Die Hard: Homegrown Banking Software

Die Hard: Homegrown Banking Software

Banks That Rely On Homegrown Software Are Often More Satisfied With Their Technology Capabilities Than Are Vendor-Dependent Banks.

Boston, September 20, 2011 – A new report from Aite Group examines the current penetration of homegrown technology at banks, globally by region. Based on a Q1 2011 Aite Group survey of 80 large financial institutions across North America, the Asia-Pacific, and Europe and the Middle East, the report provides comparative satisfaction levels with homegrown technology solutions, and explains why homegrown solutions garner such high levels of satisfaction in certain areas while vendor solutions are preferred in others. Some industry observers might find it difficult to believe, but homegrown software continues to be a favored technology option for some banks. In fact, about 16% of banks around the world continue to prefer building software in-house when they have the chance, and homegrown software receives a 65% net satisfaction balance compared with vendor software's 55%. Aite Group attributes this high rate of satisfaction at least in part to custom tailoring. Although homegrown solutions can be more difficult to maintain and upgrade, they may better fit the specific needs of the organization than an off-the-shelf vendor solution. Of course, satisfaction varies by solution type, and vendor solutions receive higher satisfaction marks in certain areas, such as anti-money laundering. "The expansion of the IT services industry is one of the factors behind the resilience of homegrown software development," says Gwenn Bézard, research director with Aite Group and co-author of this report. "The development of a low-cost IT services industry over the past decade, in particular in India and some former Soviet Union countries, has made it easier for institutions to custom-build software at a competitive price." This 22-page Impact Note contains 15 figures. Clients of Aite Group's Retail Banking and Wholesale Banking services can download the report by clicking on the icon to the right.

Trivia from travel: Can someone please...

...tell me why Lufthansa equipped it's planes with ASHtrays in the lavatory of you are not allowed to SMOKE?

(not that I smoke in the first place, but the conflicting messages intrigue me!)

lol

The 26 million Underserved Bank Customers

According to a recent report and an article in the American Banker, the bulk of 26 million small companies in the US are overlooked and underserved by American banks. A lot of them do not have business banking packages, but rather use consumer banking products and services.

This is the primary reason why we have developed a service to identify these customers by scoring consumer card spending patterns to identify typical business spend. The Business Spend Indicator enables banks to identify "hidden" small business customers, target them, and propose more adapted products and services.

Contact me should you wish more information about this opportunity.

Encouraging 3Q09 results for a number of large banks

The following article in the latest edition of the Retail Banker International is worth reading:

While total third-quarter net earnings at 20 selected banking groups rose by almost $2.5 billion to $30 billion year-on-year, there was a marked geographic bias – with the strongest performing banks based in the US, France and China.

Strip out JPMorgan Chase’s sixfold rise of more than $3 billion in net earnings for the quarter to $3.56 billion – driven by strong investment banking and asset management figures but hammered by underperforming retail and card units – and net earnings at 20 of the biggest banks to report third-quarter results actually fell (some banks, including HSBC, Lloyds and Standard Chartered, do not publish earnings for the Q3 period).

A rise in net profits of around 20 percent was seen at Bank of China, Industrial and Commercial Bank of China and China Construction Bank, boosted by a lending boom in the first half – although the rate of increase slowed slightly in the third quarter.

In a generally positive assessment, China’s banks said that net interest margins had stabilised and, looking ahead, forecast that lending would remain buoyant into 2010.

Among banks in Europe, Société Générale more than doubled its quarterly earnings, easily beating analyst forecasts, boosted by strong French retail banking revenue growth, declining provisions and a sharper than expected cut in expenses. Though analysts said there remained some pockets of concern, such as future loan losses in its consumer finance arm and further deterioration of credit risk in its operations in Russia and Romania, the cost of risk at group level has stabilised at 120 basis points.

Santander’s quarterly earnings of €2.2 billion ($3.3 billion) was down by only 3 percent year-on-year, and in an upbeat assessment, the bank reiterated its full year earnings target of €9 billion. At Barclays, although third-quarter net earnings fell by more than 50 percent, largely on losses on the value of its own debt and other one-off items, underlying earnings for the first nine months of the year more than doubled.

In common with HSBC, which said only that its underlying third-quarter profits were “significantly ahead” of a year ago, Barclays indicated that bad debts may have peaked.

Among the more positive developments of the reporting season was a sharper than forecast increase in underlying banking earnings at ING (net earnings of €499 million compared with a loss of €477 million in the year ago period), boosted by lower-than-feared loan-loss charges, strong fees and commission income, and lower costs, notably at ING Direct.

