RISK AND SECURITY ADVICE ON MANAGING RISK AND SECURING YOUR IT PERIMETER
BANK OF MOM AND DAD WILL SOCIAL LENDING PUT AN END TO THIS NATIONAL INSTITUTION?
IDEAS ARE EVERYWHERE HOW SOCIAL COLLABORATION CAN TAP INTO YOUR COMPANY’S INNER WISDOM www.usfst.com • Q4 2010
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EDITOR’S LETTER 5
Tough times, tech measures A tumultuous 2010 has caused great financial upheaval for millions, but the economy’s dark path toward stability is being illuminated by technology.
he American Dream has taken a bit of a battering in 2010. From ‘Land of the Free’ to ‘Land of the what about me?’, grievances abound wherever you look. The recent midterms were an unedifying battle of extreme ideologies, with far-right ranters excoriating the incumbent Obama administration to such a vitriolic extent they were able to elicit a rather uncharacteristic response from the usually placid left: the past 12 months have been anything but a dream world for millions of Americans. The anger of the Tea Party has been fuelled by the perceived threat of big government coupled with a shrinking job market and a drop in living standards among America’s white working class. The ‘we’ have raged against the ‘they’ in a manner unknown since the civil rights movements of the 1960s, with the irony being that many in the Tea Party movement only found their voice once the socio-economic problems that so bedevilled the black and Hispanic communities for decades landed at their door. One could whoop at the irony of it all, or even rejoice in the inherent ‘fairness’ of a system that, evidently, doesn’t discriminate based on skin colour. To do so, however, would be to miss the greater challenges the country faces. People throughout the land are hurting, and the blurring of racial suffering is of little comfort for the millions still struggling every day to make real their own ideology of the American Dream. Many millions face tough employment markets in the months ahead, but as jobs are cut and relative income falls, medical bills, taxes and banking fees are going to remain in stasis. Credit is going to be squeezed. Interest rates will increase. Life is going to become tougher before it gets easier.
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In light of such circumstances, a noticeable shift in the way Americans are viewing their ﬁnances is taking place. The country’s sizable underbanked population – currently estimated anywhere between 30 and 40 million – could drastically increase as more and more lose their jobs and can no longer afford to maintain an account. Such a situation demands greater attention from the banking world: can America’s largest banks continue to haemorrhage client after beleaguered client, or should they take a collective look at their fees structure and formulate a plan to make it easier for those with low and erratic incomes to enjoy the same services from their bank as wealthier clients do? Elsewhere, that erstwhile institution – the bank of mom and dad – has been through the mill too. Whether it’s elderly parents in need of assistance, adult children expecting a handout, or simply their own job security being shaken by external pressures, baby boomers’ ﬁnancial security is no longer as surefooted as it once was. These challenges are, however, thankfully being met by the ﬁnancial industry, and technology is playing a starring role in the ﬁght. There is a will and a way, and innovation in banking technology is proving that the American Dream isn’t dead just yet.
“I don’t think this is about teaching people to become ‘better’ at banking. I think this is about making the products and services that are available to consumers more useful and userfriendly” – Jennifer Tescher, founder and director of the Center for Financial Services Innovation (p32)
“Customers now have a much better idea of what their expectations from technology are, and I think that many businesses have caught on to this idea” – Malcolm Eylott, global head of operations and technology at TD Securities (p122)
Ian Clover Editor
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Held to accounts: reaching the nation’s underbanked As the economic recovery drags its heels, the USA’s already sizeable underbanked population threatens to grow. Ian Clover looks at what financial institutions can do to effectively service the needs of this increasingly disconnected section of society.
Do you bank smart? Banking on mom and dad? Peer-to-peer lending: long the refuge of those denied credit from traditional channels, but a new model is now moving in on the space created by the contraction of a certain ‘bank of mom and dad’.
FST US looks at how the mobile banking landscape’s increased competitiveness is forcing financial institutions to adapt greater services and applications in order to grow their market share.
48 Has hype hurt or helped the cloud?
It’s a hot topic, an industry buzzword and a cause for constant consternation and confusion: so FST US asks – has hype hurt the cloud?
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80 Executive Interview 45 66 92 100 120 124
Pete Daffern, Clairmail Joe Ruck, BoardVantage John Baer, Moody’s Analytics Bindia Hallauer, Microsoft Martyn Christian, Kofax Kent Schnacker, ACS
Ask the Expert 62 73 75 95
JB Holston, NewsGator Oded Gonda, Check Point Rick Basile, Fortinet Joseph Belsanti, Winmagic
46 Innovate to motivate
70 Check your balance David Potterton of IDC Financial Insights tells FST US how banks should enlist the help of their customers in order to achieve a better balance between convenience and security.
Deutsche Bank’s innovative strategies for virtualization, security and social collaboration come under the FST US spotlight.
54 Managing FX risk: The challenge of global payments
80 Surefooted security
Managing global payments and protecting against foreign exchange risk is a constant concern in this ever-globalizing world of ours, says J.P. Morgan Treasury Services’ Vice President Mark Burrough.
FST US chats with Legg Mason CISO Jeff Broadhead and discovers his thoughts on the challenges facing both his firm and the security industry in general for 2011.
86 Creditable control FST US caught up with Experian CISO Stephen Scharf to hear his thoughts on the security strategies the company employs to combat risk and IT threats in an increasingly evolving landscape.
60 All hands on tech Industry Insight 52 76 82 86 116
Bob Tramontano, NCR Mike Gallagher, McAfee Scott MacCloy, Paetec Vall Herard, Barrie & Hibbert Steve Horniak, Infor
Troubleshooter 96 Seth Geftic, RSA 107 Brian Wilson, Quest Software
New technological advances in the financial world are equipping many institutions with the means to better communicate and collaborate with both their customers and their staff members, as FST US discovered.
90 A fearless future?
66 Social collaboration in banking compliance Brian Ware of First National Community Bank explains how social collaboration is not just confined to the personal sphere.
Predictive analytics software can help the financial world to better serve its customers, but don’t expect it to become an early warning system against risk and ruin.
S P O N S O R
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S P O N S O R
Next Big Thing 113 Tom Crawford, Microgen
Project Focus 99 Greg Bufton, Sybase
114 Managing momentum If your IT department can become more agile and business-aligned, the recovery process will be smoother and quicker than you could have ever foresaw, argues Steve Taw of The Capital Group.
118 Getting your docs in a row Martin Colburn, Chief Technology Officer for FINRA, tells FST US how valuable and careful data analysis and document management processes can help manage IT sprawl and deliver more targeted results.
134 How To: Be a better public speaker 136 City Guide: Brussels
139 Book reviews 141 Objects of desire 142 Quote/unquote
122 Evolution or Revolution? Ian Clover looks at the evolving role of the CIO and the pressures they face, from reducing cost and keeping the lights on to customer retention, smarter business intelligence and regulatory reform.
126 Interaction in action FST US spoke with George Walker of First Community Bank to discover how its unified communications tools have helped the bank take its customer service to unprecedented heights.
130 FST US Summit In October, financial IT executives from all across the U.S. descended on the Four Seasons Hotel in San Francisco for the FST US Summit; an event that was universally well-received by all in attendance.
70 12/11/2010 14:28
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Legal Information The advertising and articles appearing within this publication reﬂect the opinions and attitudes of their respective authors and not necessarily those of the publisher or editors. We are not to be held accountable for unsolicited manuscripts, transparencies or photographs. All material within this magazine is ©2010 FST.
Chairman/Publisher Spencer Green Worldwide Sales Director Oliver Smart Finance Director Jamie Cantillon Content Director Kelly Grant Design Director James West
Editor Ian Clover Managing Editor Ben Thompson Associate Editor Lorna Davies Contributors Nicholas Pryke, Julian Rogers, Marie Shields, Rebecca Goozee, Lucy Douglas, Sharon Stephenson
Publishing Director Andrew Hobson Magazine Director Sarah Wilmott Associate Designers Tiffany Farrant, Élise Gilbert, Michael Hall, Crystal Mather,
The FST US Summit 2011 5th - 7th April 2011 Miami, Florida
Cliff Newman, Catherine Wilson
Online Editor Jana Grune
VP Sales Alex Sobol Project Director Heather C. Briden Project Manager Lee Carlson
The FST Summit is a three-day critical information gathering of the most influential and important executives from the financial industry.
Sales Executives Lauren Mittleberg, Brandon Harp, Andrea Klein, Brian Nalty
Production Director Lauren Heal
The FST Summit is an opportunity to debate, benchmark and learn from other industry leaders.
A Controlled, Professional and Focused Environment.
VP North America Jason Green
Renata Okrajni, Aimee Whitehead
Operations Director Ben Kelly
A Proven Format
IT Director Karen Boparoy
This inspired and professional format has been used by over 100 executives as a rewarding platform for discussion and learning.
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U.S. politics needs to become less Right Vs Left and more Right Vs Wrong.
nd so the seeds are sown. Early indications following the midterms are that President Obama will head into the 2012 election as favorite, but his aura of invincibility will have long since bitten the dust by then. In all honesty, that aura disappeared long before the Republicans captured the House of Representatives and swallowed up a great deal of Senate seats in November 2010. Obama’s aura began to fade into the mist as soon as the groundswell of goodwill that swept him to the Presidency in 2008 had ebbed away. ‘Change has come’ he said. Americans had elected a fresh face, a new hope, an African-American, a liberal thinker, an intellectual and a formidable orator. He was everything George W. Bush was not. His ﬁrst few months in ofﬁce were a whirlwind of impassioned speeches, fawning audiences, enrapt international dignitaries and a populace relieved that, ﬁnally, foreign eyes were looking enviously rather than pitifully at their leader. But what has happened since then has revealed an interesting insight into the psyche of the American people. These midterm elections were character-
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The Founding Fathers were men of their time, not gods drawing up eternal political verities for the nation to swallow whole for eternity. If they could see how today’s political parties are misusing their pronouncements, would they be proud, or bemused?
ized by the anger of the Tea Party and the reactionary mocking of the liberal left. It was an election of extremes, and all a mere two years since Obama ﬁrst took ofﬁce. At the end of Bush’s tenure, the anger towards him was vitriolic, but it took the Democrats a while to rally. The Republicans have rallied in a much shorter timeframe. Sure, Obama has (thankfully) had no 9/11 to unify the country against a common threat, but the speed of his fall from grace has been quite striking, if not – in hindsight – rather predictable. Obama inherited an economy on the wane. He took ofﬁce a few months after the collapse of Lehman Brothers and the bailout of AIG. He was passed a ﬁzzing bomb by Bush and asked to work miracles. To his credit, the amount of work and reform he has gotten through thus far has been commendable, but he is working against an ever angrier backdrop of disillusionment with the American Dream, and it is his policies that have bore the brunt of the anger, whipped into a frenzy by FOX News and Tea Party mouthpieces representing the extreme far-right of the Republican Party. For Americans have realized that they never wanted a king. They never
THE BRIEF 15
wanted a lofty intellectual who spouted ‘do as I say’ rhetoric. Many thought they did, and many still do, but there are vast portions of society that despise this elitism and yearn for a guy they can relate to. An everyman. The common man. Obama is not that man. But then who is? Who is this ‘common man’ so beloved of Republican Party political broadcasts? He’s certainly not a Californian liberal, a black New Yorker or a Hispanic Texan. In the image of the GOP, he’s the godfearing, law-abiding Average Joe of American values. Therein lies the problem. There is no such thing as this common man anymore. While there are Average Joes – from Ohio to Kentucky – they represent just one face of America. The hysterical anger that has so driven the Tea Party stems from a rather contradictory belief in the values set forth by The Founding Fathers: smaller government, lower taxes and less spending. A return to America’s beloved political idiom upon which the country was built. But that country does not exist anymore. 18th century politicians dealt with 18th century political crises, namely those facing a newly independent state on the edge of a vast land of wilderness and wonder. The Founding Fathers were men of their time, not gods drawing up eternal political verities for the nation to swallow whole for eternity. If they could see how today’s political parties are misusing their pronouncements, would they be proud, or bemused? But this hypothetical common man, so in thrall to the constitution, has continued to be used as a pawn in the political posturing of both the right and the left. Wouldn’t it be better for both if they recognized that this individual no longer existed, and worked towards creating a political outlook that was more in tune with the needs of the people? Whatever happened to ‘We, the people’? The people have moved on; they have grown and diversiﬁed; they now have names like ‘Sanchez’ as well as ‘Smith’, and it is time that the ruling parties were able to recognize this in order to serve the people better than ever. It will be a painful transition, of course. America became the land of the free, the richest and most inﬂuential country in the world, on the back of The Founding Fathers’ rhetoric and vision. But such a position was also achieved through mass immigration and integration, hard work, a collective vision and drive, and the ability to see the potential in the vast landscapes that lay before them. Those landscapes remain, but does the vision? Or has that been swallowed up by fear of the future? The next few months should prove particularly interesting as the Republicans settle into their role of vociferous opposition, picking ﬁghts and conservatively applying the brakes. The Democrats must be ready for this ﬁght, nobody more so than Obama. He retains the vision and belief that American progression can also be prosperous. Now he must show that he is prepared to ﬁght for this belief too. Otherwise, those halcyon November nights of 2008 are going to feel like a long, long time ago.
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News in pictures
Tea Party Republican Candidate Rand Paul talks to the media after casting his vote in the Kentucky senate race. Paul, making his fi rst run for public office, won the race and earned himself a place in the US Senate, where he will be joined by fellow Tea Party favorite Marco Rubio, who was victorious in Florida.
The foiled parcel bomb plot of October 31st re-ignited the issue of airport security, this time turning the focus on to cargo planes, particularly those heading for U.S soil from Yemen via Europe. The picture shows a fleet of grounded cargo planes at Germany’s Cologne airport. These planes are now going to be subjected to more thorough security screenings.
The Desert Mesa subdivision in north Las Vegas becomes the latest American ‘ghost town’, before it had even had the chance to become merely a ‘town’. The project, which started in 2004, fell into foreclosure this fall and is now owned by the FDIC. Nevada holds the unenviable position as the state with the highest levels of unemployment, bankruptcies and foreclosures.
Banks could save by changing channels A new report issued by Javelin has shown the banking industry can save nearly $8.3 billion if they convert non-online customers to online services. avelin, Europe’s leading specialist ﬁrm of retail and ecommerce consultants, suggest the key is to deepen customers’ use of online facilities. The strategy and research report undertaken (‘2010 Online Banking and Bill Payment Forecast: How to Cut $8.3 billion in Costs through Channel Conversion’) found that by converting customers to online banking and bill pay, a saving of $167 per customer could be made. Furthermore, by convincing current onlinebanking customers to use customer services online rather than through call centers or branches, banks could save $8 per customer. The report is based on data collected online from a random-sample panel of 5211 households in March 2010, which was representative of the overall U.S. online population. It has shown that approximately seven out of ten households pay their bills online through banks and billers. However, more regular billpayers show a preference for paying more types of bills through banks rather than at a biller site. Bank of America and Citibank have a higher proportion of customers who regularly view bills online, with U.S. Bank and JP Morgan Chase right behind.
Online banking is expected to increase in relevance as consumers’ expectations for always-on, real-time control grows and regulators put more pressure on ﬁnancial institutions to provide more effective ways to help consumers monitor and manage their money, as well as producing technological innovations to make online banking simpler and more practical. President and Founder of Javelin, James Van Dyke, explained that online banking and bill pay are at a crossroads. “Financial Institutions and billers who do not want to stagnate must upgrade in order to entice more customers to bank and pay bills online. The issue is most acute for smaller regional and community banks, which lag far behind giant banks, larger regional banks and credit unions and have the most to gain by upgrading.” Other keys ﬁndings of the report were that onlinebanking customers own more ﬁnancial products, presenting the opportunity for ﬁnancial institutions to enhance customer relationships by cross-selling additional products. Additionally, Javelin found that household managers who bank with smaller regional banks and community banks are less likely to log in to online banking on a monthly basis and are more likely to pay bills by check.
Obama Boom? Although public companies have largely suffered during the recent economy, many have had reasons to stay positive since Obama became president.
The S&P 500 Index ($INX) is up approx. 35% since Inauguration Day.
Profits are expected to rise
36% in 2010/11.
Companies are sitting on a nearrecord $2 trillion in cash, money they could use to invest and create jobs.
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Big banks hold on to mortgages
Tennessee bank adopts new software irst Tennessee is the ﬁrst U.S. bank to license technology provider Computer Sciences Corporation’s (CSC) new Celeriti Customer and Deposits software. CSC made the announcement on Wednesday October 20 2010 at the Bank Administration Institute (BAI) Retail Delivery. The regional Memphis-based bank, with $26.3 billion in assets, will implement CSC’s newly unveiled components such as ServiceOrientated Architecture (SOA) business processes, Web services and Web portal. Celeriti, launched earlier this year, is a suite of SOA based software, offering ﬁnancial institutions components and services such as card payments, lending platforms and enterprise banking. First Tennessee, a subsidiary of First Horizon National Corporation, has been a CSC software licensee since 1994. The decision comes as part of First Tennessee’s modernization plan. The process will also involve the completion of an accelerated upgrade of its Hogan Core Banking Systems. Bruce Livesay, CIO of First Horizon National Corp., parent company of First Tennessee, was positive about the upgrade. “We are upgrading our technology to improve the way our employees are able to serve our customers and to give our customers more choices for how they interact with us. We were looking for a solution to exploit modern technology and support our growth objectives. CSC’s development of and investment in Celeriti will help us create a richer, differentiated and consistent customer experience while at the same time reducing costs.” John Dickson, president of CSC’s Banking and Credit Services Division emphasized the need for a customized, low-risk path to aid the bank’s transformation. “The Celeriti suite is designed for both existing CSC clients and other institutions to create consistency across all delivery channels; speed product introductions and regulatory changes; and gain better insights into their customer actions for improved decision-making.”
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arge banks have sold fewer mortgages to government housing agencies in the last quarter, using them to manage interest and rate risk to slow the contraction of loans. SunTrust Bank Inc., M&T Corporation and Fifth Third Bancorp have all found new value in keeping their hands on quality home loans, given the current sparse lending environment and falling rates on securities. These ‘held on to mortgages’ have helped maintain an important factor in banking; the balance of rates and maturity dates in their deposit and lending books. M&T, with current assets of $6.82 billion, have joined the trend of the healthier banks, by holding on to performing mortgages. This way the banks will gain the rare interest income in a weakened lending environment, experts suggest. According to U.S. Treasury data released in June, Fifth Third’s mortgage company modiﬁcation rates have gone beyond the national average of more than 30 percent. Steve Alonso, Executive Vice President of Consumer Lending, Mortgage and Business Banking for Fifth Third said: “Fifth Third Bank is determined to keep customers in their homes.” Also retaining valuable mortgages is Atlantabased SunTrust Bank Inc., with $170.7 billion in assets. Since the economic downturn the standards of mortgages has tightened to a large extent, meaning there is little risk for banks like SunTrust Bank Inc. of the new mortgages going down. Government-backed bonds have become increasingly popular with other large banks wishing to invest deposits. Both M&T and Fifth Third, however, have decreased their interest in such bonds where rates have been falling. Loans are a safer bet for investment, and companies are concerned about owning too many in case of an increase of rates. Borrowing is still an unfavorable action with both businesses and consumers, allowing mortgages to take the limelight and remain the only investment opportunity for a bank eager to involve themselves in loan-related earning assets.
170 people working in the heart of the UK’s ﬁnancial services operations had contracts that breached new requirements
France is attempting to loosen London’s grip on Europe’s ﬁnancial sector
London’s City salaries More than 2800 City of London workers earned pay packets in excess of £1 million ($1.56 million) during 2009, reports the Guardian newspaper. Figures revealed by the Financial Services Authority (FSA) showed that as many as 170 people working in the heart of the UK’s ﬁnancial services operations had contracts that breached new requirements which state 60 percent of an employee’s bonus payout should be deferred over a three-year period. The FSA’s pay code is now under review, with one proposed change set to guarantee that remuneration levels of staff do not hinder a bank’s ability to strengthen their capital base if required, while another provision will ensure that ‘failure is not rewarded’ through healthy severance packages.
Paris tax breaks France is attempting to loosen London’s grip on Europe’s ﬁnancial sector by offering tax breaks to the world’s biggest banks in an effort to tempt them to move their headquarters to Paris, according to the Sunday Times. An unnamed source high up in the banking industry told the British newspaper that French President Nicolas Sarkozy has met with the heads of a number of the world’s leading banking institutions in the hope that tax incentives will attract banks to France. “Finance ministers from a number of big European countries have made it clear that we can have whatever we want, whatever it would take to get us to move our headquarters,” said the unnamed source. This move comes on the back of grumblings by many leading banks about the harsh series of taxes the UK authorities have imposed.
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Greeks urged to merge George Papaconstantinou, Greece’s ﬁnance minister, and George Provopoulos, the governor of the Bank of Greece, have urged the country’s largest banks to consider merging in an effort to create larger institutions with ‘more robust balance sheets.’ The second quarter results for the National Bank of Greece, EFG Eurobank Ergasias, Alpha Bank and Piraeus Bank SA have all been disappointing, with proﬁts falling by approximately 60 percent, largely as a result of the country’s reliance on the European Central Bank for funding. Despite Greece being praised for its efforts in tightening up its economy and tackling its disastrous budget deﬁcit from early 2010, there is still the need for further reform throughout the country’s ﬁnance industry.
INTERNATIONAL NEWS 19
Greece’s Prime Minister George Papandreou (L) meets Bank of Greece Governor George Provopoulos in Athens
HSBC’s main branch, Central Hong Kong
Citigroup’s Chinese expansion In an attempt to rival HSBC’s sure footing in the world’s fastestgrowing major economy, Citigroup plans to triple its workforce in China to 12,000 in the next three years. Citigroup’s co-chief executive ofﬁcer for the Asia-Paciﬁc region, Stephen Bird, has revealed that the New York-based bank will increase its proﬁle in China more than any other country in the region in the hope the bank can proﬁt from the record $1.4 trillion worth of new loans approved in China in 2009. “This is a strong message from Citigroup that signals the bank’s focus and dedication to the country,” Sanford C. Bernstein & Co analyst Michael Werner told Bloomberg. Citigroup currently has 4500 employees in China, compared to HSBC’s 5000. “China is one of Citi’s priority markets globally; we have aggressive consumer banking expansion plans and will open branches as fast as Chinese regulators will let us,” said Bird.
Visa use increase Total Visa payments volumes in Latin America increased by 21.6 percent in the third quarter of 2010, according to research conducted by Visa Inc. Visa’s statistics show that $62 billion in total payments were processed through Visa as the region further migrated its preferred payment method from cash to electronic. Debit products showed the highest increase, rising 32 percent in Brazil, 19 percent in Mexico and 24.1 percent in all other Latin America, and Caribbean countries. Credit payments also posted double-digit growth, increasing by 17.6 percent in Brazil, 15.8 percent in Mexico and 20.5 percent in all other countries. “These results are reﬂective of a strong and growing payments system, with debit continuing its strong penetration and credit maintaining its historic levels of growth,” said Visa’s Latin America region president Eduardo Erana.
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Middle East M&A on the wane Mergers and acquisitions in the Middle East dropped by 15 percent to a relatively modest $18.5 billion during the ﬁrst half of 2010, according to the latest report by professional services ﬁrm Ernst & Young. The ﬁgures show a 12 percent decline between the two ﬁrst quarters of the year, with only 67 M&A deals taking place in the second quarter compared to 76 in the ﬁrst. However, in terms of value, the second quarter deals were worth $12 billion, which is an 85 percent increase on the preceding quarter. “Despite a decline in the number of deals in the past six quarters, deal value has now increased to its second highest since the ﬁrst quarter of 2009,” said Phil Gandier, head of Transaction Advisory Services at Ernst & Young MENA.
Dodd-Frank squabble ouse Republicans and Senate Democrats are at loggerheads over the Dodd-Frank Law, with Democratic Senator Tim Johnson remarking: “I don’t think that major changes will take place on Dodd-Frank. It’s a matter of minor changes taking place. There is not only resistance from the Senate, but the veto is possible, too. So we should focus on realistic solutions to our problems.” However, Johnson’s view was clearly not shared by top House Republicans, some of who want the new Consumer Financial Protection Bureau (CFPB) to be eliminated while fully privatizing the housing ﬁnance sector, and pledged to start the DoddFrank makeover as soon as possible. “We don’t need a CFPB,” said Republican Scott Garrett. “That would be a great ﬁrst step for this administration if they want to start showing how they are willing to work with us.” Garrett also said the House Financial Services Committee should address the riskretention provisions of Dodd-Frank before they harm the market. On top of GSE reform and Dodd-Frank revamping, Republicans also want a higher concentration of the administration’s foreclosure prevention programme, something Rep. Shelley Moore Capito already believes to be a failure. Capito, the top Republican on the housing subcommittee, is also concerned about the regulatory burden faced by community banks. “The panel needs to look at a way to help them,” she said.
Up and ATM Instances of ATM skimming are on the rise according to recent statistics: Losses from ATM skimming in the USA in 2009 approached $1 billion In Europe, that ﬁgure was estimated at ‘only’ $404 million, indicating that the USA is the scammers’ preferred target A study by Javelin Research found that only four out of 25 surveyed banks had anti-skimming measures that stood out – Bank of America, Chase, Citibank and Wells Fargo Account holders are liable to $50 of any skimmed transaction so long as the fraud is reported within two days. After two days, that threshold increases to $500, so people are being urged to check their account frequently Source: www.atmsecurity.com
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Firms lose out to electronic theft ompanies are losing more to electronic theft than physical assets, risk consultants Kroll have found. The annual report, Kroll’s fourth showing international fraud trends, revealed for the ﬁrst time the electronic theft problem, and that it was usually an ‘inside job’ carried out by the ﬁrm’s own employees. This year’s study showed the amount lost by businesses to fraud rose to $1.7 million per billion dollars sales worldwide from $1.4 million a year earlier, an increase of more than 20 percent. This news comes as worries over fraud have stopped many companies from expanding in some key emerging markets. The poll of more than 800 senior executives worldwide found China to have the highest level of fraud, with 98 percent of businesses affected, closely followed by Colombia with 94 percent, and Brazil with 90 percent. The physical theft of cash, assets and inventory has been the most widespread fraud in previous reports, but this year theft of information or assets was reported by 27.3 percent of companies over the past 12 months, up from 18 percent in 2009. In contrast, reported incidences of theft of physical assets or stock declined slightly from 28 percent in 2009 to 27.2 percent in 2010. The result may be in part due to better detection and awareness, with 88 percent of companies saying they had been the victim of at least one type of fraud during the past year. Robert Brenner, vice president of Kroll’s Americas region, said: “Theft of conﬁdential information is on the rise because data is increasingly portable and perpetrators – often departing or disgruntled employees – can remove it with ease absent sufﬁcient controls. At the same time, there is a growing awareness among thieves of the increasing intrinsic value of an organization’s intellectual property.” Information-based industries reported the highest incidence of theft of information and electronic data over the past 12 months. Brenner encouraged companies to keep vigilant, adding: “Companies need to regularly evaluate how they are controlling access to information within their organization to ensure they are keeping pace with technological advancement and the imperative for collaboration in the workplace.”
UPFRONT TOP FIVE 21
Top Five: iPhone finance apps
05 Shareprice New York Stock Exchange, NASDAQ and the London Stock Exchange are all covered in this real-time app. It allows users to see price movements with a mere ﬁfteen-minute delay. To access the Shareprice, sign up to shareprice. co.uk ﬁrst. (Free)
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PayPal The app has a similar look and style to the PayPal website and allows users to send money to friends and family, donate to charities and see past transactions. It also has a feature that allows users to add a check to their balance by photographing it. (Free)
Mobile Receipt This app is ideal if you are on the go and need to keep track of your expenses. Users can take a photo of their receipts, enter the details and the app creates an expense report. (Free)
iHandy Tip Calculator This attractive app is very easy to use and claims to calculate the tip and split the bill in just ﬁve seconds. The creators, iHandySoft Inc., are also the makers of top selling utility apps iHandy Carpenter and iHandy Level. ($0.99)
Bloomberg This free, sleek-looking app gives users an insight into the top headlines and index of world markets. You can access individual stock performance by entering a company’s name into the stock ﬁnder, which also keeps a log of your past searches. (Free)
Regulatory lag and ﬁnancial markets: A case for a new paradigm y now, the global ﬁnancial crisis Basel II forced banks to think largely in terms of credit, that began in 2007-08 has been market, and operational risks. But these are mutually thoroughly analyzed for causes overlapping to some degree, and the same asset can and long-term effects. The causes give rise to all three risk types. Banks had to ensure that – high levels of leverage, inﬂated a given asset’s contribution to all risk types was accuratings, increased correlation and rately mapped to prevent under-estimating risk. Rather over-optimistic asset price assumpthan reacting to every new risk type after the fact or by tions – have all been studied. Regulators limiting banks to think in terms of narrowly deﬁned risk have taken steps to curb the market’s entypes, regulators ought to lay out a broad thusiasm for causing and exuberantly benmethodological framework that allows eﬁting from these factors. However, there is banks to consider both economic and non still a strong reactive streak to the emerging economic factors that could bear on ﬁnanregulations. Consider the successive Basel cial health. While it is possible that material frameworks. At one time, regulatory capital risk factors might get omitted, the modeler as speciﬁed by Basel I was divorced from can always add a risk factor to an evolving true economic risk, and this caused many model, as long as its dependencies and marOECD banks to over-capitalize. Banks comginal distributions are estimated. plained that shareholder value was being To make the models realistic, banks Venkat Mullur works destroyed, and that too much money was would have to model their risk factors for TIBCO Software, Inc. where he heads arbitrarily being tied up. In response to this, with sufﬁcient data histories and realistic the ﬁnancial services segment for the Spotﬁre we saw Basel II, which was, in fact, a capital assumptions as to correlations, liquidity, Division. Mr. Mullur has reduction guideline, albeit with somewhat concentration, and include any exogenous consulted at many global banks during his career rigorous modeling requirements. Banks factor they think is material to their portaddressing regulatory still complained, and cited complexities folio. So the focus of regulation could be and compliance challenges. His current inherent in modeling and resulting system on methodological issues and rigor rather areas of focus include costs. And now, when it is apparent that than on the setting of arbitrary limits and risk management and ﬁnancial portfolio illiquidity, and not insolvency, was the proxicurbs on one measure or the other. Limits, analysis. mate cause of the 2008-09 banking crisis, as needed, could be set in conjunction with the Basel committee is out with Basel III, a regulatory assessment of a bank’s indiwhich proposes a minimum capital cushion for liquidity vidual situation. risk, and similar liquidity related proposals are part of While this approach is no guarantee to thwarting regulatory guidance in the United States. So one can’t the next crisis, it at least forces the banks to constantly help but conclude that ﬁnancial regulatory reform has scan their operating environment, including contracts largely been reactive and subject to inﬂuence by ﬁnanwith counterparties, political factors, and internal opcial institutions. erations, and to link such environment factors to asset In just the last few months, the world has seen new performance and valuations. Compliance would entail risks emerge. First, the notion that sovereign risk tends banks investing in robust ﬁnancial modeling tools, and to be lower than corporate debt risk came under attack. augmenting their risk thinking with robust economic The European credit crisis this summer was a case in scenario analysis. By making compliance an analytical point. Secondly, high-frequency trading, once thought and logical exercise rather than an arbitrary checklist of to increase value by exploiting arbitrage opportunities, measures and ratios, regulators would have gone a lot was found to have led to the practice of quote-stufﬁng, further in making ﬁnancial markets more risk-aware. now thought to be a factor in the May 2010 ﬂash tradBy Venkat Mullur, Senior Director (Financial Services Industry Solutions), TIBCO Software. ing episode when stocks crashed precipitously intraday. One can assume that US regulators will scrutinize fraudulent trading practices and impose some relevant curbs. It is also conceivable that banks may be asked to hold additional capital to guard against so-called trading risk. But by requiring banks to hold capital against every newly discovered risk, regulation will always end up playing catch-up. The other attribute of current regulatory frameworks is reliance on a rigid risk-type classiﬁcation.
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IT consolidation CIOs’ top priority The issue of IT consolidation is the top priority among CIOs as 2011 approaches, according to a survey by the National Association of State Chief Information Ofﬁcers (NASCIO). The annual survey revealed that innovation, while still a huge concern for most CIOs, was being increasingly held back by regulatory and consumer pressures from with the industry. As a result, IT innovation dropped out of the top ﬁve priority list for the ﬁrst time since the survey was ﬁrst published. CIOs’ top 5 priorities for 2011 are: IT Consolidation centralizing and consolidating services and operations Budget and cost control managing reduction of budget and saving strategies Shared services sharing resources, infrastructure and services Cloud computing speciﬁcally governance, privacy and data ownership concerns IT governance sharper data governance and partnering
Banks of time As Smartphone apps such as Foursquare and Gowalla threaten to take banking into the next stage of its technological evolution, FST US takes a look at the game-changing technical revolutions that have shaped the history of the banking world. s far back as the 18th century, when paper money was ﬁrst introduced as redeemable bonds against a bank’s holdings of real gold and silver, innovation in the banking world has been fast-paced, ingenious and epoch-deﬁning. But it wasn’t until the 1960s that technology ﬁrst began to shape the banking industry. Today’s banking customers might be well-versed in the use of their contactless payments, mobile transactions, social media apps and 24-
hour access to their funds, but they would have a hard time adjusting to how banking used to be before the days of even simple ATMs. Each technological advance in banking has brought with it a slow transformation in the way we all bank, enabling us to adopt and adapt to new ways of banking, while also allowing us to enjoy that human touch that ﬁrst set banks on their upward trajectory many hundreds of years ago. Technology, it seems, hasn’t eroded the essence of banking; it has simply augmented the service, convenience and security of banking.
The ﬁrst technical interface bank customers were offered came in the form of a forerunner to the ATM called the Bankograph. An experimental Bankograph was installed at the City Bank of New York in 1961 and allowed users to deposit coins, cash and checks via its automated envelope deposit mechanism. The machine did not dispense cash, so could not be considered a true ATM.
1969 Both MasterCard and Visa were, at this time, in their ﬂedgling and formative years. Visa began as part of Bank of America’s credit card program, before relinquishing control of BankAmericard in 1970, at which point the baton was taken up by the various issuing banks that had come to use the BankAmericard. In 1974, it went global in 15 countries, and became Visa. MasterCard’s evolution was a little more straightforward. Formed in 1966, a group of Californian banks founded the Interbank Card Association, joined later by large banks from the eastern seaboard, but it wasn’t until 1979 that the ‘MasterCard’ name was adopted as standard.
1973 The ﬁrst point of sale (POS) devices were developed by IBM in 1973 and these early electronic cash registers were ﬁrst installed at Pathmark Stores in New Jersey in 1974. This archaic system was extremely simple but was the ﬁrst commercial example of client-server technology, peer-to-peer communications and local area network.
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1966 Five years later and it was the turn of the Japanese and Brits to present the world’s earliest ATMs to a suspicious banking public. Tokyo saw the ﬁrst automated cash-dispensing device, which was a simple machine used for credit cards only; it did not actually connect to a customer’s account. In 1967, a Barclays Bank branch in north London installed the world’s ﬁrst true ATM, with the bank going so far as to employ a famous comic actor to be the ﬁrst user and thus ensure maximum publicity to what was, at the time, a frighteningly futuristic device.
1981 During the 1980s, the proliferation of ATMs and the ability to pay for goods in store with the use of one’s debit card brought untold levels of convenience to the consumer, but it wasn’t until home banking was ﬁrst offered as a service in 1981 that banks and consumers began to see the endless potential for service that banks could offer. Home banking began when four New York banks offered its customers the use of the antiquated videotex system.
