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© 2016 – FinPro, Inc. 0
158 Route 206 Gladstone, NJ 07934 P: (908) 234-9398 [email protected] www.finpro.us
FinTech Discussion –
Identifying the Problem and Creating Solution
FinPro State of the Industry Summit
November 10, 2016
© 2016 – FinPro, Inc.
Relative to technology, what should depository institutions focus on in 2017?
Reduce spending
Rethink location strategy: change delivery channels by pushing mobile technology and human branches
Increase employee productivity: invest in technology that empowers consolidation of FTE
Reduce waste
Cut from legacy systems: reduce burden of maintenance and vendor management
Remove clerical tasks: automate customer interaction where possible
Ensure consistency in applications: update software and centralize software platforms where possible
Augment analytics
All files should be digital
Streamline capture, storage, and analysis of not only credit information, but customer patterns in order to predict their needs
Utilize new technology
Invest: be involved in the design, share in the risk/reward
Partner: allow FinTech firms to work along-side employees to solve challenges
Consume: lagging adopter
KEEP DATA SAFE!
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© 2016 – FinPro, Inc.
Why is technology such a prevalent topic for community banks?
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Today Tomorrow
Uber Driverless Cars
Doctors Watson On Line Medical
Passwords Recognition Software
Computers, Smart Phones Etc HoloLens, Oculus Rift
Utilities Renewable Energy
IRS Flat Tax
Amazon 3D Printing (Goods on Demand)
This is Strategic Risk!
Technology is the Disruptor!
© 2016 – FinPro, Inc.
Regulated financial institutions are trying to be both disruptors and competitors . . .
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© 2016 – FinPro, Inc.
Banks must be fearful of not only being obsolete, but vulnerable to attack . . .
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Types of Attacks
Malware / Destructive Malware
Key Loggers, Trojans, Ransomware, Wiper
Often exploit a “zero day” vulnerability in software
Phishing/Spear Phishing
Distributed Denial of Service (DDoS)
Compound Attacks: combinations of the above
The “Russian hackers” and
“lost email” story lines in the
campaign will influence the
prevalence of cybersecurity
risk.
© 2016 – FinPro, Inc.
Comptroller of the Currency Thomas Curry soundly rejected the possibility of creating a "safe space" for fintech firms to operate outside of consumer protection rules while they develop and test new products
It is the company's responsibility to ensure products and processes are safe before rolling them out
The OCC is also preparing to release its determination on the question of whether to create a charter designed for fintech firms
"It is clear that the OCC has the authority to issue a charter to companies that engage in at least one of three core banking functions—taking deposits, paying checks, or lending money," said Curry. "And, it's clear that many fintechs perform these activities."
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In early November the OCC announced that it would open an office dedicated to innovative products and companies operating in the financial sphere . . .
© 2016 – FinPro, Inc. 6
More competition will come from non-deposit institutions as we move forward . . .
Deposit
Institution
Deposit
Institution
But for now, a regulated financial institution is on both sides!
© 2016 – FinPro, Inc.
Notice in almost every case that customer needs are not changing, what is changing is how those needs are met! So how do depository institutions deal with Strategic Risk?
Defend and market the industry’s 2 HUGE competitive advantages
Insurance
Leverage
Focus on having right people, systems and controls
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© 2016 – FinPro, Inc.
BODs must provide a clear IT Corporate Governance framework
Sound objectives
Policies
Risk limits
BODs must monitor whether officers and employees are complying with framework
Credible challenge is critical
Must occur
Must be documented
Utilize the methodology in The FFIEC Cybersecurity Tool (June 30, 2015)
Types of technology and data connections
Delivery channels
Online/mobile products
Organizational structure
External threats
Inherent Risk: Least– Minimal – Moderate – Significant
Mitigation Level: Baseline – Evolving – Intermediate – Advanced - Innovative
NOTE: Vendor management is being included with IT examinations
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People, systems, and controls require a strong Corporate Governance for safe and sound technology operations . . .
© 2016 – FinPro, Inc.
Small number of core banking software vendors has cornered the U.S. market — FIS, Fiserv, Jack Henry, and D+H (through its recent acquisition of Harland). Together they own about 96% market share
There is a second tier of vendors, but the number of providers is down from 117 companies at the peak to around 20
Strategic Risks
Hard for banks to innovate: Some banks still use core software purchased 30 or more years ago, and have layered on top of it "ancillary" products such as online banking and mobile banking software
They are slow to innovate: The top four vendors have been compared to the large pharmaceutical companies "they wait for others to innovate. When others innovate, they acquire them”
Challenging to get data: With fixed data structures, it is difficult for banks to leverage data and conduct proper analytics (example: loan level stress testing)
Looming obsolescence: Block chain and start-ups are going to drive them to extinction
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Core system providers are not a good ‘partner”. They have old technology and charge customers too much for data on the way in and out . . .
Therefore,
Banks Need to Lead the Drive for New Technology
© 2016 – FinPro, Inc.
Band together to have power
Revisit approach to IT budgeting and spending on strategic initiatives:
Emerging technologies
Cloud Services – migration from owned resources to shared resources
Private vs. Public Cloud
Key Terms
SaaS – Software as a Service
PaaS – Platform as a Service
IaaS – Infrastructure as a Service
Blockchain
Cryptocurrencies
Mobile financial services
Automated financial advisers and customer care centers
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Areas of opportunity for community banks . . .
© 2016 – FinPro, Inc. 11
What are examples of emerging technologies that COLLABORATE with community banking?
What is Simple:
“Simple offers an account that has all the tools you need to manage your money
built right in. The funds in your Simple account are held by our partner bank, The Bancorp Bank, Member FDIC.”
“Bundle” Components:
• Credit Card
• Now Account
• Debit Card
• Direct Deposit
• Free ATM nationwide
• Bill Pay
• Mail a check
• Link to other accounts
• Instant transfer to Simple Customers
• No Fees
• Real Human Support
• Push notifications
© 2016 – FinPro, Inc.
In the Simple example, technology is the solution for flexibility in personal product bundling and pricing . . .
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Money Market
Home Improvement Loan
Comfortably Retired
Urban Builders
Young Urban Renters
Struggling Seniors
Know your customers. They may have common characteristics, but some segments have a lower propensity to utilize any financial products.
Core Products
Niche Products Niche ProductsAuto Loan
2nd Mortgage
401k, 529, HSA
Mortgage
Checking
Savings
Overdraft
Bank Credit Card
CD
Home Equity LOC
IRA-CD
© 2016 – FinPro, Inc.
Collaborative FinTech is the key to continued profitability . . .
Cost savings
Customer interface
Streamline production
Augment marketing and delivery channels
Data gathering (storage and security)
Data analytics (intelligence)
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Collaboration with FinTech is a Must!
© 2016 – FinPro, Inc.
Contact Information
Conversations on FinTech or FinPro services:
Don Musso
908.234.9398 ext. 101
Stephen Brown Klinger
908.234.9398 ext. 112
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