drove the need to increase server virtualization,” explains Borendame. “One of the challenges we faced in fi rst beginning this effort was addressing the change in culture that virtualization would bring. We had to alleviate any fears or doubts that our business partner had by eliminating exclusion reasons for virtualization.
Green IT allows us to deliver better availability, simplify our environments and help us make the right investments, which is crucial as we execute on one of the largest financial mergers and technology integrations in financial services history “We have shown virtualization’s positive impact on the infrastructure through our aggressive efforts in 2009. Last year, 70 percent of our servers used standardized shared service offerings with 41 percent leveraging virtualization. Today, we currently have in excess of 10,000 virtualized machines consuming less than six percent of the space and power of a physical server, allowing us to stretch the life of that data center and add capacity while reducing our resource strain.” Such impressive figures surely point the way to a virtualized future, yet Borendame is reluctant to countenance a complete shift to virtualization. “With more than 50,000 servers in production, we won’t ever be 100 percent virtualized,” he admits, “nor should that necessarily be the goal. However, our physical-to-virtual efforts will be an ongoing discipline and we’ll continue to expand its footprint into other areas, to an extent whereby virtualization is seen as one of our standard approaches.”
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Green is Good How else are banks backing greener practices? Customer Awareness: A number of banks, including Wells Fargo, have implemented green awareness programs designed to educate their customers on not only the need for going green, but also how to do so, such as switching to paperless mobile banking, receiving statements online, not printing out receipts at ATMs and even making deposits at ATMs where an envelope is not required. Sponsorship and Donations: HSBC this year has donated $100 million to four environment groups – Earthwatch Institute, The World Wildlife Foundation, The Climate Group and the Smithsonian Tropical Research Institute – with the aim to “help some of the world’s biggest cities and most important rivers respond to climate change, as well as fund research and recruit environmental leaders worldwide.” The Green Investment Bank: In the UK, the proposed Green Investment Bank (GIB) will help to ﬁnance renewable sources of energy and promote a green agenda, giving backing to large infrastructure projects such as wind farms and nuclear power plants, while also attracting conscientious account holders and depositors via tax-free savings accounts. Green Stores: Both TD Bank and Wells Fargo have begun plans to build greener stores, which will reduce their energy consumption by as much as 50 percent through more innovative use of sunlight and solar panels.
One such approach toward virtualization is the cloud, which is being leveraged by Wells Fargo on an internal basis in order to raise the bank’s efficiency and agility, particularly when faced with the proliferation of mobile computing. “We see increased storage demand from customer web access for electronic records, such as check images, statements and the like,” says Borendame.
Not all virtual As the need for greater capacity continues at such an impressive pace, Wells Fargo’s efficiency, cost-effectiveness and environmental footprint will all come under greater pressure to perform satisfactorily. Borendame is aware of the challenges that lie ahead and is convinced that the protocols, procedures and plans that he has put in place will set the bank in good stead for the foreseeable future. “We will continue to focus on increasing our hardware efficiency, which includes our virtualization and storage density efforts, refreshing technology and next-generation mainframes. “We are also seriously assessing product engineering in our energy labs, with power consumption and space as key design criteria in all products. Additional objectives include our commitment to continue to increase energy efficiency through thin-client provisioning, ATM enhancements, recycling and telecommunication.” In Minneapolis, Wells Fargo’s water-side date center
64% of Americans now use online bill pay
58% of Americans now receive paperless statements
has been well-received; viewed as an efficient, sustainable and effective means for data storage, this is one arm of the organization that is most defi nitely non-virtual, but important and innovative all the same. “For five months or more each year,” explains Borendame, “the free cooling for our air conditioning system provides water that is chilled sufficiently by outside air to directly feed the data center with cold air. Th is has resulted in a 15 percent energy-use reduction and a half-million cost saving annually.” While this water side economizing is nothing new, it has rarely been embraced by IT departments for the specific purpose of data center storage. “For Wells Fargo there were very few implementation hurdles because our engineering and operating teams had experience with free cooling,” says Borendame. “Our primary focus has been to fi ne-tune the system with the cooling towers for use during extremely cold weather, although there is no particular technology out there that is enough to determine where we located our data centers; we consider many factors when making this decision.” A multi-faceted, long-term and carefully considered approach to data storage can not only help manage costs, but is also the ideal strategy to adopt when dealing with exponential growth, environmental concerns and energy efficiency – all factors that need to be addressed as the financial world continues to evolve.
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Leveraging pricing excellence in the new era Regulatory changes and a shifting competitive landscape make it increasingly important to adopt a customer-centric pricing strategy. Frank Rohde explains how Nomis’ pricing solutions anchor proﬁts in dynamic markets.
How will changing regulatory frameworks impact pricing and proﬁtability? Frank Rohde: With recent changes in the regulatory environment, there is increasing pressure on financial institutions to leverage pricing optimization solutions to shore up profits. Banks are fi nding that traditional sources of profit with no clear value to the consumer are being scrutinized by regulators. In certain cases, these avenues of profit are being tightly controlled through new regulation. Recent examples include the CARD Act and Reg E in the US, and Credit Insurance in the UK. These regulations will make it more difficult for banks to generate profits. In the case of the CARD Act, banks have limited flexibility in changing the APR of an account after origination. Reg E regulation in the US mandates that banks notify consumers about
the ‘not sufficient funds’ (NSF) overdraft fees they charge, so that consumers can opt-out of this lucrative source of profit. Th is will eliminate several billion dollars of NSF fee revenue for the banks and force them to rethink how to price checking accounts. Similarly, in the UK, the recent move to ban banks from selling credit insurance at the time of credit sale will curb a highly profitable revenue source for fi nancial institutions. It is imperative that banks respond to these growing regulatory pressures by protecting and growing profits through smarter pricing decisions in a customerfriendly and fair way. Understanding what customers value (price, brand, features, access, advice) and how much they are willing to pay for each of these components is the first step.
“The Nomis Price Sensitivity Index is at its lowest level since 2005. Banks need the tools to anticipate and respond to rising consumer price sensitivity.”
Data Feedback & Model Recalibration
How will pricing strategies and tactics have to adjust as interest rates rise in key economies over the next 18-24 months? FR: Canada just raised its base rate, and US and UK interest rates are expected to climb in the near future. With interest spreads getting squeezed, banks will need to change lending rates more frequently to maintain margins. As rates rise, banks will also need to contend with changing consumer preferences, particularly as households are still deleveraging. Pricing strategies will need to take into account the underlying price sensitivity of the consumer and cater to price-shoppers differently than to consumers who are shopping for service, product features and access. On the deposit side, rising interest rates potentially pose a threat to balance and customer retention. Banks again need to develop a better understanding of the inherent price sensitivity of the customers they are attracting and attempting to retain. In order to do so, they need to understand the value customers place on price relative to other features such as brand, service, or product features. The ability to tailor prices to micro segments based on a variety of non-traditional factors such as consumer demographics, price sensitivity and the value they place on price vs. other features will be essential in helping banks succeed in an environment of changing rates and permanently changed consumer preferences.
Frank Rohde is President and CEO of Nomis Solutions. Nomis Solutions provides pricing and proﬁtability management solutions to leading banks and ﬁnance companies in North America, Europe and South Africa, including the Nomis Price Optimizer, the Customer Portfolio Optimizer, and the Nomis Score.
Will pricing dynamics change as competitors re-enter the lending markets? FR: As credit markets have slowly opened up, consumer loans, which had all but shut down during the credit crisis have seen a modest rebound. Th is rebound is forecast to continue as consumer sentiment and expectations about the future continue to become more positive. At the same time, banks and lenders have by and large repaired their
balance sheets and are re-entering the lending markets. The increased competition is sure to put downward pressure on rates for fi nancial products. In conjunction with rising base rates, it is going to be increasingly difficult for institutions to maintain profitability and grow their portfolio. Price optimization technology can help banks understand how specific customer segments value lending products and the optimal rate and price that should be offered to maintain profitability without surrendering market share or revenue. For example, the Nomis Score – which provides an understanding of the customer’s level of price sensitivity – will enable marketers to measure the impact of pricing decisions on consumers and target the right offer to the right segment. Have consumer attitudes, price sensitivity, and willingness to borrow/save at different price levels changed as a result of the global ﬁnancial crisis? FR: The Nomis Price Sensitivity Index for Consumer Loans (PSI) is presently at the lowest level since the index was established in 2005. The Nomis Price Sensitivity Index, which measures segment-level trends in consumer pricesensitivity, is computed monthly and available to Nomis customers. The PSI saw a dramatic drop in price sensitivity since 2008 from a high of 38 to its present value of six. The way to interpret this is as follows: at a PSI of 38, a 100 basis points rate increase will result in a drop in demand of 38 percent, while at a PSI of six, a 100 basis point rate increase will result in a drop in demand of just six percent. We can clearly see that price sensitivity peaked in late 2007 at the same time as the over-heated lending markets. As credit availability dried up over 2008-2009, consumer price sensitivity plummeted to historical lows in 2009 and 2010. If we overlay milestone market events such as the failures of Bear Stearns or Lehman Brothers, and the lowest level of banks’ willingness to lend, we can see the effects of the destabilization of the credit markets impacting consumers’ price-sensitivity. The real question now is: “How will consumer price-sensitivity change as interest rates rise, regulation changes, and banks return to lending?” Based on our most recent data Wwe are forecasting a slow but persistent increase of the Price Sensitivity Index through the rest of 2010 and into 2011 in North America. What are the most important capabilities that banks will need to possess in order to be successful in this new era? FR: Banks need an efficient closed-loop pricing process that incorporates data, advanced analytics, innovative technology and tailored business processes to make more intelligent, data-driven decisions that align their pricing practices with customer needs and business goals. Understanding consumers’ preferences and price sensitivity will enable banks to approach the goal of personalized pricing for each customer. Th is will provide the ability to unlock the profit and volume potential of their consumer lending and deposits portfolios while satisfying risk, funding and regulatory constraints.