TECHNOLOGY TIMELINE 25
Late 80s It is easily forgotten now but, before the internet, the term ‘online’ could easily and accurately refer to the telephone, but it is still something of a misnomer to refer to telephone banking as online banking. However, telephone banking in the late 80s was rather innovative, with customers using their numeric keypads to send tones down their phone lines that acted as instructions to the bank.
1997 Early 00s
Nokia and Coca Cola combined in Finland in 1997 to allow mobile users to pay for drinks from specially enabled vending machines via SMS text messages. This was the world’s ﬁrst example of mobile commerce.
The rapid acceleration of technology after the millennium saw the banking industry enter a period of trial and error. If the technology was there, customer trust and conﬁdence wasn’t; if a service was in vogue, often the technology was unreliable or insecure. Mobile banking was restricted to SMS-alerts delivered on small, colourless screens and appeared, at the time, to have hit a plateau.
2007 The introduction of smartphones such as the iPhone brought sweeping changes to the banking industry. Users could now access account information, make payments, check balances and transfer funds, anytime and anywhere. A wealth of Apps have since been introduced that allow account holders to pretty much do any type of banking they like, on the move and at their own convenience.
2009 Social media Web sites have are now increasingly becoming the new forums for banking, although both consumers and banks have been rather hesitant to fully embrace the potential of this relationship; a reluctance stemming from security concerns and worries over a blurring of the typical relationship banks hold with their customers. However, this next phase of banking is certainly here to stay.
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Online banking is thought to have been ﬁrst offered in the USA in 1995 by the Presidential Savings Bank, a step that has opened up a whole new world of customer convenience, cost savings for banks and potential security threats. After the turn of the millennium, with the Y2K bug having failed to materialise and cumbersome dialup connections universally usurped by broadband services, conﬁdence in banking online surged.
Chip and Pin is introduced into the UK. This new technology saw the process of ‘paying by card’ – the swiping of a card’s magnetic strip and the signing of a receipt that was then veriﬁed by the teller – overhauled. Now, the customer had to insert their card, complete with its new chip, into a PIN-pad, where they are then asked to enter their PIN in order to verify payment. This process has been adopted in pretty much every European country and in large parts of Asia.
2008 While the US may seem to lag behind much of Europe and Asia in terms of its reluctance to adopt the chip and pin standard for smartcard payment, it is a forerunner in contactless payments, implementing ‘Wave and Pay’ technology into every day, busy American life. It is estimated that next year there will be more than 100 million contactless payment cards in the country.
Although there are no banks yet ofﬁcially afﬁliated with Foursquare – the geo-location app that lets users ‘check in’ to certain destinations and earn rewards from retailers who can see they’ve been loyal patrons – North Shore Bank has hit upon a novel idea of rewarding the ‘mayors’ of their 44 branches (‘mayors’ are those individuals who have checked in to a particular branch more than any other person) with a $5 Subway gift card. A small gesture thus far, but one that could potentially kick-start a whole new trend in banking reward, retention and relationship.
enowned for his Jewish roots and famous for owning a modest Ford Focus that he shares with his wife, Ben Bernanke is seen by many within the Senate as the perfect individual to help lead the USA out of recession in his role as the Federal Reserve Board Chairman. Naturally conservative, hard working and unerringly intelligent, Bernanke’s role has come under intense scrutiny since July’s Dodd-Frank law was enacted and the days of bailing out ‘too big to fail’ institutions were officially declared as over. Tough, considered and preternaturally
hardwired to balk at economic volatility, Bernanke’s steady hand is all set to guide the USA’s economy through the coming stormy waters. Bernanke’s early years were spent in the small town of Dillon, South Carolina, having been born in 1953 in Augusta, Georgia. One of few Jewish families in the area, Bernanke’s heritage came to defi ne a big part of his character, instilling in him a sense of diligence, aptitude for learning and respect for institutions. During summer, Bernanke would wait tables or work on construction sites to earn his own cash, in between helping out at his local Synagogue. After fi nishing high school Bernanke attended Harvard University, achieving a B.A in
Ben Bernanke, Federal Reserve Board Chairman
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economics summa cum laude in 1975, and then a Ph.D. in economics from the Massachusetts Institute of Technology four years later. In 1979, shortly after graduating, Bernanke taught at the Stanford Graduate School of Business until 1985, before becoming a tenured professor at Princeton University, chairing its Department of Economics between 1996 and 2002. Between 2002 and 2005, Bernanke served as a member of the Board of Governors of the Federal Reserve System and, in one of his fi rst speeches as Governor, outlined his ‘Bernanke Doctrine’ on ensuring deflation never occurs on American shores. In June 2005, President George W. Bush named Bernanke as Chairman for his Council of Economic Advisers, before being promoted less than a year later to the role of Chairman of the Federal Reserve Board of Governors. After gliding unimpeded throughout his political career thus far, Bernanke met with the first real challenges to his beliefs when he fi rst encountered the media, who found his style, described as ‘dovish’ by one senate insider, to be at odds with the hawkish government of the time. However, Bernanke was able to adapt his style to become a little more user-friendly with the media and, indeed, with the new President: Barack Obama nominated Bernanke to a second term as Chairman of the Federal Reserve in August 2009, citing his ‘experience, courage and creativity’ in helping to stave off another Great Depression in 2008. Despite President Obama’s glowing reference, several Senators from both parties stated they would not support a second term for Bernanke, although he scraped through in January 2010 with historically the narrowest margin for any occupant of the position. Bernanke is a keen advocate of reducing the US budget deficit, backing Obama’s plans for reforming social security and Medicare entitlement programs. Since the financial reforms of July this year, Bernanke’s presence and influence in the media has increased dramatically, in particular his stance on the council’s new powers to break up institutions that are deemed systemically risky. “We have the authority – the regulators, collectively – to break firms up, if necessary. You may ask if there’s political will to do that, and I don’t know the answer to that question. But certainly, that’s the charge that Congress has given the regulators and we take very seriously that charge,” Bernanke told a hearing of commissioners gathered to discuss the repercussions of the Dodd-Frank reform law in September this year. “Barring some midnight session of Congress that rewrites the law,” he continued, “I don’t think it would be feasible for us to bail out firms the way we did during the crisis.”
Gold rush Gold is up 20% this year, making 2010 the tenth year of full gains.
Procter & Gamble report decline in proﬁt The Procter & Gamble Co. (P&G), have reported a decline of 6.8 percent in first quarter earnings. he world’s largest consumer-products company, with brands including Max Factor and Gillette, stated a net income of $3.08 billion, $1.02 per share, in the period ending September 30. This is in comparison to $3.31 billion, $1.06 per share the previous year. With unemployment ﬁgures nearly hitting a 27year record in the U.S., some consumers are seeking cheaper products than P&G’s Pampers and Pringles. Chief executive ofﬁcer and chairman of the board Bob McDonald emphasized growth in other emerging markets outside the U.S., such as Brazil, since taking over last year. “Our ﬁrst quarter was a good start to the ﬁscal year. We maintained our top-line momentum and delivered proﬁtable market share growth,” said McDonald. “We are conﬁdent that our purpose-inspired growth strategy – to touch and improve the lives of more consumers in more parts of the world, more completely – will continue to drive growth and create value for shareholders. While the macroeconomic environment remains challenging, the solid ﬁrst quarter results demonstrate that our strategy is working.”
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P&G reported ﬁrst quarter diluted net earnings per share from continuing operations of $1.02 per share, an increase of ﬁve percent. This ﬁgure is also above the company’s guidance range of $0.97 percent to $1.01 percent. The net sales were up, with an increase of two percent to $20.1 billion behind broad-based volume growth. Not including the impact of acquisitions, divestitures and foreign exchange, the organic sale grew four percent. The Cincinnati-based company predicts a range of $1.05 to $1.11 a share, compared to $1.10 a year earlier, for second quarter earnings. The anemic economic climate, however, continues to affect consumer businesses. The unemployment forecast shows an increase of more than 9 percent through 2011, the third year it will top that level. A recent survey has shown that spending less overall is an important ﬁnancial goal for 91 percent of Americans, thus affecting sales of consumer goods. The ING Direct USA survey also found that 43 percent of Americans are more optimistic about their ﬁnances, with other goals including building up an emergency fund and earning enough to pay the bills.
This is the longest winning streak since the 1920s. Central banks have become net buyers this year for the ﬁrst time in two decades. They’re expected to buy 15 metric tons of gold by the end of 2010. If the Fed announces another quantitative easing plan, the dollar will continue to suffer and gold will rise further. Gold’s rise is in a solid intermediate trend above $1,245. Source: www.moneyshow.com
THINKSOFT AD.indd 1
Nevada would have thought it
According to recent statistics, Nevada is the state with the most failed banks in terms of assets: 5. Illinois: 38 failed banks with
$2,364.77 assets failed 4. California: 32 failed banks
with assets failed
$4.6 trillion: the shortfall between what American’s have actually saved for retirement compared to what they really need. According to congressional testimony, if Social Security benefits were to be eliminated, that deficit would rise to $8.5 trillion. Source: www.thestreet.com
3. Puerto Rico: three failed banks with
$4,771.94 assets failed 2. Alabama: four failed banks with
$5,870.61 assets failed
From testing to assurance pplication Software development has become a de facto outsourced service. The trend, which started early in the 90s, has become a tidal wave in the recent times. Such a trend has brought with it increasing risks in the quality of software delivered. Software testing efforts carried out by business users or by IT integrators has been grossly inadequate to tame this disturbing trend. The mean observed defect density of software delivered varies from around 6 percent to, in some cases, 10 percent of delivered functionality. What is even more alarming is the fact that 60 percent of these defects can be critical to business that could result in ﬁnancial risks and reputational risks. Thinksoft Global Services Ltd., a pioneer in application testing for the Banking, Financial Services and Insurance (BFSI) Sector utilizes a different approach to testing. The approach, known as Requirement Assurance Services, helps clients to collaboratively
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work with Thinksoft to realize ﬁrst time right software rollouts. Thinksoft uses business requirements as the basis to drive testing, evaluating and reporting test results. In contrast, conventional testing service providers baseline their services on the functional speciﬁcations. Testing done the Thinksoft way moves testing from a validation service to an assurance service. Business Requirements Assurance is a combination of both static testing and black box functional testing. Static testing is carried out by reviewing the baseline documents for completeness and correctness of the requirements. The requirements’ review and audit process will reveal gaps in requirements and will also help to correct both incomplete and missing requirements. Thus, Business Requirements Assurance helps clients to deliver clean requirements into development as well as to ensure delivery of clean Software into production. Only a specialist like Thinksoft can deliver testing with an assurance framework. www.thinksoftglobal.com
1. Nevada: ten failed banks with
$119,323.90 assets in failed banks, per person
The issue in numbers
40 million Americans are classed by the FDIC as ‘underbanked’ (p32) ABI research predicts that 61 million Americans will use their cell phone to make bank transactions by 2015 (p40) The unemployment rate for 16-29 yr olds in the USA is 15.2% – the highest since 1948 (p48) Global foreign exchange turnover has increased by 20% since 2007 (p54)
Company Index Q4 2010 Companies in this issue are indexed to the first page of the article in which each is mentioned. ACS 124, 125 American Bankers Association 32 Barrie & Hibbert 88, 89 BoardVantage 68, 69 Capital Group 114 CFSI 32 CheckPoint 12, 72, 75, OBC Clairmail 6, 44, 45 College of Public Speaking 134 Deutsche Bank 46 Experian 86 Farmers Insurance 90 Federal Reserve 40 FINRA 118 First Community Bank 126 First Data 57 First National Community Bank 66 Fortinet 76, 77 Kofax 120, 121 IDC Financial Insights 70
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Infor 116, 117 J.P Morgan 54 Legg Mason 80, 106 Lendfriend 48 Mango 32 McAfee 78, 79 Microgen 8, 112, 113 Microsoft IFC, 104 Moody’s Analytics 10, 92, 94, IBC NCR 4, 58, 59 Newsgator 64, 65 Oracle 31 PAETEC 84, 85, 132 Quest Software 2, 109, 110 RBS 106 RSA 98 SunTrust Bank 60 Sybase 53, 100, 101 TD Securities 106, 122 Thinksoft 28, 29 Tibco 22, 23 Winmagic 96, 97
Don’t Miss… Check your balance (p73) Has hype hurt or helped the cloud? (p106) FST US Summit Review (p130) How To: Be a better public speaker (p134)
MasterCard has recently launched MoneySend, a money transfer device for Blackberry smartphone users. he service will allow person-to-person payments and the request of owed cash via text as well as the ability to accept credit or debit card payments, send money to family members, pay for informal goods, simplify business or non-proﬁt collection effort through the Request Funds feature, manage MoneySend transaction history and invite other users to use MoneySend via email. MasterCard have partnered with iPhone partners Obopay for the free-to-sign-up service. Andrew Ong, the Group Head, P2P of MasterCard Worldwide hopes that the launch will provide consumers with more innovative ways to make their lives easier. The PayPal-like service will pitch Blackberry back in the ring with the industry leaders, such as the iPhone and Android, as Google and PayPal have also partnered to enable a PayPal application for the search engine giant’s smartphone. The news of Blackberry and Android improvement comes as Microsoft announce the launch of their latest attempt to gain precedence in the lucrative smartphone market with the Windows Phone 7, set to launch in the U.S. in November.
ORACLE AD.indd 1
Held to accounts: reaching the nation’s underbanked With a large underbanked population set to increase in the wake of the economic downturn, Ian Clover investigates how ﬁnancial institutions can leverage technology and adapt their customer relationship approach in order to serve this growing portion of the market.
working mother and aspiring artist, Laura is a rather typical American. She possesses ambition and dreams to one day become a successful glassblower. But she also feels the pressure to support her child while earning an honest wage. So when Laura lost her part-time job in the recent economic downturn, she soon began to struggle fi nancially. With her income severed, overdraft fees and non-sufficient funds charges began mounting up, and her bank wasted no time in closing her account. From hardworking mother to yet another fi nancially eviscerated statistic, Laura’s change in fortune was quick, brutal and demoralizing. It was also depressingly commonplace. “When your bank account is closed on you because you lose your job, it really makes it harder to take care of the things in life that you have to take care of,” says Laura. Living paycheck-to-paycheck like Laura is a way of life for an estimated 7.7 million Americans who are classified by the FDIC as ‘unbanked’. They have no access to an account, no safety net against fees, no access to credit and no savings to cushion them if they lose their job or are hit with unexpected expense. A further 30 million people in the USA are regarded as ‘underbanked’ – while they may have a bank account, they rarely use it, instead preferring the instantaneous services and convenience of the widely stigmatized check-cashing outlets (CCOs) that compete with liquor stores and pawn shops for custom throughout America’s more deprived neighborhoods. Th is situation has been the status quo for quite some time. Banks cater for the fi nancially stable and prosperous, while all other members of society have little option but to deal in the hand-to-mouth practices of CCOs. Without a bank account, the unbanked can turn only to the alternative fi nancial market characterized by these CCOs, many of which will charge up to ten percent to cash a handwritten check. Such practices have been criticized for many decades, but only half of the states currently cap rates.
THE UNDERBANKED 33
Meanwhile, established fi nancial institutions have been reluctant to reach out to this section of society because it directly clashes with their own business model. Banks generate a large portion of their profit through the interest they charge on money they lend out from long-term deposits. In contrast, CCOs depend upon high volumes, small transactions and fees to generate their revenue. This way, everybody is served, but one demographic is punished and ostracized much more than any other – the poor. The issue of why large swathes of the poor population in the USA have no bank account is a thorny one. Surveys by the FDIC largely reveal that many poorer families have no real need for accounts because they lack the month-tomonth fi nancial cushion that make banks a good option. For others, bank fees are too high, minimum balances are too high, or there is a general distrust of the banking sector. The unbanked population has simply made do without banks – they have no savings so require no safeguard to their savings; they have no real need for credit and so have little reason to improve their credit score; they deal primarily in cash and so do not require a credit or debit card, and they cash their checks at their local CCOs, willingly paying the extortionate fees because, in their eyes, what else are they to do? Jennifer Tescher is the founder and director of the Center for Financial Services Innovation (CFSI) and she believes that a deeply ingrained sense of distrust of the banking world has excluded this section of society from forming a relationship with the fi nancial industry. “We at CFSI, and the FDIC, both estimate that there are between 30 million to 40 million households in the USA that either have no formal relationship with a bank or a credit union, or do not have their needs met through that relationship. I think that distrust of the fi nancial services industry is at an all-time high because of the fi nancial crisis, but the underbanked have been excluded either by their own choice or by someone else’s for quite some time, so this is not a new problem.” For some, it is not a problem at all. The fi nancial services industry has been clearly defi ned for many decades, and there are fewer better indicators to separate the ‘haves’ from the ‘have nots’ than one’s banking status. The system is extremely unyielding, with banks meeting the needs of those with money and CCOs catering for those with a more intermittent, erratic source of income. “The basic banking model doesn’t always make a whole lot of sense for someone who is living paycheck-to-paycheck,” says Tescher. These ‘just-in-time’ consumers have constant cash-flow problems and so manage their lives accordingly. “A checking account assumes you have some cushion, and it assumes you have some time,” she says. “But for folks living paycheck-to-paycheck, that is not true. They need the immediate liquidity, and they don’t have a lot of cushion, so a checking account doesn’t always fit the bill.”
Banking outreach The societal circumstances that have created such a disparity of wealth, ambition and opportunity are well
FDIC: The Federal Deposit Insurance Corporation (FDIC) is working on a program to encourage banks to offer no-frills, low-cost checking and savings accounts. “The FDIC’s model checking account [recently proposed] would allow customers to open an account for as little as $10. While banks may decide to charge a low monthly maintenance fee, the accounts will not have the kind of surprise fees – such as overdraft protection fees – that have led consumers to abandon banks”, says FDIC Chair Sheila Bair.
documented, if a little misunderstood. But do banks have a duty to tailor their products and services to reach out to poorer sections of society, or is it of little concern for banks to consider such assistance when there exists a plethora of far-reaching reasons behind why the current situation persists? Carol Kaplan, director of public relations at the American Bankers’ Association, thinks that banks – despite having previously offered assistance to the unbanked in society – are not the solution. “US banks have offered free and low-cost checking accounts for many years, yet a small percentage of families don’t have bank accounts because they have chosen instead to utilize non-banks for certain fi nancial transactions. “Reasons may vary from unstable income, perceived costs and benefits, misinformation to desire for privacy. The banking industry in this country favors competition and agrees that consumers should have freedom of choice to conduct their fi nancial transactions. We would like to have everyone as bank customers, but concede that for these reasons, some consumers feel there are better choices for them.” There are certainly legitimate reasons why some people do not use banks. The problem lies, however, in the fact that the alternatives to banking effectively cut the cord on an individual’s fi nancial future. The unbanked and underbanked are not just underserved but effectively excluded from channels of credit, opportunities for fi nancial comfort and progression and an increasingly numerous range of services and products that are debit or credit card-only. Identifying a solution remains a challenge. Does responsibility lie with the banks, the people or the powers-that-be? “I don’t think this is about teaching people to become ‘better’ at banking,” says Tescher. “I think this is about making the products and services that are available to consumers more useful and user-friendly. If you required a money order to pay your rent because your landlord doesn’t take a check – which is a very common phenomenon in a low or moderate income community – you went to the bank and they might charge you as much as $5 or $10 for a single money order when you can go to a convenience store or even the post office and get one for much less.” Tescher’s argument that banks should be doing more to tailor their products, services and marketing messages to the actual needs of these consumers is supported by her belief that the non-bank providers need to change, too. “CCOs and their ilk need to make sure that their practices are consumer-friendly, but they also need to think about how they can enable their transaction-based customers to climb the ladder of fi nancial prosperity, so that when they are ready to start saving or looking at buying an asset such as a car or a home, they are helping people fi nd a way to do that.” Despite Tescher’s claims that banks should identify areas where they can re-deploy their services and products in order to better serve the unbanked and underbanked, Kaplan argues that the banking industry has consistently
THE UNDERBANKED 35
promoted affordable accounts. “Many banks actively reach out to the unbanked with ‘second chance accounts’,” says Kaplan. “These include advice and counselling for those who have had trouble managing an account in the past.” FDIC research indicates that the annual cost of maintaining a bank account runs between $250 and $300 per year. While this may seem a lot, a typical low-income family that brings home $18,000 a year and uses CCOs regularly is estimated to be spending between $400 and $700 per year in fees and payment services (according to a 2008 study by the Pew Charitable Trusts). These statistics reveal that the issue may well be a combination of misinformation and distrust of the traditional banking sector. The recent economic crisis has further shaken confidence in the banking industry, and Kaplan believes the situation may get worse before it gets better. “While the majority of banks have offered free and low-cost checking accounts for many years, all banks will need to reconsider the feasibility of continuing to offer free accounts given current economic and regulatory pressures. Th is,” she continues, “could make it even more difficult for banks to attempt to serve the unbanked population.”
New innovation The entire fi nancial industry is in a tough situation as we move into 2011. The global fi nancial crisis has not only impacted upon the poorest sections of society, but has also begun to unravel the carefully woven fabric of middleclass, American life. Job losses and foreclosures abound throughout the country, forcing the job market and real estate industry to seriously address how they are to effectively operate in the forthcoming landscape of increased competition and austerity. The fi nancial industry is no different. Previous practices may soon become anachronistic, with more and more people unable, or unwilling, to jump through the many hoops of typical banking protocol.
“While the majority of banks have offered free and low-cost checking accounts for many years, all banks will need to reconsider the feasibility of continuing to offer free accounts given current economic and regulatory pressures”
“More and more customers are becoming economically challenged,” says Tescher. “Many have lost their jobs, or their house is in foreclosure, or their credit score has plummeted. They are really challenged right now, so I don’t think banks can easily say ‘we don’t have to worry about them’, or ‘they’re a really small percentage of our customer base.’ A much larger percentage of their customer base are really hurting fi nancially and may soon require a different set of products and services to what are currently being offered.” There has already been change, of course. Regulations on credit cards and overdraft charges have already been imposed, and there is increased pressure on banks to change their fee structure. Such a fraught fi nancial landscape should open up the playing field to a more nimble, proactive approach to banking; one that enables the consumer to get hold of their cash for less, to manage their money more easily, and to develop newer lines to credit and security. Bertrand Sosa is the co-founder of Mango Financial, Inc. an Austin, Texas-based fi nancial store with a difference. Catering for the city’s sizable unbanked population, the Mango Store opened in April 2010 with the aim being to straddle the divide between the warmth, welcome and enthusiasm displayed by the nation’s leading bank branches and the garish, transient and faintly intimidating experience of frequenting a CCO. “We’re providing a one-stop shop that offers customers a service that not only saves them time and money but is also a place where the daily fi nancial needs of the unbanked population are met,” says Sosa. Mango is hoping to forge lasting relationships with those who have either never used a bank or have grown disillusioned with traditional banking fees and practices. Members who pay a one-time fee of $10 can cash as many checks as they want by loading their funds on to a pre-paid debit card that acts
just like a normal card. For an additional fee, customers can also send money transfers and pay bills. “We are targeting customers who, for one reason or another, are paying more for a lot of the services that traditional bank customers enjoy at a reduced price, or maybe even for free,” explains Sosa. “These paycheck-to-paycheck customers end up paying a premium on services that we believe should be made available to them, so we have created a store environment that is very interactive; it’s a place where they can come in, conduct their business and leave in a very quick timeframe.” Sosa’s own MPOWER Labs company has developed the technology – operated by Mango sister company Rêv Worldwide – to enable Mango to deliver this service at vastly reduced operating costs, while the innovative and unique look of the money center has been designed to be as transparent and welcoming as possible. It attempts to create a unique warmth and sense of belonging to a demographic that has grown used to conducting their heavily penalized fi nancial transactions through impersonal bulletproof dividers and under the intense glare of flashing neon signs so beloved of CCOs. “This particular customer doesn’t go through traditional banks because they do not feel welcome there,” says Sosa. “So we didn’t want to call Mango a bank because we felt that doing so would bring with it all of the association
“When you look at many check cashing locations, you see the glass dividers, so we wanted to ally our business model with a store that offered something fresh and new”
to what that represents to this kind of customer from a banking standpoint; and that’s overdraft charges and other hidden fees.” The Mango Store clearly displays all fees in bright banners throughout the interior, augmenting the feeling of openness, trust and transparency that is already engendered by the lack of bulletproof screens and security cameras. “When you look at many check cashing locations,” continues Sosa, “you see the glass dividers, which do not exactly create the most customer-friendly environment. So we wanted to ally our business model with a store that offered something fresh and new.” Drawing inspiration from Apple, Sosa believes Mango’s own retail operation will also soon start bearing fruit. “There was no need to reinvent the wheel. We thought a lot about what Apple had done with its retail model and realized that we could do the same thing for financial services. While some banks have attempted to refurbish their lobbies and rework how their flow of traffic is managed, there hasn’t ever really been a fresh approach in the sector. Starting from scratch, we were able to think outside the box and can control our brand and the experience of the consumer through the look and feel of the store.”
Tech to check Redefi ning the retail space solves just one part of the problem for the unbanked. The affordable upfront fee both
ARGENTINA’S UNDERBANKED RUN DAILY GAUNTLETS
merican citizens may have their own legitimate reasons for shunning the nation’s banking system, but for millions of Argentineans, they are left with little choice but to conduct the bulk of their ﬁnancial activities in cash – often with deadly consequences. Ever since the 2001 Argentine economic crisis – when the government was forced to devalue the peso, freeze bank deposits and force even dollardenominated accounts to be withdrawn only in the devalued currency – public conﬁdence in the country’s banking system has been at rock bottom. Ally that with 50 percent tax evasion rates, 65 percent taxes for those who do declare and a raft of painful other taxes forced by a government seeking other revenue streams in the wake of such low income tax compliance, and you have an economy awash with an underground cash market, with the US dollar the preferred trading tool. And with so much cash on the streets, organised criminal gangs are running riot. While the government has refused to publish ofﬁcial detailed crime statistics since 2007, security consultant Louis Vicat has told the Associated Press that his own ﬁndings amount to more than 5000 ‘withdrawal
THE UNDERBANKED 37
The innovative and unique look of the Mango Store has been designed to be as transparent and welcoming as possible
enables and empowers consumers to start taking control of their fi nances, making them more comfortable and confident in undertaking standard banking transactions and procedures. “Fees charged at standard banks have been excessive given the relative funds available to this type of consumer,” says Sosa. With non-sufficient funds charges of up to $30 at traditional banks, just two or three bounced checks can start adding up very quick ly, leaving the underbanked with little choice but to rely on the alternative financial centers of CCOs. Now, believes Sosa, this demographic has a happy medium. “We got inspired to get involved in the alternative financial space because we [Bertrand and his brother Roy are Mango’s co-founders] felt that the current players had sub-par technology. They didn’t really understand how to capture the customer’s attention, either through branding or building a relationship with their clients. Banks are very smart and very sav v y about marketing, CR M and brand-building, but the CCOs don’t really know how to do that as effectively.” Utilizing and building upon the knowledge and expertise the Sosa brothers had accrued from their earlier ventures with Netspend pre-paid cards, they set about delivering the right customer experience for the nation’s underbanked population. From both a technology and
robberies’ throughout Argentina in the ﬁrst half of that people are reluctant to use banks and so begin 2010. These robberies usually occur just outside banks, toeing the line, thus exposing themselves to the where millions of Argentines use safety deposit boxes scrutiny of Argentina’s tax agents. For every 100 to store their stash of cash to pay for everything from pesos an Argentine makes, it is estimated that 65 cars to homes (with sales tax at 21 percent and a hefty will quickly be owed to the state through various wealth tax on personal property it is understandable taxes. Argentina also taxes money transfers, check that the majority of the population with any savings deposits, withdrawals, transfers and other routine to speak of avoid the banking system) and, once bank transactions, while most banks impose withdrawn, a ‘marker’ – usually operating hefty fees. inside the bank – will alert their criminal Psychologically, Argentineans are counterparts outside, who act quickly, hard-wired to steer clear of ofﬁcial decisively and, often, brutally. of Argentineans ﬁnancial channels: most will avoid With such danger on the streets, the peso-denominated accounts, preferring evade all Argentine population has called upon instead to convert their wages into taxes its government to tackle the issue, but dollars and then store their wads of there appears to be a triumvirate of mistrust cash either under the bed or in bank safety between the population, the government deposit boxes; a tactic the criminal gangs are and the banks. While some ofﬁcials have suggested wise to. Routine transactions are all conducted in banning moped passengers in order to reduce ‘snatch cash, thus saving small businesses from large tax and grab’ robberies, others have suggested better bills and the consumer 21 percent of the total value privacy at the teller, more security cameras and of their purchases. It is estimated that 90 percent more police presence at banks. Many, however, feel or all house purchases are made in cash too. Cash is that these measures do not get to the root cause of simply the only way to do business in Argentina, and the problem: Argentineans’ collective mistrust of until the government scraps its hefty levy on ﬁnancial bureaucratic entities, such as banks. transactions (imposed after the crisis of 2001), the The country’s undeclared economy is so large situation is unlikely to improve any time soon.
branding standpoint, the Sosa’s identified a product and a service that could meet the needs of this consumer in a cost-effective and empowering fashion. “One of the most important elements of our strategy is pricing,” enthuses Sosa. “We’re talking about an industry that is within some product categories very predatory, and at best it is very high pricing, high margins. So we felt that through technology we could deliver a much more effective and cheaper alternative.” The technology employed by Mango to deliver affordable fi nancial services to the underserved uproots no trees. Rather, it is a shift in focus that has enabled Sosa and his team to reach the needs of this consumer base. “We have taken a multilevel approach,” says Sosa. “There is the core payments processing technology that we leverage from our group of companies. So when you go into the Mango store and you walk out with a Mango MasterCard Prepaid Card, that debit card is processed through the systems and technology that we developed. So it’s not like we are outsourcing the payments processing to somebody else. From the beginning, this provides a clear advantage in terms of being able to offer not only the experience, but also the pricing that we have in store. “One level up from that there is the integration of all the different product functionalities; the ability for a consumer to remit money to another country is very straightforward, as is the ability to pay a bill from that same account. Th is is all integrated together at the point of sale. Therefore, when you come in and present a check and thus become a Mango member, the system that is processing that transaction is the same system that is plugged into the card processing account generation system.” By integrating their point of sale functions into a single system that also incorporates the 24/7 ATM located outside the store, Mango consumers are instantly hooked up to the traditional banking services of normal account holders. Inside the store, the relaxed, airy and colourful atmosphere is further augmented by the presence of onsite fi nancial coaches who are on hand to help clients operate the self-help kiosks that are used in place of teller stands. “The self-help kiosks allow you to create your account and then check balances and conduct a number of other transactions, all without ever really needing the assistance from the onsite coaches. It is a holistic, integrated approach that has enabled us to utilize technology to reach the unbanked through lower pricing and the creation of a stress-free, unthreatening environment.” Sosa regards the self-help kiosks found inside the Mango stores as similar to the automated check-in counters now widespread throughout airports. “When these were first installed in the early 90s, airline staff were always on hand to help you navigate how to use them,” says Sosa. “Quickly though, it all became second-nature to us, which is the same approach we are taking at Mango. We feel that instead of having tellers to process transactions, we wanted to go beyond that and offer just the right balance of assistance and education to encourage consumers to learn a little bit more each time they come in, building their confidence
MOBILE, BUT UNDERBANKED Research from Javelin suggests that banks hoping to reach the underbanked sector of society should ﬁrst get their mobile banking department up to speed. Their ﬁgures show a correlation between adoption of mobile phones and the underbanked, revealing that mobile penetration among poorer Hispanic and black communities stands above the 65 percent nationwide average, at 68 percent and 66 percent respectively. Additionally, governmentbacked cell phone programs targeted at lowincome consumers have increased penetration levels, suggesting that the underbanked demographic is likely to be much more receptive to mobile banking technologies than the general populace.
“We feel that instead of having tellers to process transactions, we wanted to go beyond that and offer just the right balance of assistance and education to encourage consumers to learn a little bit more each time they come in”
and making them a bit more financially savvy each time.” Such an approach also helps to keep overheads down, too. Since losing her job, Laura has found the Mango Store to be something of a godsend. “Having a service like this helps emotionally because it allows people to handle their life and their fi nances just like they used to.” The onsite coaches not only offer assistance, says Laura, but they also encourage clients to learn more about taking control of their fi nances. “Since money management is a goal of mine and something I am working towards, Mango is a tool that I am able to use to help me achieve that.”
Empowering the underbanked The underbanked population of the USA is a sizeable and potentially profitable group of consumers currently languishing under the defeatist guise of disempowerment. The traditional banking system is adrift of their needs, and the alternative fi nancial providers offer only short-term services rather than long-term assistance. Th is group deal
THE UNDERBANKED 39
in insecurity. They are well versed in the stresses associated with living paycheck-to-paycheck. They have adapted to this way of life, burdening themselves with the physical and emotional baggage that comes with being in a perpetual state of personal fi nancial constraint. It is unsurprising to discover that the proportion of unbanked and underbanked populations varies drastically across the country, and rarely cuts across racial lines – ethnic minorities are more likely to be unbanked or underserved. FDIC statistics estimate that 31.6 percent of black individuals are underbanked; a figure that stands at 28.9 percent for American Indians and 24 percent for Hispanics. By contrast, only 3.3 percent of white households are classified as underbanked. Such statistics tally with Mango’s fi rst few months of operation. “The demographic that we have targeted from the get-go has been predominantly Hispanic,” says Sosa. “We anticipated that we were going to attract a lot of the Hispanic market, and this has absolutely been the case. We have also noticed that we have attracted a large segment that is African-American, which is also in line with the statistics on the underbanked. What I didn’t expect, however, was that much of our existing base would come from customer referrals and word-of-mouth.” Sosa estimates that some 30 percent of Mango’s traffic and footfall is generated this way, which justifies to him that they are offering a service that a great deal of people were in desperate need of. “Th is will help us keep our costs down through a reduction in marketing for example, and so we can then maybe funnel that money back in through product innovation or more competitive pricing.” Such high referral rates are a result of an empowered population fi nally receiving a service they thought they would be forever excluded from. However, Sosa has already begun making plans to further develop the types of ser-
Fees for most check-cashing stores are charged on a percentage basis, typically 1% to 3% per every $100 deposited
vices Mango can offer, which will bring a more in-depth level of fi nancial service and satisfaction to the client. “The pre-paid Mango card is really a means to an end,” says Sosa. “It is just the channel by which consumers come into the system. We are working on services and account enhancements so that the customer can enjoy more benefits. The account and card combo is a natural way to engage customers not only in store, but outside in places where they shop. We give them a 5.1 percent return on their money when they put it on to a savings bucket we have made possible.” While these fledgling customer relationship management strategies may appear charmingly twee to those of us already well practiced in traditional banking practices, to the underbanked, such small gestures are going a long way in fostering trust between Mango and its consumers. “We have already begun developing the provision of loans to our customers,” says Sosa. “We feel that as we educate customers on how to better manage their money, if we are successful in delivering the right experience, the right pricing and the right approach, they will stay with us for as long as we can provide the services that they need and that they are looking for.” An important factor for many of the underbanked population is the ability to improve or build upon one’s credit score, which is also something that Mango is working on. “By defi nition, through what we are doing on the loan side of things, plugging into the credit system is a component of that, and it is something that we know is extremely important to this particular customer.” Additional services being offered include the ability to text money transfers via mobile phone, consult bilingual in store coaches and learn more about the fi nancial industry as a whole. There are expansion plans in the pipeline, too, with Sosa identifying a number of opportunities to develop the Mango model along a national footprint, including partnerships with banks and CCOs who want to evolve in the direction Mango is headed. The recent fi nancial regulations prohibit banks from charging overdraft fees unless a customer is pre-signed up for this service, and they now also impose strict restrictions on a number of other fees that customers have previously been liable for. While these measures have been welcomed, there remains an inherent need for the fi nancial sector to diversify, to become more flexible and to seek a broader client base. Banks can no longer afford to under serve 30 million people, and completely ignore an additional 7.7 million individuals who do not even have a bank account. Change is coming from the government, from start-ups such as Mango, and even from a number of employers who now pay their staff via reloadable Visa or MasterCard cards instead of a check. But it is the banks themselves that hold the solution. Mango has proved that the technology and the client base are there. The only thing now lacking is a collective will and desire among the largest fi nancial institutions to extend that fi rst olive branch, and thus begin repairing relationships damaged by many decades of distrust. ■
DO YOU BANK $MART? With ďŹ nancial institutions throughout the country striving to cater for the broadest base of consumers possible, mobile banking is an increasingly competitive industry. But how can FIs grow their mobile banking operations in a way that best suits them and their customers? FST US investigates.
