An internal focus is one of “six killers” identified by Gartner (that is, six things that can kill a bank).  A more externally-focused, buyer-centric approach is needed in banking in order to survive and thrive.  This will be especially important in lending as the market recovers, where the complexity of products and processes is high and neither transparent nor customer friendly.

 With a few minor exceptions, it is far too early to tell what the results of these proposals will be.  This is but one of a series of sweeping reforms facing a legislature already overwhelmed by economic and political circumstances, both domestic and worldwide as well as lawmakers already engaged for a hotly-contested mid-term election cycle involving the entire House of Representatives and slightly over a third of the US Senate.  Media hype will be high, but actual regulations remain in the indefinite future. It deliberately takes a long, complicated process for an idea to eventually become an actual regulation: these proposals might stall, only to reappear as Executive Orders if banks, long deemed part of the nation’s critical infrastructure, are deemed to be in peril.

 Whatever the outcome, banks should expect to face increased demands from their stakeholders for better visibility and accountability.  Some long-lead technology-related time items should be started now, as they will be useful even if the need for new regulations diminishes.

• Evaluate technology solutions that add speed, transparency, improved analytics and reporting, and worldwide compatibility to risk management and compliance efforts, such as enterprise governance, risk and compliance (GRC) platforms, spreadsheet controls, continuous controls monitoring (CCM), incident management, and policy training and certification.  Demand for this is not going to go away, as it comes in equal part from investors, partners and governments.
• Lower your level of trust: review your partner ecosystem – and map the linkages and potential impacts of technological and partner failure.  Explicitly risk rate each link or critical dependency, and set up a periodic framework for reassessment.
• If you do not have public-policy monitoring capabilities add them now.  If you do, expand them:  expect other governments to come up with similar proposals requiring tracking. Volunteer your enterprise’s skilled staff as expert witnesses, media commentator and information sources.  Participate fully in the commentary process.

We are tracking the technology impacts of the proposals as they develop– keep an eye on the blog for details.

It seems to us that banks could take a leaf out of Hyatt’s play book and adopt something similar in these hard economic times. What if you log on to your online banking site to pay your utility bill, and before the payment instruction is processed the bank sends you a message indicating that they have paid this bill on your behalf? Can you also imagine the client reaction if this “random act of kindness” was done in a branch setting? Now that would be customer relationship management!

Interestingly, we are starting to see the first signs of banks adopting such approaches. Recently AKBANK in Turkey, started surprising holders of their Wings branded credit card, by picking up the tab for a random selection of customers using their Wings card to pay the bill at some of Istanbul’s most upmarket restaurants. This link to the Turkish banking market is not necessarily surprising to us based on the case study work we did earlier in the year: Case Study: Turkish Bank TEB Builds a Culture to Promote Innovation.

I vote for banks to start with property taxes, mine is due this month!

As we outline in our research, there are three styles of CDI that are suitable for MCI (there is a fourth style of CDI, but that is better suited for non-transactional or analytical applications). They are: 1) registry, 2) coexistence, and 3) transaction (also known as the centralized style). 

The last style represents a form of ideal customer data architecture for supporting MCI because it removes redundancy in terms of data and processes, which in turn reduces cost, speeds time to market for new channels and services, and improves consistency (and thus customer satisfaction).

Many bank data architects strive for this ideal, particularly as advances in technology make it more feasible technically. But for many banks today, this just isn’t practical for organizational and political reasons and – particularly in today’s economy – financial realities that preclude wholesale replacement or major modification of legacy channel applications even if it does result in cost savings down the road.

Instead, many banks starting out on CDI need to begin with a registry style or a coexistence style – that is the Acting Pragmatically! component.

But there still is room for idealism – in acting pragmatically, banks can choose solutions – whether these are software or services – that allow for the migration to a transaction style over time. And that is the Thinking Ideally! component.

In several recent client sessions, the questions were around how business units can be convinced that they have a lot in common with each other – common data, common processes – so it makes sense to standardize and centralize.

This may be an effort doomed to failure – what business units need is not convincing of their commonalities, but convincing that centralized operations understand, respect, and will heartily defend their differences.  Business units must be free to access and use data and implement applications as best fits their unique needs and capabilities. Centralized services can free business units to focus in value-creating activities by providing utility-style services, but only if they don’t insist on a one-size fits all. And that demands that the focus be on what shouldn’t be centralized and standardized. Acting for the “good of the enterprise” means protecting the ability of individual business units to generate profits.

I’d be interested in hearing other people’s thoughts on this issue, and how they have successfully – or unsuccessfully! – sought to answer the centralization/decentralization issue.

