crnrstone.com
480.423.2030
Technology Challenges
and Opportunities for FIs
October 20, 2015
PRESENTED TO:
IBA Technology 2015 Conference, Des Moines, IA
PRESENTED BY:
Brad Smith, Managing Director, bsmith@crnrstone.com
gonzobanker.com
● Industry and Technology Trends
Overview
Justifying Technology Investments
● Aligning Execution and Strategy Through Tech
● Tech Justification & Payoff
● Tech Governance
● Tech Planning
1
Industry Trends
2
External Environment
Strategic Forces - Economic
Economic
Regulatory
Competitive
Strategic
Forces
Demographic
Technology
3
Assessment
Seven years
after the
recession,
the economy
is still tepid
and slow
growing
GDP (Economic Growth)
Unemployment
Inflation/ Deflation
Trend Line

Interest Rates (Borrower/Saver)
Housing
CRE
Capital Spending
External Environment
Cornerstone Economic Scorecard
Industrial Capacity Utilization
U.S. Budget Deficit

U.S. Debt
U.S. Stock Market
Consumer Confidence
Consumer Debt/Income
Personal Income/Wages
Key
No Issues Identified
  Improving
Some Issues
 Neutral
Significant issues
  Worsening
4
Key Points


The economy is
forecasted to
continue
improving at a
slow-to-moderate
pace into 2016
GDP Forecast (YR)
CPI Forecast
3.0
1.87
2.0
2.17
2.32
2.39
Dec
2016
June
2017
Dec
2017
1.15
%

1.0
0.0
Jan 2015
According to
economists, the
Fed is expected to
raise rates by
December 2015
Jan 2016
Jan 2017
10 Year Note Forecast
2.66
Unemployment is
expected to
decline to under
5% by June 2016
2.98
3.27
Dec
2015
Federal Funds Rate Forecast
3.67
3.53
1.61
June
2016
Dec
2016
June
2017
Dec
2017
Unemployment Forecast
5.2
1.04
Dec
2015
June
2016
Dec
2016
June
2017
Dec
2017
Forecasted Housing Starts
(Millions)
5.0
1.30
4.8
%
2.82
2.27
0.53
Dec
2015
June
2016
External Environment
Economic Forecast
1.15
4.6
4.4
Dec June Dec June Dec
2015 2016 2016 2017 2017
Source: WSJ Aug 2015 Consensus Forecast
Jan 2015
Jan 2016
5
U.S. Commercial Banks Net Interest Margin
3.80
3.70
3.60
External Environment
Margin Compression
3.50
3.40
3.30
3.20
3.10
3.00
2.90
6
External Environment
Strategic Forces - Competitive
Economic
Regulatory
Competitive
Strategic
Forces
Demographic
Technology
7
External Environment
Digital Disruption
8
Deposits fund loans
Gather Deposits
Lending
Leverage deposit accounts for
cross selling opportunities to
generate fee income.
External Environment
Business Model Under Attack
Earn spread between loans
and deposits
Noninterest
Income
Use noninterest income to
diversify revenue and offset
overhead costs.
(Expensive) Branch Network and Overhead (NIE)
Returns for
Shareholders
Funds to
Reinvest in the
Business
9
Deposits
Loans
Checking Alternatives
Payments
Currency
Wealth
External Environment
Deposit Disruptors
Online Banks
10
Deposits
Loans
Payments
Currency
Wealth
External Environment
Online Banks
11
Checking Alternatives
Deposits
Loans
Real-Time PFM
Safe-to-Spend
Payments
Currency
Debit Card Solutions
Wealth
P2P & Bill Pay
12
Deposits
Loans
Payments
Currency
Wealth
External Environment
Walmart Continues to Pursue Banking In Several Ways
13
External Environment
Online Banks Deposit Growth
Deposits
Loans
Payments
Currency
Wealth
Online Banks($000)
Q2 2015
Q2 2010
5 Year Growth
Ally Bank
$61,840,924
$31,887,653
$29,953,271
USAA Federal Savings Bank
$62,160,501
$37,296,300
$24,864,201
Discover Bank
$48,371,401
$34,472,848
$13,898,553
EverBank*
$16,601,019
$9,011,689
$7,589,330
Nationwide Bank
$5,125,785
$2,847,961
$2,277,824
Bancorp Bank (Simple/PayPay, et al)
$4,325,263
$1,907,089
$2,418,174
Green Dot Bank**
$686,550
$27,993
$658,557
American Express Bank
$33,708,079
$14,377,743
$19,330,336
USCommercial Banks
$11,109,916,457 $8,240,570,523 $2,869,345,934
*EverBank figures include acquisition of Bank of Florida deposits of $1.5 billion in 2010.
