USAA, Part II

The last post I made was an informational one where I made note of the atypical banking features that USAA offers its customers. Allowing members to deposit checks by scanning them in to their personal computer as well as other features which one would deem ahead of its time sets USAA apart from nearly every other bank in the country.

With only one physical branch located at the bank's headquarters in San Antonio, Texas you and I might not see USAA as a threat to the standard brick and mortar banks such as Commerce Bank (now known as TD Bank), Bank of America, and the thousands of others we hear about or pass on the street wherever we go.

Well, we're wrong.

In an article titled, "Some See Threat to Banks in New Criteria at USAA," Thad Peterson, the vice president of strategy and solutions for financial services at the St. Louis market research firm Maritz Inc., said that because USAA has only one banking branch, it does remote banking and customer service, largely through its call centers, "better than everybody else."

USAA, a bank that offers membership only to those who have served in the military and their immediate families has decided to open membership to those extended families, widows and others which has created the opportunity for capturing greater market share in the financial services industry.

The spokeswoman for USAA, Robie Cline stated USAA Federal is so small it is "not on the radar screen" of major banking companies. However, Peterson disagreed and stated that "They've never really had a branch banking operation, and banks should view them as a serious player regardless of geography."

The noteworthy part of this article is that the Internet has changed competition and business so much that even small banks like USAA whom offer incredible online and over-the-phone services and support now have the ability to compete with the big guys. It seems that its no longer about how many branches, employees, or accounts a bank has. But rather about how technologically advanced they are and how they can use it to their advantage and providing financial services unique to the industry. People go where the services offered and customer service are the best. The biggest name is no longer enough.
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http://proquest.umi.com/pqdweb?index=3&did=1534091771&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1226429164&clientId=31806&cfc=1

Kate Berry Some See Threat To Banks in New Criteria at USAA. American Banker [serial online]. August 12, 2008:10. Available from: ProQuest Information and Learning, Ann Arbor, Mi. Accessed November 11, 2008, Document ID: 1534091771.

Virtual Currency as a Way Out for Web Sites

It's tough not to laugh at articles that talk about the idea of giving someone a virtual gift. Back in the old days of the Internet the idea of transferring money for a virtual item stems from hardcore Diablo 2 video game players who would trade real money for virtual weapons in the game.

The trend obviously never took off outside of certain internet circles so it is hard to look at such trades as signs of anyone company pulling a profit. In the case of trade, a company might find it hard to break even if it is only taking a commission out of the trade.

So let's look at the practical reasons for having a virtual gift system in place. The new web era is rolling in and websites are looking for ways to monetize their websites in a down economy. Traditionally a website without a business strategy will use advertising to support itself economically but as money gets tight these sources of income become scarce.

The blog Venture Beat has an article on sites like MySpace and their plan to implement a virtual gift system just like Facebook. The high number of people on sites like Facebook and Myspace might explain for the reason as to why sites are pulling in the cash.

Sites like Myspace might actually have a chance of pulling a profit due to the fact that they are ten times the size of Facebook and probably have more users who have a vested interest in the site.

I am amazed that a person would be willing to purchase a virtual piece of property or to that end that the site is making up to $40 million. The old conventional wisdom said that people are most comfortable with purchasing tangible goods but obviously not every site can provide what Amazon and Ebay have.

Perhaps we are heading towards an era where people can find value in virtual commodities, a not so strange concept when you consider the fact that sites like Facebook control the number to virtual gifts to artificially create the illusion of demand.

Financial Crisis Boosts Online Peer-to-Peer Lending

With the financial crisis drying up loans from traditional banks, would-be borrowers are have begun looking to alternative channels for financing. They have turned to the fast growing online industry of peer-to-peer lending, which connect people who need money with people who have it. Going through companies such as Lending Club, Prosper, and Loanio, borrowers can get the money they want at lower interest rates than banks or credit cards, while individuals lending money get higher rates of return than many traditional investments. With the stock market down, lenders are bragging about the double-digit returns peer-to-peer lending is bringing. The industry is expected to grow over 800 percent by 2010, with lending reaching $5.8 billion.

Loanio, which opened on Oct. 1st, is aiming at borrowers who have been turned away from other lending sites because of poor credit. In its first week over 1,000 people signed up to participate. The company encourages borrower to use friends and family as co-signers and verifies a borrower’s financial footing for a fee. With the economy sliding towards recession, they are here to stay.

Lending Club limits itself to borrowers with good credit histories and brags of a default rate of less than 2 percent. It now has started a secondary business where lenders can cash out of their loans early after getting regulatory approval from the Securities and Exchange Commission. The average return for their lenders is a hefty 13 percent. This has led to Lending Club doing $20 million in loans in 18 months.

Peer-to-peer lending companies generate profits by collecting a one-time 2 to 3 percent fee on funded loans from borrowers and assessing a 1 percent annual loan-servicing fee on lenders. People willing to lend money bid on loan request by offering the lowest interest rate they are willing to accept. Though borrowers are generally selected based on credit rating and current debt, there is also a social element of how compelling their story is. One of the areas expected to thrive is in student loans, with students being prime low income and little credit candidates.

While demand in this industry is growing, this model is not without its problems. Earlier this month Prosper stopped signing up new lenders while the Securities and Exchange Commission evaluates its regulatory filings, a process that could take up to six months. This is amongst a gradual decline in the amount of new lending and average interest rate were increasing. As the economy continues to worsen, lenders are becoming weary of tying up their money in deals that typically run three years. As the industry grows, questions will also have to be answered as to the industry’s regulation, with many having to get bank licenses.

However in a time where we have seen our first ever drop in GDP, this person to person lending process could prove to be a vital way of keeping our economy growing.

We create the consumer experience of the future

A trend analysis of the financial services industry is a perfect example that depicts cycles of change in the economy. Such changes include more or less regulation, emphasis on technology, advanced business models, diversified business units, amongst others. One can argue that no two-time period in the financial industry has been identical. In an interview given to two Microsoft leaders, David Vander, who is the worldwide banking industry manager of Microsoft and Brian Jackson, who is the worldwide banking technology strategist of Microsoft as well, a lot of ground was covered with regards to the role information technology has played over the years and will play into the future in the financial services industry, most especially banking.
David asserts that there is a growing awareness and understanding that financial services is largely a digital industry and technology underpins everything this industry does. In addition to that, he states that a major strength of this industry is the tremendous innovation over the years, such as ATMs, mobile phone based interactions and Internet based interactions. On the other hand, he believes that the current turmoil will lead banks to re evaluate where capital is invested and will really enable businesses know where their comparative advantage really lies. I personally believe that we can already see this trend occurring in the economy. A lot of divisions in banks are being shut down and are reduced in size due to redundancy and cost saving strategies. I believe that the consequence of this trend will lead to a very slow growth in the banking industry for a long period of time and a smaller investment in human skill.
On the other hand, Brian strongly believes that the future of this industry lies within the clients from other businesses and the general public. He believes that there is going to be a trend of innovations beginning in the consumer market and making its way to onto the enterprise. Furthermore, he believes that there will be a technology trend around powerful and expensive hardware both in terms of processors and storage. Given this data, there will be a lot of change as to how businesses analyze consumer behavior and also build their models. Finally he believes that the future world of having numerous applications that may consist of several different services may deploy virtualized infrastructure and that may need a lot of information technology complexity.
In conclusion, I believe that the future of the financial services industry goes to technology and the customer. Technology has helped make the financial industry what it is today and will pave the path for tomorrow. There will be heavy reliance of technology in helping guide banks and other financial institutions in improving efficiency and producing accurate data that will help make more rational decisions. In contrast, we can also expect technology replacing more humans in the financial industry. There will be very slow growth in this industry for long periods of time, but as demand rises, we can expect an expansion in this industry, not just with technology, but also with human beings.


http://www.paperjam.lu/archives/2008/11/2410_Techno_Microsoft/index.html

This article focuses on five traits that financial services are going to have to develop in order for them to remain competitive in the market. These traits are hungry for change, innovation beyond customer imagination, globally integrated, disruptive by nature, and genuine, not just generous.

Financial service companies need to build an environment that encourages constant change and development of their offerings. They will need to build upon Internet and mobile services in order to stay competitive in a world where mobility and ease are everything. This also applies to innovation. The technology that the companies are going to develop are what is going to keep them in the market. If they can not come up with some unique idea that separates them from their competitors, they are not going to get customers to switch over to their business.

