New Year's Resolutions: A Look Ahead to Banking. Security Priorities in 2009
An unpredictable market, a new financial services landscape, and an incoming Democratic administration.

This year has been full of change, and the New Year promises even more. To gain some perspective on banking/security priorities in 2009, we spoke with Christine Barry, Research Director, Aite Group LLC, who offers insights on:

Business priorities for banking institutions in 2009;
Possible changes to the regulatory environment;
How credit unions stand to grow;
Ways institutions of all sizes are trying to grow deposits and revenue while ensuring consumer confidence.

Christine Barry serves as a Research Director at Aite Group LLC, focusing on the strategies and technology implementations of global banks of all sizes. Her recent research has addressed remote deposit capture, best-practices for credit unions, capturing the valuable small-business customer, global cash management trends, and core banking system replacement. She is an acknowledged banking industry expert with more than a decade of experience in financial services products and technologies. She has worked with a broad range of U.S. and international clients analyzing industry trends and identifying market opportunities, product gaps and potential partners to help them achieve their strategic IT goals.

Ms. Barry has presented her research at various conferences, including NACHA Payments, BAI TransPay, WACHA Electronic Payments Conference, Windy City Summit, and several U.S. and overseas technology vendor user conferences. She has been quoted in various media outlets, including The Wall Street Journal, The New York Times, BusinessWeek, American Banker, Bank Systems & Technology, and Credit Union Times. She has also appeared on CNN.

Before joining Aite Group, Ms. Barry was a senior consultant in the strategy practice at HighQuest Partners where she helped technology companies to enter, grow and succeed in US markets. Prior to that, she was a senior analyst in Celent Communications banking group, with a focus on cash management, commercial lending, core banking/processing, small business banking, mortgages, and biometrics. She did similar work as a research analyst for Meridien Research's (now Financial Insights) e-financial services group. She began her career gaining in-house experience as an associate in commercial and municipal lending at KBC Bank and a financial analyst for Citibank in the firm's global derivatives and strategic initiatives groups. Ms. Barry holds an M.B.A. from Babson College and a B.A. in international business from Villanova University. She is a triathlete and has completed five marathons.

TOM FIELD: Hi, this is Tom Field, Editorial Director with Information Security Media Group. The topic today is Banking, A Look Ahead Into 2009. We are privileged to be speaking with Christine Barry, Research Director with the Aite Group. Christine, thanks for joining me today.

CHRISTINE BARRY: Thank you.

FIELD: Just to start out, tell us a little bit about yourself and the work that you do at Aite Group.

BARRY: Sure. As you mentioned, I'm a Research Director, and Aite Group is a research and advisory company, so we look at the intersection of bank strategies and technology, and we help financial institutions to get the most out of the technology they are using and to implement the right strategies.

FIELD: Now, Christine, like any of us, I've been watching sort of the madness in the markets over the past several weeks and especially over the last couple of days. Given what you know, what do you think that banking institutions should expect for economic conditions in early 2009?

BARRY: I don't really see anything changing very quickly. There is so much uncertainty in the market. If you watch the markets on a daily basis, in a way you are getting whiplash with the ups and downs, and I think a lot of people are expecting that to continue at least into early next year before anything changes.

FIELD: Given what you see in the institutions that you reach out to, what do you think is going to be available in terms of human and financial resources, and where are these resources mainly going to be focused?

BARRY: As far as your question, are your referring to how are they going to use their staffing, or where are they focusing their attention?

FIELD: Really, a little bit of both.

BARRY: Okay. I think right now that the biggest focus for financial institutions - well, actually they have a couple, but one they really have to, especially the largest banks, have to regain the faith of consumers. So there is a lot of education going on, letting people know that their money is safe and that it is insured by the FDIC. There is also a lot more focus on customer service, and that's one of the most important things that consumers, as well as businesses in many cases, look for when choosing their financial institutions. So banks need to make sure even as they are laying off employees that they keep those levels of service as high as possible. And then finally there is going to be a lot of focus on increasing efficiency, and I believe that is going to lead to a much greater dependence on technology. So even though bank budgets are pretty tight, we are still expecting banks to at least spend what they did this past year, possibly even a 1% to 2% increase in IT spending in the following year.

FIELD: Christine, what about outsourcing? Do you expect that banking institutions are going to be looking a little more seriously toward outsourcing given the limits of their own resources?

BARRY: I think so. There will be a lot of business process outsourcing where some of the services that don't require as much, either analytical skills or that can easily be sent offshore, I think we will see a lot more of that. We are also seeing a lot more outsourcing, even of the technology itself. I think especially the largest institutions they have always had a tendency to build a lot of their own technologies, and we are seeing more and more of them going to technology vendors; so outsourcing the actual building of technology, just so they can focus more on their core competencies.

FIELD: What about security spending? What do you see there?

BARRY: There is still a lot of focus on that as well. You know, we are seeing both internal and external fraud. So again, banks, as they try to build that trust of their consumers, they are going to continue to make an effort to make sure that their consumers both feel and actually are, their identities are actually secure as well as their account information. So we will see continued investment in that as well.

FIELD: We have a new administration coming to Washington, D.C. and there has been a lot of talk about the regulatory environment that we have. Do we have too many regulatory agencies? Do we need to consolidate them? Do we need to shift them around? What sort of a regulatory environment do you think that banks and credit unions are going to face in 2009?