Mobile Banking.indd 40
MOBILE BANKING 41
or all our individualistic tendencies, the human race likes nothing better than to fit in. Following trends and fashions is as old as civilization itself, but today’s fast-paced world of hyper-connectivity means that fads quickly become lifetime achievements, and flashes in the pan become five-course banquets – savoured at length rather than chewed up and spat out. Technology has a lot to answer for here. Where previously a person could merely dress in a certain way in order to look the part, today we are inundated with a cornucopia of gizmos and gadgets ostensibly designed to make our lives simpler, but which are often snapped up by the masses for fashion purposes rather than function. As American writer Stewart Brand shrewdly noted, “Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road.” Exposure, pressure and repetition: the cornerstones behind the collective success of Facebook and Twitter. These social phenomenons could quite easily have failed, fallen at the fi rst hurdle and left consigned to the 21st century trashcan of ‘thanks but no thanks’ ideas. But they didn’t fail. Instead, they have come to shape and drive vast percentages of human interaction purely because we are exposed to them, pressured to participate, and regularly reminded of their value, their impact and their presence 24/7. And in something of a chicken-and-egg scenario, the ubiquity of these sites has driven the proliferation of the smart phone market. Whether such fantastical cell phones would have been developed regardless is debatable, but society’s yearning for always-on connectivity – driven by Facebook and its ilk – has unarguably accelerated these phones’ wider adoption. So to avoid becoming ‘part of the road’ that gets left behind, business and consumers have enthusiastically embraced every new service that technology is offering. Mobile banking, with its roots in simple SMS-based balance alerts – a service that is just a few years old, which is a lifetime in the mobile phone space – has become one of the most keenly desired markets in the fi nance and technology industries. Every major bank in the USA has some sort of mobile banking service, and many smaller banks have dipped their toes into the water at some point over the past 12 months. But in such a fiercely competitive industry, how can banks differentiate themselves from competitors, and how can they attract and retain a customer base that has never before been so informed, proactive and immune to restraint and limitations? Marianne Crowe, Vice President of the Consumer Payments Research Center at the Federal Reserve Bank in Boston, believes that issues of security are one of the main inhibitors to universal adoption of mobile banking. She suggests it is important for banks and fi nancial institutions to work proactively with their customers in order to assuage security concerns and develop a service that benefits both parties.
Mobile Banking.indd 41
“Some of the wider security concerns we see from the general public are very real, but some of them are just a matter of perception,” she says. “As with online banking a few years ago, it is taking a while for people to feel comfortable with mobile banking, and to trust it fully. From my perspective, mobile banking is not perfect and is certainly not without its risks. Banks have to be very careful in managing the risks and potential threats to the system, but I think the biggest issue to address in terms of security is educating the customers.” All banks involved in mobile banking have taken every step they can to ensure that their system is fully protected, but the fi nancial institutions, Crowe argues, can only do so much. “Some of the responsibility belongs with the customers. They need to understand on their own the need to be careful when using multi-factor authentication, making sure they are managing their mobile phones and keeping track of them, protecting their passwords and being mindful of the types of applications they are downloading. Because even non-fi nancial applications can be dangerous.” The majority of consumers will have some level of security savvy, but even those who are regular mobile banking customers can still fall prey to lax practice or one of the increasingly devious scams that exist. No consumer can ever be fully, 100 percent free from threats, but banks can increase customer awareness and shape their practices by engaging with them and educating them on the dangers that lurk in the depths of cyberspace. “It is up to the bank to encourage consumers to be more responsible in terms of monitoring their balances, receiving and checking alerts and tracking and reporting any suspicious activity so that the fi nancial institutions can report it immediately. “It is,” continues Crowe, “a two-way process. We can educate and inform consumers, but it is the responsibility of the bank to manage their customers. Th is will go a long way to addressing perception issues, and the issue of overall security.”
Issues of interoperability There are two parts to mobile banking. The fi rst part is best defined by the types of actions a customer will undertake with their mobile phone that they perhaps did previously online or at the teller. “Mobile banking as defi ned by the Federal Reserve is customers using their phone to check balances, check last transactions, receive alerts on balance information, pay bills and generally manage their account,” says Crowe. “Th is is a relationship the customer has with their bank and their mobile carrier. It is a banking relationship supported by one’s phone. “The other part to mobile banking,” explains Crowe, “is mobile payments, and this is a little bit different. There are some gray areas where the two parts overlap, but to the extreme, mobile payments means making purchases with a mobile phone.” Examples cited by Crowe include using a mobile phone to make purchases online or, in the immediate future, making direct contactless payments at a store, much in the same way contactless cards can be tapped to a pointof-sale device in retail outlets in many parts of the States.
Mobile Banking.indd 42
WHO’S A MOBILE BANKER? Statistics from ABI Research predict that 61 million Americans will use mobile phones to carry out typical banking transactions and make mobile purchases by 2015. Of this group, the majority come from the younger, Generation Y demographic, and they all use smart phones. “Mobile banking’s future is driven by the smart phone, of that there is no doubt,” says Crowe. “Base phone users might be able to receive SMS alerts, but all banking applications are being built for the smart phone market. The Generation Y group, and even the middle group of 35-50 year-olds are leading the mobile banking industry. However, it is ﬁltering, and soon we will see that, depending on what types of services banks offer, most generations will begin using mobile banking in some form or another in the future.”
“More than 70% of call center volume comes from mobile phones, a figure that will drastically reduce as more banks begin offering mobile banking services”
“These types of transactions defi ne mobile payments, which could also include p2p, person-to-person payments and transfers,” says Crowe. So it is this disconnect and interoperability between platforms and providers that could prove a hindrance to the growth of the market unless a satisfactory outcome is identified. “For mobile banking, the bank has to basically support the leading mobile carriers. In the USA, let’s say that half of a bank’s client base are with Verizon and half are AT&T,” says Crowe. “A bank will want to have a relationship with both vendors so that each set of customers can perform mobile banking. The interoperability becomes more of an issue when we want to exchange money with other people, or we want to make purchases. Consumers do not want to have the worry that their phone is supported for one carrier
MOBILE BANKING 43
but somebody else’s is a different carrier and so they can’t communicate.” Another key issue of interoperability is support and standards. “It is important for customers to know that their bank supports all types of phone, platforms and the service providers,” says Crowe. If so, the perception of mobile banking as an arcane service that is ‘not for them’ will quickly dissipate.
Implementing a mobile strategy Financial institutions intent on delivering a cohesive, fully supportive mobile banking service to their customers must ensure that their strategy is not a mish-mash of halfbaked ideas and applications. Security and interoperability concerns can, as outlined by Crowe, be overcome quite easily, but merely mastering the technology and educating the consumer base is not enough. Banks and fi nancial institutions must fully grasp what mobile banking is, and must be aware of how it can really add value and benefit to both parties involved. “Mobile banking is not a fad,” says Crowe. “It is not quite universal yet, but it is not going away either. The banking institutions that are reluctant to implement a mobile banking service are worried about cost and security, and some of the smaller banks are unsure whether they need to provide this service; they do not know if they have the consumer demand for it. “Well the demand is there. So my advice to banks would be to look at the different applications, understand their customer needs, and begin phasing in a strategy.” Crowe further suggests a patient, granulated approach at the beginning. “Banks can start by offering informational services such as balance checking, but not necessarily making payments. Of course, banks should conduct as much research as possible, looking into things like how large their base of young people is, or analyzing the needs of their older customers. “Many smaller banks conduct their core deposit processing through third party processors like Pfi zer or Fidelity Information Systems,” continues Crowe. “A lot of these companies have now built mobile banking applications that integrate with their core deposit systems. So if banks have a third-party processor, they should be talking to them about what they offer and how it might fit their needs. And if not, they should be looking into, and doing research with, other vendors.”
Beneﬁts of mobile banking
In 2009, there were fewer than 10 MILLION mobile banking subscribers in the USA
Mobile Banking.indd 43
The convenience benefits of mobile banking are quite clearly defi ned for the consumer. If you ignore the potential security concerns, who wouldn’t want fast, free and easy access to one’s bank account via a few applications on their smart phone? But what are the benefits to the fi nancial institutions that offer a complete mobile banking service? “If a customer can use their mobile phone to perform non-fi nancial transactions,” says Crowe, “then they are not calling the call center or walking into the branch. Some studies have shown that numbers have been drastically
reduced in terms of call center volumes for banks that offer complete mobile banking packages. So just this one issue reduces the need for labor-intensive staffi ng at call centers – a huge operational cost saving that banks can potentially achieve.” Mobile banking can also prove extremely effective in attracting and retaining a certain demographic of customers (see box for more information) who have been swept away by the convenience of service that mobile banking offers. “Once you are using your bank for multiple services tied in with your mobile phone carrier, and so long as there are no major problems, it becomes increasingly unlikely that a customer is going to leave their bank,” says Crowe. Additionally, mobile banking can, argues Crowe, become a revenue stream in its own right, rather than simply a cost-effective service that is valuable for retaining custom. “There will soon be opportunities for banks to offer some advanced functions and services in the future where they could possibly generate revenue. Currently, 99 percent of banks do not charge for their basic mobile banking services, so it is not seen as a revenue generator. But something like being able to do remote deposit capture [something Chase and USAA have recently implemented with their electronic capture and deposit service via smartphones’ camera capabilities] could make money.” Mobile banking is approaching the next level in its evolution. As a free and fabulously useful service to customers, there appears to be little that can halt its growth. Security concerns still exist, but are often manifest in misperception; the technology is certainly able to combat most threats so long as users are fully educated on the potential risks. That is a job for the banking industry, as is overcoming the issue of interoperability between platforms, providers and fellow users. The benefits of mobile banking are manifold, from improved customer service to reduced overheads, and the future promises the opportunity to monetize the service by offering a very special set of functions, such as remote deposit capture or person-to-person transfers. “We still need more consumer research on mobile banking to get a better sense of what things customers feel they are entitled to, and what they would be prepared to pay for,” concludes Crowe. “There are services that customers have always had for free, such as those available with online banking, but there are services that only mobile banking can offer, and which customers might well be willing to pay for. “In the past year, the fi nancial industry has been a little distracted by events other than mobile banking; economic issues mainly. But now the entire banking world is coming back to it, and there is so much more interest in the possibilities mobile banking offers. We are going to see more banks offering this service. We are going to see more applications offered and, while we have yet to reach the tipping point, we are going to see the majority of customers wanting it too, because they will see other people who have it and think: ‘why can’t I?’” And so, as the technology steamroller rolls on, the road looks more spotless than ever. ■
CLAIRMAIL AD2.indd 1
EXECUTIVE INTERVIEW 45
The time is now for mobile banking Pete Daffern explains why it is imperative for ﬁnancial institutions to incorporate mobile banking as part of their overall strategic objectives.
Pete Daffern is CEO of ClairMail, the leading provider of mobile banking and payment solutions. Pete has more than 20 years of operational and business leadership experience in the technology sector.
Mobile banking is moving from a ‘nice-to-have’ innovation to a mainstream offering for banks. Why? Pete Daffern. Financial institutions (FIs) are increasingly realizing that mobile banking is a strategic investment that they cannot afford to miss out on. The mobile channel provides unprecedented coverage: 95 percent of US banking customers own a mobile phone, most of whom keep their device within arm’s reach 24/7. In comparison, most estimates put Internet penetration at only 70 percent, so mobile banking can have a potentially far greater impact than online banking. The anytime, anywhere nature of mobile provides a level of availability and immediacy that other customer interaction channels can’t offer, and makes it an ideal vehicle to proactively deliver high-value, personalized content to FI customers. Javelin predicts there will be 85 million US mobile banking customers by 2013, and TowerGroup projects a compound annual growth rate of 51.8 percent. Mobile banking truly is a once-in-a-decade opportunity that FIs must capitalize on. What is the business case for mobile banking? PD. Recent market conditions have disrupted relationships between FIs and their customers. Increased competition, higher service costs and heightened government regulation on fees all threaten to reduce customer loyalty and drive down profits. As a result, FIs face mounting pressure to lower servicing costs, relieve competitive pressures, increase revenue and reduce churn by deepening customer relationships. Mobile is in a unique position to solve these problems. Customers who use mobile banking exhibit the characteristics most desired by FIs – they tend to carry higher balances, purchase more banking products and have longer tenures. As such, FIs should support and continually engage these more profitable customers, or chance losing them to competitors. The mobile channel empowers customers with selfservice tools that will reduce contact center costs. 40 percent of calls to live agents are typically for balance inquiries; def lecting even a small percentage of these calls – which cost an average of $4 each – will provide tremendous cost savings. The more conveniences FIs provide to their customers – such as real-time alerts for potentially fraudulent
activities – the more value customers will derive and the less likely they will attrite. Mobile also enables FIs to deliver highly-contextual cross-sell marketing messages to customers to improve conversion rates and ultimately generate revenue. Why should FIs choose ClairMail for mobile banking? PD. Eight of the top 12 banks in North America already use ClairMail to power their mobile offerings – because its unique, comprehensive solution delivers proven results. ClairMail offers the only mobile banking and payments solution capable of providing: a) 100 percent coverage via multi-channel enrollment and a dedicated adoption services program; b) real-time, personalized and actionable alerts that allow customers to instantly resolve issues directly on their mobile phones; c) an optimized customer experience that unifies messaging, mobile web and client applications into a single, intuitive interface, and d) a robust enterprise platform that seamlessly connects with any FI back-end system and enables cross-product, cross-channel orchestration. What proven results have ClairMail clients seen? PD. The positive results experienced by ClairMail’s clients clearly demonstrate the value we deliver. Many of our clients have exceeded their adoption goals, some by up to 100 percent; one surpassed its annual enrollment target within three months of launch. Many have seen significant improvement in retention, including a double-digit retention increase among Generation Y customers, typically the segment with the highest attrition rate. ClairMail is also driving customer acquisition. One client reported an increase in new customers and attributed mobile banking availability as the key factor. ClairMail clients are also realizing considerable cost savings. One saw a 70 percent reduction in VRU usage by mobile banking customers, and another observed a three percent reduction in overall contact center calls following deployment of the ClairMail solution. Our clients have experienced first-hand the numerous benefits that come with implementing ClairMail’s mobile banking and payments solution. The time is now for FIs to incorporate the mobile channel as part of their overall strategic objectives, or risk being left behind.
nternational recognition can be both a blessing and a curse. Many an energized, focused and tightly wound rock’n’roll band has found themselves transformed into sloppy, uninspired, going-through-the-motions aimlessness once international recognition has come calling. Conversely, plenty of small business start-ups relish the clamor of international attention and revel and excel in the limelight. In the financial world, Deutsche Bank’s rise to prominence is rooted fi rmly in the latter of the two camps. Since World War Two, Deutsche Bank has been a nigh-on unstoppable behemoth of growth, acquisition and expansion. It has been eating up competitors since the 1970s, and in October 2001 it was the first bank to be listed on the New York Stock Exchange post-9/11. Once this U.S. toehold was secured, the bank wasted no time in transforming itself from a German-centric organization famous for its commercial and retail presence to a truly worldwide investment bank. It has not looked back since. Deutsche Bank’s great strength has been its ability to respond to and manipulate the world markets to its own end, and its mission statement – ‘We compete to be the leading global provider of financial solutions for demanding clients creating exceptional value for our shareholders and people’ – hints at its continued ambition. The economic downturn has obviously had a detrimental impact upon the industry as a whole, but as the roots of recovery begin to break through the surface, Deutsche Bank is looking towards 2011 through a lens inspired and shaped by innovation. “What we are looking at in 2011 is virtualization, server density and server consolidation,” says Brian Modoff, Deutsche Bank’s
MOTIVATE As the ﬁnancial landscape continues to evolve, banking and innovation are becoming increasingly easy bedfellows. FST US takes a look at how Deutsche Bank is using technical innovation to move with the times.
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INNOVATIVE BANKING 47
senior telecommunication technology analyst. “One of the things we are highlighting for next year that has not received that much attention is security in a virtual environment, and we are continuing to evaluate other architectures like enterprise Wi-Fi, but security issues are going to be an ongoing concern for us.” The changing regulatory environment is forcing the entire industry to reassess practices and develop strategies that will enable all financial players to operate in a fairer and more transparent manner. This, in itself, is a challenge of innovation. “There is a lot of uncertainty around the regulatory environments and how that might affect our business,” admits Modoff. “So being aware of this is important to us, as is generally staying the pace with other things that are changing rapidly, such as architecture.”
adds another layer of complexity to the environment, as do the current regulations.”
Social banking As part of its efforts to remain at the forefront of banking innovation, Deutsche Bank boasts a sizeable social media presence that it maintains on a daily basis. Financial institutions have been notoriously reticent when it comes to communicating with their clients via the newer mediums. However, it is these newer mediums where clients are becoming increasingly comfortable, which is something Deutsche Bank has not only identified but also acted upon in impressive fashion. The bank’s own website has links to its social media activity and, among Deutsche Bank’s corporate accounts, there are a number of special accounts for different corporate and
However, it is internally where the bank has really innovated, adopting social web 2.0 tools in order to share expertise, manage networking and discuss topics among staff. “Technology has changed so quickly in just the past few years,” says Modoff. “Staying on top of this rapidly changing landscape is of massive importance to us, so we see innovation and technical adoption as the best way of meeting these challenges.” John Stepper, managing IT director of Equity Derivatives and Equity Finance at Deutsche Bank, spoke at the recent Web 2.0 Expo in New York about the technical challenges behind bringing one of the world’s leading banks, operating in a highly siloed, regulated environment, into the social age. Stepper revealed that adoption among the bank’s 80,000 employees was not the problem: overcoming the stringent restrictions of the risk
Virtualization Deutsche Bank’s virtualization initiatives are, for Modoff, the primary focus for next year. “We see virtualization as something that essentially allows us to densify the number of servers we have, because we see data center consolidation as one of our biggest initiatives,” he says. “We run a huge number of databases and trying to extract more efficiency out of them while lowering our power consumption is a key area for the bank.” Being a German-originated bank, sustainability concerns are also extremely high on the global agenda. “We have plenty of green policies in place,” reveals Modoff. “We pay enormous attention to our carbon footprint, and it is an attention that partly drives our virtualization efforts.” The rate at which technology is moving in the current landscape creates continual challenges, and Modoff is keenly aware that in order to stay competitive, Deutsche Bank’s technical ability must be as efficient and advanced as possible. “We are a very large trading house and have always had a lot of work around our trading systems and how to gain a competitive advantage in that,” he says. “So with things like virtualization and data center consolidation, these are major architectural changes that are affecting how the network is looked at, and it is a lot for us to consider.” The numerous challenges brought by virtualization demand careful and pragmatic consideration, and with the current security, regulatory and economic landscape, these considerations come under greater scrutiny. “With security, it is all about taking different angles,” says Modoff. “It’s not just about monitoring security at the edge; you’ve now got to pay great attention to internal security challenges, and virtualization
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“We pay enormous attention to our carbon footprint, and it is an attention that partly drives our virtualization efforts”
business units. Since September 2009 the bank has been present on Twitter, which it uses as a news channel to provide its followers with information from several business sources. These include the company’s own press releases, industry studies and presentations, forthcoming events and conferences, career opportunities and the bank’s corporate social responsibility initiatives. YouTube is employed in a similar capacity, with Deutsche Bank broadcasting corporate videos, video statements delivered by CEO Josef Ackermann and advertising spots designed to get the message out there in the most cost-effective and targeted manner possible. The bank also has a commendable Flickr and Facebook presence where detailed company profi les and photo albums carefully protect, project and augment the Deutsche Bank image around the world.
and compliance team proved far more troublesome. Employees actually petitioned for the use of Gmail, but Deutsche Bank and Google could not reach a decision on terms and conditions. In the end, Stepper had to improvise. He identified a section of the bank’s workforce whose collaboration activity would go undetected by compliance and employed a microblogging platform that would prove “lightweight and easy” for the teams. Nicknamed ‘The Wire’, this Twitter-lite platform enables staff to communicate, collaborate and keep updated with one another with consummate ease. Stepper’s focus has now shifted to building communities that can actually provide solutions to real time business problems, and hopes that Deutsche Bank’s social media initiatives will help to eventually transform not only its internal communications, but also its overall global performance. ■
mom and dad?
With traditional credit channels squeezed so much that even the bank of mom and dad is tightening its belt, social lending services have moved beyond typical peer-to-peer to target the inter-family space, as Ian Clover discovered.
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SOCIAL LENDING 49
he end of a dream usually passes by undocumented, airbrushed from your subconscious by usurpation, or denied the chance to reach its natural conclusion by the aggressive interferences of alarm clocks, cat paws, partner’s elbows or the intrusive beeping of reversing garbage trucks. We wake feeling unsatisfied, often eager to fall back to sleep in order to resurrect that ephemeral moment where it’s you, yes you, receiving the quarterback’s pass (the quarterback being the guy who serves you coffee every morning on the way to work for some reason, but still, it’s your dream) and surging through to touch down to win the game. But by then the moment is lost. You can lay awake in bed and imagine how it might have played out, but it’s never the same – once reality hits, there’s nothing left to do but get on with your day and leave your dreams behind. For millions of Americans, the end of their dreams is becoming increasingly manifested in realms that lie far outside the drool-stained comforter confi nes of their bedrooms. Their entire lives, previously spent pursuing their own versions of the ‘American Dream’, are now facing up to a harsh reality. Jobs are being cut everywhere you turn. Foreclosures and bankruptcies abound. Credit is tighter than an aging actress’s botoxed forehead, and interest rates for those actually offered credit are often cripplingly high. The Great Depression of the 1930s – while more dramatic and damaging in real terms than the one we are suffering through today – came on the back of relatively low-levels of prosperity, and went on to become the catalyst that propelled the US to the economic comfort it enjoyed throughout the prevailing six decades. During this unprecedented period of growth and affluence, income levels and living standards were raised to previously unimaginable heights – the baby boomers enjoyed privilege, education, luxuries, opportunities and a job market that delivered choice, growth, diversity, great salaries and, above all, stability. Th is was the American Dream in full fl ight. But as any First Grade science student knows, what goes up must come down, and it is inescapably obvious that we are now past the apex of prosperity, with the economic hardships coming our way threatening to be far more painful than those suffered by our 30s forefathers. After all, it is a hell of a long way to fall. The children of the baby boomer generation have had it pretty easy so far. They were largely raised in safety, security and comfort. They were afforded sheltered, lengthy and lazy childhoods; white of teeth, tall of stature and encouraged to dream, to ‘go one better’ than their parents, just as their parents had done. Th is had become the standard starting point for the typical American family. A first car, a stolen kiss on prom night, a college education, a trip to Europe, a lasting career, a family and first house, good holidays and a healthy retirement fund. Now, the very fabric of this way of life is unravelling as property becomes prohibitively expensive, the threat of redundancy lays in wait in every industry, college funds decimate savings that have been eroded by emergency payments on mortgages and medical bills, and even the baby boomers themselves are losing their jobs and being forced to downsize both their dreams and their material extravagancies.
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36% of households earning
$250k ﬁnancially assist at least one child
first quarter of 2010 was 15.2 percent – the highest rate since 1948. During the same period there were 2.3 million unemployed college graduates, which is a massive 1.45 million more than in March 2007. The housing market has suffered just as much as the job market, with the rate of home ownership among those aged 25 to 29 falling to 37.7 percent in 2009, down from the pre-bust peak of 42 percent in 2006. As a result of the recession, traditional lending avenues are being squeezed, with 22 percent of adults aged between 18 and 34 being turned down for a mortgage, a loan or a credit card in the past 12 months, according to statistics revealed by FindLaw.com. With youngsters struggling on all fronts, there has been a damaging knock-on effect on older age groups. At the very highest end of the age spectrum, the recession has resulted in an extra 500,000 over-65s (when compared to 2007 figures) being forced to continue working beyond retirement age, trapping the baby boomers in the middle. Merrill Lynch recently conducted a survey on the fi nances of wealthy households boasting more than $250,000 in invested assets and what it found was 36 percent of parents in this bracket were financially assisting at least one child,
Bank of mom and dad One telling bellwether of declining living standards and shakier economic stability is evident in the troubled times of one particular bank – the bank of mom and dad. For decades, this friendly and approachable institution has been dealing in the provision of low or no interest loans, and sometimes cash gifts, for young adults struggling with the economic pressures of life in the real world. Living standards that had become the norm for millions of young adults were artificially maintained with the assistance of pop’s credit card or serendipitous and timely injections of fresh cash to cover car payments, rent, holidays, even deposits on a home. This easy credit channel was an indictment of the sound fi nancial footing the baby boomer generation had forged for itself. The fall of 2010 has seen a drastic contraction in the fortunes of the bank of mom and dad. Previously, fi nancial pressures came solely from below, from offspring in need of a handout and a leg up, but today economic woe is hovering ominously overhead, too. For a number of mature workers, job stability is no longer what it was, with redundancies having struck a vast proportion of a section of the job market previously immune to minor upheavals in the economy. Such seismic shifts have had a deleterious impact upon the ability of mom and dad to pay their own bills, let alone the bills of their children, who now find they face a future fraught with insecurity, poorer prospects and harsher economic realities, as borne out by a swathe of telling data. According to the Bureau of Labor Statistics, the unemployment rate for 16 to 29 year-olds in the USA in the
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SOCIAL LENDING 51
with another 45 percent supporting an elderly relative. But as the bank of mom and dad has become more and more stretched, the practice of simply gift ing or lending unsecured fi nances to offspring has slowed. So where are young borrowers to turn now they are running out of credit channels?
Peer-to-peer lending A few years ago there was a surge in the popularity of peer-to-peer lending services, fuelled largely by the proliferation of the Internet and the tumultuous period of growth and synergy that followed the dot.com boom. In recent years, peer-to-peer lending websites all but disappeared from view in the wake of easy credit and baby boomer-backed interfamilial support, yet there was always a market out there for this type of lending for those with nowhere else to turn. However, youngsters who had previously been able to rely on the assistance of the bank of mom and dad had little need for these services. But with the current economic climate dictating proceedings, even lending and borrowing between families, if it is to happen at all, is beginning to see the value in calling upon
“As the bank of mom and dad has become more stretched, the practice of simply gifting or lending unsecured finances to offspring has slowed. So where are young borrowers to turn now they are running out of credit channels?”
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the services of an independent ombudsman to adjudicate proceedings. One such ‘independent’ is Virgin Money US. Their website homepage opens with a faintly unnerving ‘We’ve Been Expecting You’ banner headline. This faux-pally welcome is all par for the course for a company as customersavvy as Virgin, but it is the message itself that sticks in the craw. At once friendly but also presumptuous, it says your custom is welcomed, but also expected. There is a hint of smug knowingness in its tone. There is the knowledge that, for millions of Americans, they have little alternative but to turn to Virgin Money to help them out of a sticky situation. The service offered by Virgin Money is very simple. For a small fee, it mediates loans made between two known parties, allowing family and friends to formalize the loans they make to one another. Lendfriend, a growing start-up that creates and establishes pre-agreed repayment programs and schedules, and also enables electronic payments and collections between parties, offers another similar service. Essentially, sites such as Virgin Money and Lendfriend remove the pain and awkwardness that can often result from lending to loved ones by implementing a set of rules and regulations similar to those that a normal bank or creditor would impose. Peace of mind follows; fractious relationships, hopefully, do not. “Lendfriend assists during the entire life of a loan, through the creation, proposal, approval and repayment stages,” says Dave Kuchar, CTO of Lendfriend. “We partner with PayPal to manage the loan payments and focus solely on friends and family with pre-existing relationships, so rather than focusing on creating a relationship between people, we are basically focusing on not screwing them up!” Th is peer-to-peer lending model appears to be working. In the last six months of 2010, Virgin Money experienced a growth of 35 percent in loan volumes, which also indicates the growing demand for the service. While a parent helping out their kids fi nancially is nothing new, the industry’s growth is one indication that the bank of mom and dad has suddenly gotten cold feet. A survey by CreditCards.com earlier this year revealed that parents are still keen to help out wherever they can, with 40 percent of those polled admitting to paying off a child’s car loan, 37 percent settling medical bills, 31 percent repaying utility bills and 30 percent interjecting on credit card payments. But parents have become wearier than ever in the wake of their own job insecurities, rising interest rates and shakier fi nancial footing. While the current economic situation has undoubtedly boosted the popularity of peer-to-peer lending sites – especially those based around pre-existing relationships – Kuchar believes that more sophisticated technology and marketing techniques have been equally instrumental in supporting this fledgling market. “From what we understand, people have always conducted this pattern of lending,” says Kuchar. “There have always been people who, for one reason or another, have been turned down by a bank and so have turned to family or friends for support. So we are seeing a lot of people start-
ing to use our service because they are just starting to hear about it. It has only been in the last two years that such personal fi nancial tools have become available and known about, so to our customers it makes sense to use us rather than go off the books.” By building upon established emotional connections and trust, Lendfriend is free to focus solely on utilizing its technology to prepare, mediate and resolve its loan arrangements, using smooth and sophisticated soft ware to ensure transparency, accuracy and fairness for both parties. “We are basically a soft ware service,” Kuchar says. “Our main goal is to protect the relationship from the stress that invariably comes from managing money. This is achieved via step-by-step guidance through the loan. So at any point we provide a task list of what’s next, what’s been paid etc. We send e-mail reminders and constantly keep pinging both parties back and forth so they know what to do. And we keep the process very formal.” Lendfriend provides an official, electronic record of the loan whereby both parties can log into their account and view its progress. “Promissory notes and agreed terms are always visible, and all payments through PayPal are fully recorded. The loan parties can record whether or not they forgave a loan payment, which is optional. Parties are also free to make off-schedule payments, larger payments and even late payments – our soft ware can recalculate all eventualities, which adds flexibility to the customer,” says Kuchar. With a loan agreement mediated by Lendfriend fully and officially ‘on the books’, parties are also protected by, and subjected to, the standard credit procedures and legalities they would be had they gone through the more traditional channels for credit and borrowing. “From a legal standpoint,” reveals Kuchar, “we suggest that the lender make a promissory note on their behalf, and secure the loan with some collateral, and even though it is lending between friends and family, we will be adding credit scores and credit reporting in 2011.” Th is service will be optional: if the two parties do not know each other very well (or perhaps they know each other too well), they can agree on the level of credit visibility prior to arranging the loan. “Th is is an online negotiation they can have,” says Kuchar. “Similar to the way a lender and borrower can draft the loan proposal between them, deciding on payment terms and dates for example, they can also negotiate upon credit reporting. We will be working with the credit agencies, so using Lendfriend can actually help improve, or indeed damage, one’s credit score.” For lenders who use Virgin Money and Lendfriend, there is always the potential danger that they are lending to individuals who were unable to obtain money through conventional channels, and there is almost always a reason for this. Having said that, with fewer credit options available, perhaps the sober visage of an expectant friend or family member, eager to know when the next repayment will be made, will encourage many of America’s youth to become more fi nancially responsible, more quickly. ■
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To lend or not to lend? If your offspring are still too reliant on you for support, FST US suggests a few tips on how you can help them become ﬁnancially independent without sinking into debt.
Can you afford to loan? You shouldn’t be loaning any money if it means you are putting your own ﬁnances in jeopardy. Even if lending to a child or fellow loved one, be prepared for the worst-case scenario – that they might not pay you back. Ever. Assess whether you can fully write off the sum. If not, it may be more helpful in the long run to work with your child to ﬁnd another solution to their problem.
Draw up a loan agreement. Before proceeding with a loan, you should ensure you have drawn up a formal agreement. You should detail all terms – the amount borrowed, any interest, payment terms – and note down how the money will be paid back, with an acknowledgement that receipts will be issued and delays will not be tolerated. You could even make provisions for penalties if you are feeling particularly hard-nosed. This is where sites such as Lendfriend and Virgin Money can prove particularly useful. Never give handouts. Paying for college is one thing. Maybe covering a couple of credit card bills once they’ve graduated is also permissible. But by simply giving in to demands for cash handouts, you are sending out a dangerous message. Let your adult children know that you will support them in other ways, but ﬁnancial bailouts are, post-college, off limits. They might not like it at ﬁrst, but will soon appreciate your stance, become more self-conﬁdent and grow into ﬁnancially savvy individuals.
Don’t be afraid to say ‘no’. The sooner young adults get used to hearing this, the sooner they will start taking greater responsibility for their actions. But be fair, too – if you can see that their predicament can be eased by the careful provision of a loan, proceed. You can then teach them a valuable lesson without resorting to preaching or moralizing, which is something they certainly won’t thank you for.
SYBASE AD.indd 1
Mark Burrough, Vice President of J.P. Morgan Treasury Services, outlines how increasing globalization and crossborder trade has made foreign exchange risk management a high priority for U.S. corporations.
espite the financial crisis, growth in globalization, international trade and cross-border currency flow continues. As economic growth resumes, this trend will accelerate, further enhanced by international acquisitions, divestments and reconfigurations. In a post-recessionary environment, the growth of international trade means that increasing exposure to foreign exchange (FX) risk has to be managed against a background of an increased pressure to realize returns, at the same time as the overall risk appetite is substantially reduced. No wonder that FX risk management has become a high priority and not simply a technical issue for corporations.
Risk reduction and transfer Typically, corporate treasurers use a variety of hedging strategies to manage and control FX risk. Almost by definition, risk reduction and risk transfer can be achieved in effectively any scenario, but each solution carries a cost: counterparty risk acceptance has a price attached. So the simplest FX risk management strategy – static hedging – is to pay the cost of an appropriate derivative such as an option, swap or insurance contract, and lock in reduced risk. Beyond this approach, which treats the corporate treasury simply as a cost center, more dynamic strategies may involve active exploitation of arbitrage opportunities between currency rates. Because exchange rate fluctuations have to be managed anyway, the opportunity to profit from the process can bring additional financial advantage. The downside may well be constrained risk reduction. In effect, in the typical FX management process of global treasuries, there is a threeway trade-off between risk, cost and profit. The solution to the trade-off will differ from company to company depending on its overall risk appetite. However, in the new financial and economic landscape, CEOs are realizing that effective, and cost-effective, FX risk management involves much more than this.
Transparency and visibility Let’s take a step back. In order to manage FX risk it is necessary to locate and quantify it. This isn’t necessarily as easy as it sounds in complex
JP Morgan.indd 54
multinational corporations. The FX implications of any transactions and contractual obligations entered into at subsidiary level may be hidden within consolidated figures returned to global headquarters. Fortunately, several global banks now offer easy technology that allows multinationals to gain clear visibility of FX exposures without the costs associated with standardizing all their enterprise resource planning (ERP) systems – or even requiring them to be on the same version. Once exposure is clearly quantified, the need for direct risk mitigation strategies can be controlled and reduced by operational strategies. These should be located within an overall corporate structure of risk management policy strategy and procedure that once again mirrors the strategic risk positioning of the corporation. For example, intra-group structures and relationships are a key source of potential risk, and hence of potential benefit if they are managed correctly. Where are balances kept and in which currencies? Do FX exposures match the respective trading risks? What is the financial relationship between subsidiaries and the global parent? How are they financed, by loans or by equity? In which currencies are they denominated? Effective reconfiguration of these relationships can lead to a more ‘natural’ and automatic hedged position, reducing exposure without direct fi nancial cost.
