Microsoft Leaders Forum – Short-Term Profits and Long-Term Growth: Technology for Finding the Balance

Bankers around the globe are under increasing pressure to drive profits and reduce costs while still investing in technology solutions that help increase customer satisfaction and loyalty. Finding this balance is difficult at best, but our panelists will provide some sage advice to retail bankers who are seeking to strike this balance. Plus, these experts will give us their views on what are the biggest challenges to meeting these goals, and discuss which technologies show the most promise for delivering short-term profits, as well as for long-term growth.

Edward Woods
Senior Analyst – Banking
Celent, LLC

Making material changes in spending is difficult to achieve in the short term, but thoughtful vendor and staff management can make a significant impact in driving the bottom line. With vendors, look to centralize contract work under one person/group, carefully assess benefits of ASP solutions, negotiate large purchases across multi-year payment plans, renegotiate significant contracts (especially after major M&A activity) and negotiate vendor’s financial participation in project success and ROI promises. With staffing (a significant cost area) you’ll find there are almost always excess capacity and poor performers in any workforce. Make attracting high performers and getting poor performers engaged or out the door a part of running the business – not an annual event. Fill in slack-time with new work or activity that creates new capacity. All of these action items should help institutions that are constrained by limited budgets.

The biggest challenges businesses face to achieving short-term profits varies widely, but often the biggest pains are rooted in its ability to focus and how it holds staff accountable. Organizations take on too many projects – wasting resources on projects that will never be delivered. Target projects with the highest returns, balanced with risk and time-to-market needs that are within capacity (which includes running the business). Projects that are off the list should become taboo and kept from ‘cropping up.’ Recalibrate the plan with regular market reviews as too much ‘management’ will stifle innovation. Last, accountability is paramount; define who owns what, from top to bottom and hold them accountable for results within their control. An organization without accountability is always sub-optimized – doomed for a mediocre existence, or worse still, failure.

There are two areas that must be at the top of every manager’s agenda – business plan alignment and the management of a technology architecture roadmap. Having IT alignment with the business’s near and long-term plan (at all times) while having, building to and monitoring an architectural roadmap ensures an optimized technology spend both in the near and long term. Seemingly obvious, but rarely executed – a right-sized planning approach will decrease both time-to-market delivery and IT spend – which is a sure way to bolster the bottom line.

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John Macaluso
CTO, Senior Vice President, Strategy and Marketing
Fiserv CBS Worldwide

Establishing a services-oriented architecture (SOA) is high on the agenda of most bank CIOs. The promise of SOA’s loosely-coupled, tightly-integrated mantra is a more agile IT infrastructure that allows banks to respond to new growth opportunities rapidly while enabling broader leverage of their IT investments across the enterprise.

We’ve seen some industry progress toward SOA in recent years but most institutions still struggle with disconnected software applications that are purpose-built for a particular line of business, channel or function, and are minimally integrated with other systems and difficult to leverage. This is in spite of the fact that many of these applications access similar data objects (like customer profiles and account data) and often handle common functions (like updating a customer’s address or recording contact history). The impacts of this problem are wide-ranging: excessive IT costs, operational inefficiencies and even poor customer experience. These impacts hinder both short-term profits and longer term growth prospects for banks.

Fiserv CBS Worldwide started down the SOA path long before it was fashionable, exposing core banking functionality and commonly-used third party services such as credit bureaus through XML messages that are accessed by different applications across lines of business, departments and delivery channels. We started building our services bus, a solution called Communicator, on a Microsoft Windows Server and SQL Server platform in 2001. We later upgraded the code from C to C# .NET for improved performance and flexibility and have since adopted Web services.

More recently we’ve been focused on moving from function-based services and applications to process-based services and applications. We have introduced Fiserv Aperio, a process automation and customer interaction management solution that is also built on .NET for a Microsoft Windows and SQL platform. We’ve been using Aperio to aggregate those discreet, granular services exposed by Communicator and other systems into logical business processes that can be delivered to bank users through Aperio’s branch, call center and back-office modules and, in many customer implementations, we’ve also exposed these processes as Web services. These process-oriented Web services are then leveraged by other applications across internal departments and customer-facing channels without having to re-construct the process logic each time. This delivers a higher level of reuse and consistency. Where customer-facing processes are leveraged across customer touchpoints, this consistency makes for a better customer experience and supports banks’ desire for multi-channel integration. And of course bank auditors and compliance officers appreciate the consistent enforcement of regulatory requirements and the audit trail that comes with this approach.

