FinTech Marketing

Fixing risk management at banks more complicated than fixing regulation

Correcting the risk management practices at banks is far more complex than correcting the financial regulatory structure, Larry Cordell, vice president of the Risk Assessment, Data Analysis and Research (RADAR) unit at the Federal Reserve of Philadelphia said at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition. Cordell, who discussed the paper: Collateral Damage: Sizing and Assessing the Subprime CDO Crisis, said that fixing the regulatory structure is largely done through the establishment of his group to monitor the financial markets, annual stress tests for the nation’s largest banks and some of the rules in the Dodd-Frank Act.
However, fixing risk management practices within banks requires cultural shifts and changes that have to come from within the organizations, Cordell said, adding: “Compensation practices incentivize risk-taking; these [practices] have not been changed.

Failures in Risk Management Primary Culprit in 2007 Financial Crisis: Cordell

Failure to recognize the over-concentration of risk in collateralized debt obligations (CDOs) was the major contributing factor in the subprime crisis, according to Larry Cordell, vice president of the Risk Assessment, Data Analysis and Research (RADAR) unit at the Federal Reserve of Philadelphia who discussed the issue at Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition.  Cordell noted a 2005 comment from Warren Buffett, who called CDOs “financial weapons of mass destruction.” Cordell said that 42 percent of the financial crisis was related directly to the CDOs. There were several issues – the products were highly leveraged, any proceeds were used to purchase more CDOs, and the entities buying and selling the products largely didn’t understand them.

GSEs Inefficient, Contributed to Financial Crisis: Researcher

Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA, said that the government sponsored entities, Fannie Mae and Freddie Mac, have provided real little value in the mortgage market and should be transitioned out of the business.
Stuart, speaking at the Federal Reserve Bank’s 48th Annual Conference on Bank Structure and Competition, said that only about half the 30-40 basis point GSE funding advantage was passed to consumers in lower rates; GSE affordable housing loan purchase programs were of limited efficacy in achievement of homeownership; the GSEs had a destabilizing influence on mortgage markets and served to exacerbate the subprime boom while also crowding private investors out of the mortgage market.

Former U.S. Comptroller Says Bank Supervision Must Use Good Judgment Be Flexible

Eugene Ludwig, former U.S. Comptroller under President Clinton and founder and CEO of Promontory Financial Group, said that financial services regulations must be flexible enough to protect against failures and abuses in financial institutions without being too restrictive while also being adaptable enough to evolve with the industry. Ludwig, speaking before a lunch gathering at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition, said that good regulation requires good judgment. “There is a tradeoff between flexibility and control,” Ludwig said. “A regulatory system that relies entirely on discretion can become scattershot; supervisory outcomes can become widely divergent, and in some cases, unfair. On the other hand, a system that relies entirely on enumerated rules will be too complex, it will either try to account for every negative eventuality and become too dense to implement, or it will fail to adapt to new problems in new forms. Either extreme can create a level of government intervention that runs in the face of free enterprise and the discipline of the free market.”

Former U.S. Comptroller Says Bank Supervision, Supervisors Must Improve

Eugene Ludwig, former U.S. Comptroller under President Clinton and founder and CEO of Promontory Financial Group, said improvements in the bank supervisory system and among the people working in the system are essential for an improved banking system. Ludwig, speaking before a lunch gathering at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition, said: “Broader supervisory discretion should come with greater accountability, and specific expectations for examiners and agency heads. We should produce regular ‘supervisory report cards’ measuring performance throughout the supervisory process, including the efficiency of bank regulation. These would go beyond current ‘material loss reviews’ and gauge the quality of financial oversight before a failure occurs. “We should also provide far more professional opportunities for supervisors. The apprenticeship area is long over. Supervision should have the same stature as law and business, with its own professional criterion and independent body of literature. Universities should be places where government and the private sector come together to exchange knowledge about what regulation is, can be and should be.”

Restructured Mortgage Pipeline Needs Diverse Elements: Fed Economists

Following the recent financial crisis, the mortgage pipeline, from the mortgage origination to the sometimes multiple levels of mortgage investors, to homeowners needs to be rebuilt as there are now leaking holes in the old model, many experts agree.
In preliminary research that examines this problem, Federal Reserve economists Wayne Passmore and Diana Hancock concluded that any updated mortgage pipeline needs to include elements from insurance to statistics. They presented their findings at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition.
They recommended that the new mortgage pipeline include:

• Catastrophic insurance to bring in guarantee-sensitive investors and create liquidity in secondary market for mortgages, and allow for hedging of interest rate risks.