Being able to spread their market overseas is another key aspect for financial service companies to remain competitive especially with the increasing ease of travel. The world is becoming more globally integrated and people are going to need to be able to access services when they are traveling. Without a globally integrated environment, financial service companies will not be able to provide for their customers, and they will lose them.

In terms of being genuine, services will have to provide good customer service that they can rely upon any time of day, at any location. This means offering customer service via the Internet, telephone and through mobile devices.

The main emphasis for next generation financial services is going to be mobile offerings, ease of use, and global integration. The constant desire of customers being able to do anything, everywhere is going to have to be provided for by financial services as well.

"The Enterprise of the Future in Financial Services." The Bankwatch 23 Oct 2008 5 Nov 2008 .

“Security-on-a-Stick”

While technological change is slow in the banking industry, consumers are demanding more innovation along with heightened security. Many large banks are trying to remain competitive through increasing their convenience by means of a push to their online banking applications. As this becomes an increasingly common mode of making bank transactions, hackers are finding ways to breach online account information.

IBM has released a new devise that uses the same hardware as a USB drive in order to counter these would be attacks by hackers. It is called the Zone Trusted Information Channel (ZTIC). When the ZTIC is plugged into your computer it is able to bypass the PC software and “create a direct, secure channel to a bank’s online transaction server”. Currently banks use two-factor authentication methods such as, PINs and one-time validation codes, to provide security for online transactions.

However, these are not enough to inhibit sophisticated hackers who can redirect and change the information flow in a PC. The IBM press release states that “nearly 90 percent of identity attacks online are targeted at the financial services sector”. Clearly a heightened form of security, like the ZTIC, is necessary to protect customer’s sensitive financial information.

The ZTIC is one way for banks to remain competitive and try to gain new customers. The first banks to get access to ZTIC technology will be able to better market the security of their online banking features, which will make them more distinguishable in the banking industry.

The ZTIC is easy to use and requires no additional software configuration on either the bank’s server or a customer’s PC. This makes implementation fast and easy with reduced costs when compared to other security devices pointed out in the article. There are only two buttons on the ZTIC for confirmation, “OK” and “X” (cancel). The ZTIC has already been manufactured and is ready for pilot tests. So hopefully we will be seeing this new technology in the near future, especially as online banking becomes more popular.

Sources:
http://www.zurich.ibm.com/news/08/ztic.html
http://www.zurich.ibm.com/ztic/

The social networking of financial services

In my search for next-generation financial services, I stumbled upon a website called Wesabe. It purports itself to be a service for anyone who facing monetary problems (and who isn't, these days?). Users can post questions and advice to each other. It seems like a pretty supportive community and is fairly casual. I haven't seen anything like this before; this sort of thing usually comes in the form of self-help books or static how-to websites without much interaction. I think this can really go places.

Now, the social networking aspect of the site is something that I find particularly interesting, probably because it's such an integral part of a young person's life, but that neglects the other tools that the service provides. Wesabe enables users to see all of their financial data in one centralized location, much like Mint.com, a service that I've frequented for more than half a year now.

Both sites actually share quite a few similarities. They allow you to categorize transactions posted from your various bank accounts using different tags (something common to blog services and site aggregators) as well as set spending targets. They can be automatically set based on aggregations and averages of your spending patterns over time or manually.

This does bring about a number of issues, however. Probably the most prominent is security. How is a site like Mint or Wesabe supposed to guarantee peace of mind for users who are centralizing all of their bank information in one spot? What do you think about this reasoning? Is this enough peace of mind for you?

Beating "Virtual Sprawl"

Virtual Sprawl -- Rapid server virtualization has set the stage for a new malady known as 'virtual sprawl.' Here's what Wall Street firms are doing about it.

Penny Crosman. Wall Street & Technology. New York: Sep 2008. Vol. 26, Iss. 9; pg. 20. Accessed Via Proquest Telecommunications Database.

With the increasing amount of virtualization IT being implemented in the financial services industry, Wall-Street firms are encountering a new managerial problem labeled “virtual sprawl”. According to Crosman who writes for Wall Street & Technology, Virtual Sprawl refers “To the condition in which IT managers and, in some cases, even end users have been installing virtual machines all over the organization, creating a chaotic mess that is hard to manage.” Virtual sprawl came about as a response to “server sprawl”, a condition in which an organization has too many physical servers in use.
Virtual sprawl has proven to be problematic as many applications are not getting the server, storage and memory that is necessary to run efficiently. Virtual sprawl makes it difficult for companies to keep track of all of their systems and many times forces companies to buy more software than they really need. Additionally, virtual sprawl has also increased costs in maintenance fees as it is becoming more difficult to troubleshoot machines which move around and run multiple operating systems. Virtual sprawl is particularly problematic in the financial services industry. Functions such as algorithmic trading, financial modeling and simulation software are suffering in wall-street firms due to a lack of connectivity and communication between applications. While it is important to insure that each application has the proper memory and communication necessary to be used with other devices, the article mentions that the process is often overlooked and can be very difficult to manage on a large scale.
Part of the solution to virtual sprawl has been the development of IT mapping software which provides a “visual map” of every function of virtual applications to insure that devices are set up correctly and communicate properly with one another. Unfortunately, IT mapping software has limitations, as it does not track performance of the devices, just how they interconnect with one another. The solution to this problem has been the very recent development of configuration monitoring tools, which take data from virtual machine performance software (VMWare) and queries that information in order to develop a complete view of the virtual environment and allow IT experts and specialists to configure applications as needed. Once this type of software is implemented, it allows managers to be able to monitor and configure virtual environments on one physical machine cutting costs and creating efficiency.
Finally, the article discusses how virtual environments are still superior to physical machines as it saves energy and dramatically reduces costs. This type of technology also allows companies like Wachovia to improve their “green-initiatives” while increased performance at the same time.
This article primarily focused on the development of software to combat the virtualization problem. While I mentioned configuration-monitoring tools, other forms of software are also being discussed and researched. For instance software tools for IT discovery, configuration management, provisioning, dispatching of servers, and inventory management are all listed as methods for solving this issue. While these ideas are beginning to be researched, configuration monitoring tools seem to provide the most efficient interface to interlink virtual IT systems because it allows adjustments to every system to be made from one physical machine.
I personally believe that despite the problems with virtualization, the movement towards a decrease in both paper and machine trails will continue to be demanded in the competitive financial services industry. In an environment where the accurate processing and calculating of large amounts of data means everything, systems must be virtualized in order to compete. However, I agree with the article that virtualization is not an excuse for just setting up virtual systems in a hodgepodge fashion. Instead, it is vital that the network fundamentals of virtual systems are mapped out and tracked consistently in order to prevent any future IT meltdowns. Fortunately, the development of applications like the ones discussed in this article are allowing IT managers to prevent such problems.

The Future in IT

Modern day global competition and economic integration have placed a tremendous amount of pressure on the financial services sector to upgrade its information technology. Today’s consumers have become much more IT savvy, and as a result, expect to be presented with services and tools that build on their intricate comprehension. Society has developed an insatiable demand for knowledge that technological developments are unable to fulfill in its entirety; however, competition pushes the industry to try.

Based on the subsequent information, it is not surprising that the underlying strategy utilized by the financial services sector will not change drastically in the future. Future objectives will continue to target existing customers and aim to acquire new ones. According to articles published by CRM Magazine and USBanker, both prominent publications that discuss the latest issues and trends in customer relationship management and banking, the next generation in financial services will focus on upgrading information capabilities to better satisfy their customer’s changing needs.

Accordingly, current customer dissatisfaction in the financial services’ information technology is rooted to a lack of compatibility amongst systems, an excessive amount of required account logins, the inability to view holding in a single view, and scattered information. Future services will be designed to improve consumer satisfaction and correct inefficiencies. Ultimately, consumers can expect to see services that not only complement one another, but also the end users’ needs. Services are being designed to meet customer’s expectations in high quality content, personalization, and instant information.

In addition to adding availability, accessibility, quality, and timeliness, consumers can expect innovations in technology itself. Today Mobile Money Ventures LLC and SK Telecomm announced that it would provide Citibank Hong Kong with a new service platform that would support mobile banking and mobile stock trading. Through their phones, customers will now be able to manage their account, transfer money, make payments, time deposits, manage their portfolio, and buy and sell stocks. Consumers can expect more innovative products from Citibank in the future. The company is currently working on developing products for consumers that use public transportation to commute, manage their money online, and want more convenient retail banking experiences. The company’s goal is to “be everywhere its customers need it to be.”