**Green Dot figures include acquisition of Bonneville Bancorp deposits of $36 million in 2010
5 Year CAGR
14%
11%
7%
13%
12%
18%
90%
19%
6%
14
External Environment
A Startup Originating Billions in Business and Consumer Loans
15
Source: Lendingclub.com
Deposits
Loans
Payments
Currency
Wealth
Financial institutions must digitize the loan origination process
while taking advantage of imaging, eSignature, decision
support and web services work flow technologies. Most
institutions are already too far behind.
External Environment
The Future Of Lending Is About Execution
16
Deposits
Student Lending
Loans
Payments
Referral Based Growth
Currency
Wealth
Flexible Products & Programs
External Environment
SoFi
$4B+ Funded
17
Deposits
Loans
Payments
Currency
Wealth
External Environment
CrowdSource Funding
18
Source: Realtymogul.com; Kickstarter.com; crowdstreet.com
Deposits
Loans
Payments
Currency
Wealth
External Environment
How Will Consumer Behavior Impact Your Marketing Strategy?
When people change the
way they shop for homes, it
is likely to impact the way
they shop for mortgages as
well.
19
Source: Trulia.com
2013
Volume ($B)
Paper
Cash
Checks
Cards
Credit Cards
Debit Cards
Prepaid Cards
Electronic
Recurring ACH
Bill Pay
Total
Source: Nielsen
$
$
$
$
$
$
$
$
$
$
$
2,699
1,557
1,053
4,897
2,491
2,111
220
1,349
795
553
8,945
2018
Share
30.18%
17.41%
11.77%
54.75%
27.85%
23.60%
2.46%
15.08%
8.89%
6.19%
100.00%
Volume ($B)
$
$
$
$
$
$
$
$
$
$
$
Share
1,653 14.49%
1,030 9.03%
566
4.96%
7,580 66.48%
4,113 36.07%
3,142 27.55%
263
2.30%
2,170 19.03%
1,486 13.03%
683
5.99%
11,402 100.00%
Expected
Share
Change
-15.69%
-8.38%
-6.81%
11.73%
8.22%
3.95%
-0.16%
3.95%
4.14%
-0.20%
0.00%
External Environment
Payments by the Numbers
20
Apple Pay
Deposits
Loans
Near Field
Communication
Payments
Currency
Tokenization
Wealth
Less Data to Merchants
Over 500 FIs & 2200
Retailers
“…When you add your card, a unique Device Account Number is assigned, encrypted,
and securely stored in the Secure Element, a dedicated chip in iPhone, iPad, and
Apple Watch. These numbers are never stored on Apple servers. And when you make a
purchase, the Device Account Number, along with a transaction-specific dynamic
security code, is used to process your payment. So your actual credit or debit card
numbers are never shared by Apple with merchants or transmitted with payment.”
Source: Apple.com
21
Deposits
Loans
Payments
Currency
Wealth
• MCX recently announced CurrentC as its mobile wallet
solution
o Will be accepted in 110,000+ merchant locations
o Will offer merchant loyalty programs and instant
coupons
(on the phone and at point-of-sale)
• Will transact through cloud-based QR code (may consider NFC
or a low energy Bluetooth, like a beacon)
o Merchants do not need to upgrade existing terminals for
QR Code, only install relatively inexpensive software
• CurrentC expected to process via ACH; bypassing Visa, MC
and AMEX
External Environment
MCX
22
1.
Unlock phone
2.
Launch
CurrentC app
3.
Generate QR
code
4.
Place in front
of scanner
5.
Enter pin code
to complete
VS.
1.
Place mobile
device near
NFC reader
2.
TouchID to
validate
purchase
External Environment
MCX Vs. Apple Pay
Former Walmart CEO Lee Scott:
“I don't know that MCX will succeed, and I don't care. As long as Visa suffers.”