Payment processes Externally, however, it is the different contractual relationships with third parties – both customers and suppliers – that determine the nature and extent of FX exposure. Here, the payments process plays a key role. Every cross-border payment has foreign currency exposure risk. When engaging in global trade transactions, many organizations negotiate all agreements in one specific currency such as US dollars or Japanese yen rather than the local currency. They believe they are effectively eliminating exposure to FX rate volatility. This is a common misconception, as FX risk is inherent in all cross-border activity. Even in the absence of foreign currency cash flows, economic exposure to exchange rate movements is inevitable. If the company’s approach is to have a vendor invoice in its headquarters’ local currency, the
Managing FX risk:
The challenge of global payments
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FX risk is in effect transferred to the vendor. That may seem effective, but as we know, risk transfer almost always carries a cost. Even if the exposure may be hidden it remains real: transferring exposure most likely means the company is overpaying.
Challenges of FX payments
Central ownership and expert support
Managing the overall risks in the most effective manner requires central co-ordination, even if it does not necessarily imply transfer of operational ‘ownership’. Many multinational companies have global banking relationships with a large number of different banks. Often, this is a consequence of the global expansion process, where each local entity opens up a relationship with a local bank, in the absence of global oversight. Regional treasury management can’t really address this issue: some sort of central influence is necessary. Once a high-level coherent structure of responsibilities has been created, a central relationship with a sophisticated global bank can open up new approaches to cross-border payments and FX risk. Global treasurers don’t have to be experts in foreign currency exposure management: all major banks provide that service. The FX ‘desk’ will provide advice on specific queries. Automated online tools are available to help develop programs and strategies that can then also be automated. The trick is to centralize what is appropriate. In many instances, treasury activity is with business units. It is possible to leave the payments with the business units (they are most in touch with vendors/suppliers), but centralize everything beyond that. This allows information on cash flow timing and cash flow currency to flow to a center where there are treasury skills that know how to analyze that information and make recommendations, or see a problem coming and deal with it.
• Inﬂated prices – local banks may charge the importer excess premiums to convert into their local currency. Also, the vendor will receive less local currency at conversion.
Ensuring the correct tools and partners to afford ﬂexibility More flexible arrangements for payments, receipts and tracking and managing accounts allow stronger defense against dislocations in the market. As with risk transfer, conventional wisdom says you pay for flexibility and generally that is true. Although this may seem expensive, it can depend largely upon how the company is organized and who it partners with. Flexibility can flow from having good access and good information. If flexibility is part of day-to-day operations, it becomes less of a risk and brings benefits as well as costs. As an example, when doing business in other markets it is important to select a provider that can readily convert receipts and payments, provide detailed reporting, and deploy automated solutions to optimize liquidity in multiple currencies outside the time zone of their group treasurer. Mark Burrough is a vice president with J.P. Morgan Treasury Services. Based in Singapore, Burrough is part of the regional treasury services foreign exchange product management team responsible for the delivery of integrated cash management and foreign exchange solutions and services to the ﬁrm’s corporate and institutional clients. He joined J.P. Morgan in 1998 and has held various positions spanning client services, liquidity and foreign exchange product management.
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Importers and exporters face several challenges when negotiating in local currencies.
• Loss of control of exchange rate risk – if the home currency falls in value against the foreign currency, the cost of payments will increase. • Risk of payment delays – home currency transfers sent internationally can take up to three to ﬁve business days to reach the vendor, while payments sent in the local currency in some cases can be delivered the same day.
Exporters • Lost sales opportunities – an export ﬁrm’s customers may choose a competitor’s substitute product because it is priced in the local currency. • Risk of payment delays – if the home currency strengthens signiﬁcantly against the customer’s local currency, the customer may be more inclined to wait for the exchange rate to improve in their favor before sending a payment.
Triennial Central Bank survey on the FX market Conducted every three years since its introduction in 1989, the Triennial Central Bank survey provides comprehensive and internationally consistent information on the global structure and growth of the foreign exchange market. Results from 2010’s survey show: • Global FX exchange market turnover has increased by 20% since 2007, with average daily turnover up from $3.3 trillion to $4 trillion. • Spot transactions represented 37% of the FX market turnover, a 48% growth on 2007 ﬁgures. • Other FX instruments increased more modestly, at just 7%, with an average daily turnover of $2.5 trillion. Turnover in outright currency swaps was robust, but turnover in foreign exchange swaps was relatively ﬂat. • The FX market has become much more global in the past three years, with cross-border transactions accounting for 65% of all trading activity in 2010. • The percentage share enjoyed by the US dollar continued to slow the decline ﬁrst witnessed in 2001, and both the euro and the Japanese yen posted gains relative to 2007 ﬁgures.
FIRST DATA AD.indd 1
The right service for the right customer How are banks controlling the risks inherent in rolling out new multi-channel solutions? Asks Bob Tramontano.
oday the innovative, contemporary banking institutions I speak with see delivering an exceptional customer experience as their top priority, and selfservice as their most important channel to market. Self-service has become a way of life. It is no longer a ‘nice to have’ capability, and consumers have come to expect self-service as their prime interface with their bank of choice. Recently commissioned research from NCR reveals that 79 percent of US consumers are more likely to choose a fi nancial institution that gives them greater control in how they interact through multiple channels – an institution that meets their need for more convenience according to their preferences and presence. Not surprisingly, then, even during difficult times, smart banks continue to make capital investments in their self-service channels, be it online, mobile, or pointof-service locations such as ATMs and kiosks. The challenge to the banks is how they harness and synchronize these channels in a truly transformative way.
“Recently commissioned research from NCR reveals that 79 percent of US consumers are more likely to choose a financial institution that gives them greater control in how they interact through multiple channels”
ployed small businesses. A recent study by Javelin found that small banked business owners carry more balances, invest more heavily and demonstrate a greater need for credit products than other consumers. Nearly half of them (48 percent) consider remote capture to be desirable or very desirable. Similarly, small under-banked business owners represent an important and growing sector as more people are taking the option of self-employment in the current economic circumstances. In common with banked business owners, they have greater technology ownership and are more welcoming of remote deposit capture than other consumers.
Containing risk Of course, moving away from a system of physically presenting checks at the branch does give rise to new risks of fraud, and it’s important that fi nancial institutions comply with Federal Financial Institution Examination Council (FFIEC) guidelines to limit risk exposure as identified by the FDIC. The major dangers for mobile remote deposit capture remain attempts to alter image details, redeposit and the submission of counterfeit items. It makes sense for fi nancial institutions to contain risk by taking account of risk scoring net worth, and exposure limits could be set in accordance with the relationship that the consumer has with the bank, with higher limits being available to long-standing customers using the bank for a range of services.
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.
Responding to customer need We have already seen that intelligent deposit ATMs have the power to reduce delivery costs dramatically and grow deposit volumes. It also allows low complexity transactions to migrate out of the branch and creates new levels of customer loyalty. The introduction of remote deposit capture provides new opportunities for customers to deposit checks at ATMs, in the office or at home. And now, with mobile technology, a customer can deposit a check whenever they want and wherever they are. For any product, the key to successful adoption is identifying the most likely users. The questions banks need to address are, ‘what market segments should be targeted for mobile remote capture?’, and, ‘how do we limit fraud risk?’ There are 26 million small businesses in the US and 13 percent of households describe themselves as self-em-
Getting the most from the mobile channel NCR is responding to this challenge by leveraging insights gained from our experience across multiple industries around the globe. We’re delivering best practices on how to achieve business goals through the innovative application of technology. We are continually working with banks around the world, whether that’s creating back office or branch efficiencies or seamless channel experiences that lead to improved loyalty and growth. What’s more, offering customers mobile remote deposit lessens the need for a local branch in order to operate a bank account. As with other channels, risks need to be managed by using diligence, controls and knowing your customers, but innovative players are already delivering the service and experiences customers need, where and when they want them.
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ALL HANDS ON TECH
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Connecting, communicating and collaborating with staff and customers should be a priority for the entire ﬁnance sector, but often the emphasis has been placed elsewhere. FST US looks at how new technology is enabling better customer focus and sharper social collaboration.
ocial collaboration is as old as the hills. We’ve been working together, collaborating together and discussing together since time immemorial. Without social collaboration, the Egyptian Pyramids would not have been built. Democracy would never have taken shape. Man would have never set foot on the moon and the World Wide Web would have remained the faintly geeky plaything of a certain Sir Tim Berners-Lee as he scuttled away in a dimly-lit back office at Switzerland’s CERN laboratories. Perhaps this is an oversimplification of social collaboration. Certainly, in an enterprise context, social collaboration denotes a relatively new and ostensibly complex movement – centred around technology – that enables businesses to extract more, to know more, to discuss more and to create more. In a fi nancial context, the tools surrounding social collaboration have been designed to modify pre-existing networks, silos, intranets and other classic soft ware platforms to permit them to deliver ever more fluid and organic methods of communication. Such communication can be focuse focused either within an organization (in the form of Facebo Facebook-type platforms that employees can use to discuss w work-related issues) or externally, utilized to nurture and build stronger relationships with clients and cust customers. Not so simple now, right? Social collaboration (or ‘Enterp ‘Enterprise 2.0’ as it is sometimes called) is an attempt by indu industry to proactively pre-empt the next phase of custom customer interaction. The increasing socialization of techn technology – even the most illiterate of individuals can sw swipe and smudge their way through the operating sy system of an iPad with barely a grunt of confusion – has created a welter of new challenges for the fi nan nance industry. Previously, fi nancial institutions were protected by technology; it shielded them prim primarily from security risks but also from certain com communication and marketing issues too. In the ver very beginning of banking, customers could only vi visit their local branch with a query, a question or – heaven forbid – a complaint. Next they had the te telephone, but armies of well-drilled call center sstaff made that option something of a time-conssuming minefield for only the most committed/ patient/disgruntled of customers.
er Lindsay So
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The Internet upset the balance of power somewhat, affording customers 24-hour access to their bank and its services, but the next evolution is here, and it is becoming increasingly noticeable that banks are no longer content to sit on their hands and react to trends – they are actively seeking ways to develop, engage and pre-empt the whims and wants of their customers. Technology is now, more than ever, an enabler of good customer service, and social collaboration has come about, whether unintentionally or merely ironically, as a result of millions and millions of conversations between bank and customer. We have all collaborated up to this point. But the question now is: what happens next? Lindsay Soergel is the senior vice president of channel management at SunTrust Banks, Inc., one of the nation’s largest fi nancial services holding companies with assets totalling $174.7 billion. FST US caught up with her at the recent FST Summit held in San Francisco in October where she revealed that the issue of tackling client interaction through IT initiatives is still often viewed as a secondary concern for many from within the technology industry. “I was at the introductory meeting of the FST20 on the first day of the conference [the FST20 is a closeddoor meeting comprising 20 of the biggest players in the fi nancial technology space] and several of us observed that we hadn’t really talked very much about the client,” says Soergel. “We had talked a lot about issues such as regulation, which is obviously a huge topic, and we had talked a lot about continuing to drive costs out of our IT complex – also essential – but here were 20 senior leaders in fi nancial technology, and we really hadn’t talked at that point about the client. In later sessions we have spoken in some instances about the client, but I think the client themselves expects us to have their concerns uppermost in our minds in every conversation.” Of course, all conversations conducted by the topranking IT executives from the country’s largest fi nancial institutions will generally always, at some point, impact upon the client. However, Soergel’s concerns were that often, it is perhaps too easy to lose sight of the purpose technology plays in the fi nancial sector. “Banking is a technology business,” says Soergel. “Banking is also a marketing business. The relationships that we sell are our products. We tend to talk about deposit accounts and loan accounts and investment accounts as though they are our products, but really, from a client’s perspective, the relationship is what counts.” Soergel also discusses the trust that underpins the very core of banking. “A client will say: ‘you earn the right to do business with me. I put my money there because you have earned my trust, and I will bring more of my money there if you continue to earn my trust.’ You earn their trust through transaction speed, through security of the transaction, through the quality of the information. So that means the client experience is primarily technology driven.” If sensitivity to customer needs among fi nancial technology departments is not cultivated, then the actual implementation of customer-centric technologies will surely be held back. The structured and formalized cul-
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79% of Fortune 100 companies have a social presence online
tures inherent in many banks can represent a barrier to the emerging desire among customers – and some of the more progressive IT staff working within the fi nancial industry – to engage and collaborate with their bank. It is anachronistic practices and technologies that may hinder the progress of this emergent, self-organized network of relationships.
Changes afoot With teamwork and networking so highly revered throughout the upper-echelons of any industry, it appears strange that such performance techniques are viewed with suspicion the lower down the management hierarchy you go. And it is this rigid hierarchy that is often the cultural inhibitor to change. Cross-boundary and multi-channel approaches to technology, customer service and general employee management could potentially have a massively positive impact on the fortunes of most banks, but are most banks too large and cumbersome to adapt to such change? “I’m part of a relatively new unit at SunTrust, which is the channel management group,” says Soergel. “From my perspective, we have certainly been focused on channels for quite a while in terms of how we deliver our products and services to our clients.” The fact that SunTrust’s channel management strategy is a new unit says a lot about both the bank’s desire to tap into the possibilities that lie within a more multichannelled approach to customer service, and also the level of consciousness that exists throughout the industry with regards to collaborating with the client in a way the customer is increasingly comfortable with. “What I think is unique about what we are doing here at SunTrust is the acknowledgement that we have got to look at the channel infrastructure as both bank-outward – such as what products and services we are trying to distribute to the client base, which is more the traditional way of thinking of distribution channels – and to aggressively understand the client view inward, too,” says Soergel. Channel management as described by Soergel covers the issue of social collaboration in one fell swoop. Ensuring that the clients’ needs are being met and thereby adapting your technology infrastructure to achieve this is what the sector is all about. “Our strategy has been to look at survey data and client experience design in order to bring together the traditional bank view of channels with the client view of channels, and to understand where there are gaps, where there are differences; where is there an opportunity, potentially, to differentiate.”
IT to market Executives in larger fi nancial institutions can become very jaded, very quickly. What might start out as an energized, progressive and innovative soft ware solution can quickly turn tiresome for them, with providers trying to convince decision makers to adopt the problems that they have solved, rather than solving actual problems that they have.
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‘IDEAS ARE EVERYWHERE’ – THE KEY TENETS OF SOCIAL COLLABORATION
• Digital platforms are driving social collaboration because they can facilitate organic ‘brainstorming’ procedures, in both a professional and a personal capacity
• Social collaboration is particularly appealing to companies because participation is generally low investment with the chance of high return
• High-end discussions at conferences and summits are great for many things, but an active inter-company platform for discussion is inﬁnitely superior
• Social collaboration not only drives change; it enables people to recognize, distinguish and adjust to change, often with the support of their peers
• Social collaboration is enabling young employees and clients to work with technologies and systems they feel comfortable with, rather than having to learn old processes and databases
• If a bank’s success is predicated on crossselling, then a social collaboration strategy can equip them with the cross-channel knowledge that sometimes gets lost in a siloed environment
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“I want to pursue multi-channel integration that is equipping them with that complete profile of the client data and their transaction history in a way that can bring more powerful, more differentiated service to the client”
However, it is difficult to deny that technology has emerged from its legacy constraints; enterprise architecture designed to be more service-oriented is encouraging and enabling more responsive IT systems, so much so that many marketing decisions are now being made by employees with a background rooted solely and solidly in IT. “I’m working within the marketing organization,” says Soergel. “I’m not with any part of the IT organization. So in fact I’m an IT leader who is positioned within marketing, a situation that creates a shared appreciation about what the challenges are in really listening to what our customers want. My position also allows me and the department to understand what we are capable of building internally, what is cost-effective to procure, what bets we should make, and then also working back within the IT organization to create a greater appreciation for the fact that not everything is about cost savings and finding efficiencies. There is also an upside too. “Th is is a translation kind of function, and that is where the challenge lies: around fi nding the right message for each of those two often disparate target audiences – marketing and IT.” There exists the technology to seamlessly connect with a client anytime and anywhere. What is often lacking in the financial sphere is the desire to work beyond pre-existing comfort zones, to actively seek out social collaboration conversations and to engage more openly with clients. “From a traditional banking standpoint, considering the client experience within this context is both a step in the right direction and also a step into the dark,” says Soergel. “I think that we need to become less insular as an industry and look to embrace perspectives from other industries that have perhaps done more on client experience, client-centric design and more client-end channels.” Such an approach promises to be very painful for many financial institutions, although it is an approach that has become more widespread throughout the industry. “There is a prevalent awareness at the senior ranks in business and IT circles that we’ve got to engage more with the client,” reveals Soergel. “But there is also an understanding that the kinds of skills and knowledge that we need in order to achieve this are very different to those we employed in the past. This is the hard part, so that is why I would urge leaders to look beyond the financial industry for answers.” While other industries may hold the key to better client engagement and social collaboration, the financial sector is still a world leader in driving forward IT evolution. One of Soergel’s key aims for the future is ensuring that her own pursuit of better multi-channel integration will consider the needs of not just the client, but also her fellow colleagues at SunTrust. “Considering the needs of our teammates is equally important,” she concludes. “So for the folks in our branches and our call centers, I want to pursue multi-channel integration that is equipping them with that complete profile of the client data and their transaction history in a way that can bring more powerful, more differentiated service to the client. That is my ultimate aim, and I see a lot of opportunity there.” ■
ASK THE EXPERT
The business of being social JB Holston outlines how NewsGator’s experience makes the company well placed to adapt to the ﬁnance industry’s growing appetite for social tools.
ewsGator has been at the forefront of Enterprise 2.0 for nearly a decade. We’ve helped the largest private and governmental organizations move toward a new, boundary-less world of work, in which NewsGator’s social networking platform breaks down information silos, makes organizations transparent, and rapidly increases the pace of innovation. We’re extremely proud to have four of the five largest US commercial banks as enterprise-class clients, as well as several leading brokerage firms and credit unions. Most of these organizations are private about their Enterprise 2.0 experiences – largely because innovation itself is a key competitive weapon for them. As one global bank put it: “we are defi ned by our global network… and our network is our key competitive advantage.” Lowering the cost of creating connections and communities across an organization’s network to drive innovation is competitively critical today. As a result, many of the largest fi nancial services organizations have quietly led the charge in enterprise social computing, in spite of the worst global recession since the 1930s.
“We are seeing a number of business drivers that are prompting financial services organizations to adopt social computing” Enterprise 2.0 is driven by the pace of change in consumer social applications, which is seeing the fastest rate of change in any soft ware category in history. To keep pace, NewsGator has adopted an agile partnership approach with our customers. Our innovation and talent management solutions, for instance, have largely been defi ned by our fi nancial services clients. Like many of our customers, we are seeing a number of business drivers that are prompting fi nancial services organizations to adopt social computing. A few of these drivers include the desire to leverage, nurture, and share the organization’s talent base, information, and resources; the need to locate subject-matter experts and resources to solve problems more effectively and quickly; the ability to drive projects more efficiently while reducing email clutter, email volume, and meeting time; the power to retain employees by using social computing tools inside the organization – ones that employees are already using in their
daily life outside the office but in a more secure fashion; the goal to operate as a single unit by breaking down silos to connect people across regions, cultures, lines of business, projects, and interests; and the wish to unite geographically-dispersed teams and employees through shared online communities. Even though these business drivers are very important and greatly affect an organization’s culture and bottom line, we still come across a negative perception of ‘social’ in the enterprise, especially in the fi nancial services industry. There are many ways to address this perception. First, the revolution toward the new world of work is an enterprisescale initiative. Our most successful partners realized this from the start. Information and personal identification security, transparent and complete governance workflows, scalability, and seamless enterprise search are mandatory requirements for fi nancial services organizations to feel comfortable building a social computing infrastructure across hundreds of thousands of geographically-dispersed constituents. These requirements are the fabric of the NewsGator platform. Ad-hoc and grassroots social solutions are often quickly (and appropriately) killed by information security and governance concerns. Going ‘social’ without considering enterprise-class issues is just too risky, particularly for fi nancial services organizations. Second, these are transformational projects which can and should take time and iteration. Some specific lessons learned from one of our largest fi nancial services customers include: engage and train legal partners early; maintain senior-level evangelists; make the project a high priority amongst stakeholder management; and stick to the (project) basics. Finally, keep the individual user as your design focus at all times – ‘social’ means enabling interactivity from anywhere, with anyone, at any time, around useful work and content. ‘Enabling’ isn’t the same as ‘driving’ or ‘insisting’; users work with social soft ware directly to the degree it’s as easy-to-use, compelling, and current as the tools already familiar to them: LinkedIn, Facebook, Twitter, and YouTube. When we liberate individuals by opening immediate access to everyone and everything useful at all times through a truly enterprise-class social computing platform, we and our fi nancial services clients have been astonished at the serendipitous and intentional business value and competitive advantage this creates.
JB Holston is the president and CEO of Denver-based NewsGator Technologies. Under Holston’s leadership for the past six years, the social computing company has grown to serve 2.5 million paid users across 350 Global 2000 enterprise customers, civilian agencies, and DoD entities.
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Social collaboration in banking compliance Utilizing social collaboration tools and techniques can work wonders for your business, so long as you send out the right message on the right platform, says Brian Ware of First National Community Bank.
ou wouldn’t know it, but bank compliance professionals are very social people. We spend a lot of time getting to know the people and systems that make a bank run smoothly, so we can better understand bank operations as they relate to the laws and statutes that regulate our industry. As we observe what our institution does on a daily basis, we also look for opportunities to ensure we comply with the law, while maximizing customer satisfaction and shareholder value. Often this requires us to conduct research, and develop innovative approaches to achieve that delicate balance between compliance, risk and profitability. As part of the research process, it’s a good idea to seek out people in similar circumstances, but where do you fi nd large groups of compliance professionals and experts to discuss the regulatory challenges facing the banking industry and to benefit from their experience? Conferences? Seminars? Although they are defi nitely examples of large gatherings of like-minded and experienced professionals, there is rarely an opportunity to really sit down with a large group and discuss issues and best practices during breaks and meals. A better solution is social collaboration through the Internet. Facebook and MySpace are great examples of social collaboration in a non-business setting, and there are several examples of similar networks to exchange experience and ideas about issues and challenges in the business world. A few I use regularly are Bankers Online, LinkedIn and the Association of Anti-Money Laundering Specialists. Each offers a unique opportunity to discuss banking compliance challenges and create an environment conducive to innovation and creative solutions to those challenges. Bankers Online is a website made by bankers for bankers. In addition to the volumes of reference and research material relating to banking laws and regulations, it has a great message board and forum used to discuss a wide range of banking topics such as operations, technology, government relations/compliance and lending, to name a few. You can post messages and respond to others, help-
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ing each gain new perspectives and approaches to the regulatory challenges we face every day. There are also recognized experts that will help steer you in the right direction along the way. Although LinkedIn is generally considered a professional networking website, I’ve found the ‘Groups’ feature to be particularly helpful. They are general industry specific, and often you can fi nd narrow groups relating to niche areas of the fi nancial services industry, like anti-money laundering, or audit, or compliance management. These groups will sometimes post questions or polls to its members about issues important to the group. It’s another great opportunity to connect with other banking professionals to debate issues of the day. The Association of Anti-Money Laundering Specialists is a more specific type of professional network. Most of the participants are certified members with specific anti-money laundering and risk management experience. It has a similar group-focused format as LinkedIn, but the topics usually cover banking risks like terrorist fi nancing, customer verification, and anti-money laundering issues. But again, it’s a great place to collaborate with banking professionals with a focus on the operational, compliance, reputational and liquidity risks associated with those that use banks to further criminal or terrorist activity. As the burden of increased government regulation and expanded oversight puts pressure on the banking industry to change and overhaul its practices, the ability for compliance professionals to collaborate with other banking and compliance professionals throughout the United States and the world will become even more critical. Whether it’s to gather and form cohesive strategies to guide the legislature in producing effective banking regulations, or to discuss creative and cost-effective solutions to comply with those government regulations, leveraging the power of the internet and the professional networks and resources available will significantly improve your ability to recognize issues and react to the changing landscape of the fi nancial services industry.
Brian L. Ware, Esq. CAMS, is First Senior Vice President, Compliance Division Manager at First National Community Bank. He earned his Juris Doctorate from Widener University School of Law and graduated from The University of Delaware with a bachelor’s degree in Political Science. He is a licensed attorney in the Commonwealth of Pennsylvania and a Certiﬁed Anti-Money Laundering Specialist (CAMS), specializing in Banking/Corporate Regulatory Law and Government Relations.
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The Evolution of board portals Joe Ruck, CEO of BoardVantage, reveals how the market for board portals is changing.
Joe Ruck is President and CEO of BoardVantage. He has led many high-technology companies through successful growth to IPO or acquisition. Prior to joining BoardVantage, Joe was senior vice president of marketing at Interwoven and part of the team that drove the company through one of the most successful IPOs of 1999. Previously, he held sales, marketing, and executive positions at Sun Microsystems, Network Appliance, and Genesys Telecommunications, subsequently acquired by Alcatel. Joe holds a BS in engineering from Oregon State University and an MBA from Santa Clara University.
What have been the biggest changes you have seen in the market for board portals? Joe Ruck. I believe we have seen three distinct phases. Boards were relatively late to move online, in large part due to security concerns. As a result, the initial focus was on simply enabling secure online distribution of the board book. The stringent security needs made this a non-trivial exercise, and one made much harder given the uncompromising focus directors have on ease of use. The second phase occurred five years ago. It addressed the needs of the corporate secretary office. Often working under stringent deadlines with numerous last minute changes, in many cases early electronic board books, especially home grown attempts, actually increased the workload of the corporate secretary office. It’s fair to say that BoardVantage led the field with a full-fledged corporate secretary toolkit, tailored to their needs. That resulted in dramatically improving productivity in their process. The most recent phase started a few years back when we first noticed that customers were using BoardVantage not just for the board, but also for their executive team. When you consider that they have to deal with many of the same issues and require similar levels of security as directors, you realize that it is a natural extension. Th is trend has since taken a strong hold and we are now seeing board portal technology begin to address the broader need for the secure collaboration in leadership teams. So when we started to develop our next generation Board Portal two years ago, we designed it not only to support boards, but also for leadership teams. Th is required a top-to-bottom product redesign to deliver a rich collaboration platform to address all the needs of executive teams.
How do you address the security concerns that organizations have? JR. BoardVantage solved the security problems with hosting board materials for Fortune-500s years ago, including those of global fi nancial institutions. We have invested in the product, process, and audits necessary to meet or exceed the standard of even the most security-conscious IT departments. What can we expect to see from BoardVantage in the future? JR. There is rapidly growing interest in using social media. Also expectations of richness and ease-of-use have increased dramatically. Having been in the board portal market for years with a large base of marquee accounts we anticipated the trend and built support for those requirements in BoardVantage NextGen. Our cornerstone market is boards, whose unique requirements now require tailored solutions, one that incorporates the best practices of the F-1000 and leading not-for-profits. But if you ever have a need to collaborate across the fi rewall and still meet the security demands of your IT department, as well as the ease of use expectations of your users, then I would urge you to take a look at BoardVantage.
Your website talks about the iPad – what’s the uptake of board members there? JR. When the iPad fi rst came out I wrote a brief article on my own experiences using it for board work and published it on BoardVantage.com. Since then we’ve been inundated with inquiries. Because we have always had Safari support we ran on the iPad the moment Apple released it. Since then we have released an app through iTunes for BoardVantage NextGen. I use it all the time and there is no secret for its popularity among board members. It is compact, light, highly readable, and with instant boot time it cuts in half the effort needed to review and approve items compared to using a laptop.
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IT SECURITY 71
The banking industry must balance its need to offer better convenience with the importance of tight security, and banks should not be worried to enlist their customers to help, David Potterton tells FST US.
odern banking can be a wonderfully swift, efficient and – for some – even a pleasurable experience. The evolution in banking technology that has swept through the nation’s banking institutions in recent years has felt like a breath of fresh air. Since the turn of the millennium, each year has yielded a surfeit of dazzling advances in the way we bank, providing each and every one of us with greater convenience and greater control over our fi nances. As consumers, we have been inundated with the temptations of quicker, slicker, sleeker and better means of connectivity, greatly altering the way we communicate with one another, the way we shop, the way we travel and, increasingly, the way we bank. From the early days of checking one’s balance online rather than making the trek to your local branch for a statement, to today’s fi nger-jabbing, screen-swiping relationship we have with our smartphones and their ability to conduct almost any type of banking transaction on the go, we have learnt to adapt to the changing interfaces our banks provide us with. Technology has led, and we have dutifully followed. If life were anything like the smug, self-congratulatory and wealthy world that Apple portrays in its aspirational advertisements, this would all be well and good. An entire population connected, highly educated, financially comfortable and brimming with goodwill and a packed social calendar would not only be great for Apple’s profits, but would also do away with the banking industry’s need to protect their increasingly exposed customers. But it’s not, and the threats to account holders’ security is increasing with every email sent, every Twitter tweeted, every app downloaded and every iPad perched proudly on laps from San Francisco coffee houses to Boston bars. Although banking technology has changed so unrecognizably in such a short space of time, our often-lax attitudes to our own security has not. Great strides have been made in making it easier for us to conduct our financial activities wherever and whenever we please, but largely, the banking population has not been educated on the need to adapt to this exciting new world. Today, the main threat to banks comes not from some raincoat-wearing beardy guy thrusting a concealed banana through his pocket at the teller counter (indeed, FBI statistics show that there were just 5500 physical bank robberies in the USA in 2009, an 18 percent decrease on 2008, with the number of federal court indictments for bank robbery charges at a 10-year low), but from online fraudsters looking to hack, phish and deceive as often as they can. Banking institutions are well aware of the threats they face to their security perimeter on a daily basis, and the current economic environment has only exacerbated the situation. There is a balancing act to be
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achieved by banks striving to offer increased connectivity and convenience but also a secure perimeter; a perimeter that is more easily punctured now that account holders are more mobile. Enhanced security soft ware can only do so much, says David Potterton, Vice President of Global Research at IDC Financial Insights, who believes that banks should engage more closely with their customers in an attempt not just to educate them about the types of threats out there, but also encourage them to alert their banks to any unusual activity on their accounts. “The problem for many fi nancial institutions is figuring out how to allow their customers access to their accounts with a minimum of effort, while ensuring that proper security procedures are followed. To some degree, fi nancial institutions depend on their customers to help them achieve this balance, and rightly so.”
Customer collaboration Although better-connected account holders have an ostensibly greater awareness of their fi nances, not everybody monitors their account’s transactions as closely as they should. In fact, improved connectivity can sometimes foster a more relaxed approach to one’s own fi nancial scrutiny, while those who eschew newer banking methods in favour of traditional practices can be hacked, targeted and cleaned out before they even know it. “Banks should be asking their customers to monitor more closely their statements, and become more aware of their transactions so that they can notify their bank of any fraudulent activity,” says Potterton. Potterton sees this collaboration between customer and bank as the natural evolution of a relationship that has been through some rocky patches in recent years. The current economic climate, caused by the actions of the fi nancial industry, has led to increased fraudulent activity online as credit avenues have been squeezed, jobs have been lost and money has become increasingly scarce. But people still need banks; they still want their accounts and some have come to love and rely on the level of connectivity they currently enjoy. “Th is is where there really needs to be a combination of effort by both the banking institutions and their customers in order to strike a balance that suits both parties,” says Potterton. “But in all honesty, I think that this balancing act is going to have to err more on the side of security in the future. Customers are going to have to make that sacrifice of convenience for tighter security at some point.” Tipping this delicate balance in the favor of greater security could prove challenging for the banking industry. At face value, saying that you are going to improve the security of your customers’ accounts is likely to be met with
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widespread support, but some banks are rightly concerned that by inhibiting their account holders’ freedom and convenience, they might be trampling all over the fragile green shoots of trust that have only just begun to re-emerge this side of the credit crunch. “It’s potentially tricky,” admits Potterton, “but I think that most people will understand that tighter security is part and parcel of the current environment. They should understand that every person must be aware of their own account activity and not be fully reliant on their fi nancial institutions to simply guide them through. So it comes back to that idea of collaboration, and it doesn’t have to be painful for the customer – simple forced changes in passwords and multi-factor authentication procedures are painless trade-offs. But ultimately, customer convenience is going to have to suffer.” Financial institutions’ reluctance to engage with their customers on issues of security care may be borne out of a reticence to not only admit potential weakness, but also be faced with charges of admitting to walking before they can run. Why, some may argue, have banks bent over backwards to offer such flexibility and convenience from a service perspective if their back-end security processes have been unable to keep up with the pace of their user-friendly interfaces? “I think most customers know what’s going on. They know how it works. The issue in the USA has always been around convenience, convenience, convenience,” says Potterton. “And now we are at a stage where it is increasingly up to the fi nancial institutions to do a better job of educating their customers about why things like tokens and single-use passwords are important.” But convenience counts for little if fraud remains an ever-present, and very real, threat. “To some degree,” continues Potterton, “the banking industry almost doesn’t want to bring up security as a big issue because they don’t want people to become unduly concerned about the battles they are fighting behind the scenes. However, they do have a duty to make their customers aware of what is going on, what the potential threats are, to make not just their accounts safer, but also their own lives a lot easier. A customer who understands why they have to follow stricter security measures is not going to think ‘why are they making my life more difficult?’ They will understand.”
Catch-22 Not all customers are born equal. For every hyperconnected early adopter, dripping with the latest technology and forever on the move, there is your more traditional bank customer who waits patiently for their monthly statement through the post, visits their local branch to make deposits and, if they are feeling adventurous, might pick up the phone to make a one-off transaction. The banking world is well aware that these opposite ends of the service spectrum are both incumbent and permanent – some people will always want a local branch, that human touch and actual safety deposit boxes as much as some people will forever be hankering after the next great technological hope for the banking industry. Balancing service and security between these two stools will continue to present
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the fi nancial world with its biggest challenge as the 21st century plods onwards. “Banks’ client bases range from the incredibly sophisticated to those who might never even bank online,” says Potterton. “Then there are those in the gray area who might not be the most technically sophisticated, but they will bank online. Th is group are more likely to be at risk from phishers and scammers because they are less likely to have installed the latest anti-virus soft ware on their computer; they are less likely to know what they are doing and more prone to scams and simple errors.” Statistics from the UK bear this out. Since 2008, online fraud in the banking industry there has increased by almost a third, with more than 100,000 victims of ID fraud reported in 2009, and 24,000 instances of account takeover. The majority of these victims fell prey to simple email phishing and social engineering scams: a worrying indicator that thousands of account holders are still quite naïve when it comes to simply conducting the most menial of online activities. “I have had many conversations with fi nancial institutions that are struggling to get the message across to their clients that they must take some responsibility for their actions; that banks cannot be depended on solely. But many banks realise that they have to walk their clients through this process. They have to give them the soft ware and keep it updated for them, really just to make sure that they are not exposing themselves or the institution to threats and unwanted risk,” says Potterton. But it is the tech-savvy customers who are steering the fi nancial industry towards its catch-22 situation. Banks that rein in their services in too much of a draconian manner run the risk of losing a fair chunk of custom. Equally, banks that allow unchecked connectivity on all manner of platforms are faced with potentially exposing their customers to a greater range of threats, fraudsters and malware practices, thus running the risk of losing custom, too. “It really is a catch-22 situation,” explains Potterton. “Banks are trying to expand their access points and it’s all going mobile, so handheld devices are really going to become the way that people interact. These devices could then become the testing ground for security procedures, so you could soon start seeing more limited access on balance checking, perhaps with second or third-level authentication required, or perhaps the reintroduction of tokens, or even something as drastic as an additional chip in these devices, things like that. There are so many different ways that this could play out.”