In determining architectural priorities we’re encouraging our clients to think how they can leverage process-oriented services not just function-oriented services across their enterprise. And as we bring new banking software solutions to market we’re focused on delivering process-based applications that can easily consume services from and deliver services to other applications.

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Michael D. Nicastro
Senior Vice President – Marketing and Product Management
Open Solutions Inc.

Retail bankers should not underestimate the importance of technology in achieving either their short-term or long-term business objectives. Technology is not a utility or a cost center; it is a key part of any institution’s strategy for success in a highly competitive marketplace and must be seen as an investment. While most banks have ATMs, online banking, call centers, etc., it is how they use technology in these channels to better serve their customers that matters.

The Marketing, Operations and IT departments do not operate in a vacuum – they must work together to offer the right product to the right customer at the right time. It takes a powerful core data processing system and CRM/business intelligence program that are properly applied to be able to deliver these timely customer-appropriate offers. Our most successful clients have managed to change their cultures and break down their intradepartmental silos. In many ways, they have enjoyed success by using technology to blend the front office and back office in a customer focused manner.

A winning approach that crosses departments within the bank is one that is completely centered on relationships, not transactions. Front-line staff needs a full view of the bank’s clients in real-time straight from their core system, not outdated information that has been offloaded to another system. From our inception, we have delivered the only data processing system that is a fully-featured strategic product platform that integrates relationship-based core data processing with strategic applications such as Internet banking, business intelligence, financial accounting applications, electronic imaging, IVR, and payment solutions.

This last item is key because any long-term banking strategy must have payments at its heart. ACH, debit/credit cards, EBPP, Check 21 and other electronic payment streams have transformed the industry, and financial institutions must integrate their core system and all of their operations into these payment streams or risk being disintermediated by third parties or other financial services firms. We believe that we have the information management product platform that enables banks to integrate electronic payments and meet their long-term and short-term business goals

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Brian C. Hurdis
President
Metavante Image Solutions

Every financial institution is looking for ways to defray costs and generate long-term revenue streams. Fortunately, Check 21 legislation has been a great enabler of both of these goals.

In particular, RDC (remote deposit capture) has proven to be very attractive to both banks and their valued commercial clients. On the operational side, RDC increases back-office efficiencies, while on the treasury side, it means that items clear quickly and provide for improved availability and cash flow, as well as additional revenue opportunities related to new product offerings that incorporate RDC with Internet Banking functions.

As check volumes decline and per unit costs of handling paper items continue to increase, it is absolutely critical for financial institutions to convert paper to electronic formats as quickly and efficiently as possible. Without a doubt, checks and payments are rapidly converging. This means that institutions must implement technology solutions that allow them to employ the most timely and least-cost routing decisions. At Metavante’s Image Solutions division, we have turnkey solutions from our five operating divisions – Distributed Capture (including Merchant, Branch, Teller and ATM), Remittance, Document Management, Image/Item Processing, and Endpoint Exchange – that can solve any size institution’s check and electronic payment needs.

Changes in regulation, technology and economics are fueling an evolution in payments. The Payments industry has evolved as separately siloed systems and there is currently a drive toward convergence to foster a radically different payments environment of the future. This integration of payment technologies across the enterprise is the true technology change that is forthcoming in the industry.

This evolution will spark demand for payments warehouse technology that focuses on straight-through processing and allows the secure routing of payment instructions to the appropriate outbound electronic payment network channels. This is an enterprise-wide issue focused on implementing an architecture that optimizes business processes for any payments type, customer segment, entry channel or settlement mechanism.

Going forward, senior management teams must devote more time and effort to developing a comprehensive, over-arching payments strategy – one that converges all types of payments – checks, debit, credit, ACH, bill payment and more. Here at Metavante, we are dedicated to helping financial institutions implement payment strategies that positively impact their product offerings, fee income and profitability for the long-term.

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Tom Berdan
Vice President, Product Management
Harland Financial Solutions

Whether they are trying to meet short-term or long-term goals, the basic organizational goals still apply: institutions must improve operational efficiencies, deliver new products and services efficiently, and constantly monitor their risk and security. With respect to risk, we continue to see a growing trend for institutions to outsource their technology services, so that they can focus on delivering their core competency, serving their customers and work on attracting new ones.

