New Report: Top 10 Business Drivers for Banks in 2009Security, Revenue Growth, Competition Top List of TowerGroup Study Information security will be among the top 10 business drivers for retail financial institutions in 2009, says a leading research firm. Along with the current economic environment, regulatory change and compliance, financial institutions will face challenges in developing short- and long-term strategies to mitigate losses says TowerGroup, a Needham, MA-based research company.
The group's report, "2009 Top 10 Business Drivers, Strategic Responses and IT Initiatives in Retail Banking," shows that because of economic uncertainty and the continuing financial markets crisis, retail institutions are honing their businesses to preserve capital and deposits. The other seven business drivers are: competitive threats, changing customer preferences, revenue growth, operational efficiency, business growth/contraction, customer loss/dissatisfaction and fraud and financial crime.
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Growth Is Impacted
Other important key points covered in the TowerGroup report include the pervasive credit liquidity problem that all banks face. Analysts and report authors Robert Hunt, Kathleen Khirallah and Tom Brogan see economic growth will be "severely impacted" because of it. Market areas expected to suffer most will be North America and Europe, more than those in Latin America, Africa and Asia.
There is good news for institutions with capital and the ability to integrate - they are seen as making bold gains in the upheaval in the competitive landscape, say the analysts. While some markets will undergo a broad restructuring, Tower sees a "handful of US consumer banks should begin to realize the benefits of their newly acquired national banking footprint."
The continuing economic crisis is not the only thing battering institutions. Stalled growth, credit liquidity issues, capital adequacy, credit quality, consumer confidence and the possible overall of regulatory structures all compound the challenges institutions are facing in 2009.
Budgets Under Pressure
The report sees discretionary spending by banks will be under pressure through 2009. The three largest expenses institutions have on their books are personnel, physical plant and information technology.
As banks evaluate major strategic initiatives for 2009, especially those involving IT, the focus will be on capital preservation, increasing operational efficiencies, and establishing strategies to avoid future crises. Other investments will be deferred until the banks and the economies stabilize. The spending on IT integration by banks involved in mergers and consolidations will be accounted for and expensed as part of the merger, not as discretionary IT spending.
IT department budgets at most consumer banks can expect to be under more oversight by senior management and will undergo "vicious pressure" through the end of 2009, say Tower analysts.
Many institutions will ask IT departments to cut spending, but key technology initiatives will remain at the top of many department lists. What forces are driving the institution will determine the initiatives undertaken. Tower analysts predict the following will be some of the top initiatives undertaken by retail consumer banks in 2009:
Regulatory Requirements Continue
The continuing attention for institutions on regulatory requirements in 2009 will include the new identity theft protection rules, expanded deposit insurance reporting and improved foreclosure/loan loss processing and documentation requirements. Institutions will need to develop a more sophisticated understanding of enterprise performance metrics and drivers to comply with regulations that require improved reporting of key performance metrics for risk and portfolio analytics, say Tower's analysts.
Fraud and Financial Crime
A constant threat, fraud is seen as happening more frequently in the coming year. Institutions and their vendors need to implement new tools to combat it, including the need for increased cooperation with other banks and third parties. The replacement or changing over to enterprise-wide real-time fraud detection solutions by vendors are beginning to meet the demand of risk managers at institutions to better understand and manage risk. Institutions are also beginning to use the same fraud detection methods used for card transactions for deposits and checks, which helps increase fraud protection.
The data breaches happening at banks and other institutions continue despite the use of two-factor authentication measures and other security measures. TowerGroup analysts see institutions further restricting the downloading of customer information and the move toward encryption and expiration dates for downloaded files in 2009. The analysts say they expect banks to implement short-term efforts to encrypt all back up files, including copies of customer data for business recovery.
Coming Soon: State of Banking Information Security
The current state of information security at financial institutions will also be examined soon in the State of Banking Information Security 2009, an upcoming survey of U.S. financial institutions by the Information Security Media Group, to be launched in December. See related: The State of Banking Information Security 2008.