Cultural or structural? Admitting to a weakness is not the same as identifying potential weak points and working hard to eradicate them. Potterton is of the opinion that banks’ predilection for collective macho posturing can often work against their efforts to collaborate with their customers. It would be far easier, he believes, if banks admitted that they could better balance their service if they received improved feedback and help from their clients. “Who’s going
to admit to what, right? For the most part, the majority of banks know where their weak points are, but what sometimes works against them, particularly for the larger fi nancial institutions, is the fact that they are extremely siloed.” A large siloed bank will struggle with cross-channel communication; a structural defect that can have a negative impact on the security of its customers. “It becomes very difficult to investigate fraud and security issues if a bank’s cross-channel capabilities are impeded,” reveals Potterton. “It becomes really difficult for a bank to identify the patterns that are held and then be able to work cross channel to pinpoint where there might be fraudulent activities. So you might have someone fraudulently fi lling out a credit card application while at the same time opening a bank account while at the same time maybe applying for a mortgage. And this is where it gets difficult, which is why I think real-time monitoring across channels is the key to successfully combating fraud. While I think that people understand this, the capabilities that banks have to combat that in real-time are still at the early stages of development.” To expect even the most un-siloed bank to be able to combat and repel every security attempt it faces is, believes Potterton, optimistic. “I would like to think that we will get to a state of complete privacy, but I sit in on some session at banking tech conferences and you hear the sta-
THE SAFEST WAYS TO BANK Trust them or not, banks are still the safest place for your money, and while electronic banking increases your chances of becoming a victim of fraud, nearly all ﬁnancial institutions have put in place a layer of security designed to protect the customer.
Most banks now have zeroliability policies for debit cards, designed to limit the direct risk to users in much the same way a credit card does.
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Figures from Javelin Strategy show that the average cost of fraud to victims using debit cards has fallen from $739 in 2007 to just $243 in 2009. With credit cards, those ﬁgures are $696 and $314 respectively, which highlights just how much the situation has been improved for debit card users.
If using your card online to make purchases, be aware of the site’s url – protected web sites should show ‘https’ to denote SSL encryption, rather than the non-encrypted ‘http’ preﬁx.
Setting up email or text alerts to signal when a purchase on your card has been made is a good way to keep track of your purchases, and a swift way of identifying fraud.
tistics and you think to yourself: ‘oh my god, I’m going to close all my online accounts and go back to walking into a branch. I’m going to get rid of my computer and everything,’ because it can really scare your socks off.” Potterton also believes that the increasingly sophisticated band of cyber criminals will not only be able to keep pace with security soft ware development, but might even stay one step ahead. “I think we can get to a level of security that is reasonable but, in all honesty, I think that the threats, the malware, the bots and all the other nasty things out there are just going to continue to be one step ahead. Because it’s the old adage – banks are where the money is, so scammers will forever be fi nding creative ways of coming in through the back door, or fi nding other way to get at the money.”
Reactive in recession The recent economic turmoil experienced by millions in the western world has damaged many people’s previously unshakeable trust in large fi nancial institutions. The banking industry has had to work doubly hard in order to recover that trust and acceptance, but craft y and unscrupulous cyber criminals looking to exploit the fi nancial woes of millions in order to make a fast buck are hindering it in its objectives. “Such an economic environment is fertile breeding ground for people to justify going after things in an illegal way,” admits Potterton. Faced with such perpetual threats, fi nancial institutions are being encouraged to shift their attitudes towards security from reactive to proactive; by aggressively implementing strategies that protect their perimeter before, and not after, the hackers, phishers and fraudsters identify a weak spot. “We did some research on this,” concludes Potterton. “The banks actually asked us to go out to see what would people’s attitudes be if banks were more proactive with providing soft ware tokens out to the end devices. What we found was, as you might suspect, people were in favor of that, but there were others who were not. So I think again that it is the banks that would love to do it, although there is an element of support and risk that goes with that. Some people just will not feel ready for it. That is, until they get hit themselves, and then they are more likely to want to get on board.” The last two years have been tremendously trying for the fi nancial institutions. The banking industry has taken a number of hits on many fronts, from being forced to close their doors, to bailouts and a sharp decline in consumer trust. “They are just getting to the point where they are seriously able to begin rebuilding that trust,” says Potterton. “They are really thinking about ways to communicate their efforts at increasing security without damaging the relationships they have with their clients. Some banks will take the risk of acting upon their security concerns without consulting or engaging with their customers, and that’s fi ne. But I think for banks to effectively rebuild trust and build a stronger security perimeter, they have got to engage with their clients if they wish to achieve that.”
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Tackling security in a web 2.0 world The web 2.0 world is an exciting and fast-paced environment. It is also littered with a new wave of security challenges, says Oded Gonda.
nternet use in the office has changed dramatically with the wide adoption of social media and Web 2.0 applications. Security used to be handled by simply blocking specific applications, ports, protocols, or web sites entirely. However, as web applications have evolved, businesses have recognized many of them as valuable methods of communication and collaboration that create legitimate business needs. Yet, while Web 2.0 applications expand our ability to collaborate, they can also generate new risks for enterprises, including malware, data loss or bandwidth abuse. Firewalls have played a critical role in the development of the Internet and combatting security risks by blocking unauthorized access and permitting authorized communications of users and computers. If access is limited, there is less risk for malicious behavior or accidental mistakes. This controlled point of access restricts corporate resources to business use while also reducing load on servers and on the network. To achieve this, firewall policies are traditionally defined by several elements, including protocols and source and destination IP addresses.
“The new Application Control solution integrates Check Point’s innovative UserCheck technology and gives organizations the option of alerting users of the potential risks Web 2.0 applications may cause” However, the use of Web 2.0 services also drives communication through fewer ports and protocols, meaning port and protocol-based security policy is no longer enough. To support this new environment of open collaboration while protecting users and resources, a new approach is required. Check Point’s new Application Control solution enables organizations to secure and manage the use of thousands of Web 2.0 applications in the enterprise. With a unique combination of technology, user awareness and broad application control, it enables organizations to defi ne granular policy controls for web applications tailored to meet the organization and employees’ specific needs. In doing so, businesses can benefit from Web 2.0 applications without compromising network security.
With Check Point’s new solution, organizations can immediately access the world’s largest application classification database, the Check Point AppWiki, to scan and detect more than 4500 distinct applications and over 50,000 social networking widgets. Helping businesses minimize the complexity and sheer volume of emerging Internet applications, all applications and widgets are classified across a wide range of categories, enabling an easy and flexible choice of parameters for any given policy.
Encouraging users’ responsibility To reduce the risks that come with the benefits of Web 2.0 applications in the enterprise, organizations should look to implement technology solutions to help sensitize employees to risky behavior through self-learning techniques. The new Application Control solution integrates Check Point’s innovative UserCheck technology and gives organizations the option of alerting users of the potential risks Web 2.0 applications may cause. For example, when visiting Facebook, employees may receive an email or pop-up that warns them of the potential malware risks when visiting the website, prompting them to select whether the purpose of access is for business or personal use. Depending on the policies IT administrators have created, the solution can automatically grant access to the site for legitimate business uses, while blocking applications that are deemed non-legitimate uses of Facebook, such as gaming. In addition, Check Point Application Control also provides seamless, agent-based and agent-less, Active Directory integration to allow individual or group access to specific applications, while restricting others. By adding this human factor, for the fi rst time IT administrators have more context and understanding behind which applications are being used by whom, and for what purpose. Greater application control and identity awareness are increasingly important elements for protecting an organizations’ users and resources. Security in a Web 2.0 world needs to be adaptive, evolve with changes in business, regulatory and threat environments – and essentially, translate business requirements into security policies that have more context and value. Check Point’s solution not only secures Web 2.0 application use, it also educates users on corporate use policies and provides key usage trends to IT administrators.
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
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Brighter skies for the nebulous cloud How does one decipher between all the hype and what’s really needed when it comes to cloudbased virtualization? Rick Basile explains.
f I ask my five year-old son what a cloud is, he can easily answer. He points up to the sky at the big mass of white fluff that is hanging out over our heads. He knows the different types of clouds and can tell a storm cloud from a sunny day cloud. When I ask people in network security what a cloud is, there’s generally a hesitation, which is followed by, “what exactly do you mean by cloud?” It is then followed up with a myriad of different responses. Folks know the term cloud, but aren’t sure exactly what it is or why it’s important to enterprises. Simply put, cloud computing means different things to different people and as such, it’s explained in different ways. The National Institute of Standards and Technology (NIST) defines cloud computing as, “a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications) that can be rapidly provisioned and released with minimal management effort or service provider interaction.” Historically seen as a mid-size company option, cloud computing is quickly picking up traction in the enterprise. The push for enterprises to reduce CapEx and OpEx has been a driver in the adoption of cloud-based services and not only are enterprises able to reduce costs, but they also increase efficiencies and scalability without having to have multiple dedicated network people on hand. They can also deploy new sites in an extremely short amount of time compared to the legacy way of having to do a truck roll to get a new location set up. With cloud-based service, some enterprises believe that it creates the potential sharing of proprietary information, enables employees to carry out business without any corporate awareness and can create security risks. In addition, with the increase in the amount a companies relying on cloud-based services, hackers see virtualized networks as a goldmine to exploit. As a result of this, there is the critical need to provide security around those networks. One way to solve this is to use a hybrid approach in which you have an internal private cloud while also using an external publicbased cloud solution. The advantage of this approach is that an enterprise can deploy a hybrid solution which consists of both a private cloud for highly critical corporate information as well as use a public cloud for less sensitive information. With a private cloud, companies are able to fully segregate different departments or divisions within the organization.
It’s also important for enterprises to look at a layered approach to network security so that they can offer the most complete network protections against multifaceted attacks. By having a complete threat management approach to securing the cloud, enterprises can have safety from multiple types of attacks while also being able to have additional levels of security, including data loss prevention, application control, vulnerability management and rogue detection. By using a layered defense approach that can leverage virtualization, an enterprise has its own security within the cloud and it can then be assured its data is protected from attack. With that, it’s important to add that securing just the inside of the cloud isn’t enough and likewise, you can’t just secure the outside. If you’re going to be fully protected, you need to make sure that all of your bases are covered – both interior and perimeter. Important to evaluate when considering cloud computing protection is the ability to provide real time research for current and evolving threats for immediate security updates. This will help reduce the chances of your network (whether private or hybrid) being exploited by a malicious attack. Fortinet continues to be a leader in offering enterprises both hardware-based and software-based network solutions for the cloud.
Rick Basile is Vice President of Financial Services at Fortinet and has more than 20 years of industrial and information security experience and extensive networking and telecommunications expertise. Rick was previously in the networking and security integration space with SBC Data Communications and later joined CoSine Communications before joining Fortinet in 2003. Find out more by visiting www.fortinet.com/solutions/ cloud.html
Global threat intelligence – the foundation of an optimized security architecture Mike Gallagher highlights how the cyber threat landscape has become more fraught than ever, and outlines how an intelligent approach to security can protect your business. ligence collects threat data in a cloud system and applies sophisticated correlation analysis to make associations between online entities, track emerging dangers, and predict attacks before they happen.
Global Threat Intelligence
ecently our network of sensors picked up anomalous network traffic to ww.robint.us/us.j. Our cloud-based Global Th reat Intelligence system predictively adjusted the site’s reputation and our products blocked access to it. A month later, the news media reported a widespread iFrame injection attack originating from ww.robint.us/us.j that infected more than 100,000 websites. The cyber threat landscape is evolving so rapidly that organizations can’t keep up. Not only have threats grown, with more malware identified last year than all prior years combined, but they have become increasingly sophisticated, leveraging online objects like iFrames and social media platforms like Facebook and Twitter. With these dynamics putting extra pressure on organizations’ IT infrastructure and budget, security needs to work more intelligently. Industry observers agree that having a cloud-based, real-time reputation system is a necessary cornerstone of an optimized security architecture. Th is type of intelligence pulls data from millions of sensors deployed globally in real-world settings gathering threat data in real-time and across all threat vectors over which attacks can be carried out – fi le, web, message, and network. For such a system to work effectively, the sensors must rapidly collect an array of data about fi les, web domains, URLs, images and other web objects, messages and sending activity, IP addresses, network connections, and communications protocols, DNS servers, and the intricacies of intrusion attacks, among other things. Used to identify both known and emerging threats such as temporarily hijacked websites – as in the example above – zero-day exploits, and distributed denial of service attacks in real-time, reputation-based Global Threat Intel-
At McAfee, we calculate the reputations of hundreds of millions of cyber entities using a highly granular scoring system based on a variety of information about the entity’s behaviors, characteristics, and our own baseline of how its comparable entities normally behave. Among other inputs, we rely on telemetry data – billions of queries per day – from tens of millions of McAfee products (ranging from anti-malware clients to web and email gateways to firewalls) that we have deployed around the globe and that act as sensors for our cloud-based analysis engine. For example, in dynamically calculating the reputation score of an IP address, we look at thousands of attributes and behaviors including the address’ duration of existence, email sending activity vis-à-vis a baseline of expected behavior, attack history, and association with other known IPs. We also take into consideration network port and communications protocol, evolving a simple IP address into a very specific type of communication, and growing our visibility from hundreds of millions to trillions of unique reputation possibilities. Reputation-based Global Th reat Intelligence is not just an important component of any security system; it’s table stakes given the nature of cyber threats today. Th reats move too quickly or too stealthily to rely on traditional techniques such as signature-based protection and blacklists. As in the iFrame example, reputation-based Global Th reat Intelligence allows organizations to take a predictive stance against online threats and benefit from multithreat vector correlation to protect their users. It also gives security professionals peace of mind that they can enable their users to safely access web applications and social networking platforms without fear of expensive cleanup, downtime, and data theft . McAfee is committed to tackling the world’s toughest security challenges. Backed by an award-winning research team in McAfee Labs, McAfee creates products that empower organizations to protect data, prevent service disruptions, maintain regulatory compliance, identify vulnerabilities and continuously monitor security, while simultaneously reducing operating costs.
Mike Gallagher brings more than 18 years of experience in networking, cryptography, and Internet security to McAfee Labs. His organization is responsible for delivering threat intelligence across all vectors to McAfee products and customers. McAfee Labs’ scope includes malware detection, web protection, spam detection, network intrusions, and other emerging threats.
OPTIMIZE YOUR SECURITY ARCHITECTURE
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SECURITY AND RISK
Jeff Broadhead, CISO for global asset management ﬁrm Legg Mason, speaks to FST US about the company’s key security challenges and concerns as they head into 2011.
here are a number of issues that would keep the chief information security officer of a large asset management firm up at night. Security in any industry or walk of life is a constant source of stress and concern. From the independent grocery store owner equipped with little more than grainy CCTV, a baseball bat stowed under the counter and a suspicious disposition toward anybody who crosses the threshold into his patch, to Homeland Security’s vast network of shady agents, firewalls, secret service groups and ferocious transborder patrols, security is pretty much the world’s number one concern for anybody and everybody. And so it is for Jeff Broadhead, CISO for Legg Mason. Broadhead’s responsibilities at one of the world’s leading asset management firms include ensuring compliance with legal and regulatory requirements, overseeing security planning and governance activities, directing security architecture and engineering initiatives, and managing security operations. It’s a lot to oversee; particularly when Legg Mason’s clients and affi liates consist of some of the most highly respected experts and industry leaders in their respective areas of specialization in the world. With so many bases to cover, simply knowing where to focus the bulk of Legg Mason’s security objectives is challenging enough, but Broadhead and his team have worked diligently to develop a process that enables the company to implement new information systems in an effective and accurate manner in order to ensure the fi rm stays right at the cutting edge of IT security. “In operationalizing our new security products our attention is focused on making sure that the rollout is successful, and what I mean by that is actually ensuring it does what you intended it to do,” says Broadhead. “It is imperative that you maximize your investment, meaning that you are not just using 10 percent or 15 percent of capability, but you are actually capitalizing on the investment that you have made in the product.” During the rollout process, some of the challenges facing the new product may come from technical or human fallibilities, but these can almost always be overcome and worked upon. From an operational standpoint, however, there exists a multitude of greater security challenges. “In the longer term, you want to make sure that you are operationalizing the product in such a way that it continues to provide the benefit that you originally intended for it to provide, and making sure that people understand what their responsibilities are,” says Broadhead. “Equally
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important is to ensure that updates are rolled out in a strategic fashion, with lots of forethought and planning, and that the people responsible for managing the products and the environment clearly understand how to execute their responsibilities.” Prior to rolling out any update at Legg Mason, Broadhead’s standard procedure is to undertake plenty of testing beforehand. Such stringent testing delivers not only tighter security, but better cost-effectiveness too. “We have a very limited dwell time, which has paid off handsomely for us,” reveals Broadhead. “Not too long ago, McAfee put out a new signature update that caused tons of problems for many different corporations because they pretty quickly rolled out this new patch that actually had issues associated with it, which caused many companies problems. “Our process has saved us from that because we were not so aggressive in rolling it out. We have a well-refi ned process, and in this instance that process paid off for us.”
Mobile musings With careful operationalization of new systems and products a security step that is ingrained into the day-today management duties for Broadhead and his team, they have plenty of energy and innovation in reserve that allows them to scan the industry horizon for emerging technologies and trends. Of the many hot topics that are demanding increased attention in the eyes of a CISO, the issue of the mobile space is one that requires perpetual consideration. “Despite my ongoing concern with the day-to-day management of the infrastructure, there are plenty of other issues that we are dealing with on an ongoing basis, and one of those is continuing to look at mobile security,” says Broadhead. “We are constantly receiving requests from business departments to accommodate connecting iPads and iPhones. It is an ongoing topic, and we have ongoing review and preparation for evaluation of wherever we might have gaps, because they relate to newer regulations and legal requirements.” The issue of mobile security is one that resonates far beyond the internal discussions held solely within the hierarchy at Legg Mason; this is a constant concern for CIOs and CISOs throughout the United States. It is patently obvious that client and customer pressure, from the bottom up, is reaching ever closer to business pressure from the top-down to deliver full compatibility and capability on these next-generation mobile devices. IT departments throughout the nation fi nd themselves trapped in the middle, with ever-diminishing room for maneuver. Hence, the issue of mobile security is obviously one that can no longer be ignored or dealt with half-heartedly. “There’s a universal issue for us, and it’s the same for many other companies, and it is concerning this mixture of company-provided devices versus personally-owned devices, and how to control their security levels,” says Broadhead. “Questions revolve around archiving, proper authentication, proper encryption of sensitive data on these devices, the ability to control devices remotely if they are lost or stolen and might contain sensitive data – these
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are all serious issues, and they are what we are most concerned about.”
Threats and regulations Security defences have never been more sophisticated. Billions of dollars have been spent. Millions of man-hours have been invested. Thousands of would-be hackers, scammers and phishers have been foiled. But still we worry. Still we concern ourselves with the threats and dangers that not only lurk in cyberspace but also constantly test the security perimeter, looking for weak spots. The current security climate can still, on occasion, feel fraught, but are there now more threats because security is more sophisticated, or is security more sophisticated because there are now more threats? Have organizations’ levels of risk exposure increased or decreased over the past few years? “That’s an interesting question,” says Broadhead. “I would like to say that, from Legg Mason’s perspective, our level of risk exposure is decreasing. As we continue to refi ne our policies and procedures and raise the level of awareness of security on a continual basis, introducing new technologies and expanding existing investments in technologies, I would like to believe that risk is decreasing. But then when you balance that against a major program of decentralization of shared services, such as the one we are undertaking, one might think that the overall risk posture might increase a little bit near-term for a short period of time. However, I would probably state that I think our risk posture is getting steadily better, industry-wide.” Despite the continuous work done on protecting and bolstering security perimeters, there remains a level of uncertainty in the industry, and it is an uncertainty that has perhaps been prolonged by constant regulatory reform. The Federal Information Security Management Act (FISMA) has been criticized as nothing more than a box-ticking exercise that has piled on an added layer of bureaucracy and
“There’s a universal issue for us, and it’s the same for many other companies, and it is concerning this mixture of companyprovided devices versus personallyowned devices, and how to control their security levels” Jeff Broadbent
SECURITY AND RISK 83
paperwork for the CISO to comply with, without providing any real value to the security industry. But Broadhead believes that a good CISO is an organized CISO; one who will have no problem with producing reports as and when necessary, so long as they can serve a valuable purpose to their security sector. “Well I have a point to make about the uncertainty of new regulations,” asserts Broadhead. “I think that anyone who is in a role like mine, if they are working hard with their company and making the right investments, have secured the focus and support from the executive staff and there is a good momentum, they should be positioning the company well to reply to and respond to any piece of legislation that comes up relative to security.” Being proactive, rather than reactive, is, argues Broadhead, one of the key tenets that a CISO should work toward. “When you look under the covers of a lot of these rules, reforms and regulations, it’s all the same,” he says. “It’s just a different group coming up with a different language, different requirements, a different industry practice. But at the end of the day the basic principles of security, the basic types of security, the technologies, the people and processes that need to be in place will apply no matter what we are talking about. “So it’s just a matter of taking a holistic approach. I always shy away from using that term because it is overused a lot, but that’s really what it is. It is a holistic approach to developing a security program that positions the fi rm well to respond to any piece of legislation that comes, and it is important to be proactive.”
Securing consumer-grade mobile devices is a CISO’s top concern From an IBRS survey
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Broadhead has more than 25 years of experience in information security, and offers a revealing insight into how the role of the CISO has evolved and diversified during his time in the industry. Besides the obvious technological evolutions that have occurred, it is the CISO’s shift from being a primarily reactive role to a proactive one that has been the starkest and most tangible transformation. “The role has defi nitely evolved into a more proactive one. In the beginning you need to be reactive because you have a whole bunch of tactical issues that require your attention, but you soon work through that and reach an inflection point where you can become more strategic. There is always, quite frankly, a tactical approach in this industry, but you eventually reach a point where you can take a step back from the reactive fi re-fighting and look at the processes a whole lot more holistically and strategically.” In light of the recent economic turmoil, IT departments have been challenged to align their efforts closer and closer to the needs of the business. Such a climate has impacted upon the traditional roles of the CIO and the CISO, with greater pressure felt to deliver not just secure technology but cost-effective technology, better value to the business and a more rounded approach to assisting an organization in achieving its objectives. For Broadhead, that has meant an augmentation of his proactive approach to one where additional consider-
Facts about Legg Mason • The ﬁrm was founded in 1899 in Baltimore, Maryland • Legg Mason has a total of $645 billion assets under management • The company employs approximately 3500 staff in 34 ofﬁces around the world • It is one of the ten largest institutional asset managers in the world • Principal afﬁliates include: Brandywine Global, Western Asset Management and The Permal Group
ations concerning business alignment, staff management and training are closer than ever to his remit. “We have all sorts of brown bag lunches in the technology space where we can share information, concepts and philosophies on security,” says Broadhead. “With our affi liates we have a security focus team that meets every month to six weeks or so to reinforce that community of interest around security. We also have extensive new-employee training, overseeing email strategies where we educate and remind staff within the firm what not to do, and what to do should they see something that feels suspicious. So these are some of the management concerns I am involved in.” A closer working relationship with the business management staff has equipped Broadhead with a greater understanding of the need to balance risk with return. “It is always the case that we have to clearly demonstrate our return on investment,” he says. “It is largely understood here at Legg Mason that this is much like an insurance against issues that would negatively affect the fi rm. So a lot of what I do is qualifying the risk as opposed to quantifying it. Quantifying risk is a difficult process. Qualifying it, while not an easy task, is much more achievable, particularly when you are able to do an effective job of translating a lot of this technical language into business language that is more easily understood by the board of directors and other executives.” Maintaining his thoughtful and considered approach, Broadhead concludes that the future for his industry will continue along its well-trodden path of proactivity, holistic strategy and high-level discussions concerning the next challenges for the security sector. “I think the issue of social media is something that I will be discussing in the very near future,” says Broadhead. “There will also continue to be discussions around mobile security, cost cutting and how that will have a direct impact upon areas such as security, and I think that it would be useful to gain a greater insight into the strategies undertaken by the Secret Service and the FBI in terms of collaborating with the fi nancial services as part of their Critical Infrastructure Protection Program. These are issues that I feel will become major trends in the industry over the coming 12 months.” ■
Business continuity solutions: Network access whenever it’s needed How does business continuity strengthen your network? Scott MacCloy explains.
fi nancial institution is at its most vulnerable state when its doors close for the night or when extenuating circumstances prevent it from doing business – such as a power outage or natural disaster. However, customers expect the ability to access their account information whenever they need it, regardless of the time of day or circumstances surrounding them. A business continuity plan – network solutions that allow fi nancial institutions to continue operations during times of vulnerability or distress – protects both institutions and their customers from losing access to this critically important data. Government regulations, such as the Gramm-LeachBliley Act (GLBA), require fi nancial institutions to protect customer data, pushing business continuity to the forefront of IT practices in the fi nancial industry. Failure to comply with these regulations, which have specific requirements for data backup and storage, can result in severe penalties should customer data be breached or – worse yet – stolen. However, implementing a business continuity plan is easier said than done. There’s no such thing as a ‘cure-all’ solution when it comes to business continuity. The needs change depending upon available resources and the current state of the network. For example, in the fi nancial industry, data centers offer several business continuity solutions that ensure customers will always have access to their data. By storing data at an off-site location, fi nancial institutions are able to take advantage of solutions such as data backup and recovery, data center colocation, and cloud computing. When combined, these solutions effectively enhance a network and ensure that customer data is both secure and accessible.
“There’s no such thing as a ‘cure-all’ solution when it comes to business continuity. The needs change depending upon available resources and the current state of the network” A fi xed wireless network is a business continuity solution that complements data center solutions by making the transportation of data faster without any disruptions. Th is type of network diversity is vital to the fi nancial industry because, as more customers access their account information via online banking, higher volumes of data
are being transported via the network. A fi xed wireless network is diverse enough to handle this volume, and efficient enough to transport it in a short period of time. Implementing a business continuity solution can be a major investment for an organization. That’s why PAETEC works with customers to implement a customized business continuity plan. With a free network assessment, PAETEC provides recommendations to customers regarding the changes they need to make to their networks. In addition, PAETEC’s unique Equipment for Services (EFS) and Soft ware for Services (SFS) programs allow fi nancial organizations to subsidize the equipment and soft ware that is necessary to build effective business continuity plans. By using these programs, customers can also receive reimbursements and upfront capital from the federal government. Since 1998, PAETEC’s unique EFS and SFS programs have funded more than $90 million in network equipment and soft ware costs for more than 4800 customers. Because of this support, financial institutions are able to both comply with GLBA regulations and modernize their networks, which ultimately enhances accessibility and service for their customers. For an industry that deals with data as vital as personal fi nancial information, business continuity is one of the most important plans an institution can have in place. Government regulations have forced fi nancial institutions to recognize the importance of business continuity solutions. PAETEC can help these organizations understand how the appropriate network infrastructure allows for the implementation of an effective business continuity plan.
Scott MacCloy is the National Director for PAETEC Financial Markets, which provides data, voice, and Internet solutions to banks, credit unions, savings and loans, insurance companies, brokerage houses, and mortgage companies across the country. He has an M.B.A. in management from the University of Connecticut. To learn more about PAETEC’s Business Continuity Solutions, visit www.paetec.com/ campaign/continuity to download an informational brochure.
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CREDITABLE CONTROL Stephen Scharf, Global Chief Information Security Ofﬁcer at Experian, speaks to FST US about the various strategies he implements to combat the security challenges Experian faces on a daily basis.
What are the unique challenges that you, as CISO for an organization such as Experian, face on a regular basis? Stephen Scharf. Our business is very dynamic and fosters innovation and new product development in a constant effort to increase value to our clients. As such we focus a considerable amount of time on vetting new products and services to ensure they have the proper security controls in place. By partnering with our internal project management department we ensure that security reviews are performed throughout the project lifecycle. As one of the world’s largest data repositories this is a continuous effort. Experian’s data is extremely sensitive, so what programs do you have in place to effectively manage the risk on this data? SS. We have a robust data classification program that ensures data is properly identified and tagged. Th rough the use of globally adopted information security policies we are able to clearly defi ne the required controls for each dataset and ensure they are used with the proper protections in place. As with many organizations we do not have ‘a one size fits all’ approach to security. Proper data classification and segmentation helps to ensure that security controls increase appropriately around sensitive information. Is your current level of risk exposure increasing or decreasing? SS. The threat landscape is constantly evolving, which creates a constant stream of new risks to address. On
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average our risk profi le remains fairly constant but the styles of attacks ebb and flow over time. The security industry as a whole is seeing a general transition of attacks moving away from individuals trying to make a name for themselves and now focusing more on crimes for profit. The level of organization in some attacks is increasing as the motive morphs from destruction to profit. As CISO in any business, there’s a real danger of only seeing symptoms and not causes. What types of processes and strategies do you have in place to prevent that from happening? SS. In information security the symptom blindness tends to occur when efforts are only focused on technical controls and IT related processes. In order to ensure greater awareness of the larger issues, a successful CISO needs to partner with the business they support and truly understand the goals of that organization. By having a more rounded understanding of the business drivers combined with the IT components that deliver those drivers, a CISO is much better positioned to understand root cause and will be quicker to react to possible issues. What kinds of security lessons has Experian taken on during your tenure? SS. I have the privilege of being the fi rst Global CISO for Experian. Before my position was created we operated information security successfully via a regional approach and did not always cross benefit from the best practices that were developing in each region. In the last two years we have put significant time and energy into indentifying
1 in 8 adults fell victim to online ID fraud in 2009
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“The human element is always the greatest challenge since it is the most dynamic. IT systems are fairly binary. If you build systems the correct way they tend to operate in consistently the same way. This is not the case when dealing with human activities”
and elevating the best practices in each of our regions to develop a single global security program. Some of these improvements have been focused on our training and awareness campaigns as well as standardizing our assessment methodologies. When rolling out any sort of new information systems, where do the greatest challenges lie for you? Are they human, technical, operational… SS. The human element is always the greatest challenge since it is the most dynamic. IT systems are fairly binary. If you build systems the correct way they tend to operate in consistently the same way. Th is is not the case when dealing with human activities. Th is is why having proper training and awareness campaigns are critical for any organization. At Experian we treat training and awareness as two distinct items. Information security training is structured and is mandated for all employees. The goal of training is to make sure our employees understand their obligations and the appropriate way to conduct Experian business. Awareness campaigns are more about broadening our security culture and continually apprising our staff of new and emerging threats. These can focus on more subtle security issues like social engineering or the risks of social networking. The great thing about Experian is that a strong part of our culture is based on security of the data entrusted to us. Has the proliferation of next-gen mobile devices exposed your perimeter to greater threats and insecurities? How do you combat against this increasingly
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fast-paced consumerization of technology? SS. The demand for mobile devices has defi nitely gone up and the value that these devices bring to the workforce is significant. We support these types of improvements by conducting full evaluations of new products, services, and/ or devices before they are allowed to operate in our environments. Because the type of device and desired use case can vary, we do not have a blanket policy that allows or disallows their use. Instead we work with the requesting business to fully understand the scope of the device they wish to use and then partner with them in developing a safe and secure rollout strategy. Sometimes the cost to adequately protect a device is greater than the value that device may bring to the business. In these cases the decision is made to not use the device in our environment. Where do your main priorities lie for 2011 and what additional security challenges do you foresee in the immediate future? SS. Our priorities continue to focus on the protection of our applications, systems, and data. Our 2011 activities will complement the existing programs we have already embedded while at the same time evaluating new technical solutions. Future challenges that face the security industry as a whole include the rapid expansion of social networking and the increased focused on distributed (cloud) computing. The mantras of security tend to remain constant: segmentation, separation of duties, and least privileged. While these are all relevant in addressing the future threats, the way in which they are leveraged will need to change.
Abandon the random, manage the risk Vall Herard, Americas Head of Barrie & Hibbert – winner of Life & Pensions 2009 & 2010 Best Global Economic Scenario Generator and the global leader in stochastic models to the global insurance market – outlines to FST US the growing need for robust and coherent economic scenarios.
Adoption of economic scenario modelling in the insurance sector. Stochastic economic scenarios have been around for a while in fi nancial services. So the phenomenon is not new, especially when you consider their adoption in banking and capital markets. However, as the global insurance sector steadily moves towards a more principles-based approach to risk, insurance groups have come to embrace stochastic economic scenarios across a number of applications in order to gain a more holistic understanding of risks. For calculating the market-consistent value of liabilities, or for making real-world projections over both short and long-term horizons, a coherent and consistent set of robust scenarios is critical to not only measuring risks, but in being able to manage them.
“As the global insurance sector steadily moves towards a more principles-based approach to risk, insurance groups have come to embrace stochastic economic scenarios across a number of applications”
consequence, some non-EU countries have intimated their desire to implement SII type regulation in order to qualify for ‘equivalence’. In the US, where there is some resistance to full SII ‘equivalence’, the impetus for stochastic economic scenario generation has been a mixture of accounting regulations and industry adoption of best practice risk management. For instance, under FAS 133 and 157, certain VA business has to be valued under a market-consistent approach. The underlying hedging that takes place for many of these products requires the calculation of Greeks, which must also be evaluated under market-consistent frameworks. First the liability Greeks are calculated based on scenarios calibrated to prevailing market prices and then a recalibration is performed in order to calculate the appropriate hedging parameters. Statutory capital under C-3 Phase II and AG43, is also driving the need for stochastic economic scenario models, in the US. So as other parts of the world and the US inch towards the adoption of internal models and more robust risk management frameworks, the need for stochastic economic scenarios will continue to grow.
Regional variations in how economic scenarios are being adopted.
Identifying good economic scenarios.
Variations do exist. If you look at Europe and the impending implementation of Solvency II (SII), the primary driver there has been a need to harmonize insurance risk practice across the region and to establish a regime where firms are well capitalized. Recognizing this need and also the limitations of a one-size-fits-all approach, SII incorporates an internal model approach in the calculation of the Solvency Capital Requirement (SRC) that relies on a forward-looking one-year Value-At-Risk (VaR) measure. Economic scenarios play an important role in calculating the one-year VaR measure not only because of the need for a robust simulation of the joint risk drivers of the assets, but also in order to get a consistent value of the liabilities at a forward point in time. SII also impacts other parts of the world because of the ‘equivalency’ issue. Since the goal of SII is to ensure that the SRC is sufficient at the group-wide level, any business unit of an EU insurance group operating outside the EU will have to calculate an ‘equivalent’ one-year VaR. As a
If the economic scenarios feeding into your risk management processes are flawed, problems will arise, so it’s important to carefully assess whether ESG providers have the ability to provide you with a robust and coherent set of scenarios – after all, these are the central component of your risk management framework. To do this, ask yourself the following four simple questions: (1) Does the company providing the scenarios have deep experience in all types of economic scenario applications? (2) Is that experience coupled with the depth and breadth of a multi-disciplinary team of actuaries, quantitative model researchers and economists capable of creating a globally unrivalled pool of economic scenario expertise? (3) Has the company’s scenarios been widely adopted by global insurance groups? (4) Is the company just providing models plucked from academic journals with little or no content? If the scenario generation is built by a company that can answer yes to 1, 2, 3 and answer no to 4, you have found a good scenario generator provider.
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Vall Herard, Americas Head of Barrie & Hibbert, has more than 16 years experience in business development and risk management in the capital markets. He has extensive knowledge of capital markets across various asset classes, hedge fund strategies, and enterprise risk management.
