Vendor Viewpoints: Year-End Developments and Predictions

Vendor Viewpoints:
Year-End Developments & Predictions

The BankersOnline community has always been a helpful source of information and advice for bankers. This willingness to share extends to our vendors and advertisers who have considerable experience in the industry. We thought we'd pick their collective brains to find out what developments they felt were the most important of 2005 and, looking forward, what opportunities and challenges await us in 2006.

Our vendors have a unique perspective to add to this conversation and we are happy to share their thoughts. (And, as always, we appreciate your support of those vendors who support BOL.)

What do you see as the most significant development in banking during 2005?

Len Suzio of GeoDataVision says:
The revisions to the Community Reinvestment Act have far-ranging implications for all banks, in particular for the banks that fall into the new "Intermediate-Small Bank" category. Most banks have been so desperate for regulatory relief they have jumped at the opportunity not to report under CRA as an ISB. However, the ISB CRA performance evaluation mandates a "satisfactory" rating on community development activities. This may be a very big problem for many ISB's, who may be well advised to retain their large bank status and file their annual data at the end of February. The best advice may be to "Look Before You Leap" into the ISB trap. Also, the advent of the new underserved, distressed and disaster area tracts will make CRA more complicated than ever.

Leonard Selvaggio, Marketing Director of Getronics, says:
Looking back at 2005, it can be summed up as "The Lost Year" in Financial Services. From this perspective, here's what was lost:

Data tapes fell out of trucks and over a million data records were lost, sparking renewed emphasis on data protection, business process, and overall security.
White collar executives lost their cases, and increased audit pressure has been applied, slowing IT innovation for business development. Perhaps, this is two losses in one.
Checks finally started losing noticeable ground, but surprisingly the adoption was in the remote capture area lead by businesses pressuring their banks.
Outsourcing lost some of its luster as major institutions started pulling back customer-facing outsourcing either in-house or closer to home. Still, the U.S. lost back-office processing IT jobs as the economy evolved. Everyone wants to lose expense.
We all lost more wallet share to the gas pump and while it was good for the energy sector, it squeezed the U.S. consumer who also saw moderate rises in interest rates.

Glen Fossella, VP of Marketing of Source Technologies, says:
The most significant development - given the preceding hype - may be the slow pace of Check 21 adoption. Financial institutions, vendors, and other stakeholders learned just how complicated it would be to implement image-enablement and image-exchange. Many chose to defer full deployment, and instead opted for tactical projects, such as corporate and merchant check capture, or more focused efforts such as deposit automation on ATMs or banking kiosks. In our view, the most unanticipated fallout from these activities was the rapid evolution of corporate capture from market experiment to market imperative in just a matter of months. One may go so far as to categorize corporate capture as a "killer app". We'll see in 2006.

Paula Ni?o, Web Editor of moneylaundering.com, says:
In 2005, the five federal banking regulators released jointly a new unified Bank Secrecy Act/Anti-Money Laundering Examination Manual. The manual was an important step by regulators to ensure consistency in the examination process. Now regulators will examine banks using the same set of standards, whereas before each agency had its own protocols. The manual is a wonderful tool for a bank's compliance department; it includes appendices that cover red flags to suspicious activity, as well as standards for OFAC compliance and tools for assessing a bank's money laundering risk.

Bob Kim, Chief Relationship Officer of Banker's Toolbox, says:
The release of the FFIEC BSA/AML Examination Manual was perhaps the most significant event in 2005. The Manual has codified a highly explosive area of banking compliance by establishing clear guidelines for what financial institutions are expected to do. While the risk based approach still provides a high degree of examiner subjective interpretation, it has nonetheless established a road map for what bankers and the industry as a whole need to think about for years to come.

What do you see as a challenge or opportunity
for the banking industry in 2006?

Len Suzio of GeoDataVision says:
Community bankers will be more swamped more than ever with compliance regulations that are getting more complicated while regulators are simultaneously ratcheting up performance expectations. Again, the revisions to the Community Reinvestment Act in 2005 and HMDA in 2004 are good examples. The "silver lining in the cloud" is that HMDA and CRA make available an abundance of market data. The smart bankers will recognize the opportunity and exploit it to not only improve compliance ratings but to increase market success and bank profits as well. If you pay the price of compliance, why not reap one of the benefits? Inexpensive and comprehensive market data make it easier to analyze and understand your loan markets. Smart bankers who exploit this opportunity will gain a significant competitive advantage in 2006 while others drown in the regulatory flood.

Leonard Selvaggio, Marketing Director of Getronics, says:
With these losses behind (or lingering), what will we find in 2006? This is the fun part — looking into the crystal ball.

Security. No big surprise here, but now, more than ever, getting in front of the problem so attacks and vulnerabilities are caught before damage is done. Forensics will be used to develop prognoses.
Operational efficiency. This will not only to drive costs down and increase employee productivity, but also to enable compliance to be second nature. For example, using a converged IP telephony environment to drive down costs, improve sales, and satisfy compliance requirements.
Innovation. Some key technologies are ready to spring ahead including check image capture at point of presentment, RFID, and biometrics. Could this be the year that banking realizes wireless and secure go together?
Channel renewal. IT innovation was distracted by compliance in 2005 with the result that pent up demand that will get released in 2006 as banks emphasize improved sales and service, a.k.a. customer (consumer and commercial) interaction in areas such as the branch, call center, and Internet.

Glen Fossella, VP of Marketing of Source Technologies, says:
In a nutshell: merger rationalization. 2006 may be remembered as the year of the big burp, as large acquirers pause for a time in order to pare operational costs. Several major institutions that Source Technologies works with have targeted hundreds of millions of dollars to be eliminated from their retail operations — all the while improving branch customer service and competitive position. While teller platform refreshes and channel management solutions are strategically important in the long term, they cannot address these institutions' short-term need to improve the bottom-line. Performing this magic trick will require deploying discontinuous technology innovations that significantly change core business processes on a broad scale. Look for some big changes from first-mover institutions in 2006.

Paula Ni?o, Web Editor of moneylaundering.com, says:
Banks have many challenges ahead of them in 2006. However, one of the largest is the ever increasing burdens of complying with the Bank Secrecy Act. The global community has taken up the fight against terrorist financing and money laundering, with banks becoming the frontline defense. Bankers are already feeling the increased cost of compliance associated with this duty, and the cost is expected to rise as additional expenditures related to assessing risk, independent transaction testing and increases in compliance personnel For example, Riggs Bank and Arab Bank have recently paid $25 million and $24 million, respectively, in BSA penalties.

Bob Kim, Chief Relationship Officer of Banker's Toolbox, says:
The FFIEC Manual on BSA/AML will require that financial institutions allocate resources for compliance tools such as automation software, leadership at a senior management level and staff training. Senior management acceptance is vitally important because BSA/AML compliance requires that everyone in the organization - from the branches to the compliance unit - be in sync. Business practices in profit centers that undermine the efforts of the back office BSA staff will continue to be a major challenge for financial institutions to internally negotiate. Staff training will particularly be an important issue because the guidelines ask for a level of subject matter expertise in BSA/AML that will pose a major challenge for many community financial institutions. Even with the purchase of BSA software, a lack of subject matter knowledge and management will, can lead down the path of regulatory troubles.

BankersOnline.com would like to thank the following vendors who participated in this year-end Q&A.

Leadership in BSA/AML Technology & Solutions We make CRA and HMDA compliance easy Getronics helps banks design, build, deploy, and manage IT technologies World's Leading Authority on Money Laundering News, Guidance and Analysis Innovative Thinking. Powerful Solutions.®
First published on BankersOnline.com 12/16/05