While I am a major supporter of mobile banking, I am skeptical of mobile stock trading. Although it illustrates modern society’s strong ability to innovate and accommodate consumer needs, I fear that individuals will abuse the technology. Currently grade school children are being introduced to virtual stock exchange simulators and people are trying to get rich from their self-provoked beliefs that they too can become a successful day trader. In my opinion, implementing mobile stock trading technology will give rise to more day traders, which could potentially intensify individual financial problems.

Both articles accurately illustrate the growing trend toward customer satisfaction strategies. In my opinion, it is difficult to identify where more focus should be placed in the future; however, it is apparent that the role of people will be far less transactionally- focused and more strategic. But when it comes to cutting out human interface, will society be able to identify when we have gone too far?




“The Future of Financial Services." 1 Jan. 2004: 4,6+. ABI/INFORM Global. ProQuest. 30 Oct. 2008


“Next generation online channel reporting for banking and investment firms: companies must evolve information and account management capabilities to retain and grow customers” CRM Magazine. 1 March 2007.

“Mobile Money Ventures Powers Mobile Financial Services for Citibank Hong Kong”. Market Watch. 30 October 2007.

Treasury and IT link for monitoring financial firms

The Department of Treasury issued a document asking all banks, insurers, and financial services companies to implement new information technology systems to provide "real-time" data all of their operations to be able to monitor them more accurately.
These new technologies would force all of the companies involved to spend a good deal of money on new technology, but would hopefully be able to prevent issues like the sub-prime mortgage crisis or at least better prepare us for it. The exact dashboard that they are referring to is not named in the article.
This new technology would clearly not fix the current problems but I do believe for these companies to adopt new technologies that are even believed to be able to help us see these types of situation's coming then it makes perfect sense for them to take that money and invest it in this technology. The article mentioned it would almost "instantaneously" make them aware if any issues were going to come up. Although I do not believe this technology is the solution to all of the problems it is a step in the right direction.




http://web.ebscohost.com.proxyau.wrlc.org/ehost/pdf?vid=11&hid=16&sid=c848d53f-b4b6-44ac-97c4-a7ed49a90c70%40SRCSM2

Stressed-out bankers get a forum to share the pain; Social Web site benefits from executives' jitters

This article talks about MeettheBoss.com, a social networking site, similar to Facebook and MySpace, but specifically designed for top financial executives, CEOs and other C-level positions. The reason I chose this article is because there will be a workshop and feature presentation of MeettheBoss.com at the FST (Financial Technology Services) Summit, which will be held between November 5 and 7, 2008, and is one of the places where the hottest topics in technology and next generation financial services will be discussed at the executive level.

One of the more interesting points in the article is the issue of registering in the website – it is almost completely exclusive, with 20,000 of its initial members invited, and any new applicants put through a rigorous screening process of checking titles, positions, place of employment and managed budget. According to the article, this screening process has already lead to the rejection of two-thirds of applicants so far, while the intended maximum usage of the website is topped out at 50,000.

A second interesting facet of this executive networking site is that it offers numerous technologically-enabled services to its members, such as online and conference call meetings, shared document storage similar to Google Docs, extensive mobile services and even the ability to utilize the website for internal company networking. All of these services are intended to spike interest in the website and maximize utility for busy professionals who don’t have the time of an average college student to sit in Facebook.

Finally, the website still has only one advertiser as of today (which is the software company CA) and has yet to unleash its full potential for profits from both advertising and links to the parent company (GDS) which publishes business-to-business magazines aimed at top-level executives. The implications of this rather strange initial strategy for making profits are discussed below.

The website has garnered huge attention during this financial crisis from executives who seek a less public vent for their worries and at the same time an informed conversation with colleagues across the industry. Considering that MeettheBoss.com has just become popular enough to be prominently featured in a mainstream newspaper article (the International Herald Tribune), some thought-provoking questions can be raised about the way the financial world is run behind closed URLs.

For one thing, it is safe to assume that executives of competing financial institutions will not openly share with each other their companies’ strategies for developing next generation services. However, it is not difficult to imagine that there will be some influences to their decision-making process stemming from interactions within the website – be they meetings and discussions in which several executives participate, new advertisements from firms trying to push for a revolutionary software or service, or even a casual chat between online buddies like Robert Steel (CEO of Wachovia) and Lloyd Blankfein (CEO of Goldman Sachs) – both of whom are supposedly registered, although the website keeps member identities strictly confidential to outsiders. Ultimately, we could see this website as a birthplace for unpolished ideas that can later result into cutting-edge services.

Aside from member and advertiser-based influences, we can also look into the parent company’s intention to link much of MeettheBoss.com to its executive magazines, possibly creating a situation in which a CEO might become as likely to habitually browse through carefully placed pre-paid articles, just as a typical Facebook user is likely to add an outside-sponsored application that will tell him/her how many other users think he/she is hot. In this case, instead of a birthplace for ideas, the website will function as a sieve for other companies’ ideas that get translated into the financial world.

Last but not least, a social networking site, not excluding one at the level of MeettheBoss.com, offers the potential of forging alliances. Given the lack of trust between financial institutions in the current situation, “personal” contact and interactions might be just the remedy for restoring cooperativeness between financial firms. At the same time, this could also result in partnerships that aim to develop new products and services jointly.

In the end, there seems to be huge potential for MeettheBoss.com to impact the next generation of financial services, just as MySpace and Facebook have impacted online interactions. This is quite possible, even in spite of MeettheBoss.com’s limited membership compared to these other social networking sites.

And let me be the first one to congratulate the Obama supporters in the class.

Main Article: Stressed-out bankers get a forum to share the pain; Social Web site benefits from executives' jitters
Author: Eric Sylvers - The New York Times Media Group
Source: The International Herald Tribune
Date: November 3, 2008 Monday
Database Accessed: Lexis-Nexis Academic
Other Sources: http://www.fstsummit.com/program.asp

USAA

Next generation financial services is an interesting way to categorize USAA. Although USAA provides services and products which may be considered ahead of their time,....it is a service exclusively available to military personnel from this generation as well as those previous.

United States Automobile Association (USAA) is a fortune 500 financial services company focused on providing banking, investing, and insurance services to those who serve or served in the military.

USAA provides amazing and competitive insurance and savings rates to its customers who reside around the world. Along with standard banking features, some of the features USAA provides include free and unlimited fund transfers to any US bank and the ability of members to deposit checks by simply scanning them! USAA "Deposit@Home" allows members to scan their checks to usaa.com and have immediate access to their money. Scanning technology is not revolutionary, it is rather the application of such technology to the banking industry which has revamped the necessity of a brick and mortar locations. Traditionally most who visit brick and mortar bank branches do so to deposit checks, not with USAA. USAA is leading the charge in implementing technology to eliminate the need for the traditional branch. In saving branch operational costs USAA is able to dedicate more funds to increasing savings rates and making insurance and other products more affordable for its members

Deposit@Home is just one of the USAA services which enable them to have ONE physical location. This location is at the bank's headquarters in San Antonio, Texas. Some of the other services which enable its large online presence is ATM fee rebates, free standard checks for the life of the account, free online bill pay, and bank-by-mail services.

It is through its online features that USAA has been able to differentiate itself from other financial institutions. The ways USAA fully utilizes technology will soon be common in the banking industry although I am positive that they will continue to innovate and re-define the way financial services are available to its customers.

Sources:
www.usaa.com
http://en.wikipedia.org/wiki/USAA

Cloud Computing: The Artificial Intelligence Axons of the IT Galaxy

It is hard to imagine that not long ago computers were human. The word’s original meaning was literally a person that solved equations, using a mechanical calculator. Companies employed these large metal structures to do number crunching, and serve as a data center mainframe. Now they are disappearing all together, technology shifts to meet the demands of today’s society, submitting to various mutations as the years pass.

The original computer platform, referred to as the mainframe, has been ousted by minicomputers, giving way to the personal computers, now being offset by hand held devices with Smartphone architecture, completely disrupting the computing structure through this sequence. Computing is taking on yet another role, becoming more centralized, turning into a “cloud”, incorporeal and exploited when and where it is required.

