The overall banking market is plagued with economic hardships with more than 150 bank failures in 2010 alone, and the bad loans and mortgage/lending crisis is expected to continue to negatively affect the overall U.S. banking industry beyond 2010. The good news is that 2011 is expected to see a recession in the number of closures, as 2010 is expected to be the peak of bank closures. Also according to the FDIC, banks brought in$18 billion in profit for the first quarter of 2010, $12 billion more than the first quarter of last 2009. Thus, banks are expected to continue buildin gcapital to improve their financial positions, including attracting outside investors and evaluating emerging markets.
Other factors plaguing the banking industry is the expected and ongoing regulatory oversight taking place, which is expected to restrict lenders in the foreseeable future. This is expected toreduce the risk banks have taken in the past to support lending activities to both consumers and businesses. Government bailouts of banks means that the Government now owns major stakes in banks and that policy makers are imposing or influencing salaries, banking decisions, level of risk taken, and other pertinent banking-related activities. The recent Small Business lending bill is also expected to boost lending to small businesses and relax restrictions around serving the needs of small businesses. In late September, Obama signed this bill which allots $30 Billion in funding for small business loans. The fund will be available to community banks, which could use the money to leverage billions more in loans.
Banks seeking to improve efficiencies, reduce costs and free up capital are increasingly turning to outsourcing, particularly in treasury management, wholesale lockbox, remote capture, disbursements, check processing and image exchange. Larger banks are trimming down the list o fproviders with which they work and are creating "hybrid" outsourcing relationships that encompass multiple tasks, rather than having each of many providers do one thing. Outsourcing is also focusing around mortgage and student loan processing, with paperwork performed offshore and the actual decisions made stateside.
As far as technology trends are concerned,there continues to be activity around applications, automation, self-servicebanking, web services, and compliance/security integration. Key application areas include the focusaround credit-risk modeleling, content management, fraud prevention,transaction management, and compliance/risk management. Large banks still send applicationdevelopment and maintenance work offshore similar to technology firms, andcommunity banks continue to rely on local service bureaus for core processing.
In addition, many banks are investing in channel integration projects, in which retail and commercial customers are given a more seamless experience. The automation of business processes and data management is expected to continue in an effort to provide better information and improve customer relationships. Banks are also expected to put greater efforts and IT investments to ramp up their commercial business in 2010 and beyond. Risk management and security are both on the short lists of 2010/2011 IT priorities as well. As banks allot their IT dollars for 2010 and beyond, flexibility will remain a key strategy, especially when it comes to compliance.
Other unique technologies that banks are looking at include RFID, cloud services, enhanced web services, and grid computing. Radio frequency identification, or RFID, is being utilized to help improve client services and reduce credit card fraud. Cloud-based managed services are being utilized to enable community financial institutions to access on-demand technology and services without the requirement to purchase, build and integrate redundant data centers, servers, applications and networks. Both cloud and SaaS services are allowing banks to ramp up application services rather quickly without the heavy upfront capital investments, thus making it attractive especially around client-facing applications.
The bottom line is the banking industry continues to be in a rebuilding phase. IT priorities have changed, focusing more on client-facing initiatives, or projects that have little to no up front capital investment, and projects that improve systems, infrastructure, and applications that are related to the web, compliance, data/transaction management, and decision support systems (i.e. credit/risk evaluation).
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