NEXT BIG THING
The science of T&E management Bruce Richardson talks candidly about the true cost of expense reporting and outlines how you can instigate change in your organization.
ow much did your company spend to process the last expense report submitted? If that seems like a relatively mundane question, there is a high probability that you are spending too much. You may also have employees taking advantage of lax oversight. Earlier this year, Aberdeen Group published the results of a survey of more than 175 companies. Analysts segmented the respondents into three camps: ‘Best-in-class’ companies represented 20 percent of respondents. As a group, they have 90 percent compliance to travel and expense policies, and spend $6.25 to process each report. The ‘industry average’ tag was given to the middle 50 percent. This group has 77 percent compliance and spends $28.91 to process each report. That is more than four times higher than the best, and leaves significant room for improvement. The bottom 30 percent were deemed ‘laggards’. This group has only 47 percent compliance and spends $51.35 to process each report. Their costs were nearly eight times higher than the leaders. The contrast from best to worst becomes startling when you consider that the average company processes more than 3750 expense reports a month, or 45,000 per year. At that volume, the best companies will spend $281,250 on the reimbursement process, while the laggards will shell out more than $2.31 million. The delta is pure waste. At Infor, we process 54,000 reports each year. As we will reveal, some of our customers do significantly more. We recently hosted two events featuring customers using Infor’s XM soft ware for expense management. The fi rst event featured an executive from a Fortune 500 life sciences company. His company has 11,000 road warriors in the US alone. Collectively, his mobile employees will submit 140,000 expense reports this year. The second event featured an executive from a wellknown fi nancial services fi rm and Aberdeen’s Christopher Dwyer. The fi nancial services fi rm handles 4333 expense reports per month at an average cost of $5.79 per report. Th is is at the top end of ‘best-in-class’. Our customer explained that this includes all the costs incurred once the report arrives in accounts payable as well as software maintenance and amortization, hosting, imaging, auditing and credit card processing fees.
Road warriors beware: More of your expenses will be audited While no one likes to think their employees are capable of fraud, Aberdeen’s Dwyer said that 72 percent of companies surveyed are now auditing expense reports. Sadly, 67 percent are using manual processes. A much smaller percentage has automated the audit process. More companies are also focusing on compliance, with two-thirds tracking adherence to travel policies. In addition, 64 percent said they were monitoring spend patterns and trends. Our life sciences customer tracks policy violations at point of entry. These violations could include the failure to purchase/book tickets for air travel two weeks in advance, paying more for a hotel than the negotiated rate, and/or refusal to fly on a less expensive fl ight. His team also monitors credits due to the company as well as excessive or high cash submissions. Our financial services customer said she uses audits to save money. In the fi rst week, her group pulled back $10,000 that would have been reimbursed. She has implemented pre-payment audits based on certain triggers, and uses random, post-payment audits (currently 13 percent daily). She also uses forensic auditing to uncover items such as multiple breakfasts for the same day and to examine spending patterns over a 60-day period. The travel and expense management function has often been an overlooked part of the broader procure-to-pay set of processes. Today, Finance can choose from several software packages that can automate the entire process from submission to reimbursement. As you investigate your options, make sure to focus on the audit capabilities. There is no reason to continue wasting money.
Bruce Richardson brings over 30 years of experience in the software industry, most recently as Chief Research Ofﬁcer for AMR Research, where he oversaw all aspects of analysis from ERP and supply chain management, to cloud computing, serviceoriented architectures, and visualization. Richardson will use this expertise to help Infor align its business with the needs of its customers.
INFOR AD.indd 1
o a casual observer from the outside looking in, much in the IT organization seemed normal. Meetings were crowded and long, there was persistent overtime, large initiatives were in motion, status reports were green with glowing descriptions of steady progress, and every buzz word and industry trend had been embraced and was highlighted in signage around the organization. Moreover, industry articles were glowing with praise. But internally, the IT team’s productivity didn’t match the pace of the company. The challenge, of course, was how to increase productivity. To an IT leader, there are many levers available, but success requires focus. If you try to drive too much organizational change in parallel, efforts stall as your teams become spread too thinly. So, phasing is critical, as is working in a manner that fits tightly within your corporate culture. At Guardian Life Insurance Company, that meant bringing about a set of changes that were people focused, and which leveraged a culture of unselfish collaboration. Fortunately,
High performance from an organization’s IT department is imperative for growth, productivity and progress, explains Frank Wander.
such an approach fits IT’s needs perfectly because success is a group endeavor, reliant on the collective intelligence and raw talent of all project team members and contributors, which can often run into the hundreds. As they say, from many minds comes one result. Guardian is one of the best run insurance companies in America, with not one, but two ratings agency upgrades in 2008, all amidst the backdrop of the greatest fi nancial crisis since the great depression unfolded. The fi rm is 150 years old, having sailed through the civil war, multiple depressions, panics and crises, each time emerging healthy and highly competitive. Its corporate culture is built on three principles: people count, we do the right thing, and we hold ourselves to very high standards. These values are all very important, but in IT, productivity is ultimately driven by two things: the talent you have, and how you use it. ‘People count’ became the cornerstone of our effort to improve our execution and delivery, as we changed our organizational structure and drove talent and collaboration to new levels.
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As 2006 came to a close, the firm’s IT division was highly siloed, with walls separating the different parts of IT. Further complicating matters, some areas were under central IT control and leadership, while others were under business control, with no immediate inclination on the part of those business leaders to change the status quo. It was at this time that I was promoted to Corporate Chief Information Officer (CIO), having been hired earlier that year as the potential successor to the then incumbent. Given the productivity challenges that existed, I opted to concentrate on making improvements in the following areas: organizational design, collaboration, talent, execution, governance, expense optimization, operational excellence and reducing complexity. At a moment when credibility was the most important currency, these improvements were implemented in three overlapping phases in order to avoid failure: stabilization, optimization, and transformation. The foundation would be unleashing the talent, so that the IT team could be fully productive, enabling us to achieve our organizational potential. Here is how it was done.
Organizational design In order to break down the walls and silos, we implemented a federated organization, whereby the line of business CIO’s became dual reports to the business and IT. At the same time, all IT projects became jointly owned, with both the business and IT sharing the outcome. Th is established a sound framework for collaboration, and made sure we didn’t have ‘IT’ projects, but business projects. All IT areas were moved under both IT and the business. Th is established an environment where projects and outcomes were shared, encouraging teamwork across organizational boundaries.
“If you try to drive too much organizational change in parallel, efforts stall as your teams become spread too thinly”
Collaboration We established transparency, sharing and openness as organizational mandates in order to build deep levels of trust. By reinforcing these productivity producing behaviors, we reaped immediate dividends and stopped any counter-productive behaviors that slowed execution and delivery.
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Talent We evaluated every key position, including all single points of failure, and fi lled them with the best talent we could fi nd. Many consultants who had been with the organization with proven track records and knowledge were hired, and top talent was sourced from a willing market. With the right organizational structure and a healthy, collaborative working environment, information and ideas flowed between the business units and IT, and within IT itself. Productivity increased with each project as highly competent professionals built the deep and valuable experience that only comes with time on the job. Experience is an organizational asset, gained through project investments whereby the teams become intimately familiar with the systems they support – either through building them or working on them. Given some complex systems have a time to competency (learning curve) approaching two years, having a talented, stable workforce is critical.
“The lesson from this experience is that it is possible to unleash talent and drive productivity by building trust” The talent development process also included building an executive team of strong, visionary leaders to promote and support the changes we needed to make. We worked together on building the strategies, IT vision and IT goals, which socialized the plan, creating champions who drove the agenda and vision deeper into the IT and the business organizations.
Execution Deep collaboration with the business and between all team members ensured we were working on the right things, while process refi nement ensured we were doing them the right way, and transparency ensured issues were dealt with. Mistakes were OK; repeated mistakes were not. Team members took risks and were rewarded; they shared openly with one another. Very quickly, delivery took off – on time and on budget.
Governance We phased in a robust governance process that established a framework for decision making, engaging the organization, de-personalizing decisions and protecting relationships in the process. Early on we decided to use COBIT as a reference point to validate our work and ensure we did not miss any major controls. We developed a scorecard of the different control areas, assessing and grading each by risk and maturity. We then developed a multi-year plan focused on closing those areas that represented the greatest risk, but also biggest opportunity for
us in IT. Today we have 28 of the 34 key COBIT control areas covered, and will fi nish up our implementation and have full coverage by the end of 2011. To promote the importance of IT Governance at Guardian, I asked Richard Scott, my Chief Technology Officer, to head the effort and to begin putting together a small, dedicated team that was focused exclusively on Governance, and how we align and deploy it throughout IT. We also formed an IT Governance Council comprised of our senior leadership team, which had overall ownership of the program and drove prioritization and measured performance.
Expense optimization We tasked the entire organization with driving down expenses and put a formal program in place to achieve this. Every contract was evaluated, professional services rates were lowered, soft ware and platforms were eliminated and headroom was created across our mainframe, distributed systems and storage by actively managing consumption, avoiding many new investments. The scope, depth and speed of the program’s success were inspiring, and helped improve credibility with all divisional CFO’s and corporate fi nance function.
Operational excellence Great talent that isn’t supported by efficient processes hampers progress. We fully embraced the fi rm’s operational excellence and ease of doing business initiatives, and drove them deep into the fabric of the division. These efforts are ongoing, and have enabled us to reach out across IT to gather ideas for improvement.
Reducing complexity A significant driver of productivity and lower cost was the imperative to lower complexity. There is a strong correlation between high complexity and poor operational reliability. Given that we needed to drive improvement in our operational uptime, reducing complexity in our technology stack proved critical, as did a tightening of operational processes. The lesson from this experience is that it is possible to unleash talent and drive productivity by building trust, which strengthens social cohesion, leading to deep and meaningful collaboration and real business results. In an environment where people count, it is easier to build success than would otherwise be possible. The results of the transformation of Guardian Life’s IT function have so far been excellent and we’re still focused on continuous improvement.
Frank Wander is Guardian Life’s Senior Vice President and Chief Information Ofﬁcer. In this role, he is responsible for the delivery of technology-based services and solutions across all Guardian divisions. Prior to assuming this role, Wander served as Chief Information Ofﬁcer of Guardian’s Group Insurance division, supporting all business systems for their Dental, Medical, Life, and Disability insurance products. Before joining Guardian he was CIO of Prudential Institutional, COO of an Internet start-up and held leadership roles at Merrill Lynch. He began his career at Equitable.