The establishment of this cloud is more than a platform shift; indisputably modifying the information technology industry to such an extent that the way people work and companies function, will allow digital technology to infiltrate every niche of the economy and of society. This is not some technological nirvana that the IT industry is using to concoct new buzzwords to keep people interested, but instead a rampant term that has spread avariciously. Cloud conferences, cloud blogs are such an obsession that it may have peaked already. Gartner, a research firm, claims that cloud computing will transgress through a “trough of disillusionment”, entailing a stage in which the hype cycle of technology will fail to meet the expectations of consumers. However, the possibility of the term may already seem passé; but the cloud is going to continue to grow from an amalgamation of cut-rate power processors with ubiquitous networks. Data centers become factories delivering computer services as an online service with wireless networks connecting to such software. This disaggregates computing into component services, turning into an “internet of things” used by billions of different devices. With financial institutions creating computing grids, they will be able to link software as a service over the internet. Such computing cloud operators like Amazon and Google engage in this IT system. However, it seems that all firms will soon have no choice but to switch their infrastructure as well.

In my mind, cloud computing is just a service oriented architecture that companies have been flirting with for quite some time. The main issues at hand are dealing with the security of information. Firms essentially trust their second most valuable currency, data, in the hopes that it has not replicated or outsourced to entities that they do not want that privilege extended. The article says that companies will not be able to link service to the enterprise firms due to the security issues and conformity compliances that it faces, but firms already use their most valuable currency, money, to cloud computing services such as banking. People put trust into banks hoping that they keep an eye on their money. This same trust needs to be instilled by the Googles, Amazons, telco’s, etc. This notion is not impossible, but it is an action that needs to be taken care of before large firms buy in. For now, you will not have to bid farewell to a data center that models a raised floor, cooling data center for its IT department, until a reliable cloud model ascends.

"Let it Rise." Economist.com. 23 Oct. 2008. http://www.economist.com/specialreports/displaystory.cfm?story_id=12411882.

Next Generation Asset Management

Next-Generation Asset Management
Evolution To Becoming All-Inclusive
by Joe Rudich
PROCESSOR: February 29, 2008 • Vol.30 Issue 9
http://www.processor.com/editorial/article.asp?article=articles%2Fp3009%2F33p09%2F33p09.asp

According to Wikipedia IT asset management (ITAM) is a way of combining business practices that join financial, contractual and inventory functions to support life cycle management and strategic decision making for the IT environment. Meaning, what would be cost effective and important when creating/ retireing IT. This definition is important to better understand what changes the article is calling for.

IT services have become a corner stone in today’s business environment. The article states that usual idea of IT is that it is the “cost center of a company.” but according to Dennis Drogseth, vice president of EMA (Enterprise Management Associates), managers need to change their minds and see that IT is a necessary internal provider of the critical services a business needs to exist.

One key element is to turn IT asset management into a way to measure the true value of what services are provided, and not just the cost of the components that are used to create the IT. Showing this value requires accounting for cost and performance and will require, what EMA calls “next-generation asset management”. NGAM is to offer a way to move away from current “cost center” ideal and include quality, cost and demand of IT in the business.

NGAM is a way to create a foundation for IT planning, choosing the best way to invest based on complete knowledge of assets, not just the tangible aspects normally affiliated with IT, but on true current needs of the business. NGAM allows a way to monitor the actual cost for running and creating IT. This combines with management disciplines, service accounting, telecommunications and resource management. This change will require new organizational, process, and political models for NGAM to be viable. The old IT asset management models will have to be removed and new ones will have to take their place.

In essence, this article is a new generation of IT asset management, ITAM, which takes into account the physical costs of IT but intangible areas which are not measured by the current finical ideals. In a way, it’s about putting the cost of creating, using and retiring IT into the total costs of creating IT. This is a service asset management companies are working toward for companies to take into account the full costs to a company to create a greater measurable cost analysis to help companies and their bottom lines.

This will allow companies to create new programs and services the most cost effective way. By expanding the variables of cost, a better model of cost attribution is created. This utilization of cost could allow for the company to realize the correct price to charge for a service or if creating and implementing a program would actually be detrimental to the company.

These changes make sense, while they do call for a long and tedious process to occur; in the long run the closer cost is defined and realized the greater the ability to run and manage the company would occur.



cite for wikipedia:
Wikipedia contributors, "IT asset management," Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/w/index.php?title=IT_asset_management&oldid=249709786 (accessed November 5, 2008).

Why the mobile bank in US is less popular than Japan?

With the development of the technology, the Mobile bank is one of the most potential functions in the commercial bank system now. However, as the article “mobilebankerscan” argued, many drawbacks of the Mobile Bank need to be improved, and the core one is the security of the mobile bank. But does it really the security problem of the mobile bank made both the consumers and the banks reluctant to use and develop its potential to full as the article “mobile banker scan”mentioned and keep the mobile bank less popular than the Japan or India? In my view the sink cost of the American banks had invested in, difference in culture, and lacking a global vision result in such an awkward situation of the American mobile bank system
First thing first, as the author of the article “Mobile Insecurity: Reality or Just hype?” said, two mainly threats, hacker and stolen of the cell phone, lift their hand against the Scalability & Reliability of the mobile bank. Not only him, had some experts also said that “Technical hurdles, security concerns and lack of merchant acceptance may keep mobile payment from mainstream consumer acceptance.” [1] Does this really make sense? In my view, the technology to steal the information of the mobile bank customer is more complicated than that of steal the information of the Internet bank customer, even more hard than to steal the information of the tradition credit card. (The cost of tradition credit card fraud is high; in the UK in 2004 it was over £500 million [2]). If so, the chance of mobile bank fraud should no larger than that of Internet bank fraud. Or why this security problem does not stop the popularization of mobile bank in Japan?
I think the mainly reasons are that unlike Japan, US has already developed such a completed widespread and convenient retail bank system which satisfied the consumer most. As a well-developed market, the cost of the tradition payment methods, debit and credit, has been accumulated with the building up of the numerous Auto Teller Machine, the transaction machine and the branches in different areas. Moreover, the payment method of Mobile bank is quite different from other E-bank method, Internet Bank, because the Internet Bank could never take the place of the tradition credit/debit card as a useful tool of daily consumption. The larger the sink cost is, the more reluctant the bank wants to change. Moreover, the transaction system is connected, so if any one of the bank want to change the payment methods, all the bank need to adopt a new kind of machine to adopt this method, which quite a large project is to reached an agreement among all the banks. So the first-mover of adopting a large scale of mobile payment methods was impeded by the huge sink cost of tradition payment methods. However, if all the banks reach an agreement to adopt the newly methods, the pattern of every bank’ market share would not change because the consumer could do the same things with their original bank. Moreover, unlike the Japanese and Indian, the American likes to spend money in the future but not save money. The payment methods of different banks need to become a system so it can attract the consumers. But in Japan, the people there like to save money, the interest rate of Japanese bank always negative in the last 10 years. And also, draw from an article “Generally, credit cards in Japan are used for a smaller share of transactions, with a higher average amount, and with less borrowing per transaction.” (Credit Cards and Debit Cards in the United States and Japan; Ronald J. Mann ; Vanderbit Law Review, Vol. 55, p. 1055, 2002). So the Scalability & Reliability would never be so developed as American here. And according a report, the sense of responsibility the Japanese companies hold are much stronger than companies in American. Always a Japanese company more focus on service the whole society but not how many profit the company earn.
The reasons above led to less-motive of American Bank willing to change the pattern of the market. However, as far as I am concerned, even though the mobile banking could hardly lift revenue of the American Banks up to a new stage, it could serve as a useful tool for the company to seeking global opportunities. When the commercial bank is about to enter a foreign market, one of its disadvantage is that it is impossible to build the same numbers of branches in that country as the local commercial bank did. But if the commercial bank hold a sane security and have a good reputation in its own market, these two things will make the globalization real. What the company needs to do is work with local telecom serve to build an advanced transaction system. Anyway, the cost of building such a system is far less than that of hiring clerk and renting office. Moreover, when the new payment method changes the local customer’s behavior, the bank could set up a “first-move” advantage and force the local competitors follow his standard.

