Fiducitation: Opportunities for FSI in the Current Market

Author: Shah Cheema

Fiducitation: A synthesis of public Internet resources on the topic.

Instructions: Use the Table of Contents to navigate the document. Each citation has up to four distinct parts: Annotation, Clip, Source, and Cached File. Our Annotation and Clip (text or graphic from source document) help you decide whether to view the document. The source document may be viewed by clicking on the Source URL or by opening the embedded Cached File. All information is attributed to its source.

Synopsis:

Financial services opportunities arise from new technologies, changing markets, globalization, new legislation or regulations, changing customer needs, operational rationalization, and variations in the competitive landscape. Each of these factors generally play out at the line of business level, which we define as a related set of individual products/services targeted at a discrete customer group. So, for example, opportunities in the syndicated commercial loan business probably have little bearing to those in credit card merchant acquisition, exchange-traded funds, or the property-casualty insurance market, even though the same financial institution may or may not compete in all of them.

Financial services consists of at least 150 distinct lines of business, including various types of banking, brokerage, consumer credit, investments, securities processing, life insurance, and P/C insurance. In each, the opportunities may be different. For example, the WTC attack has already had a very specific impact on the P/C industry as it grapples with the concept of terrorist coverage. In anticipation of dramatic rate increases, capital infusions and/or acquisition activity is high today, while these factors have not affected the commercial banking industry.

In our opportunity survey below, we have attempted to identify and isolate a limited number of quality documents that support 24 categories of opportunity. The list can never be comprehensive, of course, but it can serve as a quick guide to further evaluation and analysis. The documents generally address specific themes or opportunities arising from one of the factors mentioned above. Because the documents come from diverse sources, they all may have different points of view, but the reality is that too many writers tend to be biased towards one or another opportunity. Thus, there is an opportunity to investigate many ideas, but few writers attempt to rank all of them comparatively.

Only some of these opportunities will have attractive potential for a given institution, depending on its size, capital, regulators, current lines of business, geographic spread, technological know-how, and self-perceived competitive advantages. Moreover, even the largest institution cannot simultaneously pursue all opportunities without diluting its efforts. An assessment of what to research next requires this knowledge.

We have not broken out opportunities specifically by line of business because of the time involved and the fact that there are so many lines of business, only some of which would be germane to any specific institution. In addition, there are many other documents on these 24 topics. We have filtered the available universe to get at documents which are recent, authoritative, discuss opportunities specifically instead of simply being descriptive, which preferably are quantitative, and which do not duplicate each other.

Many citations do estimate the size of the opportunity and those sizes can be one input to opportunity prioritization. Obviously, other factors are also important, such as the costs, the risk, the market, and the life cycle status, especially where technology change is involved. Further, other opportunities not listed here may be viewed as important to specific institutions, based on their situation, and should be factored in on an iterative basis.

Exchange Traded Funds (ETF)Copyright: No Copyright Available

Author:

Total Net Assets of International Exchange Traded Funds, 1993-2000 (billions of dollars)

Annotation: As this chart shows, the ETF industry is undergoing incredible growth. The United States, which has a seven-year head start on the Europeans, has dominated the industry in assets as of 2000.

Clip:

Source: http://www.ici.org/pdf/etf_figure1.pdf

Cached File:

Exchange Traded Fund Assets (June - August 2001)

Clip:

Assets of ETF’s by Type ($millions)
	August 2001	July 2001	June 2001
Domestic (Broad-based)	63,248	67,028	66,921
Domestic (Sector/Industry)	6,747	6,650	6,721
Total Domestic	69,995	73,678	73,643
Global/International	2,090	1,842	1,917
All	72,085	75,520	75,560
Value of Shares Issued and Redeemed by All ETF’s ($millions)
	August 2001	July 2001	June 2001
Gross Issuance	5,420	5,615	7,235
Gross Redemptions	2,740	3,037	3,807
Net Issuance	2,680	2,578	3,428
Number of Exchange Traded Funds by Type
	August 2001	July 2001	June 2001
Domestic (Broad-Based)	33	33	30
Domestic (Sector/Industry)	33	33	30
Total Domestic	66	66	60
Global/International	26	25	25
All	92	91	85

Source: http://www.ici.org/facts_figures/etf_0801.html

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Trends In Mutual Fund Investing in US (June - July 2001)

Clip: The combined assets of the United States’ mutual funds decreased by 0.7 percent to $6.895 trillion in July, according to the Investment Company Institute's official survey of the mutual fund industry. Assets of stock funds declined by $87.11 billion in July.