Both front-line staff and back-office employees need a core system that is easy to use if they want to provide efficient service to their customers. A platform that has CRM/business intelligence built-in supports this objective. Our Phoenix System™ not only helps customer-facing employees with their sales and servicing requirements, but also features a customer contact management system that enables all employees to understand the service requirements of the customer. Additionally, the Phoenix System includes an intuitive dashboard which contains reporting and real-time key performance indicators for senior managers. Our goal is to extend CRM throughout the institution, making it applicable to every employee who needs it.

The small business market is now one of the fastest growing target markets today, for both traditional banks and other institutions expanding their lines of business. Small business customers demand the same services that were traditionally provided only to larger businesses. Harland Financial Solutions is committed to expanding its products and services for this market and is addressing these unique needs by helping its clients’ customers. We have incorporated cash management products, including ACH, wires, and PositivePay into our core Phoenix System, and created straight-through processing capabilities with the Microsoft .NET Framework and our Cavion Internet banking products. The integrated straight-through processing approach minimizes the ‘silos’ of redundant information by creating efficient workflows that allow institutions to deliver excellent service to their customers.

Many institutions are looking to expand their offerings and provide services such as trust, investment, and insurance. To help them integrate these services, which may include connectivity to other applications, we developed a Web services and XML middle tier, called PhoenixXM, which will enable institutions to seamlessly integrate their critical customer information into our Phoenix System CRM. The Phoenix System provides one view of the customer to help institutions meet customer demands by providing products and services in a more personalized manner – with greater efficiency and at a lower cost.

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Steve Buchberger
Senior Vice President – Payment Solutions
WAUSAU

While banks have invested in traditional business process improvements, the fact remains that the bank environment continues to be paper-ridden. Inefficiencies are rampant, resulting in higher costs. To remain competitive, institutions have to consider two types of technology: ones that take costs out of a process, and those that drive revenue.

The electronification of documents and processes within the bank can help achieve both of these goals. Enterprise Content Management (ECM) and check/document imaging can dramatically reduce operational costs, while customer-facing technologies, such as remote deposit capture (RDC), can increase revenue by bringing in new deposits.

Everyone knows check volume is declining, but there are still huge volumes of checks flowing into branches every day. Teller imaging and branch capture bring a quick ROI when courier and processing costs are curtailed. Many institutions that are enjoying the benefits of branch capture are now looking at how they can drive similar efficiencies and savings for other paper-based branch processes.

\ As an example, WAUSAU’s Branch Renewal Capture solution streamlines new accounts, customer service and lending processes. Our Branch Renewal Capture solution allows organizations to capture and sign documents before any paper is generated. In conjunction with our integrated workflow solutions banks can realize immediate transportation and labor savings while also gaining new efficiencies in their back-office processes.

RDC has a positive impact in increasing deposits for banks, while simultaneously decreasing the workload at branch offices. WAUSAU’s RDC solution is being offered by eight of the top 50 largest banks, as well as leading mid-tier and community banks. The next step beyond simple remote capture of checks is integrating functionality into a corporate customer’s accounting system.

WAUSAU’s payment industry expertise in lockbox receivables processing gives us the experience to help businesses with the delivery of rich receivables information. Our Microsoft .NET-based electronic transaction processing platform provides a suite of integrated applications to handle deposits, retail and wholesale payments. These capabilities have been recognized as important factors as organizations continue to evolve their RDC strategies, shifting from their PC-based solution to a Web-based strategy. For a proven next generation solution, organizations are turning to WAUSAU.

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Kirk Herrington
President and Founder
GaleForce Solutions Inc.

In many respects, short-term and long-term goals revolve around the same needs of customer retention and increasing share of wallet. Financial institutions must be more attentive to their customers’ complex and ever-changing needs. In order to deepen product penetration rates, institutions have to understand individual and household situations, and offer the right products and services.

We believe that a long term commitment to customer service is the best strategy. Consistency across the board is key: consistent customer service; consistent customer communications; and consistent customer knowledge. This deep customer knowledge must apply across all channels – branch, call center, online, ATM, etc.

Many banks are saddled with a five percent or higher annual attrition rate. When financial institutions deploy GaleForce CRM for Financial Services, they have taken a big step in cutting this attrition figure and increasing wallet share. Account managers, financial advisors, lenders and others can all use GaleForce CRM to organize, present and track information about their customers and deliver stellar service.