[1] http://www.americanbanker.com/mobilebankerscan.htm
[2] http://en.wikipedia.org/wiki/Credit_card

Posted by FengGuo
Article:
"Mobile Insecurity: Reality or Just hype?"
http:http://www.americanbanker.com/btn_article.html?id=20081028BX7G0X2H
"mobilebankerscan"
http://www.americanbanker.com/mobilebankerscan.html

Personal Financial Management Systems

I have chosen to look at personal finance applications and their future as centralized tools for consumers. As we found in class, it is now expected that consumer-banking products come with an array of online tools that give customers 24/7 access to their account information such as balances, and maybe even bill-pay abilities. While these are welcome advances to today’s mobile-minded consumers, some of us want more from these services. Where are the centralized portals where I can view all of my account information for various financial instruments? What about budgeting tools along with bill pay? The Internet is full of dynamically generated content and there are already forecasting and prediction tools out there, why not incorporate this into my finances?  

There are several financial management sites that have begun addressing the absence of these features from the websites of our financial institutions. In general, they offer increasing compatibility with various institutions and unique tools to track, monitor, and forecast based on a user’s mix of bank accounts, loans and mortgages, and investments. According to the article from American Banker, these companies are each finding their own individual niches to appeal to with a different set of features.

Intuit has just removed the subscription cost for its service and has recently added spending management features designed for low-income consumers. Mint is attempting to appeal to consumers with more “sophisticated banking needs” by adding investment tracking and retirement account access to their existing services. Geezeo is expanding from its college student focus by creating community tools revolving around financial habits. 

As each targets a different demographic, all of these online financial management sites share one crucial attribute: each of them offers their solutions for no cost to the user. Intuit, the highly recognized name in the personal finance market, was relatively unsuccessful in porting their Quicken software to the Internet in terms of obtaining a viable customer base at first. A spokesman for the company is cited in the article as saying, “We dropped the ball with Quicken Online… [the monthly fee] was an obstacle for people to enter.” They’ve reevaluated their target customer and acknowledged that the most likely users of the online software are not the same as those using the original Quicken. To compete with this, Mint and other companies make money by recommending financial products to users and getting referral fees from banks.

The playing field is level and the management sites are left creating features to segment and position themselves for the future. As personal finance tools, compatibility with a broader range of banks and lenders, and consumer trust for security measures of such products go up, the sites may find that banks seek their services as part of their own online packages in the future. 

Daniel Wolfe. "Financial Web Site Operators Increasing Focus on Niches. " American Banker  [New York, N.Y.] 20  Oct. 2008,8. Accounting & Tax Periodicals. ProQuest.  American University. 2 Nov. 2008 

Financial Foot Soldiers, Feeling the World’s Weight

OK- I could not resist getting into the class blog with a posting. Monday, Nov 3rds New York Times columnist, Dan Barry, goes behind the scenes with NYSE Floor Brokers. Learn about how their jobs have changed: information technology, 9/11 and the current tumult in the markets can make the day, well, a little lonely. What I suspect many of you will find interesting, is the educational level of these workers. These are not newly minted college graduates. These men (yes, still mostly men) rose up from the running positions at the broker firms. This is not your nattily dressed banker but the folks who can "feel" the market. Just think about how much we discussed program trading, decision modeling. These tough guys are really the touchy-feely folks on Wall St.

Financial Foot Soldiers, Feeling the World's Weight by Dan Barry; New York Times 11/3/2008

Personal-Finance Software goes lite?

Nowadays, as the technologies develop so fast, usage of advanced Personal-finance software should have grown to make people manage their money better and easier.
However, since Quicken Software, which Intuit’s Quicken is founded on, no longer contributes 10% to the company’s revenues, Intuit’s Quicken is shifting its resources from its Quicken software to its Web-based Quicken Online. Also, Microsoft, which was a leader in the field of personal-finance software, recently pulled its Money Software from retail channels in favor of online sales only.

Why? There are a couple of reasons.
First, as the article mentioned, market and industry changes are quickly rendering existing products and services obsolete. Set recent finance crisis as an example. The break out of the finance crisis brings great tremendous changes to almost all the markets and industries. It will also certainly bring many influences on people’s money management. Although software companies know that the tools they setup with the software to give advice on people’s investments are turning useless, it is extremely hard to figure out more useful tools, as who knows what will happen in such destructive finance crisis.
Secondly, the technologies applied in the personal-finance software become more and more common. As personal-finance service is still at the early stage of its life cycle and relatively low cost to have related technologies, many companies will try to enter this market. Increasing competition will make personal-finance software less profitable. Actually, Intuit’s Quicken software has become just a landing pad to send customer to more profitable offerings like TurboTax.
Thirdly, few new functions have been generated. When the personal-finance software came up, it really help people, who do not have such tools before, a lot with its basic functions. A decade has passed, although many usability and features were added to the product, few of them seemed useful. It will be a big problem for its product to attract new-use people and maintain payments of former purchaser without significant advancement.
Additionally, recent weak economy cannot be ignored as an important environment factor.

In fact, Intuit’s Quicken is not the only company which is facing this problem, Rudder, Mint, and other personal-finance product providers are in the same situation as Intuit’s Quicken.

But on the other hand, personal-finance software still has some advantages, which developed well will benefit its sales.
Compared to the same kind online services, software will present a more secure-condition in terms of steady operation and safety of password.
Also, it can provide all the available information updated to when you use it online last time when there is no access to Internet. It will become quite useful in some time.

The article is available at http://online.barrons.com/article/SB122488830513468381.html

The “Next Generation” of Credit Cards and Banking

Mobile phones will play a significant role in the “Next Generation” of financial services. Who knew when Alexander Graham Bell first invented telephone in 1876 that it would eliminate the need to carry money in peoples’ wallets? It is astonishing how the technology has emerged to shrink the needs of a traditional bank for customers to do their transactions.

The concept to carry less money in peoples’ wallets started to emerge when credit cards first came into the market during 1920s. Later, the invention of smart cards took the credit card payments into the next level. Today, smart cards have gone through a radical change, and now been used for everything from credit cards, paying bus fares, entering secure building, borrowing from libraries etc. The most common smart card applications includes Credit cards , Electronic cash, Computer security systems, Wireless communication, Loyalty systems Banking, Satellite TV, Government identification etc. Financial institutions have been adopting the smart card technology aggressively. These activities include, but not limited to, credit cards, debit cards, corporate cards etc. Major credit card companies such as American Express, Visa, and MasterCard have their own smart card technology built into their credit/debit cards. This includes Express Pay from American Express, Contactless from Visa, Paypass from MasterCard etc.

Now the concept of digital money is about to make the next revolutionary change from smart cards into mobile phones. The leading credit card company, that operates world's largest retail electronic payment network, is planning to work with Nokia, the world’s leading phone manufacture, to build a mobile phone that takes financial transactions into the next level. Tim Attinger, Head of Global Product Innovation at Visa Inc, says "Mobile payments and services are one of the most vibrant areas of innovation at Visa, as we seek to accelerate the migration from paper forms of payment to digital money". He also maintains the view that "Visa is already better money - more convenient, reliable and secure than cash.

This new invention would allow the customers to use their mobile phones “to pay for goods and services; initiate mobile money transfers to other individuals with Visa accounts; receive near real-time notifications of activity on their Visa account; and "opt in" to receive offers and discounts from merchants.” This concept would allow the mobile payments a reality for consumers around the globe. Consequently, the “Next Generation” of financial services will be based on the concept of mobile banking. Although this concept may not eliminate the entire baking system, it will definitely shrink the need of a traditional bank for customers to do their banking.


Visa Inc.; Visa and Nokia Working Together to Deliver Payment Applications for Next Generation Mobile Devices. (8 October). Telecommunications Business,320. Retrieved November 1, 2008, from Sciences Module database. (Document ID: 1565706591).

Cell Phone = Payment Device?

The evolution of services offered by the banking industry has always been reliant on available technology and the creative methods that institutions use to implement it into their products. The consumer banking industry is full of monotonous offerings of comparable services so being the first to phase in new technology is often the key to one institution setting itself apart. Visa has been in the press lately for its interest and research in incorporating the expanding capabilities of mobile devices into its consumer product offerings. Other banks have also set their sights on the potential that this field has on increasing consumer demand for mobile banking but they all face the same challenge of the implementation. 

Elizabeth Buse, the Head of Product at Visa, announced last month that said company has analyzed the practicality of various mobile banking solutions in several markets, weighing the advantages of using mobile devices as a replacement for debit or credit cards against using them as a supplement to the existing card infrastructure. They announced that in the United States, because the card system is already so vastly implemented in retail locations, it will focus on creating applications to bring up-to-date information to consumers that will not include “contactless payment capabilities.” Visa, US Bancorp, and other financial institutions have said that they are working with Google to bring such applications to the Android mobile operating system (recently introduced and currently only available on the US T-Mobile network) because of its relatively open system for developers.