Net Assets of Mutual Funds (billions of dollars)

	July 01	June 01	% chg	Dec 00
Stock Funds	3,589.9	3,677.0R	-2.4	3,962.3
Hybrid Funds	352.4	350.6R	0.5	349.7
Taxable Bond Funds	590.3	574.6R	2.7	530.1
Municipal Bond Funds	292.5	286.7R	2.0	277.9
Taxable Money Market Funds	1,814.9	1,804.8R	0.6	1,607.2
Tax-Free Money Market Funds	254.7	247.8R	2.8	238.1
Total	6,894.7	6,941.5R	-0.7	6,965.2

R=revised data

Source: http://www.ici.org/facts_figures/trends_0701.html Cached File:

ETF’s: The Growth Story of 2000 - 86% Growth (January 2001)

Annotation: Although this article by Financial Research Corporation has outdated figures, it makes bold

statements regarding the future of the ETF industry, including the one below.

Clip: Over the next five to seven years, FRC believes that total ETF assets could reach as high as $500 billion. We expect that ETF’s will be making headlines for many years to come.

Source: http://www.mfcafe.com/pantry/bps_012401.html

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Mutual Funds, Annuities & Other Brokerage Services

2001 Consumer Investment Study

Annotation: comment.

Clip: The 2001 Consumer Investment Study, released in August, 2001, is an annual study that provides important industry benchmarks to allow banks to compare their success in offering proprietary and non-proprietary mutual funds, annuities and other brokerage services.

Source: http://www.cbanet.org/surveys/investments/invesurv.html

e-401(k)s Set to Grab $2 Trillion in Assets in 4 Years

Annotation: This forecast comes from Pensions & Investments v29 no6 p 46 Mar 19, 2001

Clip: The electronic 401(k) plan, or e-401(k), could disrupt the defined contribution industry and reach $2 trillion in assets by 2005, according to a study by Towers Perrin. E-401(k)s are developed and serviced online. Some service providers offer more plentiful investment options for e-401(k)s than those offered by traditional providers. According to Towers Perrin, e-401(k) services include electronic business-to-business clearinghouses that are designed to link plan sponsors who want 401(k) services with providers of those services. The window of opportunity for new e-401(k) providers is expected to close within five years.

Source: http://www.ifebp.org/prez29.asp (Can be found half way down page)

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Customer Relationship Management

CRM: A Solution Evolution

Annotation: comment.

Clip: "What people realized—I think it took them a while to realize—is that CRM isn't really a technical solution," Rubin says. "There's technology that's a part of it, but CRM has a lot more to do with behavior and marketing, and focus internally at the institution, and training of sales reps and customer service representatives. The technology is just a small part of that."

Source: http://www.banktechnews.com/btn/articles/btnoct01-11.shtml

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The CRM Blend

Annotation: comment.

Clip: Initial hype about CRM led financial institutions to rush for solutions. Instead, they often encountered failure. Now a new mantra for CRM strategy has emerged: Simplify, simplify.

Source: http://www.banktechnews.com/btn/articles/btnoct01-10.shtml

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Reading The Clickstream

Annotation: comment.

Clip: Payoffs from tracking online customer behavior have proven elusive, causing institutions to re-think their Web site strategies. Is clickstream analysis ready for prime time?

Source: http://www.bai.org/bankingstrategies/2001-sept-oct/articles/clickstream/index.html

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Connecting With Customers

Annotation: comment.

Clip: Strategic success largely hinges on execution; and every major issue ultimately relates to the customer. Simple concepts that are easily acted upon? Not when you're running a far-flung corporation with perhaps tens of thousands of employees. That's why we continue to dig inside the strategies to see what it takes to make them work.

Source: http://www.bai.org/bankingstrategies/2001-sept-oct/articles/connecting/index.html

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For Efficiency’s Sake

Annotation: comment.

Clip: The issues are complex for all payments stakeholders. Electronic payments indisputably are faster and more efficient. That's why the Banking Industry Technology Secretariat, or BITS, a major trade group, has been promoting electronic check presentment, or ECP, a kind of halfway house between a paper-based and fully electronic system. Under this system, collecting banks scan checks with ECP equipment and then electronically process them through to the paying bank, accelerating the posting process by about a day.

Source: http://www.bai.org/bankingstrategies/2001-sept-oct/articles/efficiency/index.html

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Outsourcing

Insurers Go Offshore To Develop IT

Annotation: comment.