With a well implemented change management and CRM solution, I’ve seen a bank consistently increase their AUM at 30% per year with essentially no increase in the number of customers. That is very impressive performance particularly when you realize the bank wasn’t reducing their fee structure thus ensuring continued good margins.

All of our code is developed on the Microsoft .NET Framework and our solution sits right on top of Microsoft Dynamics CRM to extend its functionality deep into the financial services industry. Just as importantly, it works within Microsoft Outlook which means that employees are already familiar with the interface and so end-user adoption rates are greatly enhanced. On just one screen, employees are provided with a 360-degree client view that makes it easy for them to better comprehend the overall customer relationship (on-book and off-book) and thereby better target opportunities to enhance loyalty, retention and build share of wallet.

While front-line staff like our system because it works the way that they work, senior managers can drill into executive reports to better understand both staff and customer performance. Plus, the IT department can quickly customize our application using the standard easy-to-use drag and drop customization tools within Microsoft CRM.

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Greg Haislip
Managing Director – Banking
Microsoft Corporation

We are in very competitive times where customers are very fickle and have many different options for selecting financial services providers so bankers should focus their priorities on retaining their best customers and extending those relationships through innovative products and services while delivering those capabilities through the most relevant channels of interaction. Excellence in service execution for this customer base should be a top priority as the cost of customer acquisition is far greater than retention. This will require bankers to have the ability to recognize interactions with varied customer segments and to have the ability to deliver a differentiated level of service to this high value, profitable customer base while migrating less profitable customers to self-service channels.

Turbulent financial markets and unprecedented levels of competition have made it very difficult for bankers to drive short-term profits. Competition for deposits and an inverted yield curve have put very heavy pressure on interest margins and in many cases, bankers in order to offset this and to grow, have been much more liberal with both sides of the balance sheet, impacting profitability. Profitability has also been impacted by liquidity levels in the financial markets and the subprime mortgage market which have negatively affected many banks’ trading operations. Due to the current real estate downturn, this will continue to be a challenge in the short term so those banks with robust balance sheets will fare best and may even be able to take advantage of market conditions to improve their market position over the long term.

Understanding your customers, delivering a differentiated service level and managing your business effectively requires banks to invest in technology that empowers their people to execute flawlessly at the moment of customer contact, creates brand differentiation in self-service channels and is also able to measure results and react to changing market conditions. Analytics technologies that enable customer segmentation and predictive treatments will drive high service levels and broader product penetration as well as provide business insight. Collaborative capabilities provide the ability for employees to more effectively respond to customer needs. Investing in rich self-service technologies such as rich Internet applications, Web 2.0 tools and mobility will also be very important in order to connect and service the younger generation of customers and to provide brand differentiation and broader distribution capabilities. And of course, insuring that corporate and customer assets are secure must always be a part of any technology investment as well.

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Kevin H. Connelly
Senior Vice President & Managing Director
Financial Services Group
Trintech, Inc.

In today’s competitive financial services marketplace, financial institutions need to offer the most flexible, powerful banking solutions to the customers who drive the success of their business – all while keeping a close eye on the metrics that can impact the institution’s bottom line: operational costs, organizational efficiency, and exposure to risk. These metrics apply to both short-term and long-term goals, and represent the fundamentals of good banking practices.

In many respects, payment streams are an area that many institutions have failed to properly optimize. We like to use the term ‘Financial Object’ to describe a wide range of items such as checks, deposits, ATM transactions, loans, wire transfers, ACH payments, money orders and much more. Even the most robust core systems cannot track, analyze and report on these types of complex financial objects with different and evolving life cycles.

Using the .NET Framework, Trintech has developed an entirely new way for financial institutions to granularly manage their internal and business client’s multi-faceted payment streams: LifeCycle Management (LCM) Payments. LCM Payments is a fully-integrated, Web browser-based solution that can handle the majority of an institution’s internal operational and business client processes in regards to account reconciliation and positive pay. Now institutions can harness the power of true account reconciliation and lifecycle management functionality with the LCM Payments’ workflow and analysis tools for checks, wires, ACH transactions, and unclaimed property – including all DDA activity such as service charges, adjustments and NSF fees.