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From geek to green Tom Crawford explains to FST how IT and business users can collaborate and utilize business technology solutions to take advantage of the green shoots of recovery.
Why does IT need to change the way it supports the business? Tom Crawford: Recent Consumer Price Index results, General Motors’ rebound from bankruptcy and stock market trend lines all point to the beginnings of global economic recovery. Companies are positioning for a return to growth and a land grab of new business isn’t far behind. According to Forrester Research, increasing innovation is among the top three most important executive goals. Successful CEOs demand increased innovation capacity, so pressure for the IT function to support the rapid introduction of new products is increasing. We are seeing leading companies defi ne new markets, combine products and services in new ways and introduce new business models. For example, mobile phone handset manufacturers are bundling music, maps, games and applications on handsets with varying pricing models. The pressure to innovate generates creativity in product development. However, it also places demands on the back office to match innovation in the front office. Banks need a customer-centric back office that ties behind-the-scenes technologies to the customer experience. To answer that need, IT must disband older operating models and architectures to embrace collaborative development and composite, agile applications that can deliver rapid change. The customer-centric back office sounds intriguing – and hard to do. How can ﬁrms make it happen? TC: Composite applications are the key. Forrester Research has coined the phrase ‘Business Technology’ to describe the convergence between IT and business priorities. We’ve
found that composite application development delivers 50 percent faster than traditional models by reducing wholesale system change and introducing agility and collaboration between the business and IT. We call it the ‘sandpit’ environment, where business requirements can change while IT maintains control over integration, modeling, compliance and scalability. Because business users understand data outputs like regulatory reports, transactional control and risk metrics, they can contribute data flow models and business rules. IT effectively delegates these responsibilities to the business, enabling IT to deliver against ever-decreasing timescales with reduced cost and risk. Our clients have told us that the ability for business and IT users to collaborate in the application design and development environment has been crucial for business innovation. Our product, Microgen Aptitude, is completely graphical and intuitive, and maintains the detailed level of control, performance, integration and technology options that IT demands. Why do modern applications need to be services-based and what does that mean for my overall architecture? TC: Business change is constant and the rate of change is increasing, so companies cannot architect for a single target state. Instead, they must architect for change by breaking down business operations into a set of unified services that can be rapidly assembled in new ways, with new business rules to meet the evolving requirements. In the traditional development model, the business requirements of most IT projects change during the time it takes to deliver the project back to the business and a stack of IT tools such as ETL, BPM, web forms, BAM and SOA create a complex and inefficient path for data to travel. Delivery times of more than six months are common – but fi nancial services organizations cannot wait that long. Th is makes agile solutions that enable collaborative development with the business absolutely critical. The collaborative capabilities within Microgen Aptitude help IT organizations adapt to rapidly changing business rules. Our clients tell us that the solution delivers measurable benefits, including extreme levels of performance/throughput, cost savings, stronger transaction transparency and rapid composite application development. For fi nancial fi rms, ensuring IT requirements are met while business strategy is supported is, ultimately, the best way to turn geeky technology into market growth.
“Successful CEOs demand increased innovation capacity, so pressure for the IT function to support the rapid introduction of new products is increasing”
Tom Crawford Joined Microgen as Divisional MD in Feb 2003 after ﬁve years as COO at another high growth quoted software business. Tom integrated and led post acquisition, four Divisions of Microgen spanning Banking, BI, Energy and Wealth Management sectors. He is now SVP of Microgen North America, building out the Microgen Aptitude business in the US.
MICROGEN AD 2.indd 1
Technological advances in electronic messaging services can help improve banks’ interoperability and overall business process management, explains Jon Siegel.
oday, every fi nancial institution uses customized soft ware to convert each and every transaction into internally useful data – a task costly in both time and resource, and dangerously prone to error. To overcome these problems, OMG’s fi nance domain task force has developed the Model Driven Message Interoperability (MDMI) standard. It addresses message co-existence and interoperability directly, defi ning computer readable transaction data transformations or ‘maps’ that unambiguously defi ne and preserve the business payload of any fi nancial message regardless of its original protocol.
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The MDMI’s focus on message conversion allows continued use of legacy messages while simultaneously creating a process for smoothly introducing new message formats. It also means that fi nancial information may be more easily moved from any format to any another. This new approach has the support of the largest and most important global fi nancial networks. An important additional objective of MDMI is support for ISO20022 (UNIFI). Th is initiative creates a common data dictionary of reusable elements. MDMI explains the technical details of how to map any message to the UNIFI dictionary. The procedure used is a ‘hub and spoke approach’ to message management where new message formats connect to existing ones without compromising either internal systems or message integrity. It also provides for faster SEPA compliance. To work, national or international standards bodies need only create and publish detailed conversion specifications using MDMI to avoid a myriad of bi-lateral conversions. With the standard complete, OMG has fostered formation of the MDMI Consortium to allow the fi nancial industry to share the costs of implementation and adoption via a dedicated, expert team working to provide proof of business and technical value. A functional demo was shown at SIBOS 2009. Initial participants include HSBC, SWIFT, and FireStar Soft ware.
Figure 1 The bands display the names of the Participants (Roles/Entities). Additional Participants can be added on additional bands (for Sub-Processes)
Message I want to see the doctor
I need my medicine
I feel sick
Pick up your medicine then leave
Go see the doctor
The message is shaded, so it is not the initiating message
Business process models If you work in BPM, you have probably either constructed a process model in Business Process Modeling Notation (BPMN) yourself or encountered a BPMN model in a project proposal or analysis. Specified originally by the Business Process Modeling Initiative, a group of the most skilled and influential BPM vendors and consultants, the standard and the group itself merged into OMG in 2005. Recognizing the merits of the specification and limitations
OMG OMG is an international, open membership, not-for-proﬁt technology standards consortium. OMG member Task Forces develop enterprise integration standards for a wide range of technologies and an even wider range of industries including banking and ﬁnancial services. The Uniﬁed Modeling Language™ (UML) is OMG’s best-known and most widely used standard, enables powerful visual design, execution and maintenance of software and other processes as it supports specialized modeling environments in many specialized domains. Based on UML and OMG’s foundational modeling technology, the Model Driven Architecture (MDA) carries enterprise applications from concept, through development, to deployment and maintenance, and ultimately to evolution as technology platforms advance. OMG’s modeling standard for business – the Business Process Modeling Notation™ (BPMN) – has just moved to Version 2.0.
Here is your medicine
The unshaded Participant is the initiator of the Activity
of its status as a notation, OMG members set to work transforming it into a true modeling language with the ability to participate in the MDA, transfer models among different vendors’ tools, and support execution. BPMN 2.0, recently adopted, is the culmination of this effort. In addition to technical upgrades, BPMN 2.0 now supports modeling of collaborative processes and choreographies (See figure 1). Submitted and supported by most of the industry’s top BPM vendors and consultants, BPMN 2.0 brings needed capabilities to this rapidly expanding enterprise practice. A common thread in these and all OMG initiatives is the drive to optimize business operations and foster business innovation. While process automation yields the flexibility necessary to compete in today’s rapidly-moving market, businesses need to move beyond this and employ technology to identify, measure, model and drive business change in order to obtain and maximize its impact on the bottom line. OMG’s technology advocacy programs, led by our Business Ecology Initiative (BEI), help the Global 1000 organize to support best practice in integrating business and technology. For more information, please visit www.omg.org
Dr. Jon Siegel, OMG’s Vice President of Technology Transfer, heads OMG’s technology transfer program with the goal of teaching the technical aspects and beneﬁts of the Model Driven Architecture (MDA) based on OMG’s modeling speciﬁcations UML, the MOF, XMI and CWM. Dr. Siegel comes to OMG after twelve years with Shell Development Company, the research arm of Shell Oil, where his last position was in the Computer Science Research Department. Siegel’s background includes extensive experience in distributed computing, object-oriented software development, and geophysical computing, as well as theoretical and computational work done at Argonne National Laboratory.
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Keys to success with CRM technology Jay Kassing tells us how customer relationship management can beneﬁt from improved CRM technology.
With hundreds of customer relationship management (CRM) installations in ﬁnancial institutions, MARQUIS must have some unique insight into what makes CRM work or not work in banking. What two or three ideas drive CRM success? Jay Kassing. From our vantage point, we have seen what works and what does not. But specifically the three biggest predictors of CRM success for fi nancial institutions are to 1) develop simple CRM Goals that can be monetized (meaning – how will you make money doing this?), 2) train and implement the CRM technology to satisfy your specific objectives only (not to learn all a technology can do, and 3), track your progress to measure for success. As it relates to goals, what are the typical goals you ﬁnd ﬁnancial institutions desiring and achieving measureable success with? JK. Every institution is unique in it what it seeks. Yet many of the goals that we fi nd in successful CRM implementations are: reducing client attrition, improving cross-sales ratios, electronically tracking leads/referrals, improving key account business intelligence and contact management, and administrating incentive programs. In the end, each institution needs to prove success with CRM by executing and measuring whatever goals they fi nd important to them. But if an objective is too broad, it cannot be measured easily, is not measured at all, and/or you cannot hold your team accountable. Another goal you mentioned is implementation and training to meet an institution’s stated objectives. Why do institutions overlook this? JK. The training and implementation of technology is assumed by most folks. This simply means that generally, banks and credit unions feel every vendor trains and implements to about the same level. In our experience, these things are more important than the technology itself. In reality, banks and credit unions have never implemented CRM before, so they have no experience to draw upon for success. There are a few deep, cavernous traps that fi nancial institutions will absolutely fall into without experienced CRM counsel. As an example, CRM technology vendors typically train their clients’ staff how to technically use the software. But who is guiding management and users alike on how to prioritize their goals, put together an implementation plan and customize the system to fit them? Training vs. im-
plementation is not subtle ‘wordsmithing’; the differences are enormous. What role do the CEO, the Board and senior management play in making CRM technology a winning initiative and positive experience for ﬁnancial institutions? JK. Accountability. If even one person among senior management is not on board with the whole CRM initiative, then success is at risk. The CEO, the Board of Directors and all of senior management must agree that embracing CRM is fundamental to how they will do business in the future. Just like balancing the teller drawer, being CRM-enabled is the way we work. Then, they must hold their respective staff accountable for using the CRM tool to build relationships and sell (and service) more effectively, so as to deliver results that can be measured. The CEO and senior management must hold everyone accountable.