Clip: To help fill the open technology spots—combined with a number of predominantly enticing financial incentives—companies are looking to new offshore labor sources.

Source: http://www.insurancetech.com/it2/story/IST20010531S0004

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Effective Practices for Selecting a Service Provider

Annotation: comment.

Clip: extracted text.

Source: http://www.fdic.gov/regulations/information/btbulletins/brochure1.html

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Tools to Manage Technology Providers’ Performance Risk: Service Level Agreements

Annotation: comment.

Clip: As community banks outsource more of their mission critical applications, properly managing the relationships between financial institutions and technology service providers¹ becomes increasingly important.

Source: http://www.fdic.gov/regulations/information/btbulletins/brochure2.html

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Moving Upstream

Annotation: comment.

Clip: As outsourcing becomes old hat to credit and collections professionals, relationships are solidifying. Creditors are outsourcing more services as they become increasingly savvy about the benefits and more confidant about the agencies to whom they entrust their customers. One trend is the move to a customer-care service approach, with creditors looking to agencies for loss and fraud prevention, marketing, and customer-retention offerings. Outsourcing is also being driven by developments in call center technology and the bad debt market.

Source: http://www.collectionsworld.com/11sr01.htm

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Convergence

Realism during times of opportunity

Annotation: comment.

Clip: This law, the Gramm-Leach-Bliley Act, presents opportunities and challenges for the financial sector, which must be approached realistically and prudently. The most obvious opportunity for the financial sector now is one of ongoing consolidation and broadening - consolidation largely in continuing response to the end of legal constraints on geographical operations and broadening as financial institutions take advantage of the opportunities to expand lines of business offered by the act. The consolidation movement among banking organizations, of course, predates the passage of the most recent financial modernization law.

Source: http://www.bis.org/review/r000410c.pdf

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ABI Study Finds Continued Strong Growth of Bank-Insurance Industry

Annotation: comment.

Clip: Plans to enter the bank-insurance business and plans to expand existing programs both remain high. Highest on the list of products banks plan to BEGIN marketing over the next two years are personal property/casualty (26%), followed by long-term care (24%), commercial property/casualty (23%) and accident/health insurance (23%).

Source: http://www.aba.com/abia/abia_pr2000abi_study.htm

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Consumer Investments Study Shows Trends in Bank Sales of Investment Products

Annotation: comment.

Clip: Bank consumer investment programs saw their profit margins improve last year for the first time since 1997. Net income (before corporate overhead allocation and taxes) in the typical bank consumer investment program was 32% of revenue during 2000, up from 28% in 1999. Profit levels are still below 1994’s high of 36%.

Source: http://www.cbanet.org/news/Press%20Releases/InvestStudy01.htm

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Technology Makes Convergence a Reality

Annotation: Examines the reasons and technological factors involved with increased aggregation in the FSI.

Clip: Faster than you can say Gramm-Leach-Bliley, the fault lines separating banking, brokerage and insurance are being ruptured by tectonic shifts in technology.

Source: http://www.wallstreetandtech.com/story/supp/WST20010405S0004

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Cross Selling In The Spotlight: A Technology About To Be Born

Annotation: comment.

Clip: Imagine a financial institution so entwined with its customers that product offerings seem more like partnership arrangements than sales pitches. The client's first contact may be walking in the door of a brick and mortar establishment and asking for a checking account, but from that point forward, every banking, insurance and securities whim is anticipated and the proper product provided at the right time through the most advantageous channel.

Source: http://www.insurancetech.com/it2/story/transformationSeries/IST20011009S0001

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The Value of Integrative Risk Management for Insurance Products with Guarantees

Annotation: comment.

Clip: Insurers increasingly offer policies that converge with the products of the capital markets, and they face a need for integrative asset and liability management strategies. In this paper we show that an integrative approach--based on scenario optimization modeling--adds value to the risk management process, when compared to traditional methods. Empirical analysis with products offered by the Italian insurance industry are presented. The results have implications for the design of competitive insurance policies, and some examples are analyzed.

Source: http://fic.wharton.upenn.edu/fic/wfic/papers/01/0106.pdf

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Consolidation, Mergers & Acquisitions

How To Make Restructuring Work for Your Company

Annotation: comment.

Clip: Chase Manhattan Bank and Chemical Bank used their merger as an opportunity to both reduce operating costs and achieve an important strategic objective. Combining the two banks created opportunities to eliminate overlaps in such areas as back-office staff, branch offices, and computing infrastructure.