The applications give consumers the ability to subscribe to alerts concerning their accounts, locate banking centers and ATMs in the vicinity, and to subscribe to offers from participating retailers that they may come into contact with. Some banks have begun offering these abilities. Personally, I am a customer of Bank of America, which has already developed applications for my phone that allow me to do these things and more.

I think that given the situation of the economy right now, these are useful additions. Mobile alerts will prevent consumer credit from getting out of hand by sending notifications when spending exceeds a given amount. Instant fund transfers from any location on a mobile device will allow people to mobilize and better manage their spending. With more than a quarter of a billion mobile subscribers in the US, mobile banking technology is bound to attract customers and we will continue to see developments. After the industry settles down and the rapid buying and selling of banks slows (and the Wachovia tug-of-war ends, etc.), we will have banks once again looking to technology to stand out and attract crowds.

Jackson, Ben. "Visa Questions Phones as Payment Tools" American Banker [New York, N.Y.] 8 Oct. 2008.

Tech Companies Affected

Due to the rapidly changing economic situation, many businesses are looking towards areas where they can reduce or cut spending. One place that firms seem to be cutting costs is in IT expenditures. The market for technology is one that many have thought would remain relatively unharmed by the economic downturn. This is because advances and upgrades in IT typically mean more efficiency and profits. However, according to the article under Best of the Business Tech Blog, the technology industry is not immune to the downward spiraling markets.
The article highlights the German software company SAP as a warning sign to the tech industry. The company is expected to report lower earnings for the third quarter than previously estimated. This is because the technology industry is a services based industry, and while they may have been performing well, their clients in all industries are being adversely affected by current market crisis. It was also thought that the industry would not be largely affected by the economic crisis because of the nature of tech companies cash reserves, which tend to be rather large, I would assume for the facilitation of research and development, and because tech companies do not need to borrow much money since cash is readily available.
The article points out that the budgets that companies have allocated to technology are usually fairly limited to begin with, so it is not going to be the first place that they look to when trying to cut spending. However, in the changing market, previously held outlooks must also be adjusted and even overhauled. The article brings out that a staggering “61% of CIOs are re-evaluating their 2009 budgets”. According to a chief executive at SAP “customers decide to postpone their [IT] decisions”. A CEO at another technology company is sited in the article as saying “we sent the invoices, customers just didn’t send us the money.” This signifies that not only will new business for tech companies be slowed, but it will also be necessary for them to increase their bad debt expense estimates.
Senior director of the CIO Executive Board, Joel Whitaker, outlines numerous other areas where companies are cutting back. Some of these include renegotiating contracts with vendors, cutting spending on consultants, and reducing the amount of new hires. It is clear that not only are certain sectors and projects within companies being hit hard by the current economic situation, but also that no industry is immune from its affects.


Author: Ben Worthen
Section: Technology
Publication title: Wall Street Journal. (Eastern edition). New York, N.Y.: Oct 7, 2008. pg. B.8
http://proquest.umi.com.proxyau.wrlc.org/pqdweb?did=1568691781&Fmt=3&clientId=31806&RQT=309&VName=PQD

Re evaluation of risk models

The current credit crunch in the United States is becoming increasingly contentious. Fingers are being pointed in multiple directions. The problem involves ordinary citizens, commercial, investment and mortgage banks and the government. However, technology has reshaped the face of the corporate world in a positive way, but the misinterpretation and inefficiency of technology could be met with drastic consequences. The issuance of mortgage-backed securities (the foundation of this credit crisis), which was recklessly sold to the homebuyers, uses a credit assessment system to determine eligibility for these securities. While these securities were recklessly issued, the scoring assessment models were inadequate and as a result, have misled the banks by excluding a host of risk factors in the determination of the FICO score.
In the article titled “The reverse reengineering of risk”, Clark Abrahams explains a new credit scoring system used for evaluating credit risk - The Comprehensive Credit Assessment Framework (CCAF). The CCAF “uses advanced technology and a safe sound model to develop and validate scoring processes. It considers all primary credit factors and takes appropriate action relative to those assigned segments. It also monitors the implications of these actions in a comprehensive and efficient manner”. It does this and distinguishes itself from the old system in such a way that it considers secondary factors, such as good consumer behavior, which could include payment of utility bills. It also factors a borrowers capital. Borrowers with a lot of debt and a lot of capital will be placed in a different category as someone with a lot of debt and no capital. Next, cash basis customers who save will no longer have subtle terms compared to installment debt carriers. Bank balances and a history of deposited savings will now be built onto the risk model using the CCAF. In addition, the CCAF will now take action in each scoring segment that allows the lender to determine what loan product the borrower will be successful at paying off and what he or she could afford. Furthermore, it possesses a feedback mechanism that considers macro economic conditions in the society such as interest rates, unemployment rates, inflation and housing price escalation to determine who qualifies and under what condition. Finally, while the old system looks at the past, the CCAF looks at the future and determines the worst-case scenario when economic factors come into play. For example, if interest rates go up, the CCAF determines the lowest possible default a borrower can issue, considering the concomitant rise in inflation rate. This is a powerful tool for the risk management division of banks.
On the other hand, some may argue that this new system while building a lot of new segments and factors in its model could lead to unfair lending. This may be the case; however, it may be necessary in issuing complex and expensive securities, such as mortgage securities. This new system may be seen as non-profitable in the short run, but will allow stability in the long run. It will not just influence people on how to save and manage money, but will also influence banks to realize the necessary elements and conditions that allow for ability to buy a risky security. This new carefully developed credit model may not be the solution to prevent another crisis. Human factors also need strong attention. At the end of the day, the bankers themselves say whether a loan could be given or not, in which greed is a large component of their decision. Combining a sound judgment with a carefully structured credit risk model will prevent another sub prime mortgage crisis from happening and will also stress the importance of technology in the economy, especially in the banking industry.


http://www.americanbanker.com/btn_article.html?id=20080929C4VN8N2E&pagenum=1&numpages=3&showallpages=true

Could IT have prevented the Financial Meltdown?

As things for better or worse continue to unfold in the Financial Crisis, the feds and surviving financial institutions are working diligently to unravel the loans, MBSs, CDOs and other toxic investments that have come to surface over the past year. Which makes us wonder: Does the technology exist to do that? If it does, then wouldn’t this technology have been helpful in giving us some indicators that could have helped prevent the financial meltdown we are now seeing in world markets? As this article points out, things may not be that simple. The fact of the matter is that even with regulations such as SarbOx, there are currently very few regulations on the origination of loans and how they are broken up, resold and resold again.

Some Background

Though it may seem rudimentary, one of the fundamental factors leading to this crisis was debt discipline. The finance industry has an accepted principle that home seekers should provide a 20% down payment on their desired house and finance the additional 80%. When banks began taking the misstep of offering the customers 100-percent-plus variable mortgages without any security, they were abandoning that discipline which is a pillar of the credit system. However lending firms were not solely to blame here, the Financial institutions of this country, most of which have gone under or been bought out, took this ignorance of debt discipline to another level.

Though the buying and selling of pooled loans called Mortgage Backed Securities is nothing new, Fannie Mae was established in 1938 for this purpose, the complex financial assets that were being created by world financial institutions were of a kind which we have never seen before. Financial firms were cutting these loans into 5, 10 or in some cases 20 slices and reselling them to 5 or 10 different organizations, making it extremely difficult to track who was involved and who was taking on the risk. Again the slow movement away from debt discipline is evident.

In theory these financial institutions knew the risk they were taking on with each loan and had a way to gauge if they had enough liquidity to support then if they went south. But as indicated by this article, most firms geared their analytic scenarios to favor positive outcomes in order to justify keeping less money in reserves. Josh Greenbaum, principal at Enterprise Applications Consulting, is quoted in the article saying, "A large number of buyers of these kinds of instruments really didn't care about the value. They just wanted to flip it. A lot of people just didn't want to know."

Even in this oversimplified version of how the world landed in this financial crisis, the ignorance of debt discipline is everywhere. Don’t get me wrong, borrowing money is good. Highly leveraged firms have higher rates of return compared to those firms that chose a more conservation route. However it is expected of these financial institutions, which are trusted with so much of our economy’s money, that debt is taken on in a responsible manner. This means that every measure possible is taken to assess the risk of that debt and the possibility of default. This also means that these institutions should acquire debt that is for the long-term benefit of the company and that the it can be paid off if needed.