Credit losses peaked?

As for the fourth quarter, Bank of America, which reported a net loss of $1 billion, indicated that credit losses may have peaked, though its outgoing CEO, Kenneth Lewis, told analysts results going forward “are expected to continue to be challenging as we close the year”.

But the most marked uplift in sentiment for the remainder of the year was expressed by HSBC’s chief executive, Michael Geoghegan, who had expressed fears of a W-shaped double dip recession earlier in the year.

Boosted by an improvement at its troubled US consumer finance business, where bad debts fell for the first time since 2006, he said: “the biggest jolt has now passed through the global economy” and predicted a two-speed recovery, driven by emerging markets.

RESULTS
Q3 group net earnings at 20 selected banks, ranked by year-on-year change
	Q309 ($bn)	% change
JPMorgan Chase	3.56	571.6
Société Générale	0.64	137.0
PNC	0.56	115.3
Wells Fargo	3.23	96.9
BNP Paribas	1.95	44.4
Bank of China	3.21	22.5
ICBC	4.95	19.9
China Construction Bank	4.44	18.7
US Bank	0.61	3.4
Intesa Sanpaolo	1.01	0.0
BBVA	2.23	0.0
Santander	3.23	-2.1
Crédit Agricole	0.58	-7.9
UniCredit	0.84	-19.2
Barclays	1.80	-53.7
Erste	0.34	-72.5
ING	0.75	n/m
Citigroup	0.10	n/m
Bank of America	-1.00	n/m
Royal Bank of Scotland	-3.01	n/m
n/m = not meaningful Source: RBI

Merry Christmas

Les Echos, the French business newspaper, announced today that champagne wine makers have more than 1,3 billion bottles in storage. Yes, billions!

In other words, more than 5 years worth of sales, up from 3,6 years worth of stock only a year ago.

Cash flow problems due to recession have tempted some of the champagne houses to reduce prices significantly to increase sales, and for the first time this year you can find champagne for less than €10 per bottle.

My guess is that we are heading for a magnificent, less expensive festive season for lovers of sparkling, wonderful champagne. For consumers, that is, and not for the wine makers having to discount their precious, bubbly wine.

Customers' trust in banks rock-bottom

Aite recently published a survey of US, UK and French customers' trust in banks, and the results should receive top attention in banks' boardrooms.

The results show that trust is dramatically low, and that financial turmoil, banks being bailed out by governments, while others still insist on paying huge bonuses to employees of mis-managed banks, have contributed to customers loosing faith in banks.

When only 6-7% of customers, or 1 in 20 customers, give or take a few, in France and the UK express very much trust in their primary bank provider, I would be worried if I were a board director. Even more so if you look at the data for general banking trust, where hardly anyone has very much trust in banks, and only one in three (US) to one in eight (UK) customers somewhat trust banks.

Banks have a long way to go in re-building trust with their customers to get up to decent levels again. A first step would be to avoid negative press by ensuring that salaries are kept at decent levels, and that bonuses are paid only when achieving objectives that contribute to build shareholder value and customer satisfaction.

The Amex Paradox as US Credit Card Issuers Crash Land

In a recent article in the New York Times, the major US credit card issuers have put on their safety belts and crash helmets, as they prepare for a major crash landing with their credit card portfolios. Credit card losses are soaring to unprecedented levels as unemployment rises, and cardholders struggle to make ends meet.

From credit card write offs in the region of 5,5% in 2008, write-offs have shot up to 8,5% in Q1 of this year, well above the previous credit card loss peak of 7,9% experienced after the technology bubble burst in 2001.

Banks are doing their best to limit losses by tightening application approval criteria, cancelling unused card accounts, and reducing available credit limits. At the current rate, credit lines will probably be reduced by a staggering $2,7 trillion by next year, or - to put it in perspective - cut in half compared to the available card credits only two years ago.

Credit card losses have historically correlated quite well with unemployment rates, which indicate that banks are heading for more trouble as the US unemloyment rate threatens to break the 10% barrier. Even more so when Citigroup recently reported that its 10,2% charge-off rate in Q1 for the first time had broken the "historic correlation with unemployment".

American Express is one of the banks trying to limit its exposure, as stress tests of the portfolio indicate that it may face losses of up to 20% of card balances over the next year or two.

So why are they sending out direct mail to recruit new cardholders in France for its Optima credit card? A paradox, to say the least.