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Can the rise of predictive analytics in banking and insurance help remove ﬁnancial risk and better shape customer interaction, or is the software limited in its ability to really see into the future and guard against risk? Ian Clover reports.
arious industries have been reaping the benefits created by the rise in predictive analytics and predictive modeling over the past few years. Police forces, hospitals, energy companies and marketing fi rms have all utilized predictive analytical tools to help them to better manage their respective fields, and now the fi nancial sector is getting in on the act too. Whether you work in risk management, customer profi ling or insurance, predictive analytics could prove invaluable. The result of good predictive modeling is fantastically simple; it’s the processes required to achieve these results that make up the tricky part. Thankfully, there are some innovative soft ware packages out on the market that do all the complex work for you, but every company that employs these tools still needs to know how to effectively utilize predictive soft ware for their own ends. Before your company dives headlong in, it is useful to know what predictive analytics is. The predictive modeling soft ware has been developed to analyze vast pools of data to achieve results. It uses predictive algorithms to effectively locate any underlying patterns in the data that is fed into the program. These patterns, trends and relationships are not so immediately evident to the naked eye, but predictive analytics soft ware can take this fi ne and minute detail about usage, behaviors and consumption patterns to create a model that recognizes which customers and clients might be most receptive to a certain product launch, or who might be better served by a change in their account detail. Effectively, this is business intelligence with bells on. Creating a picture for the end-user to work with, predictive analytics does away with complex investigative procedure, effectively condensing vast threads of data into easily manageable chunks of information that have great value for the user. “We use predictive analytics in a number of places,” says Bill Martin, senior vice president in marketing analytics at Farmers Insurance. “It is used everywhere from pricing to modeling, to looking at how to handle different customers from different sources of business and even, to some extent, to try to figure out how to respond to different claim situations.” In the world of insurance, raw data holds only so much value. In bringing together centralized information and patterns from a whole mass of clients, and then presenting this information in a usable and useful fashion, predictive analytics pinpoints areas of the business where certain decisions will have certain effects. While the results are never
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100 percent accurate or quantifiable, Farmers has been able to extract enormous benefit from its investment in predictive modeling soft ware. “We gather data in lots of touchpoints with our customers, whether they are visiting us online to run through a quote or they are calling with a claim, and even when we are conducting outbound marketing activities that involve using outside sources for data that help us contact potential customers,” says Martin. “We bring that data together in several systems, and there are several different databases that serve a variety of purposes – some are helping our agents service their policyholders; some are helping us market to customers, and some are helping us to undertake these types of analytics. So there are quite a few databases that are being used, oftentimes in addition to creating the databases we have to bring together too, and the predictive tools are used on top of that.”
“When using predictive analytics, we see an increase in sales rate when we know which products to present and how to present them, and we see an increase in the accuracy of our claim payments”
Extracting the data Feed beef into a mincer and the immediate result is minced beef. It takes additional seasoning, shaping and cooking before you have yourself a burger. In predictive analytics, the raw data is ‘minced’ through the soft ware program, but the resultant data still requires additional shaping and interpretation before it becomes palatable for a company to fully ingest. “At Farmers, there are two ways that we interpret and work with the data,” says Martin. “In some cases we’ve got predictive analytics that are very much part of the process, and that includes something as simple as time, our adjusters, the range of settlements for similar types of injuries and conditions, and details on their background too. To
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put it into an example, we can accurately decide, when a customer calls us directly, whether or not they would be more or less likely to be interested in other products we have besides the ones they want to discuss. Th is information is delivered to us based upon our previous contact with them and other data we hold on them.” The other method Farmers employs in order to fully capitalize on its investment in predictive modeling is to utilize the soft ware in a more analytical sense. “Aside from its operational value, there is great analytical value too,” says Martin. “We could be doing research that says ‘alright, so in the pattern of customers who respond to one type of advertising, what web services or what type of media gives us most access to those customers? And what types of creative messages are most likely to get them to respond?’ So there is both a research approach and a kind of in-process, or live approach with the predictive models that we use.” Once this information has been gleaned, the benefits soon become apparent. It is every company’s dream to know what their customers are thinking and to then be able to second-guess their whims in order to present them with the right product at the right time. Predictive analytics produce highly technical results that can then be quantified into tangible, fi nancial growth. “We see an increase in customer satisfaction when we are more likely to know what the customer wants,” says Martin. “We see an increase in sales rate when we know which products to present them and how to present them, and we see an increase in the accuracy of our claim payments, in that we don’t miss by paying too much or too little when we spend more time using the models there.”
Predicting business growth At the coalface, predictive analytics have helped Farmers to better service the needs of its clients, but it is from a business perspective where the tools have really proved their worth. “The pricing area of our business has been the lead driver behind our adoption of predictive modeling tools and data analytics,” says Martin. “The laggard is customer serving routing, of both prospective and current customers. We are just learning how to use predictive modeling more heavily in the service arena, and I think when we can anticipate better what it is that the customer needs then we will reach a point where service interaction isn’t even necessary – we will be able to provide without prompting from the customer.” One area where Martin believes predictive analytics is going to struggle to make an impact in the coming years is in risk. “I think that modeling for risk and emerging risks is an area where predictive analytics is going to have to take a step back from. The fi nancial crisis in particular was proof that this method of modeling is ineffective at predicting rare events or events that are, at the time, unique or unprecedented. So in terms of emerging risk I think we will come to rely more on blue-sky type brainstorming and modeling of potential scenarios. Th is is a little bit different from predictive modeling, which is based purely on prior patterns.”
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PREDICTIVE ANALYTICS IN ACTION Out on the formerly mean streets of Memphis, Tennessee, violent crime rates have fallen by 30 percent since the city’s police force ﬁrst started using IBM’s predictive analytics tools. Nicknamed ‘Blue CRUSH’ (CRUSH stands for Criminal Reduction Utilizing Statistical History), this predictive analytics tool works out where crimes are likely to occur, and empowers the city’s police force to interject. So far, so Minority Report, but read on and it all becomes clear… Much of policing decisions are made on the basis of an ofﬁcer’s experience, previous knowledge and, to a large extent, hunches. “Some of these gut feelings may be valid, some not,” says Colin Shearer, worldwide industry solutions specialist for SBSS, an IBM company. “With the assistance of the Memphis police force, we were able to develop a system based around evidence-based decision making, allied with asking the questions: ‘What do the hard facts and the data tell us?’ “So the Blue CRUSH system uses human knowledge on how criminals operate to try to give police ofﬁcers and commanders assistance with their operational decisions. So with their raw data they would ordinarily base their decisions on, our systems are able to give them quantiﬁable probabilities based on what has happened in the past, taking into account all sorts of factors, such as particular parts of town; the existing police presence there; the weather and temperature; the time of day; whether there is a rock concert on in that part of the city; whether it is pay day, and so on. All the while the Blue CRUSH system is looking at this data and working out the probability of a crime occurring. “With this data, the system can advise shift commanders to help them with rostering, telling them where and when to deploy their ofﬁcers. And then when an incident occurs, the system can rerun these models and update the city’s risk proﬁle.” The predictive analytics tool actively collates the knowledge, data and historical information that police forces have built up over decades of crime ﬁghting, and use this data to form recommendations, probabilities and predictions, which is one step up from character proﬁling, and just a few steps down from the world of sci-ﬁ.
Increase results, decrease risk John Baer, Senior Director of Product Management at Moody’s Analytics, discusses how new banking regulations will drive the need to use superior analytics and data management practices to make better loan origination decisions.
John Baer is a Senior Director of Product Management at Moody’s Analytics where he is responsible for the Credit Assessment and Loan Origination product line. Prior to Moody’s Analytics, John was with Ernst & Young, advising private equity and corporate clients on investment acquisitions. John specialized in ﬁnancial due diligence, working alongside commercial lenders valuing targeted transactions.
ith the adoption of new bank regulations – including Dodd-Frank and Basel III – on the horizon, commercial banks will be bracing for higher regulatory capital requirements and the need for more transparency. Heads of risk and technology departments will need to investigate the completeness of their existing commercial origination tools and will require fact-based commercial loan systems that take into account overall portfolio and corporate risk strategies which require robust data management.
What changes are you seeing in technology needs at ﬁnancial institutions? John Baer. The expected increase in regulatory capital requirements will result in the commercial lending industry’s need to improve underwriting processes in order to generate more profitable loans. Over the past decade, investment in commercial loan systems has lagged investment in retail
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loan systems. To stay competitive, a bank’s commercial underwriting processes need to be more efficient. Banks are rethinking the way they manage counterparty risk data and how to make more informed origination decisions, based on risk appetite and the risk-adjusted performance of their overall portfolio. From a technology standpoint, commercial banks will need to implement modern loan origination systems with robust risk analytic capabilities to address these challenges. Firms can create operational efficiencies and reduce underwriting costs by standardizing business processes on a workflow-driven, straight-through processing platform that includes a risk data warehouse. Th is type of system allows enforcement of consistent risk management policies and consolidates data for reporting purposes at the same time. With the increased banking regulation, regulators will continue to demand more granular fi nancial and non-
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fi nancial data that drive loan decisions. As such, banks are looking to streamline their systems and adopt a single risk database to bring increased transparency and efficiency to their processes. With one central source of risk data, banks can also gain a consistent view of risk across departments and reduce unnecessary, redundant systems. Th is consolidation of origination processes into one platform can also reduce a bank’s total cost of ownership (TCO). How are US regulatory reforms such as the Dodd-Frank Reform Act causing changes in the ﬁnancial services industry? JB. The Dodd-Frank Reform Act is quite expansive and concerns many aspects of a fi nancial institution. One key tenet is a more unified view of data across an organization. For example, the Office of Financial Research (OFR) will be created and given broad authority to request and collect data from banks. Financial institutions will need to have a flexible data warehouse with contract-level information. Banks will also be required to quickly respond to regulatory requests on everything from regulatory capital to liquidity risk, necessitating centralized, aggregated and summary data. Firms should also recognize the business value that comes from superior analytics and improved data management capabilities within a straight-through processing loan origination system. Th is involves more than providing granular data, but also having complete and clean counterparty and transaction-level data to calculate regulatory and economic capital in order to identify and evaluate opportunities to improve profitability within the institution’s lines of business.
“By understanding transaction risk and the impact on your portfolio, you can make more informed pricing decisions” To bring the most value to an IT investment, what should banks look for in a commercial loan origination system? JB. There are many loan origination vendors, but very few offer a comprehensive, risk-based platform. Most platforms promise better operational efficiencies, but the real power of a modern loan origination system comes from coupling workflow efficiency tools with risk analytics directly embedded into the origination workflows. By leveraging risk scoring and risk-based pricing analytics – whether you’re lending to public or private fi rms – more effective, informed, and profitable lending decisions are made. During the next three years, institutions will absolutely be using more and more analytics to make datacentric lending decisions. Having an accurate assessment of your risk is very
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important, and having a risk rating solution is the foundation for a sound credit risk management strategy. With superior analytics as part of a standardized loan origination system, you’re able to develop consistent and uniform rating criteria. Having a standardized commercial platform with riskbased analytical workflow capabilities further helps banks to operationally integrate portfolios of acquired or merged fi nancial institutions. Given the current competitive environment for commercial loans, banks that are growing organically or through acquisition cannot afford underwriting inefficiencies or ineffective loan decisions. Aside from a regulatory compliance standpoint, what is the business beneﬁt of having better analytics? JB. The real benefit comes from deploying capital more efficiently, increasing return on equity (ROE), Shareholder Value Added (SVA) and Economic Value Added (EVA). Many firms are concerned that higher regulatory capital requirements will lead to lower returns. We believe, if done right, high returns can still be achieved within your risk capacity. Th is is where real-time risk-based pricing capabilities that reflect your overall portfolio come into play. By having portfolio-driven price recommendations and other analytics embedded within the origination process, your organization has a system in place for measuring and analyzing risk-adjusted return on capital (RAROC) – and will have a process in place to allocate capital more effectively. By understanding transaction risk and the impact on your portfolio, you can make more informed pricing decisions. It’s all about how the transaction looks in the context of your portfolio and having that information at the point of origination, not a month or a quarter later. You may very well be underweight in a particular sector and be able to price a loan more aggressively than a competitor to win the business. Risk-based pricing also helps you understand the incremental value the originating transaction brings to your portfolio. Do improved analytics and a straight-through loan origination system lead to better client relationships? JB. Absolutely. Borrowers benefit when banks know upfront what paperwork is required to underwrite a specific type of loan and relationship managers do not have to continually go back to the borrower. It is beneficial to have all client documents stored in one location, electronically within the workflow tool. It also helps when relationship managers perform pre-deal limits checks for potential breaches. The pre-deal check also enables the proper level of approvals required to efficiently advance the underwriting process, minimizing the turnaround time of the origination process. Th is will undoubtedly lead to stronger client relationships, more high-quality deals and better ROE and SVA for the bank. Finally, banks can use analytics and workflow automation to streamline the loan origination process so high quality borrowers can be fast-tracked, saving fi rms unnecessary opportunity costs.
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Asking all the right questions to protect yourself What questions does an organization ask when a laptop is lost or stolen? More than you want to answer, so backup and encrypt, says Joseph Belsanti.
eing told that one of your employees just lost their laptop can instantaneously wake you up to the reality that your data is not safe, and you just may have been compromised. Thoughts revolve around the data that resided on that drive, and did a current backup exist, or any backup at all? Next, concerns arise relating to what might happen if there is unauthorized access to the data and if it were to be used for wrongful purposes. The immediate questions asked are: Whose laptop has gone missing? And what data did they possess? Secondly, questions surrounding the restoration of the data through a backup are discussed in order to get the employee’s productivity back up to a desired level. Now the adventure begins. Was the laptop encrypted? Does disclosure of the loss of data need to occur and what would the repercussions be to the enterprise? Upon the loss of a notebook, a typical organization asks the following questions. How did the notebook go missing, and is there anything we can do to stop it from happening again? Organizations now start to analyze their security practices and processes. They try to determine if they need to buy any soft ware or hardware to protect their data – such as encryption – and they look at reviewing their existing security measures. If the organization subscribes to ISO 27000 standards, they now turn to ISO 27001, which formally defi nes the mandatory requirements for the overall management and control framework regarding an organization’s security risks. They will also review their ISO 27002 standards, in relation to ISO 27001, to establish a code of practice and guidelines in protecting sensitive data within their enterprise. Was the notebook encrypted? Given the amount of attention that privacy and security regulations around the world have brought to data breaches, this question is probably one of the fi rst to be asked. The reason for this question begins with the exemption clauses under most data breach notification conditions existing within privacy and security regulations. In most cases, if you encrypt the media upon which the data resides in adherence to exemption clauses, then you will not be required to disclose a potentially embarrassing data loss. Is there any way to fi nd out where that laptop is now? In some cases, organizations want to know if they can track the location of the missing laptop in question. They do so, not necessarily to recover the laptop, but to determine if there are any other measures that they need to take into
consideration to further protect themselves. For example, did the recently fi red employee take a laptop home and is holding it ransom for severance? Did the contract worker that was in last month take a notebook? Did an employee steal it? Each one of these above conditions may provoke a different set of responses and measures that an organization may want to execute in order to protect itself legally and the data that may be exposed. What else can be done to the laptop now that it is not in our possession? Intel’s Anti Theft Technology now enables some encryption ISV vendors to issue a poison pill to a laptop that has been identified as lost or stolen. Th is poison pill can be issued to a laptop whether or not it is connected to the Internet/LAN and performs two primary functions. It disables the platform and performs an encryption data disable. The fi rst function was intended as a theft deterrent mechanism. The second function further protects the sensitive data on the laptop. In this case, access to an encrypted laptop would be denied even if the individual were in possession of the correct credentials – password, smartcard, USB token, etc. With new security technologies including Intel’s Anti-Theft Technology and self encrypting drives (SEDs), the ubiquitous protection of data through encryption will only be a matter of time before the encryption of data is a normal practice, just like backing up data.
Joseph Belsanti is the Vice President of Marketing at WinMagic Inc., a leading global provider of full-disk encryption solutions protecting data on laptops, USB thumb drives, and CD/DVDs. In addition to data security solutions, he has experience in marketing and selling in the ﬁelds of IP Address Management (IPAM), and E-services (CRM, E-procurement, Web Services and E-business).
Man-in-the-browser attacks: Reducing risk against alien body snatchers Seth Geftic responds to a customer’s concern about man-in-the-browser attacks and outlines how behavioral analysis can thwart the cybercriminals.
Roger from San Jose, California, writes: I have recently read about the growth of man-in-the-browser attacks and have a few concerns. What should I be doing to spot the symptoms of an attack? Also, in considering a solution to reduce my risk, what are some of the things I should be aware of? Seth Geftic responds: A man-in-the-browser (MITB) Trojan is designed to intercept data as it passes over a secure communication between a user and an online application. A Trojan embeds in a user’s browser application and can be programmed to trigger when a user accesses specific online sites, mainly an online banking site. Once activated, a man-in-the-browser Trojan can intercept and manipulate any information a user submits online in near real-time. A number of Trojan families are being used to
conduct MITB attacks including Zeus, Adrenaline, Sinowal, and Silent Banker. MITB Trojans are very advanced, programmed with functionality to fully automate the process from infection to cash out of bank accounts. Some versions of the Zeus Trojan, for example, come with built-in mule management tools. Each time an MITB transaction is attempted through a Zeus-infected machine, the Trojan reaches out to the mule management tool and pulls the next record of a mule account that is available to accept the stolen funds. While there are several advanced threats that attempt to hijack a user’s account, MITB attacks are more menacing in that instead of just taking over a user’s credentials, they take over the user’s device. Th is gives them the capacity to mimic the user’s credentials as well as any other information, like requested one-time-passwords, entered in the
“MITB attacks are more menacing in that instead of just taking over a user’s credentials, they take over the user’s device”
Seth Geftic is Senior Manager, Identity Protection and Veriﬁcation at RSA, The Security Division of EMC. He is responsible for managing multiple technologies and initiatives that protect organizations against fraud and advanced threats.
browser. MITB Trojans also appear to be coming from the user’s machine, allowing them to thwart many safety mechanisms such as verifying the IP address where the transaction originated. You could think of MITB Trojans as the virtual version of the characters from Invasion of the Body Snatchers. They claim to be a real person, sound like a real person, look like a real person and even dress like a real person. But, they are not a real person. As a viewer, it is hard to tell the difference between the human and the alien body snatcher on the surface. But when you look closer, you can tell there is just something a bit ‘off ’ about them. Perhaps the words they speak don’t make sense, they move a little stiffly, or lack human emotion. Either way, you can tell that despite appearing to be the same on the outside, what you are looking at is actually an impersonator. Hence, we turn to the importance of behavioral analysis. Today, fi nancial institutions are struggling with how to address MITB attacks. Th ink of it in terms of behavioral analysis – if you can spot an alien body snatcher by his behavior, apply that same intelligence to identifying an MITB attack. Behavioral analysis is a key technique being used to manage risk against MITB Trojans. Behavioral analysis helps determine a user’s normal patterns of behavior in order to detect anything that seems out-of-the-ordinary. At a high-level, it is asking, ‘Is this behavior typical for the user?’ More advanced behavioral analysis methods go one step further and ask, ‘Is this behavior typical for the user or is it behavior indicative of a Trojan?’ To think of it in another way, instead of only authenticating a user’s credentials, you are also authenticating a user’s behavior. A weakness among many financial institutions is that they fail to consider the complete picture of a fi nancial transaction. Logins are protected with strong authentication, but once the door is unlocked, cybercriminals are provided with a pass to infl ict as much damage as they want, including draining an account. The activity that takes place once inside the account is what poses the most risk and requires more scrutiny. Transaction protection refers to the ability to monitor user activity post-login. While it can be done at the login stage, the types of data that can be analyzed at the transactional level are more robust and will help paint a much broader picture of the user. Something as simple as making updates to the account profi le, such as changing the contact phone number on record, can be risky. So what constitutes unusual behavior? There are several ways to answer that question. First, there are universal indicators that hold true for the majority of users. For example, it would be unusual for anyone who is a customer of a U.S bank living in Michigan to suddenly log in to their account from Russia. Th is is likely a universal rule among online banking customers across nearly all fi nancial institutions. Second, there are behavioral indicators that are specific to each individual. For example, one customer may be a frequent user of online banking and transfer large sums of
money on a regular basis. Therefore for this user, initiating several large payments over the course of a few days may not be suspicious. However, for another user that typically logs in to his account once a week to pay household bills, this sudden account activity would be highly suspicious. Finally, there are certain types of behavior that might appear to be the real user, but are actual indicators that the session has been hijacked by a Trojan. For example, an MITB Trojan can use HTML injection to introduce additional fields into a user’s session. With advanced behavioral analysis, this type of activity will immediately raise a red flag that something is amiss. The ability to apply this type of intelligence to transaction monitoring technology is critical to preventing advanced attacks. Some behavioral patterns can be viewed in real-time, in which case a decision has to be made about how to address high-risk transactions. Do you challenge the user visibly or do you delay and investigate? In this case, there are two primary schools of thought. Some fi nancial institutions choose to initiate a visible challenge in an attempt to get the user to confi rm their identity (or intention to conduct a transaction) via step-up authentication. Others choose to automate their security decisions through invisible monitoring and allow high-risk transactions to be sent to a team of fraud analysts for further investigation. The ability to investigate potential fraud cases effectively relies on several factors. The most obvious perhaps is that a team of fraud experts needs to be employed by the fi nancial institution. Having a fraud analyst team is fairly common in the industry, but the size and expertise of these teams vary significantly. Those with larger teams are more likely to fi lter cases to fraud analysts to investigate. Those with fewer resources at their disposal might be inclined to mitigate in real-time in order to manage volume. Either way, using a risk-based approach to fi lter between those cases that are high-risk vs. those that are not is critical. Too many flagged cases (fueled by false positives) increase the likelihood that an analyst will not be able to investigate all the cases generated or be more prone to error. Again, this is where advanced behavioral analysis can help. Not only will it help determine when a case should be generated, it can determine the associated risk so that analysts can focus on the most pressing cases fi rst. A second factor to consider is the length of time before fi nancial damage actually occurs. Th is is especially important when considering the push for near real-time money transfers. And fi nally, it can aid in the decision to select the type of step-up authentication challenge to present to the user. Building behavioral analysis capabilities into transaction monitoring technology is necessary to defend against advanced threats and enables adaptation to new threats over time. So even if a cybercriminal is able to steal users’ credentials, take over their device and circumvent login authentication, there is still another invisible layer of defense that is very difficult to get around. A Trojan, no matter how sophisticated, is not able to imitate each user’s unique behavior. Just like with the alien body snatchers, behavioral analysis will be there to spot the imposters.
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PROJECT FOCUS 101
Fast capture and analysis in rates trading Mitsubishi UFJ Securities International plc delivers ideal trading platform, reveals Greg Bufton.
USI is the English-incorporated, European hub of the global securities and investment banking business of Mitsubishi UFJ Securities Co. Ltd., which is part of the Mitsubishi UFJ Financial Group, one of the biggest fi nancial institutions in the world (measured by total assets). Based in London, MUSI is active in most areas of the international capital markets, with particular specialization in the fi xed income, equity, derivatives and structured fi nance markets. The Rates Trading Group, which includes 50 traders and salespeople, trades in bonds, derivatives and options, was given the charter to stand up the ideal system to deliver timely, reliable and accurate market data and analysis to meet the needs of the firm’s traders. In addition to a database, relative value tools and pricing tools, system requirements included: fast capture of all tick data, predicting price movements and identifying arbitrage opportunities, processing real-time market data, storing massive amounts of data and retrieving this information rapidly, and quickly analyzing historical trends and price relationships. This platform would serve both the traders and algorithmic quantitative teams by providing reliable and relevant information, allowing extensive back-testing and ultimately, supporting the MUSI Rates Trading Group decision processes and enabling them to trade more profitably.
“Since implementation, MUSI has doubled the number of currencies it tracks, allowing a richer view into market opportunities” At the end of the benchmarking and evaluation process, the combination of Sybase RAP – The Trading Edition and Sybase Aleri Streaming Platform were judged to be the best solutions supporting pre/post trade analytics, risk monitoring and analysis. Sybase RAP – The Trading Edition manages high volume real-time data feeds and massive historical and market data sets, and allows multiple concurrent users to access huge histories of leaf-level market data. Sybase Aleri Streaming Platform conducts real-time analysis of streaming data, absorbing and processing high volume data streams, applying custom logic to normalize and analyze the data. High level authoring tools allow custom processing logic to be specified to turn raw input streams into high-value output streams. MUSI indicates a key advantage of Sybase RAP, that it
performs well even when memory is truncated. The team was also impressed with the front-end functionality provided by complex event processing, allowing streaming data to be captured from data feeds at high message rates, validated to flag data anomalies (e.g. bid price is greater than ask price), and filtered for significance before adding to the data set in RAP – The Trading Edition for analysis and storage. MUSI staff noticed a massive improvement in performance. The trading system, in the eyes of traders, went from a nice-to-have to a must-have. Since implementation, MUSI has doubled the number of currencies it tracks, allowing a richer view into market opportunities – without having to add more storage. It has also increased its data retention by four times over. With richer data stores bearing no overhead costs, MUSI has a solution that enables it to manage its business today and identify new opportunities into the future.
Greg Bufton is Executive Director of the Quantitative Solutions Group for MUSI. MUSI is the English-incorporated European hub of Mitsubishi UFJ Securities Holdings Co., Ltd. - itself part of the Mitsubishi UFJ Financial Group, the biggest ﬁnancial institution in the world.
Customer: Mitsubishi UFJ Securities International plc (“MUSI”). Industry: Financial services. Challenge: Meet real-time and historic market data analytics requirements for speed, efficiency, and support for multiple types of data. Solution: Sybase RAP – The Tradition Edition for real-time and historical data analytics, Sybase Aleri Streaming Platform for complex event processing. Benefits: Tracks twice the number of currencies, allowing a richer view into market opportunities – without more storage; increased its data retention four times over.
Transforming the future – Microsoft helping ﬁnancial services embrace cloud as a business differentiator Microsoft’s Bindia Hallauer discusses Microsoft’s momentum and investment in the cloud and how Microsoft and its partner ecosystem are uniquely positioned to enable ﬁnancial services shift to the cloud.
Bindia Hallauer is the CTO for Worldwide Financial Services Sector at Microsoft Corporation, based in Redmond, Washington, USA. She plays a strategic leadership role in helping ﬁnancial services customers transform their business with innovative solutions.
What is Microsoft’s momentum and investment in the cloud? Bindia Hallauer. From Hotmail to Windows Update and Xbox Live, Microsoft has almost 15 years’ experience in cloud computing, hosting some of the world’s most widely used cloud services. Microsoft’s cloud services represent an evolution of our work in web and computing standards. Microsoft sites, including MSN.com and Windows Live Services attract more than 600 million unique users worldwide each month across 46 markets in 21 languages, and 50 percent of Fortune 50 companies are customers of Microsoft cloud services. Microsoft has a portfolio of cloud assets. Soft ware as a Service: Microsoft Online Services provides all the benefits of the most recent versions of productivity and collaboration products delivered as a service without costly updates. Microsoft Online Services include Microsoft SharePoint Online, Microsoft Exchange Online and Microsoft Live Meeting, Microsoft Office Communications Online, and Microsoft Dynamics CRM Online. Financial enterprise customers get secure access to e-mail, instant messaging, and shared workspaces, and their employees can work from anywhere with an Internet connection. Since no hardware/installation is involved or day-to-day management required, these IT departments can refocus resources on the daily demands of their business. Microsoft runs these services on a global network of world-class data-
centres which are protected by multiple layers of security, operational best practices, and policies. Currently we have nearly 40 million customers of Microsoft Online Services. Platform as a Service: Microsoft’s Windows Azure and SQL Azure platform provides app development, database, and storage platform in the cloud. With the Windows Azure platform, fi nancial services customers and partners bring innovation to market faster with greater choice in developing new types of scale-out, highly available, cloud applications using familiar tools, leveraging on-premises investments, and without managing infrastructure. Financial customers can also connect apps and services across the cloud or with their on-premises apps with Windows Azure App Fabric. Whether the apps are developed in .NET, Java, etc you deliver apps to your private cloud or public cloud with Windows Azure platform. Th is offers faster ramp-up curve benefits to our fi nancial customers who can on-board legacy/existing applications or choose to opt for hybrid scenarios. Windows Azure was released only a few months ago and already has more than 10,000 customers and 4000 applications profi led as ‘platform ready’. Infrastructure as a Service: Customers can build a private cloud infrastructure today on Windows Server Hyper V and System Center Virtual Machine Manager for virtualizing and managing compute capacity on demand in their datacenters. Windows Azure is Microsoft’s public cloud services operating system that serves as the service hosting and service management environment in the cloud. Windows Azure provides on-demand compute and storage to host, scale, and manage web applications on the Internet through Microsoft datacenters. With Azure, fi nancial businesses pay only for what is used, scale up when capacity is needed, and let Microsoft handle the maintenance. Microsoft is enabling fi nancial institutions to leverage cloud technologies on their own terms. Is there an uptake for Microsoft cloud offerings from ﬁnancial institutions? BH. Microsoft has taken countless fi nancial services customers through many computing transitions and evolutions. Microsoft will continue to help them evolve with the cloud. Financial institutions are leveraging Microsoft cloud offerings by moving fi nancial workloads to the cloud to reduce costs, enhancing existing investments with cloud based improvements, and building transformative fi nancial applications that create new business opportunities.
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As an example, the world’s fi ft h largest insurance group’s CIO set a strategic vision to unify the company under a single brand, worldwide. Global communication and collaboration across the business was a key challenge, which required both a technical environment and cultural change. They implemented Microsoft Office SharePoint Online as their cloud-based collaboration environment. The company got the capacity to communicate with and engage all employees, with an easy way to unify regional initiatives, share best practices, and ensure consistency under the same brand. We are seeing more fi nancial services customers moving their employees away from aging productivity technologies to Microsoft Online Services. Sixteen of the top 20 global banks are customers of Microsoft Online Services. I talked about productivity and collaboration scenarios based on cloud. Let me talk about high computing workloads in financial services leveraging cloud. RiskMetrics found an innovative way to expand the scale of services for their clients. RiskMetrics developed RiskBurst (a SaaS risk analytics app) based on Windows Azure to provide large amounts of computational power, many thousands of processors, for bursts of intensive Monte Carlo simulation based pricing for complex fi nancial asset types. RiskMetrics was able to use the same development tools and source code to rapidly extend their existing solution to Windows Azure since their existing analytics used our technology. The full case study can be found on our website. Financial services companies are overwhelmed with regulatory and compliance challenges. Is the cloud a safe place to hold data? BH. Financial services businesses should be able to choose where and how they manage, deploy or store their data. Microsoft is committed to delivering a secure, reliable computing experience both for public and private cloud. We know and understand that today’s interconnected world is not just about trustworthiness of people but also trustworthy computing solutions. Trusted third-party certification provides a well-established mechanism for demonstrating protection of customer data without giving excessive access to teams of independent auditors that may threaten the integrity of the overall platform. Windows Azure operates in the Microsoft Global Foundation Services (GFS) infrastructure, portions of which are ISO27001-certified. In fact, Microsoft is the first major online service provider to earn ISO/IEC 27001:2005 certification. Independent, third party validation for Microsoft’s cloud infrastructure includes achievement of both SAS 70 Type I and Type II attestations. Windows Azure is in the process of evaluating further industry certifications including PCI DSS. Microsoft Corporation is a signatory to Safe Harbor and is committed to fulfi ll all of its obligations under the Safe Harbor Framework. While responsibility for compliance with laws, regulations, and industry requirements remains with Windows Azure customers, Microsoft remains
committed to helping customers achieve compliance through the features that I described. As an industry thought leader, we continue working together with Cloud Security Alliance on defi ning common assurance metrics (CAM) models for cloud security and understanding security needs from customers and industry experts such as ENISA and FISMA. Financial Services enterprises face multiple constraints and challenges – greater physical control, geographic proximity, regulatory compliance, and data sovereignty. The question customers have for us is ‘when can I run Windows Azure in my own datacenter?’ They are asking when can I have all of these benefits but in my environment much more under my control. Microsoft Windows Azure Appliance will be a service that Microsoft delivers to customers and service providers that they can run in hardware that they own or rent within their own datacenter. It will include Windows Azure and SQL Azure. Like Azure, it is designed for phenomenal scale and things like multi-tenancy support and business continuity. Azure Appliance will offer physical control, geographic proximity, regulatory compliance, and data sovereignty for fi nancial customers who want Azure benefits in a private cloud environment. Currently we are working with hardware partners such as HP, Dell and Fujitsu to ensure they have identical h ardware that we run in our own datacenter.
“We are seeing more financial services customers moving their employees away from aging productivity technologies to Microsoft Online Services. Sixteen of the top 20 global banks are customers of Microsoft Online Services”
What are Microsoft’s cloud differentiators? BH. We differentiate via… Flexibility and control Financial services customers can leverage cloud computing on their own terms. We are the only vendor in the world offering capabilities across customer data centers, partner datacenters and Microsoft’s own. Familiarity and consistency Financial services customers can leverage what they already have and consistently move data back and forth, being able to span services from datacenter to the cloud in a consistent way. Experience and ecosystem We are the only company investing to have this experience scale and the breadth of partners that work with the platform.
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HYPE HURT OR HELPED THE CLOUD?
Cloud computing still generates plenty of interest, but that interest remains stuck in an ever-revolving debate of doubt and concern. So if the cloud landscape is to ever fully mature, what more should cloud providers be doing to convince the industry of its worth? FST US investigates.
verblown, overexcited, exaggerated and extreme: hype phrases that rarely infiltrate the financial service technology’s carefully crafted perimeter of suspicion and risk aversion. IT experts working within this field shy away from mind-blowing adjectives and extreme superlatives. They are naturally risk-averse, careful and considered individuals who cringe at the merest hint of hyperbole. But at the same time, they are inquisitive, intelligent, and under increasing pressure to perform, to do more with less and to further support the business goals of their organizations. Hence, when a new industry trend comes along that promises all this and more, they take notice, but are wary of the ‘and more’ part. Cloud computing has been the number one source of hype hoopla throughout the industry for the past couple of years. Introduced as the solution to all CIOs’ concerns, the cloud landscape was meant to transform the ICT industry. It was going to improve systems, cut costs and
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make data more efficient, easier to store and access, and easier to scale. But here we are, on the cusp of 2011 and still the familiar concerns persist: ‘Is it secure?’ ‘How does it work?’ ‘Will it work for my business?’ ‘Does it actually add any value to my key business metrics?’ In an industry as fast-paced and technically savvy as financial services, are the cloud’s stuttering adoption rates a cause for concern? Or does the fact that – even in an industry as famously safety-conscious, decisive and unadventurous as this – cloud computing is still being deliberated over again and again hint at something positive for the technology? Is there a future for cloud computing in the financial services industry, or has the hype put a dampener on the cloud’s buzz? It’s an interesting topic for which there are few easy answers. However, here are five steps the cloud computing industry could undertake in order to gain the trust and support of the technology executives working within the finance industry.
Sort out security
Cloud security remains the number one concern. Clearly, the subject of security has been the biggest barrier to cloud adoption in the fi nancial sector. Figures from the Eighth Annual Global Information Security Survey conducted by PriceWaterhouseCoopers and CSO Online show that 62 percent of the 12,847 global businesses they surveyed still have ‘little to no confidence’ in their ability to secure assets they put in the cloud. “It is clear that a number of CIOs and IT executives within the fi nancial industry are pushing back against the cloud,” says Malcolm Eylott, Senior Vice President and Global Head of Operations and Technology at TD Bank Financial Group. “The issue of general security is a concern for everybody, and until that is cleared up there will always be this necessary discussion.” Len Johnson, Senior Vice President and IT infrastructure Manager at RBS North America, agrees. “The biggest concern we have with the cloud right now is security. In a private cloud environment I think security is pretty good, but it is the public cloud sphere where we still face issues,” says Johnson. “Losing data is always a major concern, but losing data across the cloud landscape means losing it in somebody else’s environment, which is completely unthinkable for people working in the fi nancial sector.”