BARRY: I think they are going to see increased regulations. I've been speaking, actually this week, with a lot of credit unions, and there is talk about requiring them to have escrow accounts for some of their mortgages over a certain amount. That is something that some of them haven't had to do in the past and there are going to be a lot more. Greater transparency, I think, for financial institutions as a whole -- there will be much more pressure on them to provide different reports. So again, it is going to come back to a greater reliance on technology to make sure that they are complying with new regulations.

And you know, it is interesting; when I speak with financial institutions I ask them what some of their biggest challenges are, and keeping up with regulations is certainly a huge one. And unfortunately it sometimes limits some of the innovation of financial institutions because they are so busy keeping up with our new regulations they don't have as much time as well as money to invest in new products and services.

FIELD: That's true because you know, regulatory compliance, by its nature, you have to do it.

BARRY: Right.

FIELD: You said you were speaking with credit unions; there has been a lot of talk that if there is any sort of a flight from traditional institutions, the credit unions really stand to benefit. What is your take on that?

BARRY: Absolutely. As I speak with the credit unions, a lot of it comes down to where they are located. Those credit unions that are in the same geographic area as some of the largest financial institutions have been seeing a pretty large increase in deposits, as well as new members. A lot of people have lost faith or just become frustrated with banks, especially the largest ones and some of the risks that they have taken in the past. and so they are taking their money out of the banks and giving it to credit unions.

Credit unions currently, or at least at the middle of this year, had about 6% of total deposits within the U.S., and we are expecting that percentage to increase. Some of the credit unions that I am seeing, first of all they still have money to lend, whereas a lot of the largest banks have either limited their lending or they have frozen it completely. Credit unions are still lending, and a lot of then have seen double-digit growth in loan originations. They are also seeing an increase in deposits, as I mentioned earlier, and then of course new members.

They were a lot smarter, I think, when it came to -- you know, they didn't take the same risks. Most credit unions didn't get involved in the sub-prime.

FIELD: Exactly right. So it's a good time to be a credit union.

BARRY: Yes, it is.

FIELD: You spoke earlier about fraud and I am curious: What is the fraud landscape now? Someone told me earlier this week that this is a pretty good time to be a bad guy because there is so much confusion in the market, and whenever there is confusion, or blood in the market, the sharks come around. So what are you seeing in terms of fraud?

BARRY: Well, I hope that's not the case. I can see how somebody would think that, but I think banks are in a pretty good position. They have been investing a great deal of attention and money in new fraud technologies, so I think they are pretty well-positioned. At least it is my hope that we are not going to see at least anything significant as far as new fraud. But it is a constant battle for banks. They are constantly chasing after the fraudsters, who are continuously coming up with new ways to try to get at information.

FIELD: Okay, one last question for you Christine. Looking ahead we are just in, oh I hate to say it, but we are almost six weeks away or a little bit less maybe from January 1st, what do you see as banking institutions top three priorities when we get into the new year?

BARRY: The top priority without question is growing deposits. Deposit growth just brings more stability to the financial institutions so that is where they are really focusing. And I am hearing from banks as well as credit unions that that is where they are seeing the greatest competition right now, trying to gather new deposits.

The second priority will be, as I mentioned earlier, just increasing efficiency. You know, a lot of them have had a lot of charge-offs lately so they are looking for ways to cut costs. Unfortunately for a lot of the largest institutions, one way they have been doing that is through layoffs. But we are also expecting to see a greater reliance on technology to help them operate more efficiently; to better integrate a lot more of their systems.

And I guess the third priority for them, you know while at the same time they are trying to become more efficient, they are also trying to look for new revenue streams. So they are doing that as well.

And I guess if I had to add a fourth one, and this may not necessarily come last on the list, but just regaining that trust of customers is going to be another priority.

FIELD: You know it is interesting you talk about growing the deposits and increasing revenue, what are the ways they are going to be able to do that? How are they going to be able to stand out in the market?

BARRY: A lot of financial institutions are focusing on higher growth areas. There has been a lot of attention the small business market right now. They are seeing a lot of opportunities because it has pretty much been an untapped market. So they are focusing on offering the right technologies, putting the right product in place to try to woo these customers that they can then cross-sell new products to and then grow with them as they become more sophisticated. So that has been one major area of focus for revenue growth.

FIELD: It's interesting, we did a banking confidence survey recently and we asked what institutions priorities would be, and interestingly we found that 41% said that they were going to be investing in new or enhanced services like mobile banking or remote capture and saw those as ways that they could gain some competitive edge. Now I wonder if you see any of that in the institutions that you speak with?

BARRY: It is interesting. We are definitely hearing a lot about remote capture and you know, especially with that goal of growing deposits. I think that technology has seen a lot of attention over the last couple of years, and a lot of banks already have it in place, but they haven't seen the level of adoption that they were expecting. But I think they are going to try to better market this service, educate businesses and some of them are starting to roll it out to consumers. Just educate them on what it is to use as a good tool for growing deposits. As far as mobile banking, again, it seems to be the big buzz, but I'm not sure if banks are seeing the same level of adoption as they were expecting. But many of them are certainly rolling it out and hope that the adoption will come.

FIELD: It is fair to say that we are going to have some aggressive New Year's resolutions this year, would you say?

BARRY: Yes, absolutely. FIELD: Christine it's been a pleasure talking with you. Thank you for your time and your insight today.

BARRY: Same here. Thank you.

FIELD: We've been talking with Christine Barry, Research Director with the Aite Group. For Information Security Media Group, I'm Tom Field. Thank you very much.




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