“Banks and credit unions have never implemented CRM before, so they have no experience to draw upon for success” Does data matter? More speciﬁcally, how is the risk of sloppy data and data management felt in the day-today execution of CRM? JK. Having good client data is imperative to success with CRM. The fastest way to get your staff to stop using any CRM tool is to push data through CRM that they do not trust but are being held accountable to rely upon. We could spend hours on this topic alone. Many fi nancial institutions pull lists of clients into a CRM database once and refresh that data irregularly. Your frontline staff needs accurate, timely data that they know is aligned with their core system (and the other systems that house services or other relationships). All client and prospect data must be updated and enhanced no less than nightly.
Jay Kassing is President of MARQUIS, a CRM, MCIF software, service and consulting ﬁrm, of Plano, Texas. He has written dozens of articles for the trade press and spoken at virtually every national association on the topics of CRM, client retention, marketing and more. To read the complete white paper on ‘The Ten Keys to Success with CRM’ visit: http://www.gomarquis.com/pdf/10%20Keys%20to%20Success%20 with%20CRM.pdf
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CUSTOMER RELATIONSHIP MANAGEMENT
Funds Trust Bruce Livesay, CIO at First Horizon, tells FST how IT innovations can help to rebuild consumer trust in the banking system.
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eptember 2008 marked a watershed moment for the global banking sector. The collapse of Lehman Brothers Holding Inc. was the first real casualty in the phoney war that had played out between consumers, investors and the banks since the term ‘credit crunch’ first entered common parlance some 12 months prior. Previous animosity towards bankers and the banking industry always erred on the faintly comical: bankers were seen as greedy, pantomime villains who were out to pennypinch and fritter away one’s savings, all the while exhibiting the threatening air of a contented house cat disinterestedly batting some balled up old socks. Indeed, such ‘fatcats’ were seen as necessary characters in the whole banking charade; an easily identifiable fallguy who was – while never loveable – at least tolerated and afforded grudging respect. Then the entire illusory ruse collapsed. Risks that had previously yielded huge financial rewards were soon seen as foolhardy and wildly irresponsible. Massive job losses ensued, the knock-on effect on other banks was seismic and consumer-confidence in these previously sturdy and entrusted institutions was intensely damaged. “Banks are really back to ground zero in terms of re-establishing trust,” says Bruce Livesay, CIO for First Horizon Bank and the man responsible for implementing a number of IT innovations that have been designed to rebuild that damaged faith between consumer and bank. “We’re now deploying a lot of contact management and sales management types of tools, leveraging our data warehouse and updating our customer relations database. We are trying to make sure that when a customer walks up to the teller, we know who they are, we know what products and services they already have with us and we know what things they might be interested in,” he says. Such ‘relationship banking’ methods might appear out of place in an IT sector’s job description but they are, Livesay explains, heavily interlinked. “I think that customers want you to know them, maybe more so than have a relationship with them. It’s a subtle difference but I really think that in most cases, customers want you to know who they are. They want you to understand what their needs are. Understanding who they are and what they are about is more important to us than forcing products on them.” This personal touch is widely believed to have been lost to the banking sector, particularly in this post-recession world that we currently live in, but Livesay is adamant that such connections between customer and bank can be engendered once more. “Sometimes it’s as simple as having longtenured employees in the branch,” he explains. “If someone walks into the branch and they’ve known those folks behind the teller line for 30 years, that makes a big difference when they say ‘Hey, how are you doing and how are the kids?’ Th is issue of trust is huge right now.” Building up this trust will take plenty of hard work, both in terms of implementing the correct IT strategies and working toward shifting attitudes at board level towards the importance of making things better for the average consumer on the street. “I’ve told the CEO that I’m doing what I
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can to make things better, and I have complete support to get that done,” says Livesay. “The board really do understand the strategic value of IT in this environment. The best technical people, in my view, are the ones that understand the business side of things too. That’s what I tell my entire team. I want folks that want to interact with the business. The closer they get, the more value they can bring, and that’s the real job.” When a CIO utters these words, you know that you are dealing with an organization that is determined to ensure that every member of its backroom staff – even those traditionally consumer-shy individuals in the IT department – is striving towards a common goal to reconnect with their customers and heal bonds that were broken when the global economy headed southwards in 2008. “My challenge has been to really take a look at the core bank and the business that’s already there and upgrade the infrastructure in order to be ready for the opportunities that we think are going to be presented in terms of bank acquisitions and those kinds of things,” says Livesay. “There’s a lot of work to do right now to get the core systems upgraded; we’re investing heavily in either the renewal or replacement of a lot of these systems, and our bank right now is in a very unique position where, in terms of capital ratios, we’re definitely in the top five in terms of the amount of capital that we have.” With First Horizon’s stock prices up by 36% during a period when the average mid-cap bank was down by 20%, they are obviously doing something right. “The expectation for us is that there will be some opportunities that come about as other bank failures occur, and we’re looking to grow our footprint and contiguous markets in the Southeast [of the US]. We’re either replacing or renewing every single core system of the bank, because you can’t cut your way to success. We do have the capital to grow, so we’re in a fortunate position: we’re ahead of the curve.” As CIO, Livesay is responsible for bringing on board this new raft of technological changes, all the while ensuring that the consumer-focused approach is never lost sight of, and that the bank’s growth remains steady. “We are doing a lot of enterprise architecture work, service-oriented architecture work, and we’re looking at mobile technologies and visual technologies, while also upgrading our internet platforms.” Such a widespread overhaul of the bank’s core system no doubt brings its own unique challenges in terms of logistics and coordination, but Livesay believes that the end result – better service and security for the consumer – more than makes it worth it. “The coordination is difficult but it’s also an opportunity,” he says. “There are advantages sometimes at being at a point where you have to replace a lot of your systems, and we’re at one of those moments in time where I think the technology has finally come to fruition where the systems are starting to work better and play better together. We’re moving towards a model that is much more iterative, delivering short-term value and then adding value every 90 days. Form a pure technology perspective, it’s not even as scary as the change management implications to the organization and the people.” And as banks become ever more sophisticated in their IT and computer systems, new opportunities arise that re-
Where did the trust go? A study by the Bank Administration Institute (BAI) found that
of retail bank executives in the USA felt that consumer trust in banks had been drastically eroded in the last
six months of 2009.
Of those bank executives interviewed in the study,
were of the belief that innovations in customer relationships and services will spur future growth, with
50 percent citing more ﬂexible IT systems as a key driver.
one in four bankers believe that banks will be better positioned to greater understand their customers’ needs within the next six The same study revealed that
36 percent of consumers questioned in a 2009
Edelman Trust Barometer survey said that they trust their banks, with a mere
17 percent trusting information released directly from bank CEOs. In the UK, a poll by PR agency Cohn & Wolfe found that
of those surveyed about their bank thought the word that best described it was ‘greedy’, followed by
36 percent opting for ‘impersonal’. Only four
percent deemed their bank to be best categorised as ‘trustworthy’. quire a fair amount of consideration as to their worth. Cloud computing is one such issue that has hovered on to Livesay’s radar in recent months. “I do think there are opportunities to use the cloud in the development side; there are some real plusses to capacity on demand and I think it gives you a way to help your developers build things in that model. “It teaches them how to build those types of services that are going to leverage that type of capacity on demand. We’re moving that way, whether it’s a private or a public cloud. It is a capacity we’re trying to offer up as a service.” Despite there being some concerns relating to privacy of information and security with the cloud, Livesay is confident that, with the correct security systems in place, the cloud need not be a cause for concern for the customer. “We have to protect people’s information, and it’s their money, but financial institutions do have an opportunity to develop cloud-computing programmes.” This customer-first approach is something that can help the banking world regain some degree of trust with the general public once more. ‘Once bitten twice shy’ might well be a wise and understandable default mode for many bank customers in the current climate, but the fatcats of before no longer have the luxury of complete consumer trust in their actions; they now have to earn it. Bruce Livesay, Chief Information Ofﬁcer for First Horizon Bank, has more than 20 years’ experience working in banking technology and is a former Senior Vice President of Application Delivery at Regions Bank. He has signiﬁcant experience in software development and implementation management. At First Horizon he is responsible for the entire IT team, which includes every aspect of the bank’s online and digital strategy.
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CREDIT UNION SECURITY
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Credit where it’s due Credit Unions face the same security threats and technology challenges as banks, and are working equally hard to provide better service to their members, Carolyn James tells FST.
redit Unions have members; banks have customers. Credit Unions are not-forprofit; banks are all for profit. There are numerous differences between the two business models, but concerns regarding security, service and growth remain a shared issue. FST spoke with Carolyn James, CIO for USA Federal Credit Union, as she gave an insight into the challenges facing credit unions in the current financial climate. In terms of technology, is the way you communicate with your members increasingly sophisticated? Carolyn James. Absolutely. I spent 22 years in banks, including Wells Fargo and Bank of America, and have been with the credit union for five years and it is defi nitely a completely different business model. We are non-profit, for one. We do not have shareholders. We are responsible for, and report to, our members. It is their money and we are just custodians. So when you look at upgrades or you look at infrastructure replacement, we ask: ‘Is it in the best interests of the member?’ There are no egos here as far as the products we pick. It’s: ‘Are we using our members’ money properly?’ What have been your key technological priorities of late? CJ. The one we are working on right now which we should have rolled out soon is mobile banking, and we are going to follow that closely with the Visa alerts. So if you make a purchase, you can get alerts on your mobile device real time. So if you get an alert that you have just spent $200.00 at Best Buy and you are not standing in Best Buy, you know that something is wrong. Also, we have spent a lot of time over the last three years upgrading our WAN and communications. We have offices in Japan and Korea and it is important that those tellers have the same response time as a teller a mile from headquarters. So we spent a lot of time on communication and we are finalizing the last part of our WAN upgrade overseas. From your perspective, what challenges does your mobile banking initiative present? CJ. We do not own the mobile device, and so we have to support that device to a certain level and then, at a certain point, we are going to have to turn it over to the member to talk with their carrier. So we were really looking for an application that was robust and stable and would work
in foreign countries. It is important, especially for our overseas members who do not live near a branch, that they be able to get access to their money. So it has been a challenge trying to fi nd a device and test a device or the soft ware with the device stateside and then try to figure out how it is going to work in Japan or Korea, specifically, but anywhere in Europe. With what’s been happening in the traditional banking environment recently, have you noticed a spike in interest in Credit Unions? CJ. Absolutely. Without any advertising or anything, we have got people walking in through our doors every day to join a credit union and really, if the individual understands the credit union business model, they will not go back to banking. We offer all the traditional services a bank offers at a consumer level and we do it, frankly, better. Our platforms are already integrated. I hear a lot of the bankers talking about their systems being siloed and credit cards that do not talk to other systems for example. Our system is integrated. That is how it works. It is real time and I know that bankers are trying to achieve that and I understand, being a previous banker, how difficult that is because they are working on such a large scale. But on the member side, when you come in, we know who you are. All your accounts are linked and it’s just a better experience. We have better rates. It’s just the way it is. We are a not-for-profit fi nancial institution and so being not-for-profit means that we are looking out for the best interest of our member versus our shareholder. Has it been a challenge to ensure that all of your systems are fully integrated? CJ. We do not build the systems ourselves. I look to get partnerships with vendors. It is a requirement that systems integrate into our core system and our core system supports all of our products except for real estate. The real estate system is fully integrated with the core system so it is seamless and when you are looking at, for instance, the new mobile banking vendor we chose - which happens to be the same one that Bank of America is using – it is integrated into our core. We do not want any batch programs running behind the scenes to make things look like they are integrated. They must be integrated real time. What are the key security challenges facing credit unions?