I don’t know if you noticed, however a few weeks back a number of  payment providers issued a press release outlining their progress towards cross border collaboration for their Online Banking enabled E-Payment solutions. These E-Payment solutions look to re-use banks’ existing customer authentication systems, combined with the local ACH (Automated Clearing House) systems, to deliver new payment solutions primarily to the b2c market. The group, entitled ICPNO -  International Council of Payment Network Operators ( www.icpno.com ), comprises a number of ACH focused payment providers -  iDeal, GiroPay, Interac Online, VocaLink and Nacha  - focused on  developing standards that will ensure the international interoperability of their domestically based payment schemes.

Whilst I would applaud such foresight, especially in today’s difficult market conditions, am I alone in wondering whether focus on such cross-border functionality – especially the global focus – may distract attention from their most obvious opportunity? As the low cross-border volumes for the SEPA direct credit payments applications has shown, demand for a service needs to lead supply, if the benefits are to outweigh the costs. Is there really enough demand for cross-border business to consumer payments to justify building a global scheme at this time?  Well PayPal obviously saw a market, but then they weren’t cannibalising their own payment card market ( in Gartner we’ve written extensively around market opportunities for new players such as PayPal – notes such as  The Biggest Threats to the Bank Franchise: What Banks Should Do About Them Now and  PayPal and Google Checkout Show the Way for Banks’ Payment Operations have outlined man of the issues). Personally I think the short term global opportunity is probably too small to distract from the here and now.

These ACH-based solutions have a strong proposition for consumers, merchants and banks in their own domestic and adjoining markets, if they can get their marketing correct and develop a persuasive business case. iDeal have for example proved in the Dutch market that they can develop a significant market presence, with nearly 28 million transactions through to the end of 2008. However to be truly successful I think today’s conditions demand a lens on the short term. They need to focus on helping banks save costs as they face today’s challenges, such as the transition away from the use of cheques, or the migration to full SEPA deployment. They need to look at helping  bank customers and retailers by offering them accessible alternatives to cash.

What do you think ? Do the members of ICPNO have the right idea – or do they need to keep a clear and solitary focus on the short term ?

Mayor Bloomberg seems to be proposing just that:  mixing “surplus” skilled talent from the financial services industries, labor, space and funds together in the hope of sparking a new wave of entrepreneurial activity in his cities’ financial industry.  Among the plans, NYC will

·        Sponsor business incubators aimed at the financial industry, with ready-to-use office space at $200 per head/month for 100 entrepreneurs, leaseable for 6 months with an option to renew.  All basic services will be available—some free or subsidized by the city.  The Polytechnic Institute of New York University co-announced that it will provide mentoring, seminars and networking opportunities for incubator participants. This is the first of several, and a coalition of existing providers of incubator space will offer up to 700 seats at highly reduced rates

·        Providing seed money for several Angel Funds goaled with providing up to $250,000 start-up capital for 250 new NYC –based companies.

·        Launch an international Financial Services Business Plan Competition, the winners of which will get a cash prize, and 2 years free incubator space. Winners that set up in NYC will have access to access to additional investments through the Angel Fund.

Other programs included providing a central source of information on local entrepreneur-encouraging services, events, resources and networks, training in how to evaluate and start new businesses, help existing entrepreneurial business owners run their businesses, and a pilot program with NYC’s venture capital portfolio businesses for free job training, internships and placement for workers laid off from the financial services sector.

What does it mean for non New Yorkers?  Or Gartner clients in general?  Maybe not much—the stated goal of creating 25,000 jobs looks small compared to industry layoffs from Wall Street alone, and while bringing $750 or so million into the local economy—weren’t some Wall Street bonuses bigger than that?  It is easy to be cynical and say it is as useful as a rubber ducky to a drowning man— but that misses the point.   How many guys in bicycle shops built more, with less, until their idea literally took off?  Remember how some big software and hardware firms started in garages?  Or stock traders under a tree, and bankers with a bench? Did we forget our industry heritages when we got the fancy carpet? To my eye, one of the most interesting factors is that 160 Varick Street at Hudson Square is relatively distant from the traditional financial district—far enough to add the “just far enough out of sight to be creative” aspects of a Skunkworks to the mix.  Another vital point is that the start-ups are going to be small, way small—maybe small enough not to have a legacy of “how we used to do it.”   

Most of the opportunities we see presented right now are really small scale, but it sounds like an interesting experiment to keep an eye on— any IT firm selling into financials services needs to have a pair of eyes in that building, take part in the briefings and maybe sponsor an intern, or exchange executive.  You really don’t want to be the one, five years from now, asking “Who are these guys?  Where the heck is Varick Street?”