Source: http://hbsworkingknowledge.hbs.edu/item.jhtml?id=2476&t=finance&sid=2477&pid=2478

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Globalization & International Markets

Alan Greenspan: Globalization

Annotation: comment.

Clip: During the past half-century, barriers to trade and to financial flows have generally come down, resulting in a significant broadening of world markets. Expanding markets, in turn, have enhanced competition and nurtured what Joseph Schumpeter called "creative destruction," the continuous scrapping of old technologies to make way for the new. Standards of living rise because the depreciation and other cash flows of industries employing older, increasingly obsolescent, technologies are marshaled, along with new savings, to finance the production of capital assets that almost always embody cutting-edge technologies. This is the process by which wealth is created incremental step by incremental step. It presupposes a continuous churning of an economy in which the new displaces the old.

Source: http://www.bis.org/review/r011025a.pdf

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Gulf doors begin to open

Annotation: comment.

Clip: An opening to private investment in key sectors of the Saudi Arabian economy is exciting considerable interest across the Gulf Co-operation Council (GCC) region. Speculation that investment in the Saudi gas sector could require some $25bn in the next few years alone is just the sort of talk Gulf bankers and their international rivals and associates like to hear.

Source: http://www.thebanker.com/art2sept00.htm

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Japan’s Economic Outlook Remains Gloomy But Opportunities Exist for Investors

Annotation: comment.

Clip: Can investors hope for an economic turnaround in Japan anytime soon? Wharton faculty and people who analyze Japan’s economy and markets for U.S. investment firms in Tokyo say the economic outlook remains dismal. But they add that some sectors of the Japanese economy may be attractive for long-term investors.

Source: http://knowledge.wharton.upenn.edu/articles.cfm?articleid=445&catid=1

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European Market Evolution: New Products and Old

Annotation: comment.

Clip: It's not just the pace of change within their businesses that must give the chief executives of Europe’s leading financial firms headaches. It is also the difficult issues of weighing the relative importance of factors in the evolving European market- indeed whether or not such a market place is finally coming into existence.

Source: http://www.bba.org.uk/html/2055.html

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European ATM Growth Continues

Annotation: comment.

Clip: The European ATM market is still growing. During 2000, the installed base of ATMs in Europe rose by almost 19,000 units to break the 250,000 barrier. But only certain regions are experiencing significant growth as the market matures in other countries. According to the latest report from Retail Banking Research, based in the United Kingdom, "ATMs and Cash Dispensers 2001," the big five countries of Germany, Spain, France, the United Kingdom and Italy all have over 30,000 installations and account for over three quarters of Europe's total.

Source: http://www.banktechnews.com/btn/articles/btnoct01-5.shtml

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The Makings of Imminent Insurance Markets in Asia

Annotation: comment.

Clip: With China's imminent entry into the World Trade Organization, the deregulation of the Japanese insurance market, and the liberalization of Indian insurance regulations, Asia is poised to become a major insurance magnet over the next decade. Foreign companies able to capitalize on the recent increased openness of the Asian markets stand to reap substantial profits. However, companies entering these largely uncharted waters will encounter various navigational obstacles. The roadblocks and risks facing eager insurers are both political and psychological in nature, with many linked to cultural differences. This paper will broadly survey the motivations (of both foreign insurers and Asian governments) underling the ongoing market deregulations in several countries, the obstacles to foreign entry, and the potential risks that must be considered. Also outlined herein are insurance models which may be appropriate for specific markets.

Source: http://www.casact.org/pubs/dpp/dpp01/01dpp1.pdf

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Investment Management in Australia

Annotation: comment.

Clip: A feature of the funds management industry in Australia over the last decade has been the increasing use of specialist investment managers. Assets placed with professional investment managers in Australia increased from A$154 billion (US$122 billion) in June 1990 to A$549 billion (US$328 billion) in June 2000, a faster rate of growth than in the underlying managed funds pool itself. Investment management is one of the key growth areas in Australia's finance sector.

Source: http://www.axiss.com.au/media/executivebriefings/investmentmanagement/html/section3.asp

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Check Imaging & Document Management

Automation Of Document Management

Annotation: comment.

Clip: While check imaging and archival proceeds apace, IT providers say even midsize and small banks have begun to take notice of the "other" imaging story: applications tied to non-check-related workflow and business process improvements. To be sure, these solutions are old news on many fronts—especially those involving mortgage loan documentation—but recent improvements in the technology may deserve a second look from other financial services companies.