•
•
CVS and Rite Aid (part of MCX) turned off NFC readers in October, disabling Apple Pay and consequently Google
Wallet and other mobile wallets
•
Rumor is MCX wants a monogamous relationship with retailers and bypass credit card companies (could
eliminate $20 Billion in credit card fees)
•
MCX has come out and stated merchants can choose which technology to adopt
•
MCX states there have been recent talks with credit card companies to allow cards in CurrentC
Conflicting technologies ultimately disadvantage the consumer by creating customer confusion and consequently
slowing the adoption of mobile wallets
23
Deposits
Loans
Low Energy Bluetooth
Payments
Currency
Hands Free
Wealth
External Environment
PayPal Beacon
No Lines
24
Source: Paypal.com
It's easier to pay with cash or a credit/debit card
75%
Deposits
Loans
Payments
Currency
Wealth
I'm concerned about the security of mobile payments
59%
I don't see any benefit from using mobile payments
59%
I don't trust the technology
41%
I don't have the necessary feature on my phone
37%
It's difficult or time consuming to set up or use
31%
I don’t really understand all the different options
31%
I don't need to make any payments or someone else
pays the bills
23%
The places I shop don't accept mobile payments
23%
External Environment
What are the main reasons you have decided not to use mobile payments?
• Mobile Wallets have been slow to gain traction
o Consumers site convenience of cash/cards, security and lack of benefit
• Can Mobile Wallet developers convince consumers that pulling their phone
out of their pocket is safer and more convenient than cash/card?
Source: Consumer and Mobile Financial Services 2015
25
Deposits
Loans
Payments
Currency
Wealth
• For retailers, the cost of hardware they’ve needed to install has
been the biggest challenge
• With the liability shift in October 2015, this changes
• Manufacturers typically include NFC technology in EMV terminals
• But....
o Not all retailers will turn on the NFC capability (i.e. Walmart –
though Walmart has the technology in their stores, they only
want it to work with MCX/CurrentC)
o Retailers will need to include the cost of contactless software
in their business plan if they turn on NFC
External Environment
Will EMV Change This?
VS.
26
Deposits
Loans
Payments
Currency
Wealth
External Environment
Virtual Currency
“Blockchain Technology: The Ultimate Disruption in the Financial
System”
-
27
EVERY bank needs to upgrade their focus on customer experience
“And the reason I’m so obsessed with
these drivers of the customer experience
is that I believe that the success we
have had over the past 12 years has
been driven exclusively by that
customer experience. We are not great
advertisers. So we start with customers,
figure out what they want, and figure
out how to get it to them.”
● Amazon provides access to the order details for EVERY transaction
you’ve ever done with Amazon.
● Amazon now provides order summary reports.
● Amazon lets you manage the list of addressees to whom you send
stuff AND associate different payment mechanisms for each.
● Best of all, Amazon tells you WHY they recommended something to
you and lets you tune the assumptions on which it bases its
recommendations.
28
User Experience
Component
Integrated in 2011
• Branch
Channels
• Call center
• Internet banking
• ATM, Kiosk
Integrated Service
Experience
• Common account
information across selfservice channels
• Common names, nicknames
Integrated Buying
Experience
Employee Support
• On-line form would be
handled by central group
• Some status information
• Specific groups supported
specific channels
Integrated in 2015
Add
• Mobile
• Social media
• Mobile payments
• Real-time channel movement as
needed
• User initiated or system initiated
(alert)
• Common user personalization of
tools across channels
• User and system initiated new
account offers
• Seamless movement between
channels
• Proactive status notification
Integrated Delivery Channel Planning
The Concept of ‘Integrated’ Takes on New Meaning
• Every user-facing employee
supports every channel
29
Moving From Mobile Banking Transactions to Mobile Engagement
Think & Experiment: How can we use mobile’s powerful draw to better
engage our customers, teams, communities, and even branch investments ?
Source: Mashable, Harris Interactive poll of 2210 adults
30
External Environment
How Fast Will Our Retail Delivery Systems Shift?
US Branch and Deposit Aggregates
Number of Branches
Deposits ($ trillion)
100,000
99,152
12
99,540
98,509
97,263
11
97,330
96,329
94,715
9.405
92,030
10.072
9
8.923
90,000
8
8.230
7.663
7.553
6.440
85,000
6.695
7
7.019
Deposits ($ Trillions)
10
94,740
95,000
Number of Branches
98,183
6
5.928
5
80,000
4
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Year
Data as of Sept. 29th, 2014.
Based on FDIC Summary Deposits data as of June 30 of each year.
Excludes U.S. Branches of foreign banks and OTS trust institutions that were not required to file the branch office survey.
Excludes credit unions.
Source: SNL Financial and FDIC Summary of Deposits filing.
31
Redirect
Reduce
•
•
•
•
•
•
•
•
•
•
•
•
Mobile/Web Banking Technology
Universal Branch Staff
Branch Efficiency Technology
Outbound Calling
Unified Voice, Chat, Video Call Center
E Marketing Talent/Strategies
E Payment Experimentation
External Environment
Leaders Must Oversee a Great Transition in the Next 10 Years
Avg. Branch Square Footage
Branch Teller Staff
Inbound Call Center Staff
ATM $ Investment
Legacy Payment/Delivery
Technology Contract Pricing
32
Built For Speed and Efficiency
●
Branches of the future will be focused on speed and
self-service (operating efficiency).