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CJ. With security, credit unions and banks are equal on that. The same bad guys want money. They do not really care about our business model. We host our own online banking but we have a lot of third party handoffs and we work very hard to make sure those are at the highest level of encryption. Occasionally, you will find things where somebody has created a workaround and you have to plug that hole, but I monitor those. We have third party monitoring. We are on top of our third party connections and we also, of course, require SAS 70’s on those and I’ve gone on site and reviewed key vendors’ operations to make sure that what is in their SAS 70 is really a reality, because anybody can pass an SAS 70 given enough time and money. So we have the same challenges as banks. How do you educate your staff and members against external risks? CJ. We do a lot of member education. With our demographic, because we are military based, we have a lot of young kids come in and they are a little more savvy than the older demographic, but they are also a little bit looser with their information. So education is key. It’s just constant. We are constantly adding that and reinforcing it. I’ve worked with our call center to make sure that their scripts include security awareness. It’s always forefront in my thoughts. As the types of risk change, how do you stay one step ahead of the ‘bad guys’? CJ. For me, security is job security because we are never going to get there and check it off the list. It’s constant. Risk is always evolving and we need to stay on top of it, just like the big banks, so education really is key. Educating our employees goes a long way toward educating our members. I have previously deputized the staff in all of our operations overseas and stateside, to look for phishing emails, to know what to spot and escalate to me. It’s just a little psychological ploy. Being deputized, they feel like they love to bring things to me. “Is this that? Is this phishing?” And so it reinforces that they are out there looking for it and they get a little pat on the back acknowledging that they found something. However, much of the fraud that we have seen has been mostly self-infl icted by our members falling for schemes. It’s not so much because we have holes in our system; it’s just that the old fashioned way of talking someone out of their password by certain means still works on some people. It’s amazing that people still fall for it but it’s a tactic that obviously pays off for the phishers. What are your priorities from a technology standpoint going forward over the next few years?
CJ. Right now, the economy is impacting us and we have no major initiatives planned for the next three years. Because I oversee one of the largest cost centers, just by maintaining a flat budget I help the overall organization. What we started doing last year and will continue to do is look at every vendor contract we have and whether it is up for renewal. Out of the contracts we have looked at, we have saved at least 20 percent in our cost just by going back and saying, “You know what? Th is is too much. The game has changed now. We’re non-profit and we can’t pay these fees.” And they will renegotiate and/or resign contracts. All you really have to do is ask, and that takes up a lot of time: contract negotiations, reading through those, etc. So we are not putting in new fun things but we are reducing our cost or making sure that those that are renewing do not increase. In light of the current climate, do you think that credit unions are going to start claiming an even greater share of the market? CJ. If we have our way, yes. There is a pretty big lobby of bankers that fight us constantly and we only have six percent market share in the U.S. I don’t know why there is a need to spend so much time and money trying to push down credit unions because we are really not a threat. Six percent is not a lot. But there is always a constant push to get us out of our non-profit status and to make us fall under the same regulator and such, and I hope that does not happen because credit unions have been around for 90 years and we fi ll a niche that the banks do not. Carolyn James is the Chief Information Ofﬁcer and Senior Vice President for USA Federal Credit Union, overseeing the IT division. Previously she has worked as Vice President for Business Support at GreenPoint Credit and was also VP for Information Administration at Wells Fargo Bank for a number of years.
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NEW HORIZONS After serving military families since 1933, the Navy Federal Credit Union is undergoing a modernization program to meet the needs of its new generation of customers. CIO JERRY HERMES tells Diana Milne what the organization has in store.
here are few US financial institutions more rooted in traditional banking practices than the Navy Federal Credit Union, and the organization’s CIO Jerry Hermes is the first to admit that Navy Federal is a little behind the times when it comes to the latest banking technologies. But he says it is crucial that the credit union, which serves retired and serving military personnel, is able to meet the needs of all its members – regardless of age. This, says Hermes, is one of the main aims of the organization’s ongoing modernization program. “A key priority for 2010 is to be in year two of our major transformation of organizational structure and core system modernization which involves adapting our technologies to attract the Generation Y customer group, where a multitude of our clientele are. If you look at our clientele, there is a really bimodal distribution. There’s a huge hump in the 20-30 age group and another huge hump in the over 50-age range. The over 50s, we’ve got nailed. To serve the 20-30 age group we have some modernization to do.”
Modernizing methods Catching up with its younger customers will not be easy, Hermes admits, given the Navy Federal Credit Union’s traditional way of working. He says it has started by introducing mobile banking options and upgrading its online banking offering. “It’s a huge job, I think, because we come from a traditional fi nancial services model. Now we are into mobile banking. We are coming out with the second version of our home banking offering. The current version’s been out there for about eight or nine years. It’s a little tired and we want to refresh it. And from a business perspective, we want to make it easier to maintain.” Unlike most of its mainstream counterparts in the banking world, Hermes says the Navy Federal Credit Union has actually posted a profit in the past 18 months – a gain he attributes to the organization’s risk averse approach to fi nance. “Credit unions in general are seen as a safer, more secure, less risky place to park money and we’ve seen about a 20 percent growth in assets over the last 18 months and a growth of membership of only about 10 percent, so we’re seeing a lot more money come in per account than what we normally
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Credit unions in general are seen as a safer, more secure, less risky place to park money and weâ€™ve seen about a 20 percent growth in assets over the last 18 months
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expect in the military families that we serve. But it’s really heartening because last year we extended mortgages, lending over $6 billion worth of new mortgages. This year, we have over $7 billion to lend and so we’re extremely safe and sound.” He goes on to say, however, that the downturn has affected his customers’ spending habits with more of a focus on cash rather than credit card spending. “We’re seeing more of a focus on paying cash, on families keeping higher cash balances than they have in the past, and, as a result, overall credit spend goes down.”
Customer preferences Keeping a close track of its customers’ financial behavior is a key part of the Navy Federal Credit Union’s customer relationship strategy. Naturally, he says, the needs of the military are different to those of the general population with the long absences of those serving overseas often leaving families in complex financial situations. “Our customers are divided between the active military and the retired. Once they’re retired military, they look like the average population, so in that sense our membership is very much like that of any other financial institution. But within our active duty membership, we certainly are very knowledgeable about their stress points, what they want to accomplish and what their constraints are. When the military members are deployed for six or eight months, their families are left here. We have to look at what that does to them financially, especially if they’re deployed to a remote foreign area where they’re not going to be conducting mobile banking.” Regardless of their military status, Hermes says the credit union’s customers tend towards a preference for face to face or telephone banking – a ‘high touch’ approach, rather than using online facilities. However, robust technology is still required to ensure call centers and customer contact centers are as efficient as possible, he maintains. “Most of our interaction with customers occurs at our branches and our call centre. Customers see us as a high touch environment and a credit union is generally seen as being more high touch than a bank. But that high touch capability is enabled by the technologies that allow the contact center to be rated one of the best, and for us to have a world-class branch system. Our customers know that they have access to face-to-face contact when they need it. The phones are there 24 by 7, and if they [customers] just want to just get on with it, they can handle it all online.” Although he understands the need for the bank to modernize its systems and cater to the online banking generation, on a personal level he is wary about the extent to which the younger generation is willing to interact online and maintains there must be a strong distinction made between approaches to consumer-orientated and enterprise computing. “The younger crowd is more inclined to put its information out on the Internet and not understand the potential hazard. They’re the ones who are interacting on social media more often than the older group. They have no concern about having most of that information out there, and they won’t until they go for their fi rst job interview and the Facebook party pictures come up in the interview. It’s
Navy Federal Credit Union has over 3.4 million members
Nationwide, credit union members comprise 43.7% of the economically active population
Jerry Hermes is the CIO for Navy Federal Credit Union, a position he has held since February 2009. Jerry boasts more than 25 years of experience working in integrating information and business processes, ﬁnancial management and positioning professional services in the marketplace.
a constant education. The difference is between consumeroriented computing and enterprise computing, and the rules are different. So what you do in your personal life you cannot necessarily do in your public life, and that’s an important point to make.” Hermes says the credit union is currently working in partnership with an IT company, towards the building of a new IT strategy for the company and that his focus now is to move away from focusing on technology as an enabler of day to day working life at the bank to focusing on it as a means to achieve long term strategic goals. He says the company is working with an external IT solutions provider to achieve this. “We’re going to be continuing the modernization programme and we are shift ing our focus and shifting our resources away from keeping the lights on toward the strategic projects and the new things that we want to build. We’re in a very tight partnership with a business on that. We have regular meetings with the other business units to ensure that we are seen as a strategic partner and that we’re as concerned about the bottom line as they are. So as we move into voice over IP to all of our branches and to replace some of our older infrastructure, it’s always with an ROI in mind, and they appreciate that.” Creating a case for investment in this new technology, particularly at a time when budgets are tight, means focusing on solutions that enable the credit union to meet its business objectives – a focus he feels well qualified to achieve. “I spend probably 15 percent of my time on the technology and the rest of it with the business. Risk management, security, business objectives, it helps that I’ve got a very business-orientated background and have run my own company and so it gives me the credibility to speak on that,” says Hermes. “We’ve married the technology back to the business process better so that we can reduce our time to market.” And luckily for Hermes he says he has the full support of his executive management team when it comes to making these investments to support business with technology. “They’re clued in and I think that the President and the Chief Operating Officer both understand where we’re trying to take the technology in support of the business objectives, and they’re very much backing that and making some investment available to us.”