Back to the real Question

So now that we see where things went wrong, we come back to the question: Could we have used IT to prevent this financial meltdown? The answer is: Prevent the meltdown? No, but IT could have given us some bright red warning signs of what was to come. Had these financial service agencies drawn out a few matrices giving the ratios of their cash reserves vs. their debt, some telling answers would have be found. As stated in the article, this process generally goes slow and ends with numbers having to be manually entered into Excel.

There are however some other options, particularly Complex Event Processing (CEP) and Operational Business Information (BI). These systems can analyze massive amounts of transactions as the article explains, “100,000 messages per second with millisecond response time, triggering remedial actions by other systems. But they can also be slowed down and used by analysts as a decision support tool. Tools such as Aleri's Liquidity Management System already exist to help treasurers in global banks gauge their liquidity position in real time” So yes there is technology out there that could have helped our preparedness for crisis that was coming.

Where do we go from here? Better late than never!

One of the major concerns now, is that there is another bunch of mortgages that are coming up in 2010 and 2011. Though these mortgages are primarily not “sub-prime”, we cannot be sure how they will effect our financial institutions or the global economy. What should we be doing then? Companies now, having seen the devastation, should be using CEP and Operational BI to help predict how these mortgages will alter the global economic scene. They should be using their advanced IT capabilities to develop more complex and fine tuned models specifically for this cause.

As we move on from here, it is assured that the Government will impose an array of restrictions on the financial markets and institutions. There is no doubt that these will entail quite of bit of regulation designed to keep debt discipline in line. With a new set of rules to play the game by and some new technology to help us avoid repercussions from past mistakes, global market will being the long process of rebuilding the world economy.

"How IT could have prevented the financial meltdown." TMCNet.com 24 Sept. 2008. http://www.tmcnet.com/usubmit/2008/09/24/3669282.html

IT in Banking

Banking is considered one of the most important sectors of the financial community and the economy. Banks eases the disparities between surplus and deficit units through the transfer of money and credit. The emergence of information technology has revolutionized the industry in a positive manner.

Subsequently, the dependency on information technology has strengthened and made banking ‘IT sensitive’; information technology continues to foster the industry’s growth and innovation. Despite the current financial distress and the gloomy economic conditions, financial sectors continue to invest in information technology. According to an article posted on the American Banker, a highly respected source in the banking and financial services sector, International Business Machines Corp recently acquired servicing deals with Allied Irish Bank, Standard Bank Group Ltd of Johannesburg, and the Bank of London and the Middle East PLC.

Accordingly, the strengthening of information technology in the banking industry is a growing trend. Financial analysts predict that banks will spend a total of $170 billion on technology in 2008. In my opinion, the present value of the cost appears relatively high given the extensive losses in the financial sector and the current economic state. However, it illustrates that the industry is planning for future success. A well organized and highly innovative company possesses a greater competitive advantage and captures larger profits and more growth. Some of the current financial distress is a direct result of mismanagement and flawed internal structures; therefore, utilizing innovative tools to internally restructure will improve efficiency and lead to success. For example, consolidating data and making it more easily accessible cuts cost and improves productivity. Ultimately, society is more heavily relying on information technology to modernize the business world and improve market efficiency.

The banking industry’s welcoming attitude toward information technology is a change from earlier decades. Previous research suggested that IT was perceived to have a negligible impact on banking. According to “Information Technology and Productivity Changes in the Banking Industry,” a study published in the Economic Note, a prominent source that discusses the latest developments in the banking, finance, and economics, the authors hypothesize and mathematically prove that productivity and profits rose and costs lowered once the industry fully acclimated itself with technology. The authors validly claim that previous studies failed to factor in industry related variables and the need for an adjustment period when they hypothesized that productivity remains unchanged after the inauguration of new technology.

The increasing trend toward IT dependency makes it difficult to imagine the business world existing prior to the creation of information technology. Subsequently, personal biases made it difficult to analytically evaluate the study. In my opinion, growing up during the IT’s coming of age makes me non-partial towards the subject matter; consequently, I was closed minded toward alternative hypothesis outcomes and unable to challenge the authors’ opinion.

However, I did have some apprehensions regarding the structure of the study. I was concerned about the subjectivity in the design; I thought is almost impossible to objectively assign numeric figures to factors such as efficiency. Slight miscalculations or errors in estimates can have serious consequences on the conclusion. In addition, I thought the conclusion was based on a limited sample. Although the authors included theoretical research from other studies, the empirical data was limited to Italian Banks. Despite factoring in economic variables, focusing on only one country’s banking industry narrows the scope and the results.

Although it is impractical to expect any one study to consider every effectual variable, the analysis appears to accurately factor in a number of the important ones, such as deregulation and macroeconomic shock. Ultimately, the authors’ conclusion was exactly what I predicted. IT tremendously impacted the banking industry’s productivity, profits, and costs. The authors accurately point out that previous studies failed to grant banks an adjustment period to acclimate itself with new technology. The implementation of IT involves drastic reorganization and proper training in order to benefit. In addition, the quality of output that resulted from the shift changed so tremendously that it was originally difficult to accurately measure. Although, the study is well developed and researched, I would go as far as to say that it is difficult to accurately place a number or percentage on the effects of IT; therefore, I believe there is possibility that the article undervalues the full impact.



Bills, Steve. "IBM Sees Three Foreign Deals as Promising Sign. " American Banker [New York, N.Y.] 17 Jan. 2008,13. Banking Information Source. ProQuest. 7 Oct. 2008



Casolaro, Luca. "Information Technology and Productivity Changes in the Banking Industry." Economic Notes 36:125 May 2007 43-76. 7 Oct 2008 .

In light of recent bank failures, Electronic Platform for CDS is proposed

In light of recent bank failures, Electronic Platform for CDS is proposed

By: Ryan Van Parys

At the urging of the Federal Reserve and SEC, a hedge fund in Citadel and a clearinghouse in CME(Chicago Mercantile Exchange) group have announced a plan for a joint venture which would introduce the first electronic exchange for Credit-Default Swaps which would bring standardization and improved liquidity to a market which is in part to blame for the current financial crisis. The market currently covers $55 trillion in assets and has been in part responsible for the demise of financial giants such as AIG, Bear Stearns, and Lehman Brothers.

Credit-Default Swaps are derivative instruments which act as essentially insurance for defaults on issued bonds, mortgages, and other leveraged securities. If, for example, Bank of America were to default on their corporate bonds tomorrow, bond holders would not get paid (outside of collateral), but CDS holders theoretically would get paid some sort of premium. Likewise, if Bank of America does not default, then bondholders get paid and the seller of CDS securities also gets paid (think insurance company). However, CDS markets in current form are unregulated over-the-counter markets (OTC’s) where it is uncertain whether or not the seller of a CDS is backed by any collateral, making the investments highly speculative in nature. In addition to the complexities involving the actual issuing, the pricing on CDS securities is often even more cumbersome. Currently, there are very few standardized pricing agencies for CDS, since the securities are traded over the counter; and since the price includes risk from default from the company, contractual obligations AND default from the seller.

In addition to the bad debt that CDS swaps have presented, they have also become particularly harmful to both the bond and equity markets. When institutional investors wish to understand the likelihood of default by a company, they often look to the CDS markets to see what interest rates CDS policies are currently demanding. In the equity markets this often causes downward pressure on stocks(especially in the current market), and in the corporate debt market it forces corporations to offer higher interest rates when issuing debt.

The article discusses how CME group and Citadel plan on launching an electronic exchange in early November where investors can trade anonymously with the advantage of standardized contracts, regulated pricing, and a clearinghouse which will guarantee payment on CDS securities. The move from an archaic over-the-counter system with many problems to an official exchange which utilizes regulation through technology will hopefully bring more transparency and liquidity to a market which desperately needs it. In order to encourage activity, the exchange is offering up to 30% equity and the ability to become market makers for current large institutional investors already entrenched in the CDS business. The new exchange also hopes to partner with other clearinghouse and pricing groups in order to bring more liquidity and standardization to the market.