●
Smart Ipad like ATMs that have capabilities such as:
– Deliver any desired increment of bills
– Bill Payment
External Environment
Branch of the Future?
– Pre-paid Card Loading
– Enhanced Bulk Deposits
●
Personal Bankers will focus on deepening relationships of high-value clients.
●
ATM Area can be walled off after hours for 24 hour service
●
Teller stations are located in the back behind a glass wall to indirectly discourage
customers from using staff to perform teller services.
●
The focus on self-service will drive down cost but can could potentially hurt sales
opportunities in the future due to less interaction / engagement.
33
Source: BAI.org
Built For Engagement
●
Employs universal associates rather
than traditional tellers.
●
Environment strongly encourages
active engagement with staff.
●
Café type setting that offers coffee
and wine glasses (but you have to
bring your own wine).
●
The focus on engagement helps develop deep profitable relationships and
encourages needs based selling but also has a higher cost structure.
External Environment
Branch of the Future?
34
Source: BAI.org
Traditional Branch
Built For Convenience
●
Wells Fargo’s “Neighborhood Bank Format”
is one third the size of traditional branch.
●
Contains small private areas where
customers and bankers can have private
financial conversations.
●
Smart ATMs with predictive analytics based
on customers previous transactions and
preferences.
New Branch
●
“Typical branches are larger than
4,000 square feet and cost
roughly $3 million to build,
depending on the size and other
features. Older branches can be
as large as 10,000 square feet.”
●
“Minibranches take up 2,000
square feet or less. Bank
executives estimate the
operating costs of the branches
can be 40% to 50% below
traditional branches.”
External Environment
Branch of the Future?
35
Source: WSJ, The Financial Brand
External Environment
Strategic Forces - Technology
Economic
Regulatory
Competitive
Strategic
Forces
Demographic
Technology
36
Technology Spending Shifting to Strategic and Delivery
Spending
Category
Strategic
Impact
Industry
Spending
Data Com
Low
.0279%
• Pricing commoditized
Infrastructure
Low
.0486%
• Pricing commoditized though IaaS pricing is clouding
.0525%
• Pricing commoditized – opportunity to reduce costs at
renewals
• Negotiate emerging services (very carefully)
• Watch COLA’s
.0475%
• Pricing all over the board
• BSA, ERM, CRM, ECM, LOS….acronyms!
• The “solution behind the solution” in many cases
.0280%
• Mobile, P2P & A2A – start-up pricing in place
• Watch terms – only go long if sufficient reward
• SLA’s can be crucial as emerging services increasingly
SaaS or BPO
• Debit, internet banking / bill pay – pricing
commoditizing & very fluid. Big opportunity at renewals
& with payments exclusives.
Core
Strategic
Electronic
Delivery
Medium
High
High
Vendor Opportunities
Sources: The Cornerstone Report (note Spending as % of Assets);
Experiences from the Cornerstone Contract Vault
37
External Environment
Top Bank and Credit Union Executive Technology Issues
38
External Environment
It’s Less About Core Replacement Than The Entire Technology Environment
39
External Environment
Digital Portfolios Are Growing With Opportunity and Headaches
40
External Environment
The Typical Application Portfolio Priorities for CIOs
41
Hype Quadrant
Bitcoin/
Blockchain
Mobile
Payments
EMV
Big
Data/BI
Cloud
ERM
PFM
eMarketing &
CRM
Mobile
Replace
ments
Fraud
Prevention
Commercial
Tools
Consumer
RDC
Internet
RDC
Consumer
Banking
Replacement
LOS
API/Middleware
Mortgage
LOS
ECM/EWF
eSignature
Internet
Cash Mgmt VDI/Server
Replacement
Consolidation
Business LOS
Wearables
Teller/New
Account
Platform
Core
Evaluation
Online
Account
Opening
External Environment
Brad Smith’s Buzzkill Chart
Process
Improvements
Call
Center
Systems
.
Website
Makeovers
SAN
Technology
Contract
Renegotiations
42
Other Tech Trends
●
March to the Cloud
– Do you even know what your users are doing on your network
– Software as a Service (SaaS)
– Infrastructure as a Service (IaaS)
●
More applications, more vendors, more outsourcing
●
Technology organization challenges. Who owns?