Deﬁne what the cloud is There is still a great deal of misunderstanding around the cloud. Figuring out what cloud computing actually is has been a continuous challenge for everyone working in the IT sector. Actually working out how to then leverage the cloud to one’s own end has proved even more troublesome, and it is this confusion and misunderstanding that is hindering the cloud’s wider adoption in the financial technology industry. “Unlike a natural cloud, the cloud computing landscape hasn’t floated away,” says Hong Loh, Chief Architect at Legg Mason. “It has been around for two or three years and it is still stuck in limbo. So it is kind of like an unnatural phenomenon. What does the industry want with it? It has remained a buzzword because of this misunderstanding, and this conflict between the demand for the cloud and the confusion about its value.” Eylott agrees that the way the cloud has been portrayed has deepened both the debate and the confusion around its true value to the financial industry. “Approaching the cloud through third parties can appear to be very, very risky,” says Eylott. “Adopting something like a public, outsourced cloud is not really that different to data center optimization or server optimization – something that most firms have been doing for years. The only difference being you have got somebody else managing your data for you, but you are no longer in control of the data centers and servers.”
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Differentiate the cloud from other technologies
Be patient Cloud concerns will disappear, but it will take time. As security issues are overcome and the true value of what cloud computing can bring to the industry is realized, the majority of the concerns that surround this technology will fade from view. Cloud computing is still a relatively new phenomenon, and one that has warranted plenty of thought and consideration throughout the industry in just a short period of time. As IT experts begin to gain a better understanding of how to leverage this technology, the cloud computing landscape will become increasingly demystified. “Grid computing is a classic example of how cloud computing can be leveraged for us,” explains Johnson. “It can slide into the cloud and you can then pull all the processor capabilities you want out of it. You could basically meter it up and down, as you need it. As we become more comfortable with this model, I think all of our fears and concerns will disappear. It is just like when PCs first hit the streets. Nobody thought they were going to amount to anything, but now we have got to the point where they are second nature for everyone. Technology always finds a way to mature if the interest is there, and that is what I think is going to happen with the cloud.”
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The cloud has to compete with virtualization soft ware and strategies. Cloud computing can be inclusive of virtualization, but they can also be implemented and extrapolated as two different processes. Both help to deliver optimized resources, scalability and on-demand utilization, but virtualization can be maintained and managed completely within a company’s own enterprise fi rewall. Does such competition hinder the cloud’s growth? “At RBS, we have just completed a very aggressive section on virtualization,” says Johnson. “I have a target to virtualize 60 percent of the servers at 60 percent of our workstations. Th is program is driven by cost and recoverability issues. We have gone down the virtualization route rather than the cloud-computing route because of the ability to move a virtual machine from one environment to another, to replicate it quickly. So if you had a failure on one system you can easily move it over to another, replicate it and be moving again.” “Is cloud computing about sharing service and utilities and hardware and soft ware?” asks Loh. “If it is, then true virtualization technology enables that; it makes hardware sharing easier. Is this what the industry wants?”
Provide a more managed service space Cloud as a utility could represent the future of the industry. Whether used as an analogy or as the reality, if the cloud computing landscape could re-engineer for itself a place in the utility field of businesses, then its future adoption rates could increase. The analogy goes that homes and business do not have their own electricity generators and instead rely on an external provider for electricity. This provider responds to their demands for service and scales accordingly. Swap ‘electricity’ for ‘hosted services’ and you have cloud computing. “The vendors of cloud computing technology are looking to provide a utility-type service, almost like your power and your telephone service that you can easily buy without thinking too hard,” says Loh. “This is what the vendors want, but is this necessarily what the customer needs? Electricity works this way because it is a dumb thing. You plug it in and it works. Phone services work in a similar manner. But to expect everybody to shift their application to a cloud is unrealistic because the first step to sharing is being able to give up your data center and move it into a core location. “However,” continues Loh, “if you can move your info into a managed service space where things like email, instant messaging and collaborative software can be hosted, then this type of value-added service is where the cloud computing landscape can really thrive.”
Preparing for the successful private cloud Brian Wilson offers his advice for evaluating and planning for a successful private cloud deployment.
Marc, Columbus, OH, writes: “My organization is taking a close look at cloud-based solutions for managing our internal soft ware development and test activities. We have already begun virtualizing our infrastructure, but are evaluating how to effectively add cloud management to our environment. What’s your advice for how to get started with a private cloud?” Brian Wilson replies: Th is is an extremely common situation in IT today. Organizations ranging from SMB to enterprise to government are evaluating how the concept of cloud can best be leveraged for their particular needs. Leading organizations have recognized that the real and measurable capital and operating benefits of cloud computing will be critical in the race to stay competitive as the economy continues to turn around. For those organizations evaluating the addition of private cloud technology, we’ve found that a few guiding principles can mean the difference between early success and a drawn-out failure. 1. Don’t delay your cloud kickoff One of the most common mistakes we see is delaying the kickoff of a cloud project. Clouds, and private clouds in particular, are going to be a major part of how IT delivers services to the enterprise moving forward, and the sooner you can deploy a cloud and start learning how it will work for your organization, the better. The organizations with the most success with private clouds to date started with a small, defi ned project and then scaled quickly as they learned and achieved initial ROI. 2. Research and plan the initial end user experience carefully Users will make or break your cloud. Implementing a private cloud is like any other major IT change management project, and the better the initial user experience is, the more successful it will be in the long run. Your users will quickly become champions or detractors, so it is crucial to the success of the private cloud project to plan your initial end-user experience adequately.
users as the external website is to most companies, and will often have greater availability and uptime requirements than you might expect. 4. Create a robust image lifecycle management plan Image lifecycle management can be easy to forget or even ignore in the initial private cloud deployment. At golive, you start with a clean system, but after a few months, you’ll start seeing drift. Within six months, you can have a serious sprawl issue, along with very unhappy end users if you don’t have a solid image lifecycle management plan in place from the start. 5. Look at what you’ve already got – you might not need much more While a valid cloud deployment strategy is to purchase new hardware and set up a pristine environment, you likely have most of the pieces you need in your data center already – it just may be under-utilized. In fact, we fi nd that in most data centers, non-virtualized infrastructure is running at about 8-15 percent utilization, and virtualized infrastructure is running at about 30-45 percent utilization. While virtualization provides a clear improvement, simply adding true cloud management and automation can drive that utilization up to 75-90 percent, enabling you to do much more with the resource you have already.
Brian Wilson, Director of Services for cloud implementations at Quest Software, is responsible for driving Quest client success as they plan, deploy, and manage private clouds across a wide range of use cases. Wilson and his team enable IT, government, and business leadership to create robust, secure infrastructure-asa-service (IaaS) private clouds to efﬁciently manage and deliver complex IT services across the enterprise.
In short, the private cloud is a powerful and attainable model for efficiently delivering infrastructure in the modern enterprise. With the right planning and foresight, your deployment can go more smoothly than you’d imagine, and you can begin reaping the benefits of an optimized infrastructure delivery process.
3. Understand how your users view ‘production’ Production means different things to different people, and it’s important that you understand how your users view it early in your planning process. For example, while development is traditionally considered ‘pre-production’, the environments used by developers are critical to their success. These environments are as ‘production’ to those
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Putting analytics to work Tom Crawford talks about the lowering barrier for ‘must-have’ in-database analytics.
Tom Crawford Joined Microgen as Divisional MD in February 2003 after ﬁve years as COO at another high growth quoted software business. He integrated and led, post acquisition, four divisions of Microgen spanning banking, BI, energy and wealth management sectors. Now SVP of Microgen North America, Tom works on building out the Microgen Aptitude business in the U.S.
Firstly, why do successful businesses invest so much in analytics? Tom Crawford. Modern businesses have more data than they are even aware of, but it’s not what you know, it’s how you use it that matters as businesses analyze and tease out actionable insights from enterprise data to improve market share and profitability. Analytics have become an essential competency for businesses to improve processes and create competitive advantage in areas including customer targeting and retention, product development and placement, pricing and promotion, risk assessment and fi nancial performance management. Advanced analytics are becoming so critical to success that barriers must be lowered to enable wider and deeper usage. For example, banks can enhance portfolio analysis, better mitigate risk and increase individual customer profitability. Insurance companies can run more effective exposure assessments, improve fraud detection and develop targeted customer retention programs. Telecommunications organizations can conduct meticulous churn analysis and create optimal pricing tariffs and all businesses want to fi nd the highest-value customers in the best locations who are most likely to buy, via the best channels. So, what are the challenges of putting analytics to work? TC. Analytic applications require massive parallel processing of enormous enterprise-wide data volumes. So processing performance is a significant and growing challenge as well as cost. Until very recently, rich analytics required extremely specialized parallel programming, integration and SQL expertise. Consequently, analytics over typically complex and high volume operational environments required lengthy and rigid IT projects which stifled the business need to mine creatively for business insight and then quickly change business processes to capture market advantage. Th is challenge is compounded by the requirement to democratize access to analytics for ever-growing and more diverse user groups who demand the ability to slice and dice potentially useful corporate information. How is the ‘next big thing’ of in-database analytics addressing these challenges?
TC. Groundbreaking ‘business user safe’ products like Microgen Aptitude DBClarity have emerged to provide graphically driven ‘in-database’ analytics orchestrated within multiple data sources and linked to business process execution. According to Forrester, “In-database analytics is a key acceleration approach for other EDW and BI functions such as data discovery, extraction, collection, correlation, profi ling, cleansing, extraction, transformation, loading, joining, fi ltering, consolidating, and aggregating.” By pushing complex analytical computations closer to the data the processing times become very fast, requiring less server and network infrastructure to move data between storage and processing memory. In-database analytics also reduces the time and labor to develop and deploy analytical applications, as well as reducing unnecessary data movement and latency to better utilize increasingly powerful data warehouse infrastructures. As a result, we’re now seeing an emerging trend to put analysis, data mining and computational intense fi nance applications such as the Microgen Accounting Hub within the data warehouse. So, in summary, what should I strive for in my new analytics approach? TC. Speed to value and return on your analytics investment will be driven by an approach that: Is not IT intensive, rigid or reliant – look for a toolset that empowers the business to safely, transparently and easily (without programming) analyze data to derive business insight. Makes processing performance the primary driver – your toolset must be able to deliver parallel processing for extreme throughput and scalability for the future. Embeds analytics within your database(s) – to remove latency and unnecessary data movement in a platform neutral toolset that can orchestrate across multiple data sources. Strives to link analytics to business process execution – so predictive analytics can be acted upon by business operations to realize business opportunity without lengthy system change projects. Empowers the business to embed user defi ned functions and utilities in a controlled database environment – rather than working in error prone, uncontrolled and undocumented ‘spreadsheet marts’ where over half of business time is spent stitching together data offl ine.
BUSINESS PROCESS MANAGEMENT
MANAGING MOMENTUM If your IT department can become more agile and business-aligned, the recovery process post-recession will be smoother and quicker than you ever foresaw, argues Steve Taw of The Capital Group.
ecovery can come in many guises. It could be a helping hand thrust out from a milling crowd. It might arrive in the shape of friendly nursing staff at a hospital, or in the form of a refreshing sip of water delivered to an exhausted marathon runner. The fi rst step on the road to recovery is always the hardest, but also the most fulfi lling and rewarding. There are few better feelings than the knowledge that a corner has been turned, an obstacle has been overcome and the road ahead lies clear and uncluttered of hurdles. In the fi nancial world, the word ‘recovery’ has taken on almost mirage-like proportions. After such a damaging fall and lengthy period of rest, reflection and reassessment, the fi nancial sector has recently begun thinking about recovery – how to achieve it, how to instigate it and how to manage it to ensure there is no relapse. And like everything that makes the world of fi nance so energized and diverse, recovery is being achieved through a multitude of various strategies, programs and projects. At The Capital Group of Companies – a leading investment management fi rm boasting assets totalling more than $1 trillion under their management – there is a company-wide sense that the recovery has already happened. “We kind of went past the recovery period in late 2009, and since then we have been thinking, on both the business side and the internal IT side, about how to deliver new capabilities, how to reach out and serve our customers better,” says Steve Taw, The Capital Group’s head of
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technology business. “We’re thinking long-term strategic investments. So not short term, but tactical, which will include a major rewrite of our investment systems and other similar projects.” The ability to realign the group’s strategic outlook is a result of the relatively small size of the company, a nimbleness that enables agility in operation. “The Capital Group is a private company of 8000 or so associates,” says Taw. “But the relationship between the business and IT is the strongest I have ever seen. So the CIO is not just the CIO: she [Julie St. John] is part of the management committee of the company. She is involved in business discussions, not just technology discussions, and this permeates all the way down.”
“The relationship between the business and IT is the strongest I have ever seen”
Business program management Such partnerships have allowed The Capital Group to deliver highly focused business and IT objectives to drag
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The Capital Group began life in 1931 in Los Angeles
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the company through to recovery, with Taw instrumental in overseeing the group’s program management and IT transformation initiatives. “My role as head of technology business is chiefly centred around running IT like a business. Th is includes things like strategic planning, budgeting, vendor management, speed sourcing and major program management,” says Taw. “We provide the program and project management services and functions through my office.” As part of the group’s recovery performance, Taw has implemented eight major IT initiatives that have been designed to centralize the IT infrastructure and deliver better processing performance and tighter database analytics. “We are two years into a three year plan on IT transformation, which include delayed foundational capabilities that we felt were still missing components in IT to make us more effective, increase our delivery capabilities and rationalize the environment.”
Increasing delivery capability is a perennial challenge for fi nancial IT departments nationwide. If a fi nancial institution can extract and tease out useful data and information that can be acted upon in a usable way, half the battle is won. “On the technology front, we are trying to leverage our information to better revamp and restrengthen our distribution network because we are not a direct retail sales organization. All of our sales come through fi nancial advisors and brokers like Merrill Lynch and Charles Schwab,” says Taw. “So there are a lot of CRM initiatives that we are implementing to leverage both the web and customer data more effectively to get out to the distribution network. Th is is an external challenge.” These initiatives are made possible thanks to a combination of acute technical know-how and widespread business support. Such a structural setup has ensured that Taw, his CIO and his team are walking lock-step together, which has resulted in better focus. “The actual leaders of the lines of business are all involved in the governance committees for the IT initiatives we are working on,” says Taw. “They are setting the strategic vision and they are approving the initiatives themselves, sponsoring them and being continuously involved.” With the management spending so much time with the IT department, there are fewer surprises to deal with; a situation that ensures 100 percent focus is delivered to the client. “The Capital Group has always been a very collaborative environment,” admits Taw. “It is a private company that has been around for more than 80 years, and one of its core strengths is collaboration. Working alongside the CIO for example, we have really beefed up the IT governance structure and processes, and have worked together to centralize our IT units. Latterly, we have really strengthened the partnership involvement with the business at a strategic level. There were always discussions at the tactical and execution levels, and now there are more strategic long-term discussions with the business, which allows for better business process management both internally and externally.” Having moved beyond expense cutting, The Capital Group’s road to recovery looks stable and secure. Added focus on new capabilities and longer-term investments has come about thanks to a shared vision and alignment between the business and the IT department, and Taw has the luxury of being able to plan for a number of multi-year business initiatives. “Many of the programs I am working on are multiyear,” concludes Taw. “So in 2011 we hope to be fully executing on about three major multi-year business initiatives on a number of new fronts. But it is not just The Capital Group that is in this position. From the discussions I have been having at a high level, a lot of other companies are facing the same challenges as ourselves, namely dealing with major new initiatives post fi nancial collapse. A lot of fi rms are focusing on new capabilities and long-term investments. They are in the same boat as us, and that can only be good news for the industry.”
Death, taxes, and budgets … they’ll get you every time Consolidating and preparing corporate budgets need not be the arduous and painful process you envisage, explains Steve Horniak.
ompanies prepare budgets in a myriad of ways, and every different way has its own pros and cons. Every company is constantly assessing and reassessing its budget style to fi nd a better way. Getting into the field has its merits: you get to meet with operations personnel, hear candid feedback, and really understand what happens in each location. Unfortunately, this also means you don’t see the bottom line until after you’re home and the consolidation is complete. Of course, the other option — sending out instructions, asking for input on a deadline, and reviewing in a vacuum — has its own drawbacks. Regardless, either option is incredibly time-consuming. Which is why we at Infor found a way to consolidate our corporate budget in five business days. Yes, five. It’s not easy. There’s a lot of behind-the-scenes work and mindset readjustment, but the faster you fi nish your budgets, the faster everyone can get back to work — and the pay-off is enormous. So where do you start? First, check the egos at the door. Frank and honest discussions are the quickest way to move through an exercise like this, and there is no time for defensiveness or grandstanding. Second, get all necessary players together in complete lockdown mode. No outside emails — no distractions. Th ird, make the effort to have a kick-off meeting to set the tone of the session: everyone needs to know what’s expected of them and what their timelines are for delivery. Finally, all business unit leaders must be required to make presentations before the budgeting really begins, so make sure they’re on the right path, prepared with quality information. Anyone who comes with ‘standard budgeting expectations’ of a month-long process full of low-balling and sandbagging is sent back to the drawing board. For our purposes, we had fi nance and operations employees working side by side making changes in real time through our performance management tool (Infor PM 10). Having a standard chart of accounts that flows through all of Infor’s systems allows for easy review and comparison of data across different management teams as well as different periods. From PM 10 we can drill into Infor FMS SmartStream to get all transaction history that allows fi nance to better understand the trends of the company. Also from PM 10, we can back into our Infor Expense Management tool to validate and challenge travel budgets. The ability to load all 8000-plus Infor named employees into our application allows us to budget in detail for each
employee (salaries, bonus, commissions, car allowances, etc.) at a departmental level, but we manage global events (merit increases, benefits) centrally. All of this allows us to get the largest part of our budget completed accurately. The payroll costs for Infor represent over 75 percent of our direct operating expenses. We know where every employee is supposed to be in terms of their organizational structure and manager. At the meeting, we had about 25 fi nance employees actively using the system remotely from the hotel and concurrently with the global accounting community while they did their year-end close. With Infor PM 10, we ran automated, routine consolidations of the budgets, allowing for fi nance and operations to be able to see their changes in near real time. We can also strip out movement related to currency exchange rates to keep data accurate. When additional data was required for entry into the budget, we could update data entry sheets on the fly. In this way, it never impacts the user because the entry into the budget portal remains the same, only the next time into the application there is an additional required field. So what are the downsides? You lose some granularity (and some sleep), but questions are answered immediately by coworkers as deeply entrenched as you are, and thoughtful decisions are made as a group. And your budget is done in five days. What could be better than that?
Steve Horniak is vice president of Finance at Infor, a position he has held for the past four years.
For more information, please visit www.infor.com
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Getting your docs in a row Accurate data analysis and efﬁcient document management can be achieved through the utilization of sound technology, careful surveillance and a clear thought process, explains FINRA’s Martin Colburn to FST US.
or fi nancial institutions, the massive growth in redtape regulations and data volumes over the past few years has been a double-edged sword. Th is stringent, crowded landscape has caused endless headaches, presented numerous challenges and has demanded greater organization and management of sensitive data. To combat such a double-edged threat, an equally bipartite approach to technology and considered strategy has become necessary. As Executive Vice President and Chief Technology Officer at FINRA (the Financial Industry Regulation Authority), Martin Colburn is faced with such regulatory pressures every day. FINRA protects America’s investors by ensuring that the securities industry operates fairly and honestly, and Colburn admits that managing, analyzing and mapping such huge volumes of sensitive and valuable data proves to be a continuous and time-consuming procedure. “Our largest challenge is data ingestion, and how we use that to regulate our markets,” says Colburn. “Surveillance is the best way to look at the patterns within the markets that we regulate. So we have several markets that we regulate by contract, and we will be bringing in a significant amount of data and then replaying these markets and looking cross-market for any issues within the market regulatory interest.” To achieve this, FINRA employs an integrated software system that processes and analyzes the data that comes into the organization in order to present it in a rational and usable manner. “We use a set of data processing engines and analytics to help us ingest significant amounts of data in a processing window,” says Colburn. “The challenge is to process the data and then make it available for the business to actually survey the markets.” Such tools allow Colburn and his team to bring in different sets of data from different exchanges and then normalize that data with an extraction load process. “Once we have that rationalization we can then make it available
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to the users. We employ two different technologies to do this. One is an Intel grid based on IBM’s essential product, and the second is data warehouse appliance technology. We are using predominantly Netezza and Greenplum and we actually process that data, make it available and then write surveillance patterns, which are the analytics of issues that are happening with the market that might be of regulatory interest.”
Analyze to rationalize Data value differs from organization to organization. For an authority such as FINRA, the value of its masses of data is only truly realized once it has been managed, analyzed and processed toward a usable outcome. “There are many companies that are kind of transaction based, where they take a number of transactions and then develop a profit,” says Colburn. “FINRA is just the opposite. We are a regulatory organization that sits between the SEC and member fi rms to regulate the securities industry. We register and re-register all the broker dealers in the industry.” FINRA’s position as a regulator of both the markets and members has meant the adoption of a very holistic approach to business, regulation and data management. “The bulk of our business is taking in both structured and unstructured data, and looking at any anomalies that we may fi nd from an industry perspective,” says Colburn. “Th is could be an examination or audit of fi rms, or a surveillance of the market, and we then make decisions with the data that we have, which is the analytical side of what we do. On the operational side we look at reliability, availability and serviceability of our soft ware platforms, and on the cost side of the equation we look at how much it costs us to actually operate, run and maintain the environment.” Being cost-effective is a perpetual ambition for every organization. For FINRA, better data management enables quicker and more accurate data analysis, so an IT environment that is equipped to deal with every dimension
IT professionals spend 15% of their time analyzing info, but 50% looking for it.
“We see it as key to treat technology as a business and be able to look at our numbers and compare them favorably throughout the industry”
“I have a number of technology assets as well as applications and systems, and all of those are really kind of a portfolio, and I have a buy/hold sales strategy for that”
of complexity is extremely valuable. To that end, Colburn explains how he oversees the specification and building process of the applications FINRA uses in order to achieve its business objectives. “We take a very iterative approach to the way we build applications,” he says. “Some companies will actually set up requirements as a kind of contract between a business and technology. Th is can hinder your approach because a developer can interpret a requirement incorrectly and build it improperly. So what we fi nd is that if we are doing sprints or iterations in a one-to-two and two-to-three week timeframe as we are building the product we can put it back in the user’s hands so they can see the product as it is being constructed. They can then give us feedback so we can make corrections before completion. Th is limits defects and allows us to control our costs in the way we actually build and deploy technology.” Such an approach has allowed FINRA to reduce its daily operating costs to figures way below industry norms. “We measure what we call the development drop-down – how much it is costing us to operate and run at the end of the day – and fi nd that best of class companies are typically 33 to 34 cents on the dollar. We run at around 10 to 20 cents on the dollar. We see it as key to treat technology as a business and be able to look at our numbers and compare them favorably throughout the industry,” says Colburn.
Portfolio management While FINRA’s priorities and challenges are relatively unique to them as an organization, the techniques and strategies Colburn employs are universally beneficial and positive for all CTOs and CIOs working within the fi nancial industry. And as the role of a typical CTO and CIO evolves and diversifies, it will become even more imperative for c-level executives from across the industry to learn from and converse with one another. There are a number of challenges that are industry-wide, so an understanding that one’s own role is going to have to shift
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and change in response to business demands is something that can no longer be ignored. “The way I look at it is I’m as much a portfolio manager as somebody running a portfolio up in the business,” says Colburn. “I have a number of technology assets as well as applications and systems, and all of those are really kind of a portfolio, and I have a buy/hold sales strategy for that.” Juggling this particular space in the company is as much about technical know-how as it is about careful planning and a wider awareness of the business. Knowing when to invest in a new technology, when to retire legacy systems and when to be homogeneous or heterogeneous is an important part of Colburn’s role. “One of the biggest challenges you fi nd with a lot of technology organizations is IT sprawl,” says Colburn. “It is important to always have a pretty good view on everything you have within a certain category, and knowing how it becomes homogeneous is kind of important. So for me it really is a portfolio management strategy line up on your business priorities. We have what we call a shared toolkit section where we build the technology off of shared business applications that many of the businesses will use, and then we have shared services that we actually vend out to businesses that maybe use their service oriented architecture in a different fashion.” Applying such an approach to an organization’s most relevant business processes will produce measurable results and be an enabler for better data management. “We employ a document management system that we have vended out to all areas of the organization,” concludes Colburn. “Some of that is embedded into applications. Some of that is actually a direct service to that document management system. Some of it is almost kind of what we call a headless application where it may be part of the way we create a repository of these documents. We take this approach in everything we do, and it’s an approach that has proved to be a very economic way to conduct business.”
Automate core banking processes with enterprise capture
The role of enterprise capture is becoming increasingly important in the ﬁnancial sector, explains Martyn Christian.
Martyn Christian is the Chief Marketing Ofﬁcer at Kofax and represents more than 25 years of marketing and general management experience within the software industry. Prior to Kofax, he was Director of Marketing Programs (UK & Ireland) and Vice President of ECM Marketing at IBM. He is a Fellow and former Chair of the Association for Information and Image Management (AIIM).
“Financial institutions are deploying enterprise capture in tandem to automate vital processes and ultimately improve customer service through faster response times and delivery of products”
What are the key catalysts driving capture in banking? Martyn Christian. Quite simply, financial institutions have seen an explosion in document volume over the past decade. Banks are offering a broader range of financial services, such as Roth IRAs, NOW accounts, brokerage accounts and lines of credit. Compounding those factors, oversight and regulatory requirements have become increasingly stringent. In order to stay competitive, financial institutions must manage their processes in a way that continues to maintain a high level of customer service while remaining transparent and cost-efficient. This is where capture comes into play. We define enterprise capture as a combination of data capture and document capture. Data capture is applied at the front end, where a user captures information to be used in a business process. Document capture is used at the back-end, where the customer captures information for archiving purpose. Financial institutions are deploying enterprise capture in tandem to automate vital processes and ultimately improve customer service through faster response times and delivery of products, as well as reducing internal costs through better efficiency on their key processes, such as account opening, credit card application, loan and mortgage origination. What role does enterprise capture play within an organization’s existing business processes? MC. Consider how banks process mortgage loan documents, which are arguably among the most complicated and costly to manage. A loan folder can contain 200-300 pages, varying from personal documents to legal mandates, coupling high volume and variety of documentation, with the need to comply with industry and company-specific regulations, as for example RESPA. As part of the process, a walk-in customer can approach a loan officer with documentation such as ID, a W-2 and proof-of-income in hand, all of which can be captured immediately in the branch to begin the approvals process. Capture technology ensures that any document and data, arising over the course of the life cycle of a loan, are added to this specific loan folder in a fully automated way. Documents are converted to electronic images, index and meta data get extracted and are validated to ensure that only correct and complete data enter the loan folder and related processes. How can capture help improve customer service? MC. By automating with an enterprise capture solution, the time needed to provide a product to customers is greatly
reduced. All relevant data and documents are captured and processed in a consistent, fast, and fully automated way and sent to the appropriate people, processes, and applications. The Kofax enterprise capture platform also has the capability to notify your customers on the status of their inquiries, creating a highly positive customer service experience. Taking it one step further, information on further offerings can be attached to the notification, generating even more business. What factors must banks and other ﬁnancial institutions focus on in order to implement a successful capture strategy? MC. They need to make enterprise capture an integral part of their BPM and ECM strategy. They should start with the most relevant business process, likely to be account opening or loan processing, and expand from there. In addition, banks should look for a flexible solution offering applications that integrate with, rather than replace, existing business processes. Dealing with a single-source vendor for the capture of any format and type of document, for any business process, significantly shortens the deployment time and lowers the total cost of ownership. We have some great customer case studies. A bank, for example, doubled its mortgage processing business, increasing customer satisfaction and brand reputation significantly, which then led to more business in other areas. Another customer reduced manual labor for folder preparation and review in loan processing, resulting in improved data accuracy and a cost saving of $1.5 million.
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THE CIO ROLE
Reducing cost, growing the business, keeping the lights on and improving customer retention â€“ all tasks your average CIO must undertake. But with tighter regulation and greater need for business intelligence, has the CIOâ€™s role evolved into a different beast altogether? Ian Clover reports.
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he modern CIO: a job made easier or more difficult by technology? Certainly, the pressures a CIO is under have evolved unrecognizably in the past decade, but has the recent consumerization of technology made it easier for them to justify the work they do to the business, or does the fact that everybody is a little bit tech-savvy these days make the CIO’s job harder? Such issues are at the forefront for most CIOs, particularly those working within the fi nancial services industry. The very notion of customer service has been transformed following the widespread adoption of smartphones and the all-pervading reach of the Internet. Couple this with the damaging fi nancial crisis and the resultant regulations cast by the government, and CIOs fi nd themselves caught in the middle, juggling business objectives, adherence to new regulations, tighter budgets and the constant challenge to meet the needs of an ever-more mobile, always-on consumer. But although the daily duties and pressures may be different, has much else changed? Hasn’t it always been the case that a CIO was charged with enabling and empowering, to ensuring the business could perform to its best ability in the most efficient and cost-effective manner? The pace of change has increased noticeably, but has the direction and end destination remained the same? “I think it’s always been the case that the CIO has to have a business hat on and has to be seen as a partner to the business,” says Malcolm Eylott, Senior Vice President and Global Head of Operations and Technology at TD Securities. “The CIO cannot get into a master/servant relationship. People sometimes talk about businesses being clients of technology. They are not clients. If they were, they would take their business elsewhere on occasion, but they are not. The CIO has to have a true partnership with the business.” It is hardly revelatory to note that the CIO of a business must work with their fellow executives towards one common goal, but industry talk in recent years has almost hinted at an irreversible shift in this relationship. ‘Keeping the lights on’ has clashed with ‘doing more with less’ as business needs have contradicted the true capabilities of a number of CIOs who have been restricted by the true economic reality. “With the market downturn over the past few years, businesses have been holding back on their initiatives because the economics just haven’t been there,” asserts Eylott. “The investment dollars were not made available, so there was all that demand being bottlenecked and pent up.” Eylott believes that we are now on the cusp of the recovery, and the CIO’s role will once more become easier to defi ne as soon as fluid liquidity returns to the sector. “Markets are now starting to pick up, fi rms are starting to invest again and you’ve got this deluge of work that’s been bottlenecked ready to pour forth.”
Regulatory pressures Returning confidence and fatter funds come with a caveat. TARP regulations may have bailed out many of the larger fi nancial institutions, but it did so with a number of provisos. Equally, Obama’s more recent Dodd-Frank reform has levied even greater control and regulation on the banking industry, leading to greater transparency and accountability in the sector. Th is is great news for the consumer and ostensibly great news for the industry, but it means greater scrutiny throughout. “The market’s pickup is coming at the same time that the regulators are coming at us saying: ‘By the way, the stuff that went on over the past two or three years we weren’t really happy with, so you better smarten up your act, tidy things up, get a handle on access control, data security and data governments,’” says Eylott. “Then in addition to this, many dealers’
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risk models are going to need to be revamped, because with the previous models, nobody was able to predict what happened.” Regulatory pressures are one thing; business pressure is something else entirely, and the modern CIO is feeling the squeeze from both sides. “While the regulators are saying you’ve got to do this and this, the business is also saying: ‘It’s about time we did this and this’,” explains Eylott. “So it’s all coming together at once, and the CIO is caught in the middle, trying to balance satisfying regulators, satisfying the business partners and also managing a budget.” No wonder there is this sense that the role of the CIO has diversified in recent years.
Consumer pressure The recent economic turmoil was unprecedented in living memory, and its outcome is set to have a debilitating effect on the fi nancial industry’s ability to self-regulate in the near future. Despite this, a CIO should be able and dextrous enough to navigate a path through the regulations in order to reach a satisfying outcome for the business. Likewise, additional business pressures are par for the course for a CIO – learning to work outside of one’s comfort zone in order to assist the business needs should soon become second nature for all progressive CIOs. However, there is one pressure that CIOs in the fi nancial sector have never felt so keenly, and that is the pressure coming directly from the consumer. The increasing ‘consumerization’ of technology has brought the customer closer than ever to the business, and the pressures and challenges this new world order brings have never been faced, on a wide scale at least, by those working within fi nance IT. “People in general are becoming more savvy around technology and what it can do for them,” says Eylott. “Customers now have a much better idea of what their expectations from technology are, and I think that many businesses have caught on to this idea. So partly due to frustration around delivery and execution, some businesses have hired more technology-savvy individuals to deliver the right initiatives to maximize their technology investments. Th is will be one of the biggest changes for IT departments in the near term – the business is now going to be almost as interested in what technology can do for them as the technologists are.” There’s more, too. With more stringent regulatory pressure and a greater urgency to deliver sharper service to a savvier consumer base, many businesses are adopting business intelligence (BI) strategies to help manage and analyze their key performance indicators. “Financial institutions want better information metrics and data around their products,” says Eylott. “The regulators are saying: ‘If you’re not measuring it you’re not managing it.’ And they’re quite right, and more and more CIOs fi nd themselves setting up BI demos for the regulators.” With good BI being a world away from bad BI, it is important for CIOs to carefully consider their BI strategy if they wish to extract data that is useful to the business. “There are many people that don’t understand the power of BI or a good management information system (MIS),” says Eylott. “In the right hands, this information can identify business projects that are misfi ring or exposing you to unnecessary risk. It can also identify opportunities to automate processes, cutting out errors and saving valuable time and money.” Those ‘right hands’ are increasingly falling within the domain of the CIO, turning the juggling act they are already performing into an even more elaborate merry dance for the business. The role of the CIO has most defi nitely evolved in recent years, but better tools and technologies, a greater business interest in IT and tighter regulations should be viewed as enablers of, rather than barriers to, good CIO practice.
Outsourcing that hits the sweet spot Kent Schnacker outlines what outsourcing solutions ﬁnancial institutions are seeking in order to lower costs, increase accuracy and enhance overall security.
Richard “Kent” Schnacker is group president of ACS’ Financial Services Group (FSG). FSG includes ACS’ ﬁnance & accounting, mortgage and banking services, consumer and commercial loan servicing, mutual fund and securities services, and education services for colleges and universities.
What are the most pressing challenges facing ﬁnancial institutions as they rebound from the economic crisis? How is ACS helping clients address these challenges? Kent Schnacker. Financial services institutions are navigating through the most dramatic changes in market conditions and regulatory oversight seen since the Great Depression. Because the impact of these changes is still unclear, our clients are vigorously looking for new ways to manage their businesses, while seeking a balanced approach between compliance, consumer protection and growing their customer base. Managing risk is obviously a major concern as new laws result in specific regulatory requirements, and transactions across the entire lending lifecycle will be impacted. Some of the measures we have taken are to implement applications that refi ne and track communication with consumers to increase their understanding of debt commitment and obligations. We are balancing oversight with defi ned cost savings and innovation in ‘back office’ BPO functions such as credit application, underwriting, account transaction and payment processing, and will continue to implement controls, data solutions and reporting procedures as requirements become clearer. What speciﬁc solutions can ACS, a Xerox company, provide to help clients to drive growth, despite concerns with risk and regulations? KS. For over four decades ACS has specialized in BPO solutions that shift the burden of managing ‘non-core’ transactions and customer care from our lending clients to us. Our recent acquisition by Xerox has enhanced our value to banks and lending institutions by addressing what we call the ‘sweet spot’ between business process and data. Th is ‘sweet spot’ involves fusing technology and process management with the layer of data and intelligence for better insight and reporting, allowing us to solve ever more complex business challenges for clients. At the data level, clients can now fi nd and organize structured and unstructured data into useful and accessible information that helps expedite transactions, decision-making and foster efficient action on new customer demands. Are there speciﬁc innovations that help you accomplish more for your clients? KS. We continuously invest in innovation programs designed to evolve and enhance our offerings. Last year alone
ACS introduced dozens of new products or services to improve the quality and cost of service for our clients. These new innovations span all aspects of our business from new on-demand cloud services from our ITO business to advancements in data capture and security, managed mobility and multi-device information access, and collaboration applications within our BPO businesses. Th is year, by leveraging R&D from our parent company we will offer innovative capabilities in marketing automation and data/information management that provide significant advancements for our fi nancial services clients. An example is XMPie (a registered trademark), a Xerox technology that will transform management of statements, bills, and invoices, enhancing the quality of self-service in loan management. Other new innovations include translation and multi modal communication advancements for our contact centers, smart document management, and new innovations in data capture, management, and privacy, all of which will improve manual audit and document processing across our BPO businesses, streamlining transactions and raising the quality and value of the information.