While the market seems like the right thing to do for the economy, it is unclear as to whether investors of CDS securities will actually participate. Since the market is currently unregulated, the OTC market makes it easier for large investors to manipulate spreads and often lead to higher returns. However, Citadel has a very strong reputation in the CDS market and could very well draw many of the big names to the exchange. Regardless, the Fed has set up a meeting with CME, Citadel, and other companies considering starting their own CDS exchanges to discuss progress within the upcoming weeks.

The exchange introduced by CME and Citadel utilizes information technology in a number of ways. First, one of the main issues with the current CDS market is its lack of transparency and inability to collect off of a bad debt. With a new, highly automated electronic exchange being implemented, it will make it much easier for buyers and sellers to collect on their debt which, in some cases, has been outstanding for years. Additionally, the technological platform will make it easier for liquid assets to flow as spreads and contracts will be more standardized and research will be easier to come by. Finally, the electronic exchange will help liquidity in the market by providing open access to more buyers and sellers through the exchange. This will bring more competition to a market which is currently very exclusive.

While I do believe an exchange for the CDS market is a step in the right direction, it is unclear to me as to why this market is not currently regulated by the SEC or even Congress. From the articles I have read, it seems that they are not regulated because they are simply so misunderstood. I find that inevitably hard to believe as there is currently over 55 trillion dollars in debt outstanding with a high percentage of that number in absence of collateral. I think the federal reserve would like to do something about cleaning up the market, and the implementation of an exchange seems to be the first step.

Main Article -- http://online.wsj.com/article/SB122334553812310351.html?mod=googlenews_wsj

http://www.247wallst.com/2008/10/what-a-cds-exch.html

http://www.forbes.com/markets/2008/10/07/cme-citadel-update-markets-equity-cx_cg_1007markets32.html

Syndicated lending declines as banks tighten credit facilities

The article talks about how the lending of credit facilities has decreased substantially in the United States as well as in Europe, the Middle East, and Africa (EMEA). While the slowdown has been substantially less in EMEA than in the United States it is still very prominent. Reuters Loan Pricing Corporation has said that longer maturities are the lowest they have been in 19 years and which shows that no one wants to loan for extended periods of time. The volume of three year loans has risen from 2007 to 2008 by almost four times showing that some of the loans are being shortened and not completely eliminated.

The article discusses the shorter loans, higher interest rates, and decreased volume in terms of numbers, but does not deal with the overall effect this will have on the companies. The first thought that comes to mind is that the holiday season is going to be rough on families because they might not have enough money for the usual travel and purchases that go on. This will return to hurt the stores because they rely on their holiday sales to pull them through. When holiday season comes into full swing it will be interesting to see the effects on the market. Current loans that have been taken out might not be able to be paid back thus making the credit situation worse; more companies may go bankrupt after the holiday season is over.

From the data it appears as though the tightening of credit lines is just starting to hit Europe and will most likely follow the same path that credit has in the United States. This will cause increasing problems for global corporations as their loans in other countries also get cut off. It will also hurt our economy as business overseas fall under because they won't be able to provide the United States with the imports that it usually takes in. This could be both good and bad for the United States because while it will decrease our reliance on other countries, it will probably also cause a rise in prices. Additionally, it might cause a slide back from the globalization that we have seen over the past few years during which economies were striving. Less companies will expand overseas in the coming years because they don't have the funds to do so which will, for the time being, stop the sending of jobs overseas. Globalization will have to be put on hold until companies are able to pay off their debts and banks increase their lending again.

What's Ahead In Business Credit Technology

What's Ahead In Business Credit Technology?
Tom Diana. Business Credit. New York: Oct 2006. Vol. 108, Iss. 9; pg. 32, 2 pgs

Technology has played marvelous innovations in the financial industry for the last 20 years. Today, business professionals have a wide range of financial tools for credit scoring, collections and obtaining credit information from potential customers. New and improved internet and software have revolutionized the financial industry. A major change that we are experience in the 21st century is the process of automation in the credit firms. This is primarily due to the advancement in technology. Powerful software has been developed to facilitate various functions in the financial industry. One of the most unique features of this improvement is the ability to integrate technology into credit scoring. Credit scoring represents the creditworthiness of a person calculated based on the information maintained by the major credit bureaus such as Equifax, Experian, TransUnion and Innovis. These independent credit bureaus electronically maintain a history of consumer’s payment record, control of debt, credit inquiries made by other lending institutions, outstanding amount of debt the person is obligated pay and the time-span of each account the consumer has. As a result, lending institutions now have the capability to electronically report and access a person’s credit history retained by these credit bureaus within few minutes and decide whether they can extend a line of credit to that person within very short time.

One of the most unique features of development of new and improved credit management software is their ability for firms to use them to gain a proprietary advantage over their rivals. Financial industry is seeking a cost advantage by managing their IT resources more effectively. This extends from developing new software or improving their current software, outsourcing or even using remotely-hosting their software. This article explains the benefits of remotely-hosted software in the credit industry, rather than software installed on a company's own servers. According to this article, Michael Banasiak, President of Predictive Metrics, believes in cost advantages of outsourcing the hosting and maintenance of software to companies that specialize in that service. He says "It becomes more efficient. We outsource tasks in which we are not experts; it provides an economic edge."

As IT enables these changes, it creates a competitive credit market and the competitiveness ultimately benefits the consumer by lowering prices. Today, consumers have the capability to get unlimited access to his or her credit repot and monitor them real-time just by paying fraction of the money they would have to pay few years ago. Technology has created a gateway for other firms to look into new forms of business with the credit industry. Business like real-time credit monitoring, scoring and identity theft protection didn’t exist few years. It is because of technology that they are becoming more and more profitable today.

What's Ahead in Business Credit Technology?

This article does not deal with credit in the banking sense, but instead refers to business credit, which usually involves one business giving credit to another business that seeks to purchase products or services from the former. Similar to banks, many businesses have credit departments that use specific technology for credit scoring, collections and assessing risks in issuing credit. What this article focuses on are the foreseeable advances and innovations in technology for the business credit sector.
The author starts off with the usual benefits that can be gained from applying technology – cost-savings, speed, efficiency and interoperability between systems and departments. Considering the publish date of the article (October 2006), all of these benefits appear today as both taken for granted and applicable to any business department, not just the credit one. However, in my opinion, the article provides one exceptional insight into the future workings of credit departments and perhaps the credit industry as a whole – the utilization of Web 2.0 capabilities in issuing credit.
There is no specific mention of Web 2.0 (probably because the name was not used very broadly in 2006), but two of the interviewed executives – Joshua Burnett of 9ci, Inc. and Michael Banasiak of Predictive Metrics, discuss the enormous potential for credit departments in online collaboration and data and information sharing between users in businesses – two of the main characteristics of Web 2.0. The article even goes as far as saying that social networking groups like MySpace and LinkedIn would eventually evolve within the credit industry (CreditBook.com or CreditBlogSpot.com anyone?).
It is interesting to try and estimate some of the benefits from such interconnected groups. Among the obvious benefits is that businesses will be able to share information on credit-worthy customers and at the same time warn each other of risky ones – a sort of eBay-rating-like system. Additionally, the consolidation of information among many small businesses will begin to rival that of major banks and institutions, thus empowering such credit networks to rely less on the expensive proprietary information of others and to protect themselves from the inaccuracies and anachronisms that are sometimes inherent in external data sources.
According to the article, the impact of these collaborative business networks would be felt most noticeably at the small business level. Nevertheless, given the current financial situation in the country, one could wonder whether the existence of enough shared data between banks and lenders could have mitigated the effects of the subprime crisis by providing more comprehensive risk assessment capabilities.
And on a final note, there is always the threat of having too much information in one place, even if it is accumulated by many sharing entities. Many people would probably dislike the idea of having their future car dealer know about that one time their credit card was rejected at the restaurant, just as businesses would dislike the idea of not being able to start off with a “clean slate” when they go to a new lender. But then again, all that is probably already stored in a database somewhere, just as this innocent little blog post will be.

Main Article: What's Ahead in Business Credit Technology
Author: Diana, Tom
Publication Title: Business Credit. New York: Oct 2006. Vol. 108, Iss. 9; pg. 32, 2 pgs
ISSN: 08970181
ProQuest document ID: 1150835061
Document URL: http://proquest.umi.com.proxyau.wrlc.org/pqdweb?did=1150835061&sid=1&Fmt=4&clientId=31806&RQT=309&VName=PQD
Database: ProQuest, Banking Information Source