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Customer waiting time that works for you Educating, informing and entertaining your customers as they wait for their bank appointment is an innovative customer-retention technique, says Steve Kartonchik
ow many times have customers been overheard sighing, fidgeting or muttering under their breath in the teller line, only to leave in frustration? Once is too many. With today’s trends toward customer self-service and corporate right-sizing, leveraging any opportunity to educate and up/cross-sell to existing clients or to engage a new customer in innovative ways is crucial. Fundamental to success in the fi nancial sector is the flexibility to match your marketing messages to your client’s unique fi nancial and lifestyle needs. Today’s volatile economy demands the ability to react to rate and product changes quickly and efficiently. Successful companies nurture positive customer experiences which promote lasting relationships. ADFLOW Networks can enable you to do just that by delivering dynamic content to digital screens and interactive self-assist stations using a patented and powerful webbased platform that is secure, inexpensive, highly scalable, fast and easy to deploy. The Polish & Slavic Federal Credit Union (PSFCU) has strived to offer the highest level of customer service to its expanding member base. Propelled by this commitment and its desire to be an industry leader, PSFCU partnered with ADFLOW to integrate a digital marketing network into its branches. Its network informs customers of the many products, rates and services that PSFCU offers. Screens are positioned strategically in the branches with content alternating between Polish language TV, brand and product awareness and current rate information for various services. Results illustrate a decrease in perceived wait times and increased revenues, in turn improving the overall impression made upon clients. PSFCU has recently expanded its digital network to Polish grocery stores, allowing PSFCU to spread its message to potential customers outside of its walls. Similarly the Alberta Motor Association, a membership organization with over 885,000 members and an affiliate of the AAA, embarked on a branch renewal program that utilizes ADFLOW’s DMS™ (Digital Messaging System™) for its Digital Marketing Network across the province. Like PSFCU, its members’ needs have always been at the forefront of their activities. AMA provides an extensive and superior range of products and services including travel insurance, registries and mortgages and promotes quality service, safety and protection for its members.
The goal of digital signage for AMA was to create a retail environment focused on member experiences and to create a heightened awareness of AMA products, services and commitment to the community. The Digital Marketing Network succeeded with the placement of 42” and 52” integrated high defi nition LCD displays in each department to promote central or regional events and showcase the services offered by each AMA department. Kendall Barber, Marketing Account Manager for AMA and project lead, has spoken enthusiastically about the product, stating: “Th is note is to express my utmost satisfaction to date with the ADFLOW team. Admittedly, I was extremely nervous about the tight timelines of the pilot. Now, I am thrilled to have all nine pilot displays mounted and displaying content. The displays have received tremendous feedback from all levels of the organization, from vice presidents to regional managers to frontline employees. “The communication by ADFLOW has been most outstanding. The entire team has been responsive and action-oriented with excellent follow through. It has been such a pleasure to work with your team.” AMA has recently expanded its Network to multiple branches across Alberta. ADFLOW solutions deliver unique, targeted content to customers across your branch network from one central control point, providing your organization with a key competitive advantage. Make the waiting line work for you by giving your customers something informative to watch on a big screen, rather than staring at their watches.
Steven Kartonchik has more than 25 years in the software solutions sector. He has played key roles in sales management with leaders like Comshare and Cognos and most recently ADFLOW Networks. His team’s ability to translate technology into business value has helped ADFLOW Networks achieve rapid growth and high levels of customer satisfaction.
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Solutions through Strategy Adam Burns sits down with Sherrie LittleJohn to learn more about Wells Fargoâ€™s new enterprise strategy and architecture department, and how the ďŹ nancial institution is embracing new technologies.
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So what does the Enterprise Strategy and Architecture Department do for Wells Fargo? Sherrie Littlejohn. The Enterprise Architecture Group is actually intended to be a bridge between the business, the technologist and the CIOs to defi ne what their business strategies are, and then to take that business strategy and create an architecture or a business solution that takes into account whatever technologies we want to bring to the table. Not just that, but bring solutions that are pragmatic, timely, cost effective and look to see if there is some opportunity for synergies across other opportunities. So, using something like service oriented architecture as a mindset for how we might solve business problems is a way in which we’re doing enterprise architecture these days. It is essentially a strategic planning organization. What’s your background and how did you get into the department? SJ. My career started about 30 years ago, where I worked in the networking side of companies from the laboratories to AT&T to Pacific Bell and back to AT&T. That was my journey, and my career life. I also did soft ware development, architecture, operations, network engineering, the whole nine yards, even application supporting networks in terms of operation support systems. I came to Wells Fargo about eight years ago and I ran the network for seven years. I have only had this position for the last year. There was a merger and as a result, I wanted to go do something else that was coming to the bank. I grew up with the technology and at networking companies, so it did not matter what facet of it you were in, you were still part of a networking organization; you thought networks. As I was in a bank, I wanted to learn how to do other things, and when we had the merger, my organization - which had the network suite to nets architecture, engineering, operations, telecom expense management, the firewalls – when we merged, it made more sense to split those pieces up so we could have an operations department, and an infrastructure department where the network engineering and architecture is in one department. I decided this was an opportunity for me to go do something else, and when I was asked if I would take on enterprise architecture, because I tend to think more strategically, it seemed like a natural thing to do. When I had the network organization in the Pacific Bell, I actually had architecture which was system architecture, network architecture, application architecture, data architecture. So, I had the mix of what architecture was all about in a previous life and had subsequently created architecture groups throughout my career. So, it was a natural extension, except that now I am looking at it in the context of banking and fi nancial services solutions as opposed to just networking solutions.
I think we can mitigate spending wastefully and part of that is back to us being invited to the table and understanding what the business is really trying to accomplish
What, for you, are your most valuable metrics? SJ. With the Enterprise Architecture Group, what we have done is measured how many architecture assessments we do, how many technology assessments we do and how many vendors we talk to for emerging technologies that we translate into real business solutions. What I would like to evolve us to is to look at what the impact is we have had on the business in terms of bringing new solutions to them, stopping something that should never have gotten started or redirecting something because we have found a more efficient way to do it. We determined there are three business lines that could actually take advantage of this. One of the things that I think is most important in an organization like this where it is more of an investment to assure that you are managing risk is to assure that you are doing the right things and managing costs. Those are the things that we’d like to be known for. For me, it is really about what is the impact for the business, and, quite honestly, how often is
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the business calling me to be a part of their strategy discussions, a part of their solutioning around what they want to do for the business? Those would be the measurements that I would look for. Have you got clear milestones? SJ. I have been in the job one year, and at the end of the year we were given performance reviews and I was told the impact I had had and how often I have been called back. Th is is what people want me to do now. They have asked me since I have been working on this, now they want me to work on this, and it is a bigger piece. Now they want to invite me to their staff meetings, and they want me to be a part of their team. That is success for me because now we have arrived. How do you prevent IT being squeezed as a cost centre? I don’t know that we can prevent it. I think we can mitigate spending wastefully and part of that is back to us being invited to the table and understanding what the business is really trying to accomplish. If we have that understanding of what they are trying to accomplish holistically, and not just what Wells Fargo is trying to do, but what you are trying to do in your line of business, given that insight, we can look across and provide them with more solutions that are more pragmatic, which means I do it one time as opposed to ten times. So, I can save the business money that way. Implementing things like service oriented architecture, I really do believe that provides some value because we start thinking about services, a service that I can put in place to account management. If I can do it one time and actually allow my lending folks to have access to that, my retail channel, my community banking, credit card, if I can have all of them to have access to that service, I have saved you money where I can invest in other ways – invest that in different ways or in better ways or additive ways for us to bring money into the bank and actually make it more of a better experience for our customers.