Source: http://www.banktechnews.com/btn/articles/btnoct01-2.shtml

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Imagine There's No Paper

Annotation: A must read article. This article focuses on image storage.

Clip: Business Bank has already experienced exponential payoffs from the system. "Previously, to order an archive-stored item, the bank had to go to microfilm, and it would take three to five days. Now it takes seconds," said Paul Stowell, senior vice president at $180 million Business Bank.

Source: http://www.infoxpress.com/reviewtracker/reprints.asp?page_id=1029

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Check Imaging: Bank's Web-based Imaging Attracts $2 Million in Deposits

Annotation: To access this article, log on to http://www.thebankingchannel.com (requires free registration) and search on check imaging. The article (August 1, 2001) appears first on the list and emphasizes the importance of check imaging and web-based presentment.

Clip: “The fact that it’s over the Internet makes a difference,” said Slider. “A lot of banks don’t offer access on the Internet and a lot of businesses have to download software and dial our bank over a modem. It’s nearly impossible to pass an image over a phone line.” Before the web-based system, the bank mailed out monthly statements with copies of cleared checks to businesses.

Source: http://www.thebankingchannel.com

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Electronic Payments, I-Payments, Person-2-Person Payments & Electronic Bill Presentment and Payment (EBPP)

EBPP Starts to Click with Consumers

Annotation: US banks seek new functionalities specific to the us market, eg: EBPP

Clip: With an e-billing market that Gartner expects to reach 16 million American adults by 2005, the stakes obviously are growing. Pete Soraparu, executive director of programs for the Bank Administration Institute, describes the future EBPP landscape: "When you have the technology available, all it takes is a combination of putting the markets together around it, and you can make a lot happen pretty quickly."

Source: http://www.banktechnews.com/btn/articles/btnaug01-3.shtml

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Making I-Payments Pay

Annotation: comment.

Clip: Bankers see opportunity in person-to-person Internet payments, but developing a profitable business model will take time.

Source: http://www.bai.org/bankingstrategies/2001-sept-oct/articles/i-payments/index.html

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Internet Banking & Other Web-Based Financial Services

Internet Banking: Market Developments & Regulatory Issues

Annotation: Charts and graphs of Internet banking size and growth are shown on pages 25-32 with differentiation between large and small banks.

Clip: This paper describes the current state of Internet banking and discusses its implications for the banking industry and regulatory policy. At the end of 2000, a minority of banks offered Internet banking, but analysis of data collected by Office of the Comptroller of the Currency bank examiners shows that over half of all banks will offer Internet banking by year-end 2001. As a group, large banks are more likely to offer Internet banking, although a growing number of small banks offer it, or plan to. Nevertheless, large banks appear to have an advantage over small banks in the range of services they offer over the Internet.

Source: http://www.occ.treas.gov/netbank/SGEC2000.pdf

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Learning-by-Doing, Scale Efficiencies, and Financial Performance at Internet-Only Banks

Annotation: comment.

Clip: The Internet has become a major distribution channel for U.S. banks and thrifts. Nearly two thousand banks and thrifts have established transactional websites since 1997. 1 Most of these websites are deployed by banks and thrifts alongside traditional brick and mortar branches in a “click and mortar” banking model. The core of this distribution strategy is to route repetitive, low-value-added transactions through the inexpensive, low-touch Internet channel, while routing low-volume, high-value-added transactions through expensive, high-touch brick and mortar

branches. In contrast, only a handful of these websites are used as the sole delivery channel in a stand-alone, “Internet-only” banking model. The core of this distribution strategy is to leverage the savings from eliminating physical overhead into better prices and faster growth.

Source: http://www.chicagofed.org/newsandevents/bankstructureconference/2001/BSC_paper.pdf

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Internet Banks Broaden Product Lines

Annotation: comment.

Clip: Doing business on the Internet—and only the Internet—is getting trickier and trickier for some financial institutions. Many have altered their core businesses over the past year and expanded into new areas to protect themselves during difficult economic times. For instance, E*Trade saw online trading slow, and created new business lines for itself by gaining more customers for its E*Trade Bank.

Source: http://www.us-banker.com/usb/articles/usboct01-16.shtml

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Web Applications

E-Wallets: Chasing The Holy Grail of E-Payments

Annotation: comment.