– Business Analysts
– BCP planning and testing
– Vendor management (VMO)
– Project management (PMO)
– Data warehouse
– Marketing analytics
– Payments
●
Technology staffing challenges
– The new CIO
– Cyber/Info Security skill sets
– More outsourcing is not eliminating IT FTE’s, it’s just making them more specialized
and harder to find (eg, WebLogic/WebSphere integrators, cloud brokers/security)
43
External Environment
Strategic Forces - Demographic
Economic
Regulatory
Competitive
Strategic
Forces
Demographic
Technology
44
In the next 5 years, there will be 8 million new millennial households.
• Projected to spend $1.6 trillion on new homes
• Projected to drop $600 billion on rent
• 80% plan to improve their living situations
• 80% already own or plan to own someday
• 75% believe ownership is an important long-term goal
• 73% believe homeownership is an excellent investment
• 16% don’t plan to buy a home
Source: Nielsen
External Environment
Millennial Dreams for the Future…
45
External Environment
Strategic Forces - Regulatory
Economic
Regulatory
Competitive
Strategic
Forces
Demographic
Technology
46
• Risk-Based Capital
• Cyber Security
• Mortgage
Regulations (QM)
• CFPB
• Definition of ERM
External Environment
Key Regulatory Agenda Items for Banks
Risk-based capital
standards and CFPB
inspired consumer
regulations are the two
biggest regulatory issues
for banks.
47
2016 IT Exam Focus Areas
● Cybersecurity
– Self-assessment tool. They’re proud of it so you better use
it. Decision points:
● Where are you vs What do you report
● What do you do with results vs What do you commit to
● Map to other standards (eg, NIST)?
– Third Party Testing and your response
– More frequent vulnerability testing and reporting to Board
● Appendix J
● BCP
● Incident Response
● Vendor Management
48
Economic – The low interest rate environment will continue to have a
strain on net interest margin. Banks must focus on controlling expenses
and improving viable sources of noninterest income to offset margin
compression. Becoming more sophisticated with the risks/return of
lending segments is also critical.
Competitive – We must keep an eye on industry disruptors and
continuously evaluate our business model to maximize our customer
value proposition. We should steal market share, but we need to be
analytic and smart enough in our approaches to make it profitable.
Technology- We must leverage technology to drive efficiency and offer
a consistent/continuous customer experience across all channels. Also,
we must prepare ourselves for an industry shift including the
transformation of branches and migration to remote channels.
Demographic- We must systematically collect relevant data and insights
regarding Gen Y/Z financial needs/preferences and track the wealth
transfer from Baby Boomer to younger generations.
Regulatory- We must find ways to be efficient and effective with
compliance while integrating ERM into our way of doing business.
External Environment
Impact of The 5 Forces
49
ALIGNING EXECUTION TO STRATEGY THROUGH TECH
50
●STRATEGIC EXECUTION MODEL
STRATEGY
Long-Term Vision
Business Model
Objectives &
Priorities
Brand
ALIGNMENT
Products &
Delivery
Channels
Process
People
• Organizational Structure
• Talent Management
• Compensation/Incentives
•
•
•
•
Benchmarking
Best Practices
Innovation
Process Design
Technology
•
•
•
•
Infrastructure
Applications
Vendor Management
Service Delivery
EXECUTION
Performance Reporting
Resource Management
Asset/Liability Management
Aligning Execution to Strategy Through Tech
Strategic Execution Approach and Framework
Change/Project Management
Enterprise Risk Management
51
Reality: Business Strategy Drives Technology
● Investment in lending systems to support strong niches
and lines of business
● Access of customers to multiple channels to increase
convenience, loyalty
● Deployment of profitability systems to support
relationship analysis, pricing
● Investments in CRM to support customer service goals
● We want to differentiate, not just be “fast follower”
52
Reality: Customer Experience and Process Improvement Drives Technology
4 Performance stats that will blow your mind
● 75% of time spent with new customers involves
computer input versus building relationships
through a conversation.
● More than 50% of banks still originate
commercial loans manually.
● 60% of financial institutions still use a paperbased new accounts process.
● Over 70% of statements are still being mailed.
http://www.gonzobanker.com/2015/08/top-4-performance-stats/
53
…But Technology Often Drives Strategy
● “We need better mobile apps to stay in the game.”
● “The regulators hammered us on compliance systems.”
● “The competition is killing us with online origination.”
● “Losses are piling up so we need better fraud detection.”
● “If we want commercial checking, we need better
account analysis and cash management tools.”