The business is getting to a point where they realize that technology is not a separate thing. It is not this ill that I have
For such services, should the IT team be more rewarded, recognized and incentivized from a business perspective? SJ. The short answer is yes, but how we get there is not only being invited to the table, but understanding that quite honestly today the way that IT organization is funded is by the business. The business doesn’t like the fact that our bill is large, and so the way in which I think we both can help each other is to have the business on board – and I believe we’re getting there. The business is getting to a point where they realize that technology is not a separate thing. It is not this ill that I have. It is truly an integral part of my solutions and being able to serve the customer best is to really bring those things together. And so, to have us to be rewarded as a result of what they are making in their business, as a result of what value I bring to the table, I think, makes perfect sense to me. It actually makes the IT team feel like part of the family, as opposed to ‘I’m this bruise that I just have to tolerate’. I think that is just the way we need to move forward. What would be your most essential advice for building high performing IT teams? SJ. I believe in raw talent. We are always learning so IT is never a boring place to be – there is always something new on the horizon. As such, I am looking for talent that is eager, collaborative, willing to work with others, willing to be respectful and trustworthy of others; talent that is looking to make a difference, wants to understand the business as part of their repertoire of skills, can talk and wants to be friendly with people. I look for talent that is interested in what they want to do, not just because of technology for technology’s sake, but really understanding how that technology can be used to bring about value to actually help us to make money, reduce costs or serve our customers better. What is the best way to train staff and adopt a new technology? SJ. In the architecture organization we have a pretty robust architecture development program where we bring in interested talent. They may be engineers, they may be junior architects, they may be a programmer that is interested in becoming an architect; but we send them through a program after being approved by their managers to come in and put them on a year-long program. They get hands-on, as well as classroom participation, and then they get to actually go out and be an architect for six months and learn what that process is and take on projects and grow. The program has been in place for about four years, and this past year half a dozen of those architects who worked with the program have sent us notes saying: ‘I really do believe this was the best thing that happened to me.’ So, that is one of the things that we have done from an architecture perspective. In my networking life, I would take raw talent, some-
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one that is right out of college and is eager to learn, and once I get to know what it is that turns them on, buddy them with someone that they can learn from, a senior person that they can shadow and follow around, have small projects that they can do, have them have the opportunity to come talk to me, give me a presentation, critique it, know that I am there to help them, help them learn how to give a presentation to sell their ideas. I believe in strong coaching and mentoring talent, having them take courses, but not just for the sake of taking courses. I believe in just-in-time training more than anything, and also, taking courses that they are interested in and then helping them to fi nd something that will be a part of their job to actually exercise that to see if that is something they are interested in. How does communication between the head of the IT department and the business function? What do they expect from you, and what do you expect from them? SJ. As a leader, my staff are expecting me to give them vision. They are expecting me to say ‘what are our goals?’ ‘What are we trying to accomplish? Remove roadblocks so they can get their work done.’ Assure they have resources to get their work done. They are looking at me not necessarily to be a cheerleader but to be motivating and engaged with what they are doing. What I expect from them - pretty much the same
Enterprise architecture is a key component of information technology governance
Enterprise architects use various tools to understand the dynamics of an enterprise
things. I want them to be excited and enthusiastic. As you can tell, I am very passionate about what I do. I want them to bring that passion to the job. I want them to grow. I want them to learn as I do. I wanted to learn a lot of different things. I want to surround myself not with people who are like me. I want people who are not like me because then we have a richer dialogue. I want people who will challenge me. I don’t want people who are ‘yes people’ around me. That is what I look for in folks in building a strong team; folks who are willing to challenge the status quo because the world is always changing and willing to challenge me as their boss, as their leader. I mean, we are not all right, and we don’t know everything, and there is too much going on to feel that we do. So, I am looking for that interaction and that dialogue and, in some ways, a little competitive nature to get things done, people who are really results oriented. I like ideas people. You need those in a group too, and you need all kinds of people in a group, but at the end of the day, we have got to get stuff done, even in enterprise architecture. Sherrie Littlejohn is the SVP of Enterprise Architecture at Wells Fargo, a company she joined in July 2002. With nearly 30 years of experience in the telecommunications industry, Sherrie has lead efforts in voice, data, applications, systems, instrumentation, network and overall IT technology development. Sherrie was Vice President of Information Technology at Yipes Communications, a startup delivering Ethernet Capacity on Demand services.
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TRAVEL & GADGETS & BOOKS & LEISURE & MONEY & TRAVEL & GADGETS & BOOKS & LEISURE & MONEY 133
Airport lounges Sit back and wait in style p134
Gadgets A look at tomorrow’s ideas today p137
Berlin ‘Chic’ and ‘German’ together at last p138
Books Hints, tips and handbooks for today’s exec p140
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DETAILS. ON THE MOVE
First class airport lounges Take a break and recharge your batteries by stopping off at some of the world’s best equipped airport lounges during your next business trip. The Wing and The Pier Cathay Pacific, Hong Kong
Luft hansa First Class Terminal, Frankfurt Lufthansa First Class Terminal, Frankfurt
Virgin Clubhouse, Virgin Atlantic, San Francisco Virgin’s Clubhouse lounge at San Francisco Airport boasts spectacular views of the city’s iconic landmarks. To best reﬂect the bright harbor lights and distinctive buildings of the city, it features moving glass panels that are colored to create different atmospheres within the same space. Five monitors displaying digital art and a magniﬁcent view across the Bay further embellish the setting. For the busy executive, there are laptop points throughout and 24-hour business facilities. The centerpiece of the Clubhouse, the bar made of glass, has won a string of prestigious design awards.
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Lufthansa has taken the lounge concept one stop further at Frankfurt International Airport by creating an entire all First Class Terminal. Features include private spaces with daybeds and luxurious bathrooms. Private ofﬁce units with a telephone and laptop are also provided for those who are unable to clock off. The restaurant hosts a seasonal menu and ﬁrst class wines, and an extensive buffet is also available.
Located within Hong Kong International Airport, The Wing and The Pier premier lounges both offer exceptional ﬁrst class facilities. The lounges pay attention to individual details, and feature six DayBreak rooms and Personal Living Spaces. Relax in an armchair with a private television, or take full advantage of the top of the range broadband-connected personal computers. There are multiple places to dine within the Lounge; The Haven offers a stylish menu and interior or choose a meal at the Noodle Bar. For a concierge service, the Marco Polo Club is available.
The Wing and the Pier, Hong Kong
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Premium Lounge, Abu Dhabi
Golden Lounge, Kuala Lumpur
Golden Lounge, Malaysia Airlines, Kuala Lumpur Designed with families in mind, the Golden Lounge at Kuala Lumpur International Airport features a man-made rainforest, a river and a Creative Kids’ Corner. There is even a slumber room for tired children. For adults, there are also plenty of opportunities to unwind, including massage chairs and an extensive drinks and food menu. Busy executives can take advantage of wireless LAN, meeting rooms and Malaysian stock market update displays on screens around the lounge.
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Premium Lounge, Etihad Airways, Abu Dhabi Elegant, warm and welcoming, Etihad’s lounge offers the comfort, space and facilities to make your journey through the airport a pleasant experience. The lounge is well equipped with laptop connections, highspeed internet access and fax and telephone facilities. There’s also an excellent range of audio and video programe to keep you entertained, as well as a ﬁne selection of refreshments and hot and cold buffet dishes to choose from. Situated on the ﬁrst ﬂoor of the airport, it offers a stunning view of the runway.
Club Lounge, British Airways, Heathrow BA’s Terminal 5 hosts six lounges within its New Galleries Arrivals area. The BA Club Lounge, which opened in September 2008, features luxurious furniture classically tailored in rich velvets and herringbone fabrics. A restaurant menu is provided, with waiter service allowing passengers to dine before boarding their ﬂights. Also located within Terminal 5 is the Elemis Travel Spa, which provides spa therapies for both men and women to refresh and relax passengers.
Club Lounge, Heathrow
Your World. COVERED From the people you hire to the products you sell, if you’re in business, we’ve got it covered...
Financial Services Technology Providing for its customer’s needs and demands is the goal of financial institutions now more than ever. But it is a tricky remit to fulfill. You customers want it all – security, cost-efficiency, speed, added functionality and, most of all, convenience. Can it be done? Read FST to find out...
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Approximately 50 percent of new drug development fails in the late stages of phase ||| – while the cost of getting a drug to market continues to rise. NGP features interviews with pharmaceutical experts from the discovery, technology, business, outsourcing and manufacturing sectors. It is committed to providing information for every step of the pharmaceutical development path. Available for: US, EU
What business processes work? What are the proven, successful strategies for taking advantage of domestic and international markets? Business Management is about real, daily management challenges. It is a targeted blend of leadership and learning for key decision-makers in government and private enterprise. Available for: US, EU, MENA
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Collaboration between government and multinationals is essential to ensure the energy supply is developing on two fronts. O&G is the definitive publication for stakeholders and service companies to read about the regional projects, technologies and strategies affecting their group. Available for: US, MENA, Russia
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Technology for today’s executive Samsung UN55C7000 3D TV has yet to fully take off, mainly due to the fact the premier 3D event ﬁlms like Avatar have actually yet to be released in 3D, but electronic ﬁrms are ready for the revolution and the Samsung UN55C7000 is a good indicator of this. The 55-inch 3D LED HDTV will not only make the latest blockbusters explode out towards your eyes with shocking clarity, it also has unique features such as the ability to connect with web applications allowing for the streaming of movies and computer games. It also features a USB 2.0 ﬂash drive for camera connectivity and has communications application Skype built in.
Desirability rating: **** Toshiba Libretto W100 Tablet The ﬁrst dual screen tablet PC, the Libretto W100 is powered by an Intel Pentium Processor U5400 running at 1.2GHz and consists of two WSVGA multitouch screens that are LED backlit. With tablet technology becoming more and more popular, Toshiba have pulled out all the stops for their device ensuring it is not ignored by those in the market. The dual screen tablet also featues 2 GB of RAM, 62GB SSD, 1 megapixel camera, Bluetooth 2.1 + EDR , USB 2.0 port, micro SD slot and 8-cell battery, and runs under Windows 7 Home Premium. The only question is whether a dual screen tablet is as appealing to the consumer as a single screen sleek device such as market leader, the iPad.
Desirability rating: ** iPhone 4G Arguably one of the most desired pieces of technology, the iPhone 4G is the next generation model of Apple’s ﬂagship product. The item has already made headlines around the world after tech blog Gizmodo managed to get their hands on a unit after an Apple employee drunkenly left it in a bar. Boasting a higher resolution screen, longer battery life, multitasking capability and larger storage space, it is expected to be every bit as successful as its predeccsor. Of course like all Apple products, there are still some drawbacks. Due to Apple’s dispute with Adobe, the iPhone 4G will not be able to play Flash animation or access Flash-based websites, leaving a high percentage of websites still inaccessible. The new design is also said to not be the most comfortable for left-handed users.
Desirability rating: ****
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Nokia N8 Not out until Q3 2010, the Nokia N8 could give Apple’s iPhone 4G something to worry about. It is Nokia’s ﬁrst Symbian 3 smartphone and as well as having a 3.5-inch 640 x 360-pixel touchscreen and 16GB of onboard memory, it boasts a 12 megapixel camera and 720p HD video. Unlike Apple’s products that are generally hampered by the lack of external connectivity, the Nokia N8 features an HDMI connection so you can easily show off your images, videos and music on compatible televisions and projectors.
Desirability rating: ***
DETAILS. CITY GUIDE
Berlin Time: +1hrs GMT | Currency: Euro | Language: German | Population: 3.4 million
Berlin is much more than a city of two tales. While the War and the Wall may still resonate starkly at every turn, FST discovers a reunited capital that is increasingly at ease with itself and its tumultuous history.