Without a doubt, fee income is a critical component in driving bank profits. One way to drive new fee income is for commercial banks to offer new, innovative, value-added cash and treasury management services that enhance their commercial customers’ ability to manage their payments, while simultaneously mitigating the associated risks. Every institution is looking to differentiate itself in the marketplace, now one can by offering more flexible, value-added, advanced information reporting capability combined with next generation account reconcilement and positive pay services to customers.

As payment methods converge from paper to image to electronic, now is the time for financial institutions to implement next-generation .NET-based platforms such as LCM Payments.

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Paul Citarella
Executive Vice President
Alogent Corporation

We are at an interesting crossroads in banking operations where bankers no longer have to choose technologies that only drive profits, or reduce costs, or increase customer satisfaction and loyalty. While on the surface these goals may appear mutually exclusive, there are numerous technology solutions available that – when properly implemented – can support a convergence of basic objectives, where this was not easily achievable in the past.

Branch deposit automation is a good example of this new opportunity. Tellers can now quickly and efficiently handle tasks that have been traditionally performed in the back office, enabling the financial institution to leverage real-time capabilities such as error correction, fraud protection, and faster funds availability. There are also tremendous efficiency gains and cost reductions enabled by branch deposit automation, because in truncating paper items, the institution can eliminate expensive courier fees from transporting them between branches and centralized processing locations.

Institutions are learning that by automating deposit processes at the branch, they can increase profits when tellers have more time to cross- and up-sell their products and services. Our Sierra Xpedite® suite of remote deposit automation solutions has been found to increase teller productivity by 25-40% or more, and to produce approximately 90% read rate accuracy on checks deposited. This enables even new employees to spend more time selling to customers without reducing their transaction volume, and to deliver more personalized service. In the long term, all of this translates into greater customer loyalty.

Branch deposit automation improves float management and facilitates earlier fraud detection. Not only can Alogent’s system capture, validate, endorse, proof, and balance checks, it can automatically send large-dollar amount checks through risk mitigation procedures that are unique to each institution. This end-to-end workflow represents a true real-time check processing environment that we call Straight Through Check Processing™.

The success of Alogent’s image-based deposit automation solutions is evidenced by our client base: more than 1,000+ institutions ranging from de novo banks all the way up to five of the largest US banks have successfully deployed our solutions. Using the advantages of Microsoft .NET development, we have the flexibility to quickly develop and customize our applications. And, combined with a service-oriented architecture (SOA) approach, we now integrate into the industry’s greatest number of bank processing platforms.

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David Hampton
Managing Director, Financial Business Solutions
Getronics

Current market conditions are somewhat problematic for retail bankers looking to increase profits and reduce costs. It is difficult to determine the best strategies for delivering the right mix of profitable products and services. Yet one thing is certain – every delivery channel is expanding, and no channel can be marginalized in its respective importance to consumers.

Successful institutions will be ones that make banking as convenient as possible for their customers, whether it is in person, or online, or by the telephone via their call center, IVR or mobile banking. The future is looking more and more mobile, but again the branch network – once predicted to be replaced by Internet banking – is as thriving and important as ever.

At Getronics, our Channel Renewal solution provides a comprehensive set of IT services required to support all of the delivery channels that customers demand and expect today. Whether they are simply banking or planning their future, they want to bank whenever, wherever and however they choose. While our software applications are best in class, recently earning Getronics the 2007 Microsoft Custom Development Solution Partner of the Year award, our services extend far beyond software to include security, networking, workspace management and multi-channel integration. Our clients view us as extensions of their IT departments, enhancing their ability to manage the ebb and flow of IT projects.

When developing a working relationship with an institution, one goal we establish is to free up their resources so they can focus on their core competencies and provide stellar customer service. One way to do this is by taking capital technology investments off the table and keeping costs down with significant IT labor savings. This solution is a perfect example of how banks are cutting costs, while simultaneously standardizing on a modern branch environment that efficiently runs their core technologies. It is a unique cost of ownership model, one that gives our clients the flexibility to respond to market conditions quickly and on a continuous basis.

Our clients, who range from global financial leaders to regional institutions, are reaping numerous benefits from their investment in the retail banking applications we have developed and are delivering on the Microsoft .NET platform. We are pleased to extend these benefits end-to-end by leading the way with network, desktop, and infrastructure services – providing banking institutions the support they need to remain competitive in their markets.

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