54
JUSTIFICATION AND PAYOFF
55
Optional
Requirement (Reg, Strategic)
Required
“Leaps of Faith”
Treat as R&D
Allocate some portion of the budget
Start slowly and accept failure
Hope for but don’t expect payoff
“The Plumbing”
Manage costs vs. peer/industry
benchmarks
Manage standards
Manage centrally
Plan refreshes/upgrades
Bundle if it makes sense
Low
“Proceed with a case”
Manage payoff
Measure business improvements
Use peer numbers
High LOB accountability
Accept best of suite
Justification & Payoff
Managing the Justification Quadrants
“Instant Winners”
Fast track
Manage to payoff
LOB accountability
Accept best of breed
Measurable Payoff (ROI, metrics)
High
56
Optional
Requirement (Reg, Strategic)
Required
Justification & Payoff
How Technology Investments Can Differ -- SAMPLE (Be Your Own Judge)
Pure R&D
Mobile payments
ITM
PFM
Prepaid Debit
P2P
Profitability
CRM
Data warehouse
Cloud
SEO
Branch automation
MCIF
Loan automation
ECM
Online origination
Mobile Banking
Internet banking
Most core systems processing
Most infrastructure
ATMs
Hot site
Low
esignature
Fraud Detection
Middleware
Cash management
Instant Issue Debit
Measurable Payoff (ROI, metrics)
High
57
● ROI accountability on the line of business, not I.T.
● Manage “hard” payoff vs. “soft” payoff
● Hard payoff comes in two ways
– Lower salaries and benefits (higher volumes/same people) or FTE
reduction
Justification & Payoff
Justification & Payoff
– Reduced cost of existing hardware, software, third parties
● Soft payoff is harder to measure, but can be valid
– Relationship/account growth (maybe new revenue)
– “Sticky” service (maybe retained revenue)
– Faster delivery (maybe new revenue)
58
Business Group
Hard ROI
Soft ROI
Retail/Branches
• Transactions per teller
• New accts opened per platform FTE
• Calls per call center agent/day
• Relationships per customer/
household
• Checking accounts per branch
Commercial
• Portfolio size/relationships per
lender
• Assistants/support staff per lender
• Decision time
• Renewal time
• Cross-sells to customers
• Customer access/convenience
• Customer retention
Electronic Delivery
• Debit/ATM revenue
• Cost per Internet banking
user/month
• Cost per bill
• Cost per ATM/debit transaction
(authorize and network)
• Cost/revenue per business cash
management user
Operations
• Deposit accounts supported per
deposit ops FTE
• Loans supported per loan ops FTE
• Accounts per BSA/AML FTE
• Internal service levels
• Audit scores
Admin
• Employees supported per HR FTE
• Assets per finance FTE
• Internal service levels
• Better information
Justification & Payoff
Examples of Hard and Soft Payoff
59
Areas
Questions to Ask
Justification
• Were projects approved with sketchy justification?
• New I.T. purchases required to meet a
standard architecture?
Functionality
• Buying software modules based on requirements?
• How much customization was purchased and what was
the justification?
Capacity
• What projections were used to determine licensing
levels purchased (users, seats, assets, volumes, etc.)?
• What projections were used to determine physical
capacity purchased (storage, speed, bandwidth, etc.)?
Contract
• Did the business impact analysis determine vendor
service level requirements?
• How were prices negotiated?
Operations
• Do you know where your hardware, software, network
and information assets are?
• Are purchased systems being utilized; if not, can you
get rid of them?
• Are you looking for waste in contracts?
Justification & Payoff
Potential Weak Spots in Justifications
60
GOVERNANCE
61
● I.T. governance is key in value realization
– Vendor management programs should include cost, benefit AND risk
Governance
Governance Critical in Justifications
– Business case justification, use IT Steering Committee to vet and prioritize
– Disciplined evaluation process
– Always get competitive bids and always negotiate
– Training, training, training – plan on it
–
Annual IT performance review and usability study
–
Review your bills
–
Assign application owners
● Formal I.T. plans are in place, but many are tech heavy and light on
strategy/payoff
● I.T. steering committees are in operation
– Most have a good meeting/minutes discipline but most do not say “NO” enough
– Most don’t look back to see if ROI exists
– Many turn out to be information updates
– Tracking reports of projects in place, but accuracy and timeliness are still challenges