About The German capital Berlin is an eclectic bundle of past and present, chic and shabby, and efﬁcient and easy going. For every somber monument and bow-headed nod to its riotous past, there are progressive carnivals, artistic warehouses and multicultural districts of dazzling color and character. Where else on earth can you look at a city’s best-known sight – the Brandenburg Gate – and instantly recall both the chilling image of Adolf Hitler strutting triumphantly in its foreground while also remembering the equally chilling sight of David Hasselhoff, well, strutting triumphantly before it as the Berlin Wall came down? Such delightful juxtapositions exist throughout the city, which is a great place in which to spend a business weekend.
Getting around Stereotypes persist because they are rooted in truth: Germans really are efﬁcient, particularly in Berlin, where the entire city transport network runs like clockwork. The trams, the buses, the U-Bahn (subway) and the S-Bahn (cross-city overland train network) are rarely – if ever – late, modern, affordable (¤6.10 for a day pass), frequent and comfortable, making traversing this huge city not only easy but pleasurable too. Arriving at Berlin is relatively straightforward. Two airports currently serve the city after the cavernous Tempelhof was closed in 2008. Tegel is located close to the northwest center and handles shorter haul ﬂights, while Schonefeld is the busier international airport and is located on the city’s southeastern edge. The forthcoming Berlin Brandenburg International Airport is being built adjacent to Schonefeld and will replace it in 2011. Delays are not expected.
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TOURIST TIPS • A guided walking tour of Berlin comes highly recommended. A number of tour operators run these, and all will take you around the city on foot, taking in all of the main tourist sights but also taking you off the beaten track to uncover the real Berlin, including the unmarked bunker where Hitler shot himself. An unnerving experience. • While Berlin Zoo is well respected, its main star – Knut the Polar Bear – has become something of a recluse in his teenage years, so don’t visit there especially for him or you may be disappointed by his ponderous response to your presence. • Berlin is safe – disused warehouses are the haunts of artists and bohemian types rather than muggers – but it’s a big city so the usual rules apply: don’t ﬂash the cash in public, and be vigilant in some areas at night, particularly the quieter U-Bahn stations.
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See In a weekend you can easily take in all of the best sights and attractions, which include the iconic Brandenburg Gate, the impressive Reichstag, the lofty TV Tower and the neon-lit Sony Center at Potsdamer Platz. Then there are the remaining segments of the Berlin Wall, of which the Eastside Gallery is the largest and most famous stretch, its front decorated by artists from around the world spreading messages of peace and love. Cold War buffs should not miss Checkpoint Charlie, while the Holocaust Memorial is an eerie eye-opener – a ﬁtting apology manifested in the thousands of individual, yet unidentiﬁable, concrete stones that represent the millions of nameless and faceless who died during mankind’s darkest period.
Relax Berlin is landlocked and prone to sweltering heat waves in the summer months, so Berliners are lucky to have the neighbouring city of Potsdam to ﬂock to when they need to cool off. With 20 lakes and a number of tributaries of the River Havel ﬂowing through it, this small, historic and beautiful city is the perfect summer retreat. You can cycle through cool and shaded forests along the river, take a dip in the numerous lakes or simply stroll, ice cream in hand, across the city’s many parks.
Eat Guy For a true taste of German cuisine, Berlin is… not really the place to be. While bratwursts and bockwursts can be purchased throughout the city at any one of the many street vendors, restaurants themselves tend to shy away from local cuisine in favour of a more continental ﬂavour. Nowhere is this more evident than Guy Restaurant in the Gendarmarkt district of Mitte, in the very heart of the city. French, Italian and new world haute cuisine dominate the menu, while the décor is laid back but incredibly sophisticated.
Babis’ Ouzeri Although the Turks make up the largest ethnic minority in Berlin, their culinary inﬂuence is felt more keenly in street-corner kebab houses rather than restaurants. This is where the Greeks come in – there is nothing better than a long, lazy meze lunch enjoyed with friends, family or business colleagues, and Babis’ Ouzeri is the best of the bunch. This friendly, family run restaurant is located in the quaint residential district of Charlottenburg in the centrewest of the city, and serves fabulously fresh Greek dishes in a relaxed and welcoming environment.
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Sleep The Hotel Adlon Kempinski No hotel better encapsulates the character, history and vitality of Berlin better than the Hotel Adlon Kempinski. Built in 1907 and situated on the Pariser Platz in the heart of the city, the hotel has been a regal onlooker as Berlin’s past and present has, quite literally, exploded all around it. Next to Brandenburg Gate, it has witnessed two World Wars and the erection and demolition of the Berlin Wall; experienced life under Soviet rule and welcomed a great number of famous names, including Charlie Chaplin, Marlene Dietrich and – perhaps most infamously – Michael Jackson, who in 2002 decided to give his baby ‘Blanket’ a dangle over the top ﬂoor balcony.
Radisson Blu Large, modern, Wi-Fi throughout, well-located and exceptionally luxurious, the Radisson Blu is a brilliant choice of accommodation for business travellers keen on a central location. It is situated next to Museum Island in the heart of Berlin. Inside, the one million-liter AquaDom is an arresting sight as you enter the atrium and are met with hundreds of tropical ﬁsh swimming above your head. You won’t, though, be sleeping with the ﬁshes – there are 427 spacious rooms to choose from.
DETAILS. BOOK REVIEWS
Wall Street at War: The Secret Struggle of the Global Economy By Alexandra Ouroussoff
2 The Leaderful Fieldbook: Strategies and Activities for Developing Leadership in Everyone By Joseph A. Raelin The global economy – the ﬂattened world – demands a new type of leadership, collective and collaborative, where the solutions and vision are co-created by the team. Yet the practical application of collective leadership remains a mystery to many practicing executives and managers. The Leaderful Fieldbook helps change agents – from managers and trainers to consultants and coaches – create the conditions for transitioning from conventional to more collaborative forms of practice. Everyone is capable of participating in leadership, and not just sequentially, but collectively and concurrently – that is, all together and at the same time. The Leaderful Fieldbook presents a fresh and successful approach to leadership development across organizations. FST SAYS: An essential guide for those looking to develop their leadership skills, whether they are just starting out in management or merely looking to ﬁnetune their personal performance.
The Financial Crisis: Who Is To Blame? By Howard Davis The cause of the ﬁnancial crisis is still mysterious. Myriad suspects have been identiﬁed, from greedy investment bankers 3 to governments encouraging home ownership, through feckless borrowers, dilatory regulators and myopic central bankers to violent video games and high levels of testosterone on the trading ﬂoors.
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Many of the problems that lie at the heart of the current ﬁnancial crisis stem from a signiﬁcant but little-known conﬂict that began in the early 1980s: Western credit agencies acquired much greater power due to investors shifting priorities, and so controlled the ability of corporations to gain access to capital. Exploiting more than six years of ﬁeldwork on Wall Street, this book describes, for the ﬁrst time, the unspoken conﬂict between corporate executives and the credit agencies responsible for assessing the ﬁnancial risk their investments posed. FST SAYS: An in-depth and fascinating look about how corporate greed and risky business strategies brought the ﬁnancial industry to its knees.
Change: Bring it on! By Keely Nugent
Change is a tricky concept in business. It invariably happens and yet somehow, when it does, we are often reluctant to 4 get on board. Author and strategic thinker, Keely Nugent, has recognized the same resistance to change in international racing horses and in her book she applies the tried and test techniques of the equestrian world to business. Using a ﬁctional company as an example, Change: Bring it on! clearly and concisely explains how to establish a winning team by managing change and the challenges it brings. FST SAYS: Simplicity is key with this book. Broken down into sections of no more than two pages, it’s manageable even for the busiest among us. A light and refreshing read while still insightful.
Seven Keys to Imagination: creating the future by imagining the unthinkable and delivering it By Piero Morosini Morosini’s book examines the power of the imagination as taught throughout history, and how that can be applied to generate a successful future. An intelligent and complex book, Seven Keys to Imagination unravels the various elements of an innovative and creative mind, and applies them to real world, industryleading examples. This book offers an alternative way of thinking about how to develop your own future; however, the parallels that Morosini draws between magic and business become somewhat gratuitous and irksome. FST SAYS: Lengthy and dense and most likely futile to anyone who currently holds a creative position. However those who do not consider themselves natural innovators would beneﬁt from this book’s insight.
Howard Davies inspects the evidence for these arguments, inviting the reader to assess each, and the likely effectiveness of the proposed remedies. FST SAYS: An interesting look at the factors that might have been behind the global ﬁnancial crisis. Hopefully lessons can be learnt for the future.
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DETAILS. QUOTE UNQUOTE
The European deficit crisis has not only threatened to break up the euro zone, but it has also unsettled markets farther afield. FST gathers together the views of the main players involved.
“We need a clause in the treaty that would make it possible, as a last resort, to exclude a country from the euro zone if the conditions are not fulfilled again and again over the long term.” Angela Merkel paints a worstcase scenario for struggling euro zone members in the future.
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“If we need any further illustration of the potential threats to our own economy from uncontrolled borrowing, we have only to look to the struggle to maintain the common European currency, to rebalance the European economy, and to sustain political cohesion of Europe.” Paul Volcker tells it like it is.
“We didn’t choose the terrible economic situation we inherited.” New British Chancellor George Osborne shoots from the defensive as the Conservative Party introduces tough austerity measures to the UK.
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“For me it’s over; I’m stopping this if we can’t agree.” French President Nicolas Sarkozy gets all hot and bothered during a Brussels summit discussion with the 16 leaders of the countries in the euro zone, threatening a French withdrawal.
“We are on target.” Greek Finance Minister George Papaconstantinou: a man of few words. Probably for the best.
“We absolutely agree on the need to reduce the deficit over time, but for a country like the US, there is still space and need for targeted actions.” Deﬁcit control might be Europe’s best bet, but the US will continue to pursue its own ﬁscal stimulus program, warned White House Economic Advisor Christina Romer.
“Adverse developments in Europe could disrupt global trade, with implications for Asia given the still important role of external demand.” IMF Deputy Managing Director Naoyuki Shinohara warns Asian investors that they are not immune to Europe’s sovereign debt crisis.
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DETAILS. PHOTO FINISH
The cherry blossom-lined streets of Bethesda, MD are home to the highest earning individuals in the US, according to The Money Magazine. Median household incomes in the town are $172,541, and its proximity to Washington D.C. makes it a favored spot for politicians.
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