Clip: While the role of banks supporting standalone general-purpose wallets is uncertain, the inevitable growth of e-payments and e-commerce are paving related opportunities. For example, McPherson foresees the rise of "intelligent assistants" that can add security and value to online transactions. For example, "some of the ways we can already see this happening is with the one-use credit card numbers that Discover and American Express are now using." In this approach, consumers are either assigned a single credit number for one transaction - thereby disabling the number for future transactions. Or, a credit card number may only be activated at a single retailer's site. Electronic bill presentment and payment also presents a new horizon for credit-card issuing banks, according to Crone. For example, bill aggregation services can provide access to various sites, including auctions, banks and credit cards.

Source: http://www.banktechnews.com/btn/articles/btnoct01-0.shtml

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Wireless Technology

The Wireless Internet for Securities Brokers

Annotation: One of the focal points for this document is the growing use and importance of alerts for FSI.

Clip: Although adoption rates for mobile trading are currently less than 2 percent of all online traders, customers are clearly interested in mobile services. SchwabAlerts, for example, has 950,000 subscribers, or 22 percent of online Schwab traders, as documented in company reports for 2000.

Source: http://www.csc-fs.com/downloads/wp_wrls.pdf

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Are We There Yet?

Annotation: comment.

Clip: Acknowledging the modesty of the initiative, Buskard insists that such an effort is characteristic of the wireless opportunity as it exists today for insurers. "From a ubiquitous computing standpoint, there's really not a huge amount of bandwidth available to get very sophisticated high-performing applications available everywhere around the country," he says.

Source: http://www.insurancetech.com/it2/story/IST20010629S0003

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Channels & Branding

Customization: Making Real Money in a Virtual World

Annotation: comment.

Clip: By carefully coordinating their online offerings with other channels, financial institutions can provide highly customized services to preferred customers. For years, financial leaders dreamed about delivering such offerings to valued clients, but individualized solutions almost always seemed distant ideals rather than attainable goals. Today the online channel is changing all that. It provides financial institutions with an improved ability to collect and analyze information on individual customers and, more important, to use this enhanced intelligence to creat a tailored offering at

Source: http://www.bcg.com/publications/files/Customization_Making_Real_Money_in_a_VirtuallWorld_Mar_01.pdf

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Challenge: Integrating the Channels

Annotation: comment.

Clip: Andersen Business Consulting surveyed nearly 150 banking, lending, asset management, brokerage and insurance firms between April and May of this year to identify leading e-business practices and opportunities in the financial services industry.

Source: http://www.us-banker.com/usb/articles/usboct01-21.shtml

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Brand new way ahead

Annotation: comment.

Clip: This situation is about to change for the benefit of the customer as well as the financial institutions. While 30- or 60-second commercials sell the attractions, plans or the low service cost, banking consumers will demand entertainment, information and closure in the online world, whether it is through digital interactive television (DiTV), the PC or the mobile. For that reason, many financial institutions and consumers alike will soon start hearing a lot about the "brand channel".

Source: http://www.thebanker.com/art3oct01.htm

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Strategic Business Alliances

Clinching The Partnership

Annotation: comment.

Clip: Elevating alliance management to a core discipline is the necessary first step in ensuring success. Institutions such as KeyCorp and Wells Fargo & Co., for example, have transformed alliance management into a line of business. They have developed centralized policies, procedures and specialized skills to help identify good partnership opportunities, negotiate smart contracts and monitor results. The alliances that are struck within this framework then receive a commitment of resources and attention from senior management commensurate with their strategic importance.

Source: http://www.bai.org/bankingstrategies/2001-sept-oct/articles/clinching/index.html

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Alliance For Profit

Annotation: comment.

Clip: Banking companies have struck a wide array of alliances and partnerships with non-bank firms to help them in asset management, product distribution, and most importantly, e-commerce. Since not even the largest bank has the resources to go it alone in all these areas, such affiliations make sense. Indeed, Speer & Associates estimates the top 100 banks alone are involved in several thousand partnerships.

Source: http://www.bai.org/bankingstrategies/2001-sept-oct/articles/publisher/index.html

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Electronic Authentication & Digital Signitures

Authentication in an Electronic Banking Environment

Annotation: comment.

Clip: This guidance applies to both retail and commercial customers and is intended to be "technology neutral." Financial institutions may use this guidance when evaluating and implementing authentication systems and practices whether they are provided internally or by a third party service provider. Furthermore, management should review this guidance in conjunction with other guidance to ensure that safety and soundness objectives concerning confidentiality, data integrity, contract enforceability, and effective internal controls are adequately addressed.