“Some of the measures we have taken are to implement applications that refine and track communication with consumers to increase their understanding of debt commitment and obligations” What do you see coming down the path in the next 12 to 24 months? KS. We see credit models continuing to be strict and impeding the growth in lending volume. Th is will mean that driving revenue must come from new scalable, flexible, innovative approaches that control costs, and include analytics to retain a fi rm grasp of the bottom line. Accordingly, we see sourcing, particularly larger ‘phased’ deals, becoming more attractive as firms increasingly understand the exponential savings derived from comprehensive multifunction outsourcing. We believe that stronger companies who embrace innovation will gain market share more quickly with the upturn. We also look forward to being the resource to support our banking and lending clients.
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INTERACTION A uniďŹ ed set of communication tools can enable a bank to reach and surpass its customer service objectives, and they are easier to use and implement than you might think, as FST US discovered.
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IN ACTION S
hort of handing out free money, complimentary head massages and interest-free, no-questionsasked loans, there is not much a bank can do to make its customers completely happy. They can be made content, accepting, and even occasionally pleasantly surprised by the level of service they receive, but in terms of pure and unadulterated happiness, banks sadly inhabit a bracket that will forever be fi led under ‘mistrust’ in an individual’s mental compartmentalization of things ‘good’ and ‘bad’. Th is situation is testing enough, but banks also have to employ a team of staff that is ready and willing to face this flak on a daily basis yet remain steadfastly calm, positive and helpful throughout; a task made all the more difficult in light of the global economic crisis that has shaken the banking world like an ornithophobic let loose in a parrot store. The fragile road to recovery is littered with pitfalls and potholes, but the fi nancial world must start somewhere, and restoring confidence with the wider banking population is most defi nitely one of the fi rst steps. But where, and how, to start? Customers no longer blindly trust their bank, but they still, by and large, need to use them. Hence, a bank would be well advised to adopt and utilise the latest technology in order to recover that most basic form of customer satisfaction – great service. George Walker, SVP and CIO of First Community Bank, was quick to recognize that his customers wanted, fi rst and foremost, clear, accurate and swift service from their bank, and identified a unified communications soft ware platform that would enable the bank to deliver and surpass its customers’ demands, while also equipping its staff with the tools necessary to hit these previously unscaled heights. “We are a community bank, so one of the things we do well is what I like to call relationship banking,” begins Walker. “We know our customers and they know us, so to be able to provide our banking staff with the tools that enable them to receive customer communications no matter where they are is ideal. These communication streams are delivered in an extremely simple way, because the last thing our staff want to do is learn how to sign on to five different systems and be required to remember a bunch of passwords and logins. For them, it is a one-stop shop for service and communications.”
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Th is one-stop shop is reflected in the level of customer service the bank is now able to offer since it adopted a unified communications soft ware platform. To the uninitiated, unified communications is a platform that integrates all of the systems that a banker might already be using (such as email, telephone, video call etc.) and enables these systems to work together in a real time fashion. So staff at the bank can connect seamlessly to their customers regardless of their location. As long as they are in possession of one of the integrated platforms for end use, staff are connected and able to communicate. In addition, a unified communications platform will come with an interactive directory, which enables staff to access it and locate a fellow member of staff, engage in a voice call, a video call, a text messaging session or even a discussion on a social media-type platform, thus drastically increasing the channels of communication a banker has with not only the customer, but also with fellow members of staff. “Aside from our staff being able to communicate with our customers better,” enthuses Walker, “one of the other things that we have worked on is enabling more real-time communications with those who bank online or conduct mobile banking. One of the things that we found is, for some of our higher-risk customers, instant alerts to our team about customer transactions have really made their job much easier. For example, if somebody has sent in a big wire transfer and it is outside of their normal pattern of transactions, in the old days you had to call around to try to get hold of them, but now we send them instant alerts and they call us right back.” Th is is just one example of how unified communications is able to reconnect the customer with the bank, and slowly erode the walls of distrust that were erected during the credit crunch of 2008. Since incorporating unified communications into First Community Bank, Walker has seen a reduction in business latency and less reliance on the dependency and availability of a certain device or medium. “Our staff are now much more mobile,” says Walker. “Almost all of our bankers now have Smartphones and with them they can be anywhere, at any time, and are able to conduct almost any form of banking. They have access to almost everything that they have access to when they are in the office.”
Reports by computerworld.com attribute the growing adoption rates of uniﬁed communications solutions to better return on investment – what was once an IT luxury is now viewed as a technical necessity.
How uniﬁed communications works
Instant Messenger PC to PC
IP Voice Conferencing
Phone to Phone
Phone to PC
OC Global Network OC User CPE
Voice Mail / Missed Call
PC to Phone Fax to PC
SMS in/out and notification
A personal service But it is not just the ability of the bank’s staff to work from home or remote locations that yields the greatest benefit for the customer; it is the fact that First Community Bank can make good on its promise to deliver a more personal service, empowered by the unified communications tools they now have in place. “One of our key business models is that we provide a better service than the larger banks do,” explains Walker. “One of the reasons that we are able to do this is because we have such a unified set of communication tools, and they allow us to analyze our contact center in order to optimize staffi ng levels. So if waiting time is too long, we can identify and respond. In the past, the only way we could have known this is if a customer complained.” The contact center at First Community Bank has now been transformed. Callers are dealt with much more swift-
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ly, and many are even given the option of immediate call back. If a caller to the bank leaves a voicemail, the bank’s response is also much faster and more accurate than ever before. “Th is is perhaps one of the most obvious benefits to our customers,” says Walker. “When an account holder calls the bank and leaves a voicemail, we can get back to them much quicker than before, because that voicemail doesn’t get lost, our bankers no longer forget their voicemail password. Th is all equates to a much greater service for our customers.” A complete unified communications system will incorporate the ability for users to automate the processes behind setting up things like conference calls, video and web conferences, and pretty much all other types of communication in a much quicker, easier and controlled manner. Such technology enables staff members to main-
With growth comes choice: there is very little consistency in the types of uniﬁed communications solutions being chosen, with each company throughout the world opting for something that works for them.
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“Ou ur unifi fied d com mmuniicattioon tools alloow us to ana alyzee ourr coonta act cen nter in ord der to op ptim mizze staffi ffing leevells. So iff waiitin ng tiimee iss tooo longg, we can id dentiify and d reespoond d. In th he passt, the onlyy way we cou uld havve knoown thiss is if a cu usttom me r com mpllain ned””
tain and enhance customer connections, quickly identify problems and issues, respond to them, and collaborate in real-time with fellow staff members in order to ensure that all tasks are resolved in a satisfactorily fashion. “We have some pretty cool technology here that not only serves the customer but also helps to attract and retain people to the bank,” says Walker. “They fi nd that when they come to work for the bank we are able to provide them with the tools they need in order to be successful and good at what they do. They are able to service our customers in the best manner possible, and this ensures that they want to keep on working here.”
Second nature There would be little point incorporating a complete unified communications system into a bank’s technology architecture if the soft ware itself proved too difficult to master. For George Walker, the tools’ ease of use and intuitiveness were one of the main drivers behind his decision to adopt the soft ware for the bank. “They were all very simple to learn. There was very little training involved. It would have defeated the purpose completely if the staff found the soft ware hard to master, so there are very few barriers to adoption.” From a cost perspective, unified communications tools are obviously not free to implement, but Walker argues that cost savings are relative to the actual real time savings a bank can make in terms of efficiency, productivity, staff retention and customer satisfaction. “As far as cost savings go, I’m not sure if there have been a lot of hard-dollar savings. I think there have been a lot of timesavings though, for sure. Our staff have been able to access their messages
and their email and everything else much easier, so I think our unified set of communications have allowed everyone to be more productive than they were before.” The future of banking will naturally feel its way along a number of evolutionary paths. Mobile banking is still pushing the boundaries of possibilities. Social media platforms are making their first, tentative forays into the fi nancial world. Collaboration tools and unified communications are part of this natural process of evolution, so it is up to the banks themselves to decide which methods are going to work best for their own needs. “For us, I think it has just been a natural evolution of service,” concludes Walker. “I can remember when we just had voicemail, then it became email that was driving service. They were two completely separate things and now, I really believe that the access to customer communication and the ability for staff to collaborate in an increasingly efficient way will be huge for the banking world. As banking becomes more and more electronic, I believe that banks of all sizes are going to need these kinds of tools and technologies, otherwise they are not going to be able to keep up.” Banking is indeed more electronic than ever before, and it is in this context that banks have to begin to think and operate. Customers are becoming more and more tech-savvy, so maintaining customer connections is, ostensibly, easier than ever. However, expectations of service have increased in line with technology, and customers now expect service quickly, accurately, and whenever they want it. If a bank can adopt unified communications capability, it can not only augment and improve its service to its customers, but it can also make the job of the bankers and tellers a great deal easier.
What is uniﬁed communications?
Uniﬁed communications is the integration of real-time communication services – such as telephony, video conferencing, instant messaging, presence information, speech recognition and call control – with non real-time communication services, such as uniﬁed messaging, which is integrated voicemail, e-mail, SMS and fax. Uniﬁed communications is not a single product but rather a set of products that provides a consistent uniﬁed user interface and experience across a multitude of devices and platforms.
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One of the main drivers behind the growing adoption rates of uniﬁed communications in banking is to reduce communication response time, or perceived speed. Uniﬁed communications differs from uniﬁed messaging in that it allows individuals to check and retrieve an e-mail or voicemail from any communication device at anytime, and it expands beyond voicemail services to data communications and video services.
Uniﬁed communications allows an individual to send a message via one medium and then receive the same communication on another medium. An example is receiving a voicemail message and being able to access it through e-mail or via a smartphone. If the sender is online according to the presence information and currently accepts calls, the response can be sent immediately through text chat or video call. Otherwise, it can be sent as a non real-time message that can be accessed through a variety of media platforms.
FST US SUMMIT
The latest FST US Summit was held at the luxurious Four Seasons Hotel in the heart of downtown San Francisco in October 2010. Enjoyable and insightful, this two-and-a-half-day event once again served as an invaluable networking platform for the industry’s C-level executives and solution providers.
ngling through the grid-like network of wide streets and boulevards that characterize downtown San Francisco, Market Street is one of the city’s most important thoroughfares. Connecting the winding Embarcadero to the east with the hippy heartland of Haight-Ashbury in the west, the street is lined with the biggest, the brightest and the best that San Francisco has to offer.
Chief Architect Legg Mason “The workshops provided a great mixture of subjectmatter expertise and interested delegates, and this helped to create a different angle to the discussions.”
Snr Telecommunications Technology Analyst Deutsche Bank “The summit’s been good; it’s always interesting to hear what other peers are talking about, what their issues are etc. So it’s been very insightful.”
CISO Legg Mason “This was my third attendance at the FST US Summit and, like always, I got a lot of value out of it: the workshops have been good, and some of the discussions have been particularly rewarding for me.”
SVP and Data Center Architect RBS North America “It’s invaluable to be able to network with people who have similar issues in your ﬁeld and then sit down with them over dinner or breakfast and work them out, because these are issues that I cannot share with anybody else within my own organization as there’s nobody else at that level.”
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Standing tall and striking along here is the wonderful Four Seasons Hotel, one of the city’s fi nest establishments and the luxurious venue for October’s FST US Summit. For two-and-a-half-days, the elegant meeting rooms, foyers and terrace buzzed with the sound of intelligent and excited chatter, beeping Blackberrys and intermittent applause as some of America’s most highly respected financial IT executives gathered together to discuss the industry’s most pertinent and pressing issues. With unseasonally hot fall weather outside, the cool interiors served as the ideal arena for industry figureheads to connect with their peers as ideas were discussed, topics were debated and issues were raised. Heading into its seventh year, the biannual FST US Summit is the ideal platform for senior level executives to engage in clear, focused dialogue with fellow industry leaders, examine their own management strategies and build and nurture rapports and relationships with individuals they might not otherwise meet.
The mobile channel in 2010 and beyond Seen as a key battleground for fi nancial services institutions throughout the country, the issue of the mobile space generated plenty of insightful comments, sparking an interesting discussion on where this technology was taking the banking world. iPads, iPhones, Blackberrys and netbooks featured heavily, and one topic that garnered consensus was that of mobile payments and how this industry still has a lot of maturation ahead of it.
Keynote workshop 2: Security choices in an emerging IT environment The issue of security is always a lively one, and this workshop was no exception. Again moderated by IDC, the keynote explored how social media, the cloud, virtualization technologies and new industry regulations are impacting upon security perimeters. While all agreed that internal and external threats will always be an everpresent concern, opinion was split on the various levels of security needed in order to protect the perimeter.
Summit Highlights FST20 Meeting Opening the summit, the FST20 Meeting was a closeddoor gathering of the 20 leading industry CIOs, CTOs and CISOs in attendance. Moderated by David Potterton of IDC Financial Insights, this professional forum discussed the changing role of fi nancial services in 2010, and set the agenda for the forthcoming two days of workshops and keynotes.
Gala dinner & opening keynote address The official welcome for everybody invited to the summit, the fantastic food and atmosphere was only bettered by the tangible sense of anticipation at the forthcoming 48-hours of high-level industry discussion and decision making.
Keynote workshop 1: A clearing in the clouds Moderated by IDC Financial Insights, this hottest of hot topics was laid bare before a captivated audience. Animated debate quickly followed, it soon becoming apparent that many industry leaders were excited by the prospect of cloud computing but still harbored reservations around security and scalability. Other issues raised included the forthcoming trends for 2011, best practice for implementing the cloud in the field, and how to manage capacity-ondemand.
Refocusing the customer relationship Audience participation characterized this lively workshop, with the themes discussed mining a rich vein of opinion amongst those in attendance. The discussion centered on digital marketing possibilities and how cross-channel fulfi lment will allow banks to better reach their customers. Indeed, this workshop was to set the tone for much of the rest of the summit – the issue of customer interaction and engagement became a common theme throughout.
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2011 The next FST US Summit will take place at
Financial services path to the cloud and beyond Tapping into the enthusiasm so evident in all the attendant delegates, this interesting workshop outlined how cloud concerns can be addressed. Th is sparked a number of interesting points raised by the audience, pivotal of which was the issue of dealing with cloud bursts – preparing and planning for external bursts in capacity demand. Many interesting viewpoints were put forward, indicating that this is an issue with plenty of gas left in the tank.
The Fairmont Turnberry Isle Resort & Club in Miami
Data, data everywhere: dealing with the challenges of data integration and information silos Data management was an underlying topic throughout the summit, with this workshop in particular shining a light on the numerous challenges CIOs face in successfully managing their warehouses in the face of environmental, cost and regulatory pressures.
between April 5th to 7th, 2011.
Private tour of Alcatraz followed by dinner cruise At the end of the fi rst day of workshops, meetings and keynotes, all attendees were invited to let their hair down in style with a guided private tour of Alcatraz followed by a wonderful three-course dinner while cruising around San Francisco Bay. As the sun was setting behind the Golden Gate Bridge, the boat pulled into Alcatraz and was welcomed by the knowledgeable and engaging tour guides. With the island closed off exclusively for this visit, delegates were treated to an eerie insight into what life was like in the world’s most notorious prison. With a hunger suitably worked up, the party returned to their private cruiser and enjoyed fi ne food and wine against the backdrop of twinkling city lights that make San Francisco one of America’s most beautiful cities.
For more information, please visit
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HOW TO: Public speaking P134
TRAVEL 36 hours in Brussels P136
BOOK REVIEW Hot off the press P139
GADGETS Technology for today’s executives P141
PHOTOFINISH The rising cost of education P144
Details. HOW TO: BE A BETTER PUBLIC SPEAKER
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HOW TO: PUBLIC SPEAKING
Public Speaking: The two little words that can fill even the most experienced industry leader with dread. But why are we so afraid of speaking in front of people, and what can we do to combat the nerves? Lorna Davies spoke to public speaking expert Michael Ronayne for his top tips and discovered that the best speakers are very often the shy ones.
1 BE PREPARED But not too much. Making sure you have exactly what you need and have learnt your material helps to ease nerves, but don’t follow the ostensibly easier option of reading from text: If you can’t learn it, take a few note cards or hints to help the words ﬂow.
2 KEEP IT SIMPLE “You will forgive a speaker anything: bad diction, squeaky voice, poor eye contact; but you will not forgive poor structure,” says Ronayne. “So the key thing is to have a very clear, simple structure.” You should not over complicate – your speech should be more soap opera than crime drama. He added: “With a soap opera like Days of our Lives, you can disappear out of the country for two years, come back, and you pick up what’s going on in a minute and a half. Whereas, with something like CSI, if you go out of the room or the phone rings for a moment, there’s no point in seeing the rest of the series, because you’ve missed an important clue.”
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Making a speech in public is something most of us have to face at some point during our career. Although for some the experience may be daunting, it is a valuable and important career tool. Michael Ronayne, director of the UK’s College of Public Speaking, explains that often, if your content is good, it is how you deliver it that can make all the difference. Statistics show that glossophobia – mankind’s fear of public speaking – is right up there with the fear of death or snakes. So where does this fear come from? Michael Ronayne believes that the phobia is most likely formed during our childhood. “We grow up with phrases like, ‘stop showing off; stop drawing attention to yourself; be quiet; sit in the corner; don’t cause any trouble’. And we hear that message so often we learn to believe that being quiet is good, while drawing attention to yourself is bad.” So, with advice from Ronayne, who as six times’ UK National Public Speaking ﬁnalist and two times’ winner qualiﬁes to comment, FST US has compiled a ‘How To’ guide to public speaking.
4 DON’T APOLOGIZE It is understandable to think that the audience is against you, but it is important to remember that they want you to succeed, they want you to be interesting, stimulating, informative and entertaining so they can gain information. A natural nervous reaction is to apologize for nerves or a problem: more often than not the audience won’t notice, so don’t worry.
MICHAEL RONAYNE After studying English Literature at York University, England, Michael Ronayne quickly became used to the limelight, spending four years at the Franz Liszt music academy in Germany. He is described as having ‘natural ability for public speaking, enabling his success in sales and coaching’. He is also an author of many public speaking articles.
BREATHE It may seem obvious, but when people are tense, their breathing can become shallow and tight, making their words hard to follow. Ronayne explains that relaxing can be tricky. “From a purely physical point of view, if you’re about to speak then obviously relaxing is easier said then done. But deep breathing consciously can really help.” When your breath becomes shallow it can also affect the pitch of your voice, and it is harder for people to listen to a higher pitched voice so try to use your deeper register when speaking. A useful tip is to greet the audience, to warm up your voice, and then count to three before beginning.
5 THE THREE Cs Clarity, Concision and Conﬁdence: Three words that are vital to remember when both putting together and performing a speech. “Most business people are busy; they don’t want to be working out and scratching their heads all the time. They want it delivered to them clearly,” says Ronayne. So if you’ve got the three Cs, you’re 90 percent there.
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PRACTICE MAKES PERFECT “Good speakers practice,” says Ronayne. “And that mustn’t be underestimated.” There is often a misconception that some people can and some can’t, but, adds Ronayne, “Speaking is something natural. We all do it. We’ve been doing it since we were around a year old,” and that is what you need to remember.
FROM THE HEART
JUST DO IT
Obviously more experienced, naturally overt business leaders will be more comfortable with speaking in public. But as Ronayne explains, they are not always the best speakers. “Often the greatest communicators are actually often very shy. They don’t particularly enjoy being up there, so they’re going to be as clear and as concise and get it over with as quickly as possible – these speakers are effective in an economical way.” It is also important to be as sincere as possible, he adds. “Often the best speakers are either from a political point of view, in a context within history, or they are just normal, ordinary people who are coming across as regular people who speak genuinely from the heart, and who can communicate directly with other people.”
It may sound simple, but a lot of the initial fear is actually getting up and doing it. “The fear of public speaking is, as with most phobias, irrational. For many people, just getting up and getting through it is actually the ﬁrst big step. Once up there, they realise actually it’s not that bad,” explains Ronayne. Famously great orators like Barack Obama and Tony Blair seem to have got all these things right. Britain’s new coalition deputy Prime Minister Nick Clegg’s conﬁdent speaking is arguably one of the reasons he has come so prominently to the fore in recent months. Ronayne explains that there may well be some businesspeople out there as good as the more well known speakers, but he reserved some respect for the Deputy Prime Minister, stating: “Nick Clegg, I would say, is a wonderful technical speaker. It is very difﬁcult for politicians these days because there is such analysis, and so the key thing to being a good speaker is to be a natural.”
7 TALK TO A FRIEND The key is to take your focus off you; so projecting it on to the audience will help. Ronayne suggests asking yourself questions. “People worry about themselves. You have to ﬁrstly take the eyes off yourself and think about your audience. How can you help them? What are you saying that is going to be of use to them? And maybe imagine you’re talking to a friend.”
8 BARE NECESSITIES An age-old public speaking tip is to imagine the audience in their underwear. While this may be a slightly unorthodox method, visualizing the audience beforehand can enhance your presenting style. “Imagine how it is going to be,” says Ronayne. “Picture what it should sound like. Picture the applause; hear the applause you’re going to get. Talk to yourself; tell yourself it’s going to go well. Tell yourself that what you’ve got to say is worth listening to. Tell yourself that the audience is going to be engaged by what you’re saying, and you’re about 95 percent of the way there already.” A good tip is to greet the audience as they arrive: speaking to people you have met is much less daunting than presenting to a group of strangers.
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AND FINALLY... It is important to remember that even the most seasoned public speakers make mistakes; it is their ability to learn from them that sets them apart.
36 hours in...Brussels TIME : + 1HR GMT | CURRENCY: EURO | L ANGUAGE : FRENCH & DUTCH | POPUL ATION : 1.1 MILLION
Neither boring nor overly bureaucratic, Brussels is a beguiling and often boisterous city where, for every gray-suited politician you’ll find a hip young thing, and for every gleaming, modern parliament building you can gaze upon historic architectural wonders at every step, as FST US discovered.
Le Grand Place is the beating social heart of Brussels and is sure to wow you with its eclectic clashes of architecture, vibrancy, sophistication and energy. Slap bang in the middle of the city, this huge square is ﬂanked by sumptuously regal and monumental buildings on all four sides, with tight, winding alleys snaking off into the depths of the old city at every corner. At ground level, a clutter of typical Belgian pubs serving typical Belgian beers sprawl out on to the square, vying for your custom with the simple offer of an al fresco seat, the world’s best beer and one of the ﬁnest peoplewatching spots found anywhere in Europe.
About Brussels acts as the de facto capital for the European Union and is also the location of NATO’s main HQ, so the city is swamped all year-round with politicians, ambassadors, journalists and lobbyists; more, in fact, than can be found in Washington D.C. Despite (though some may argue because of) this, Brussels exhibits an atmosphere that may well surprise you. It is a city of ﬁne-dining and high-class boutiques that also boasts a raucous pub scene, a lively African quarter at Matonge, quirky surrealist art and a charming array of districts that range from the delightful to the dilapidated.
Getting around If you are in Brussels on business, the swift underground system will prove sufﬁcient for your needs, although most businessmen and women
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drawn to Brussels will most likely be dispatched to the European Quarter, which is home to one in four of all ofﬁces in the city and easily traversable on foot. Beyond here, tourists tend to ﬁnd they are inexorably attracted to the ubiquitous open-topped buses that amble leisurely through the city, uncovering some of Brussels’ best attractions and covering a fair portion of the city’s main districts. If you are feeling active, bikes can be hired for a small daily fee from a number of rental outlets and prove a fabulous way of exploring the many side streets, parks, squares and avenues that make up Brussels’ patchwork landscape. At Brussels Midi – the main train station – high speed rail links exist between Paris, London, Amsterdam and Berlin, and Brussels Airport deals with all European and international ﬂights.
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Sleep Soﬁtel Brussels Le Louise As a city of perpetually visiting dignitaries and politicians, Brussels can boast a wonderful selection of ﬁve-star hotels clustered largely around the European Quarter. Top-class service and comfort comes as standard in all of them, but if you want to combine your business trip with a bit of cultural and retail enrichment, the Hotel Soﬁtel Brussels Le Louise is the establishment for you. It is located just 200 meters from the shops and boutiques of Avenue Louise, a short walk from the Royal Museum of Fine Arts and close to the sleek ofﬁces of the European Quarter. Inside, expect 24-hour multilingual reception, Wi-Fi throughout, a contemporary design and state-of-theart facilities.
Eat Dining out in Brussels is an assault on the senses. The city is famous for its wafﬂes, its moules frites (mussels and fries), its chocolate and its beers, and every corner of every street seemingly has something new, exciting and delicious to offer. If your starting point is Le Grand Place, you can begin an evening sampling one of the many hundreds of ﬂavoured beers available at the numerous pubs on the square, before heading down the Rue des Bouchers and facing the onslaught of restaurants eager for your custom. Take in the sights, smells and sounds of this fabulous street and pick wherever looks the busiest. The mussels in Brussels are divine, served in a steaming bucket and boiled to a tender and tasty ﬁnish, served with crisp fries and fresh mayonnaise, so be sure to order them. After dinner, a stroll along the Haringstraat brings you to the Maison du Chocolat, where you can sample some of the world’s best milk and dark chocolate before heading along the Beenhouwersstraat and ordering a cinnamon wafﬂe with Belgian coffee to ﬁnish the night off in true Belgian style.
Relax Belgium is the most urbanised country in the world, with 98 percent of the population living in cities, which leads to a couple of challenges for the locals seeking respite from the madding crowd. One option is to head to the dense woodland of Sonian Forest – parts of which cover the south-eastern corner of Brussels – and stroll through leafy pathways which come upon hidden monasteries that are the home of contemplative monks and nuns. In the city itself, the brief summer weather that shows its face somewhere toward late June is best enjoyed picnicking in Cinquantenaire Park or supping yet more excellent beer at Le Grand Place or on any other square in the city – Belgians know how to embrace their city’s casual side in any way possible, so you will always ﬁnd somewhere to sit back and watch the world go by.
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Tourist Tips • Seek out Brussels’ cheeky side by taking in a comic strip tour that reveals the city’s artistic past, most famously in the guises of Tintin and Asterix, who can be seen adorning walls throughout the city
Hotel Café Paciﬁc This is a small and rather quirky establishment that perfectly captures the spirit of Brussels. There are only 12 rooms to choose from, but each is individually designed and decorated along its own theme, oozing personality and ambience from every pore. The Hotel Café Paciﬁc is located a short walk north from Le Grand Place and so proves popular with couples and other sightseers hoping to discover the city on foot before returning to a warm welcome, a pleasant meal at the onsite restaurant and a relaxing drink at the cosy bar.
• The European District is only really worth seeing if you have any interest in the machinations of European politics. If so, it’s fascinating. If not, it’s all a little dull • You can take a gastro tour of the city that starts at breakfast, through to lunch, dinner then evening drinks, taking you to some of the ﬁnest traditional Belgian establishments in the city
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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. Your 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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Next Generation Pharmaceutical
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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Oil & Gas
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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Hot off the press
Managing People And Organizations: Peter Drucker’s Legacy
Behind the Cloud: The salesforce.com playbook By Marc Benioff
By Brett King The cloud computing landscape is denser and more populated than ever before, thanks in no small part to the role played by salesforce. com’s revolutionizing of the software industry at the turn of the millennium. In Behind the Cloud, author Marc Benioff uncovers the story and strategies behind salesforce.com’s meteoric rise to the apex of the software industry, candidly outlining how business leaders can innovate better, grow faster and stand out from an increasingly competitive crowd in order to achieve lasting success. FST SAYS: This step-by-step handbook takes an extremely granulated approach to business management, covering everything from ‘dream big’ to ‘reducing start-up costs’ and so proves an engaging and enlightening read.
By Guido Stein Peter Drucker is most commonly thought of as a management theoretician, but his other objective was also to write about man in his own social context, and this book aims to elucidate his thinking in a way that its relevance for today and tomorrow can be fully comprehended. Drucker’s legacy is one of a nuanced and detailed perspective on leadership and modern management, and Managing People And Organizations is intended to uncover the lesser-known side of his teachings, views and ideas. FST SAYS: The chronological story told by Stein is both fascinating and revealing, taking the reader on a storybook journey while also educating them on Drucker’s unique take on management. Dense at times, but well worth the slog.
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Bank 2.0: How customer behaviour and technology will change the future of ﬁnancial services
Learn Like A Leader: Today’s Top Leaders Share Their Learning Journeys
Addressing the increasingly important role that customer behavior is going to play in shaping bank technology in the future, Bank 2.0 outlines the types of strategies that ﬁnancial IT executives should begin deploying now if they hope to stay ahead of the curve. Chock-full of case studies, expert opinion and experiences from all over the world, author King aims to be as informative and authoritative as possible, plugging the knowledge gap between customers’ wants and banks’ ability to deliver them on the platforms of choice. FST SAYS: Bank 2.0 achieves that rare feat in publishing – it ﬁlls a pre-existing knowledge gap, rather than fabricating a problem and then solely addressing that. King writes with passion and plenty of knowledge, but it is the subject matter itself that is bound to pique the interest of banking technology executives.
Edited by Marshall Goldsmith Learn Like A Leader brings together the remarkable stories of how great leaders seize the opportunity again and again, providing an intimate look at how the very best have overcome adversity to reach the pinnacle of their business. This collection of anecdotes, manifestos, speeches and motivational insights covers everything from leading by example, teaching, delegating, spotting and shaping future stars and nurturing proﬁtable partnerships. FST SAYS: Great air travel material, this fascinating book is crammed full with insightful stories from successful leaders, each with their own funny tales, heartwarming achievements and sage advice.
The Future of Banking: In a Globalised World By Chris Skinner The Future of Banking: In a Globalised World is a one-stop playbook for understanding how the banking world is going to take shape over the coming years; years that will be shaped by regulation and a growing shift from west to east. FST SAYS: Covering everything from the impact of China and India, new technology, the role of the consumer and much more besides, The Future of Banking is a rallying call for urgency and action – renowned analyst Chris Skinner calls upon the rigid world of international banking to recognize and act upon the very real shifts that are occurring as we speak.
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Technology for today’s executive ASUS Wireless Mouse Look, no buttons! Although digital mice are nothing new, ASUS has produced a sleek, contemporary design with its new 2.4GHz WX-DL and joined the touch revolution. This spaceship-like device boasts of touch sensitive controls and an impressive 1200dpi laser to ensure accuracy. The mouse also has media controls on its surface, such as play, pause etc. to enhance usability. The attractive design is arguably similar to other offerings, such as Apple’s ‘pucks’ that came with the ﬁrst Macs and their new touch responsive mice, but ASUS has gone a step further and offered it in metallic silver. The WX-DL is compatible with windows systems from 2000 to Windows 7, and has a reliable wireless connectivity, running on wavelength rather than Bluetooth.
Windows Phone 7
Although it is hard to imagine a device taking the iPad’s tablet top spot, Viewsonic’s new ViewPad 10 stands out from its counterparts thanks mainly to its duel operating systems (Windows 7 and Android) that enables users to pick and choose which one they want to use. The ViewPad 10 will also have a 1.66GHz Intel Atom processor, 16GB of storage (with microSD card slot for more storage), 1GB of RAM, 1024 x 600 pixel resolution display and the Home Premium version of Windows 7. The older sibling of the smaller, more phone-like ViewPad 7, the ViewPad 10 looks like so many other gadgets on the market at the moment in terms of design. However, the aluminum back and matt black front do give the 275 x 170mm pad a quality feel. Viewsonic envisage the tablet being used for business purposes.
Windows Phone 7 is Microsoft’s latest attempt to gain precedence in the lucrative smartphone market. Its sleek look and vivid, engaging interface mean it’s deﬁnitely in the running for the top spot. The start screen has ‘live tiles’ letting users see real-time content directly, rather then as a heading leading to an application. This way, you can create a tile of a friend and view their latest pictures or posts, just by glancing at the screen. There’s a tile for your own picture as well, making the WP7 that much fancier. There is no portable hot spot functionality or free satellite navigation, as with some other smartphones, but the contacts information is integrated with social networks like no other handset. All in all, Microsoft’s new offering is sleek, intuitive and clever, and deserves its place in the smartphone space.
DESIRABILITY RATING: ★★★
DESIRABILITY RATING: ★★★
DESIRABILITY RATING: ★★★
Logitech K750 Logitech’s latest groundbreaking offering is the world’s ﬁrst solar-powered wireless keyboard. The device holds an internal power cell with twin solar panels that can last for up to three months without solar exposure. The portable K750 charges with natural or indoor lights and is granted a 15 year degradation-free lifespan in energy consumption. The keyboard is a meagre 7.5mm thick and has concave, incured keys for comfort, so you can look good while saving the planet. DESIRABILITY RATING: ★★★★
Viewsonic ViewPad 10
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As the midterm election results began to roll in, the media glare was intense, rhetoric was rich and opinion was being formed and projected in every state in the land. FST US selects the juiciest, most pertinent soundbites emanating from those involved. “Well, the thing is, we’re all interconnected. There are no rich. There are no middle class. There are no poor.” New Senator-elect Rand Paul defends his proposals that raising taxes, particularly against the wealthy, would have a damaging effect on blue collar workers.
“The Republican Party will never be the same, and that is a good thing.” Defeated Delaware candidate Christine O’Donnell seeks to divert attention from her own chastening experience by declaring that her inﬂuence with the Tea Party helped push the GOP even further to the right.
“Our new majority will be prepared to do things differently. It starts with cutting spending instead of increasing it, reducing the size of government instead of increasing it, and reforming the way Congress works.” New Republican Speaker of the House of Representatives John Boehner draws the battle lines early, outlining how his party’s stance will seek to challenge Obama’s proposals and reforms.
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“It will be at least 50 years before we really understand very well what happened in 2008-2009, and we will be interpreting for another 50 years as to whether the Federal Reserve undertook the right policies or the wrong policies. There’s a lot of history left to be written.” Philadelphia Fed President Charles Plosser, underlining the historic nature of recent events.
“The past two years provided a frightening glimpse at what could become of our great nation if we continue down the current path: wasteful spending, a growing debt and a government reaching ever further into our lives.” Florida’s new Republican Senator Marco Rubio believes the government owes the people a new course of correction after years of waste.
“I would like to see some greater oversight into the foreclosure programs that the administration has put forward. The effectiveness, the money, where it is and what it’s being used for — that to me is a big issue.” Republican Shelley Moore Capito, invigorated by her promotion to the GOP’s transition team, outlines her stance on the incumbent administration’s failing foreclosure program.
“This is a great opportunity to show everyone that we got the message and that we’re willing, in this post-election season, to come together and do what’s best for the country we all love.” Barack Obama takes a patriotic stance on proceedings.
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The cost of college is on the rise across the board. But it is the Landmark College in regal Vermont (Putney) that has ranked the priciest school in a recent report by The Chronicle of Higher Education. The tuition fees at Landmark are $48,000 (2010-2011), an increase of 4.8 percent on the previous year. The total cost, including room and board, is $56,500. A close second was Connecticut College with a total cost of $53,110. Third and fourth on the list are Sarah Lawrence College and Columbia University in New York. Occidental College, attended by President Obama, is also a costly education with a 4.9 percent rise in tuition fees to $40,835.
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A tumultuous 2010 has caused a great financial upheaval for millions, but the economy's dark path toward stability is being illuminated by t...
Published on Nov 15, 2010
A tumultuous 2010 has caused a great financial upheaval for millions, but the economy's dark path toward stability is being illuminated by t...