62
● Renegotiate, renew, replace and/or retire contracts
– Do not let a contract auto-renew unless you want to give a free
gift to your vendor
Governance
There is Real Opportunity in Contracts
– Negotiate price
– Negotiate terms and conditions - warranties, indemnification,
regulatory guarantees, termination penalties, deconversion costs
– Negotiate SLAs and other performance guarantees
● Gather contract inventory
● Determine what contracts are up for renewal in next 36 months
● Develop decision/negotiation timeline
● Watch terms – shorter terms are usually your friend
● Dispose of unwanted systems/modules
● Avoid inactive/closed account fees where possible
● Watch out for COLA and price increases
63
High
Taking Advantage of Price Commoditization – Plan the Spending Redirect
Infrastructure
Degree of Price Commoditization
Telco
ATMs,
Processing
Core
Systems
Debit
Processing
Bill Payment
Online
Deposit Apps
Online
Mortgage
Apps
Internet
Banking
Item
Processing
Risk
Management
Mobile
Low
P2P
Low
Realization of Price Opportunity
High
64
TECHNOLOGY PLANNING
65
The Big 5 Strategy Questions
Questions
Gazelle’s Model
1. What’s your purpose?
Core values and purpose
2. What makes you truly unique?
Brand promise
3. Where do we want to be in 1, 3 and 10 years?
Targets, goals and BHAG
4. What needs to happen to get you there?
Actions
5. Who’s responsible for what and by when?
Schedule
(aka USP or competitive advantage)
(aka strategies)
Industry Disconnect?
Is technology aligned with strategy?
Bank CEO’s Strategic
Priorities for 2015
1. Grow commercial loans
2. Become more efficient through
workflow and/or technology
3. Use technology for competitive
differentiation and improved
customer experience
CIO/CFO/COO Technology
Priorities for 2015
1. Improve use of consumer Internet
banking systems
2. Improve use of ACH origination
3. Improve Internet RDC
Bank Strategy/Technology Cheat Sheet
Bank Strategy
Potential
Technology Connection
Grow commercial loans
Commercial loan origination system (LOS), loan pricing
system, CRM, core upgrade
Grow cash management/business
deposits
Core upgrade (for account analysis, sweeps, ZBAs),
automated wires, IB/mobile commercial remote deposit
capture, commercial Internet banking, positive pay,
innovative small business products like picture pay or
reverse positive pay, mobile CRM/account opening
Grow consumer business
Mobile products, Loyalty/Rewards programs, Call Center
Improve efficiencies
Enterprise content management (ECM), other workflow,
automated decisioning, middleware
Improve risk management/compliance
Enterprise risk management (ERM), stress testing tools,
LOS
Acquire another bank
Upgrade core, upgrade infrastructure, decision on
payments and LOB apps
Improve sales
CRM, sales incentives, appointment setting, online
account opening, website upgrades incl SEO, blogs and
product recommender
Typical Technology Planning and Budgeting Issues We See
• Lack of alignment with bank strategic plan (assuming there is one!)
• Plan without a budget
• Budget without a plan
• Plan that’s never approved
• Budget that’s never approved
• Plan is really just a wish list
• Plan is just a list of projects
• Plan is just a list of IT audit findings
• Budget is for infrastructure only
• CFO dictates budget to IT executive
• CIO dictates budget to CFO, little business line involvement
• Plan and forget
Correlation with Bank Strategic Plan
Bank
Strategic
Plan
Technology
Plan and
Budget
Marketing
Plan and
Budget
Retail
Plan and
Budget
Bank
Strategic
Plan and
Budget
Commercial
Plan and
Budget
Planning and Budgeting Process
Bank Strategic Plan
Business Line Plans
IT Steering
Committee
IT Department Plans
•
•
•
•
•
•
•
Project plans
Upgrade plans
Rotation schedule
Wish lists
Staff changes and comp
Target metrics
Audit and exam findings
Strategic
Technology
Plan
Technology
Budget
Bank’s
Budget
Process
Get into the Planning Rhythm
•
Bank-wide planning
– Planning session to answer the 5 Big Questions
– Document the bank-wide plan (ideally on one page)
•
Departmental planning sessions
– Planning sessions to identify departmental Top 5 priorities
– Document the departmental/LOB plans (ideally on one page)
– Build departmental budgets
– IT builds its plan/budget and then incorporates departmental IT needs
•
Get executive approval on departmental plans and initial budgets
•
Build the bank-wide budget
•
Present bank-wide plan and budget to Board for approval
•
Review all plans monthly
•
Update all plans quarterly
Technology Planning - Short Version
Key questions to answer:
• What are the top 3-5 IT actions to support the bank’s goals?
• What do you expect IT spending to be over the next 3 years?
• What key performance metrics do you want to track and what are your targets?