Source: http://www.ffiec.gov/PDF/pr080801.pdf

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Bulletin on Digital Signatures

Annotation: comment.

Clip: The future is increasingly pointing to the use of digital documents and digital signatures. The speed with which a bank adopts new technology is not as important as the quality of the solution that a bank adopts. Banks should thoughtfully consider the attributes of a new or augmented information system to be certain it will interoperate with their existing systems, and the solution vendor is capable of withstanding a changing marketplace.

Source: http://www.fdic.gov/regulations/information/fils/banktechbulletin.html

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Smart Cards, Speedpass Systems & Surrogate Card Numbers

U.S. To Hit Smart Card Milestone Next Year, Exec. Predicts

Annotation: comment.

Clip: Financial institutions in the United States will issue as many smart cards next year as their counterparts in France, predicts Thomas Savare, CEO of Puteaux-based card maker Oberthur Card Systems.

Source: http://www.eventshome.com/Manual/manualpage.asp?manualId=2614&parentId=5358&parentId=10014&eventId=7145&type=6&pageId=9439

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Surrogate Card Numbers

Annotation: comment.

Clip: Credit card fraud costs issuers millions of dollars a year. (Fortunately for U.S. consumers, their liability normally is limited in cases involving demonstrable fraud.) The Internet, of course, is a "card not present" environment, so merchants really have no way of proving someone is who he says he is.

Source: http://www.banktechnews.com/btn/articles/btnoct01-1.shtml

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I'll Take A Citi Card Application With A Big Mac And Fries

Annotation: comment.

Clip: Citibank, the nation's largest credit card issuer, today joined McDonald's Corp., the world's largest restaurant chain, in promoting the Speedpass quick-pay system throughout the Chicago metropolitan area.

Source: http://www.cardforum.com/html/news/110501_1.htm

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Patenting Risk

Financial institutions and patenting risk

Annotation: comment.

Clip: The changing relationship between patents and the financial industry will lead to some major risks and

opportunities for financial firms over the next few years. Patent risk is clearly becoming more important

as lenders and investors in the world’s financial markets increase their exposure to technology based firms whose revenues depend on secure patents.

Source: http://www.erisk.com/news/features/PatentingRisk.pdf

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Mortgage Refinancing Market

Homeowners Continuing To Increase Their Loan Balances When Refinancing, According To Latest Freddie Mac Study Near Record Low Mortgage Rates Encourage Homeowners To Refinance

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Clip: Freddie Mac today reported that 63 percent of borrowers who refinanced single-family mortgages during the third quarter of 2001 increased their loan balances by five percent or more, compared to a revised 58 percent in the previous quarter.

Source: http://www.mbaa.org/briefs/2001/1102a.html

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Quarterly Totals
Refi Volume as a %
of Total Production

Quarter	Total Orgs	% of Refis
2Q 2001	$546 billion	55.7%
1Q 2001	$389 billion	54.5%
4Q 2000	$298 billion	26.8%
3Q 2000	$288 billion	18.3%
2Q 2000	$272 billion	18.2%
1Q 2000	$209 billion	21.3%

How Long Can the Good Times Last?

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• Based on the current run-rate of production, U.S. lenders will produce an eye-popping $1.71 trillion in loans this year, eclipsing the record year of 1998, when $1.55 trillion in loans came to pass.
• At least five lenders, and maybe six, will produce more than $100 billion in loans this year. Back in 1998 just one lender, Norwest Mortgage (now called Wells Fargo Home) produced more than $100 billion in loans.

Source: http://www.us-banker.com/usb/articles/usboct01-05.shtml

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Business-2-Business (B2B) Operations

The Business to Business Race is On

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Clip: Financial services are critical to business-to-business e-commerce. If banks don’t provide them, others will. Such new competitors as Clareon, a nonblank payments network for business-to-business Internet transactions, and Bottomline Technologies, which provides comprehensive Internet solutions for billing and payment, are threatening to capture financial institutions’ traditional interface with business customers. As intermediaries between banks and their business customers, these newcomers gather transaction and payment information that is vital to tailoring the products and services that create competitive advantage. Banks should analyze data collected in business-to-business commerce to improve their understanding of customers’ behavior, hone their ability to manage risk, and lower service costs.

Source: http://www.bcg.com/publications/files/Business_to_Business_Race_Is_On_Oct_00.pdf

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B2B: Where’s The Gold

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Clip: B2B e-commerce has hit a wall, but roundtable participants say banks that stay the course and partner intelligently ultimately will find a payoff.