3Year
1 Year
90 Days (Q1)
Top 3-5 Priorities to
support bank’s 2018
plan
Top 3-5 Initiatives to
support bank’s 2016
plan
• Name by each
• 2-3 milestone dates
Top 3-5 Initiatives to
support bank plan
• Name by each
Expected IT spending Expected IT spending Expected IT spending
One other metric
One other metric
One other metric
IT Metrics
• Types
– Spending
● IT Expense as % of Assets, IT Spending per FTE, IT Spending as % of NIE, Budget Variance,
etc
– Delivery
● % of SLAs met, Uptime/Availability, Turnaround time, response time, etc.
– Satisfaction
● Employee satisfaction with IT support, Internet banking/Mobile/ATM customer
satisfaction, etc
– Risk/Compliance
● IT Audit Findings, IT Audit Repeat Findings, BCP Recovery, Vendor Management, etc
• Compare to peer if possible…it’s still important to compare to yourself
• Pick two to include in your plan and to report to management monthly
– Spending (must include)
– One other counter balancing metric (we suggest a performance KPI like satisfaction or % of
SLA met)
Forecasting Your 1-3 Year IT Spending
• Top down approach
– Determine current IT Expense as % of Assets
– Multiply by projected 2016, 2017, 201 assets
• Bottoms up approach
– Baseline 2015 budget/actual
– Plus CPI adjustments and contingency
– Plus New infrastructure upgrades
– Plus New strategic initiatives
Your IT Budget
Degree of Flexibility
Non-discretionary
Semi-discretionary
– Personnel costs
– Maintenance
‒ Sunk costs
– Upgrades and
‒ Audit or exam promises
replacements
– Some compliance
related expenses
‒ Existing contracts
Discretionary
– New strategic
investments
Showing budget broken into these categories is a simple way to show what % of budget is discretionary
Takeaways
• Bank products, channels and customer experience are now largely
driven by technology. Internet banking and mobile is the new core.
• The CIO opportunity - IT as pragmatic business advisor not just the
grump that say no or the dreamer that just wants new toys
• Improve IT governance to focus on value creation and GRC
• Start with your bank’s strategic plan
• Big questions to answer in your strategic technology plan
• What are the top 3-5 IT actions to support the bank’s goals?
• What key performance metrics do you want to track and what are your
targets?
• What do you expect IT spending to be over each of the next 3 years?
• Involve IT Steering Committee
• Review progress monthly and update quarterly
• Celebrate accomplishments
www.gonzobanker.com
A collection of observations,
ruminations, predictions and random
thoughts on financial services from
the team at Cornerstone Advisors
American Banker calls GonzoBanker a “hip and flip” email newsletter.
Don’t miss out – sign up for your FREE subscription today
at www.gonzobanker.com
GonzoBanker™ is a publication of Cornerstone Advisors, a Scottsdale, Arizona-based
consulting firm specializing in best practices strategy, technology and process
improvement for banks and credit unions.
Visit our Web site at www.crnrstone.com
78
Strategy
Solutions
•
•
•
•
Strategic Plan Development
Management and Board Retreat Facilitation
Industry Profiles and Market Assessments
Delivery Channel & Payments Planning
Performance
Solutions
•
•
•
•
•
Benchmarking – Cornerstone Scorecard™
Best Practice Assessments
Performance Improvement Plans
Process & Workflow Improvement
Organizational & Customer Experience
Improvement
Vendor
Management &
Contract
Solutions
•
•
•
•
Contract Negotiation Services
Contract Renewal Advisory Services
Vendor Intelligence – Cornerstone Vault™
Contract Opportunities Assessments
Merger
Advisory
Services
General
Business
Advisory
Services
System
Selection
•
•
•
•
•
Core & Ancillary Systems
Business Requirements Analysis
RFP Development
Vendor Selection and Liaison
Conversion Oversight Services
Technology
Services
•
•
•
•
Technology Assessments
Strategic Technology Plans
Project Management
I.T. Governance and Design
Risk
Management
Services
•
•
•
•
Enterprise Risk Management planning
I.T. Disaster Recovery Assessment
Information Security Program Assessment
Business Continuity Planning Services
• Merger Assessments and Due Diligence
• Transition Planning and Merger Integration
•
•
•
•
Outsourcing Assessments
Due Diligence
Governance
Expert Witness
Knowledge
Sharing
At Your Service
Cornerstone Services to Help Financial Institutions Reach Their Full Potential
• The Cornerstone Report, Benchmarks and
Best Practices for Mid-Size Banks
• GonzoBanker industry newsletter
• BAI Banking Strategies
• GonzoBanker Roundtables for CEOs, CIOs,
CFOs, CLOs, CHROs and CMOs
• Speaking Engagements
79