Source: http://www.bai.org/bankingstrategies/2001-may-jun/articles/b2b/index.html

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Small Business Market

The Diffusion Of Financial Innovations: An Examination Of The Adoption Of Small Business Credit Scoring By Large Banking Organizations

Annotation: comment.

Clip: It is widely recognized that innovation plays a crucial role in improving productivity. Equally important, however, is the rate at which innovations diffuse through an economy. Faster diffusion of innovations means a more immediate impact, and thus a higher social return on the initial investment.

Source: http://www.chicagofed.org/newsandevents/bankstructureconference/2001/AkhaveinFrameWhite.pdf

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Customized Selling Key to Higher Small Business Sales

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Clip: The report explains that the gap between small business customers’ perception and banks’ reality is due to two factors-a need for enhanced customer relationship management (CRM) and a lack of consultative selling on the part of banks.

Source: http://www.cbanet.org/news/Press%20Releases/sbmq092401.htm

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Wealth Management

Wealth management services to be sought by not-so-wealthy households.

Annotation: comment.

Clip: In explaining the key findings of new financial services marketing research by TowerGroup, Jim Eckenrode was kind enough to offer an astute suggestion: "I suppose the headline here could be something like, 'Wealth management: it's not just for the wealthy anymore.'"

Source: http://www.banktechnews.com/btn/articles/btnoct01-12.shtml

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Staff Training, Retention & Productivity

Training Translates To Higher Returns

Annotation: comment.

Clip: Still, investment in employee development varies wildly among agencies, financial institutions, and other entities involved in credit risk and debt collections (story, page 60). "It is a great mix - there are small agencies that spend a lot and large agencies that spend nothing," says Patricia Boyland, director of education for the Minneapolis-based American Collectors Association Inc. "As with any industry, some have a stronger belief in training than others," Boyland adds.

Source: http://www.collectionsworld.com/09sr01.htm

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What Makes a High-Performance Workplace? Evidence from Retail Bank Branches

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Clip: This paper examines the effects of two high-involvement approaches to organizing work in retail bank branches: worker discretion and cross-functional flexibility. Both discretion and flexibility have positive effects on productivity and sales effectiveness. The effects of discretion and flexibility on performance in conjunction with one another are significant and negative. The worst performing branches have low-involvement work practices. Branches that have high flexibility or discretion perform better than branches with high levels of both.

Source: http://fic.wharton.upenn.edu/fic/wfic/papers/00/0030.pdf

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Behavioral Finance & Business Strategies

Is Behavioral Finance a Growth Industry?

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Clip: Behavioral finance clearly isn’t a fad. "It’s accepted as a field in finance, whereas five or six years ago it wasn’t," says Simon Gervais, a professor of finance at Wharton. "There’s now a serious corps of people working at it." More research has recently been published about how individuals make investment decisions, the implication of those decisions for asset prices, and, increasingly, the behavioral biases that affect decision-making in corporate finance.

Source: http://knowledge.wharton.upenn.edu/articles.cfm?articleid=444&catid=1

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The New Importance of Scale

Annotation: comment.

Clip: Established boundaries are breaking down, and advancing technology is extending companies’ ability to monitor their businesses. As a result, scale—a progressive classification of amount, rank, or size—is becoming more important in managing the modern financial institution. The advantages of scale can now be achieved not only by large competitors but also by midsize and even small players. Indeed, capitalizing on the benefits of scale means much more than accumulation assets, making acquisitions, and increasing sales, although in many cases it still involves all of that. Now, some company managers are being more intelligent as they figure out exactly where and how to make the most of scale and its benefits. Senior financial executives need to reexamine scale to ensure that they are employing it to their companies’ greatest advantage.

Source: http://www.bcg.com/publications/files/Importance_of_Scale_Apr_01_ofa.pdf

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Uncertainty, Technological Turbulence, Competition--What’s a Manager to Do? Thrive on It

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Clip: "It used to be that only sectors affected by de-stabilizing events or new technologies needed to continuously re-invent themselves, but today no one is immune," warns McGrath.

Source: http://knowledge.wharton.upenn.edu/articles.cfm?catid=12&articleid=231

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Marketing Analytics

Pinpointing Prospects

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Clip: Sophisticated marketing analytics can help carriers identify profitable customers. But few have adopted the technology. Instead, more insurers are using Internet-based tools to reach their target markets.

Source: http://www.insurancenetworking.com/current/nov01.htm#feat

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