• A national mortgage database that allows mortgage market participants―bankers, investors in subordinated mortgage-backed securities, investors in covered bonds, private mortgage insurance providers, and the government insurer―to measure and assess their risks.

• Subordination structure of liens/ PMI requirement to ensure homeowner, PMI providers (if applicable), and private-sector securitizers / covered bond issuers bear losses before the government, which only bears “tail-risk.”  Hence, these providers of mortgage financing would have an incentive to price their risks.

• Government underwriting standards / standardization to facilitate liquidity in secondary market for subordinated MBS.

• A limited government role because the provision of tail-risk insurance ensures mortgage credit availability throughout the housing cycle.

• Subordination structure of liens that brings private capital/homeowner equity into the “first loss” position (as well as “second loss” and “third loss” positions).

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Bernanke says large banks showing better

Federal Reserve Board Chairman Ben Bernanke said Thursday that the nation’s largest financial institutions have made large strides in repairing their balance sheets, improving their capital and  liquidity and in returning to profitability. Speaking via satellite at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition, Bernanke said: “Risk-based capital and leverage ratios for banks of all sizes have improved materially and are significantly above their previous highs. The 19 largest banking institutions that participated in the 2009 stress tests have considerably more and better-quality capital than a few years ago.
Bernanke added that large banks have more than doubled their holdings of cash and securities since 2009 and have reduced their collective dependence on short-term wholesale funding, though some large firms still rely heavily on wholesale short-term funding. Similarly, while delinquency rates on the whole have declined, delinquencies on real-estate related loans remains elevated.

Bernanke says financial picture improving for community banks

Federal Reserve Board Chairman Ben Bernanke, speaking via satellite at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition, said that the financial health of community banks is improving along with the financial performance of most of the nation’s largest banks. “Community banks play important roles in local economies, and so it is notable that their condition has also improved,” Bernanke said. “Their regulatory capital ratios have increased significantly since 2009 and stand well above their recent norms. As has been the case at large banks, delinquency and charge-off rates at community banks have declined across most major categories of loans, and fewer institutions failed in 2011 than in each of the previous two years. That said, clusters of small bank failures can affect credit availability in a community while bank-dependent borrowers work to establish new relationships with surviving institutions. In addition, while standard measures of community banks’ profitability, such as return on equity and assets, improved last year, as was also true at larger institutions, most of the gains were due to reductions in loan loss provisions rather than to more sustainable sources of profit such as expanded lending.”

Bernanke says current lending standards may be too strict.

Federal Reserve Board Chairman Ben Bernanke, speaking via satellite at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition, said that the current tight lending standards “may be limiting or preventing lending to many creditworthy borrowers.” According to Bernanke, in a recent survey, bank senior lending officers said that even when borrowers had downpayments of 20 percent and GSE-eligible credit scores, they were less likely to approve the loan than they were in 2006. The biggest reason for the change, they said, was due to “putback risk”–the risk that a bank might be forced to buy back a defaulted loan if the underwriting or documentation was judged deficient in some way. “Small businesses owners, who in the past might have tapped into the equity in their homes or used their homes as collateral for small business loans, also have found conditions challenging in recent years,” Bernanke added. “The stock of small loans to businesses on bank balance sheets at the end of last year was more than 15 percent below its peak in 2008. These loans looked to have ticked up in the fourth quarter of 2011.”

FDIC says new authority could have been used early in the financial crisis

Acting Federal Deposit Insurance Corporation Chairman Martin J. Gruenberg told a lunch gathering at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition that new FDIC authority under the Dodd-Frank Act that permits the FDIC to intercede when systemically important financial institutions are in danger of failing. While the FDIC has had this authority with banks that it insures, the new authority expands to holding companies and other “systemically important” financial firms that previously were outside of the agency’s jurisdiction. According to Gruenberg, this authority, if the FDIC had had it at the time would have permitted the agency to intercede as Bear Stearns and Lehman Brothers, both investment banks, and insurer AIG failed. Those failures marked the beginning of the financial crisis, Gruenberg said.

New FDIC resolution plan focuses on seizure, then separation of good and bad assets

The new resolution authority that the FDIC has under the Dodd-Frank Act enables the agency to place into receivership the parent company of any failing “significantly important financial institution (SIFI),” FDIC Acting Chairman Martin Gruenberg told a lunch audience at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition. The FDIC would alos pass the parent company’s assets, principally investments in its subsidiaries, to a newly created bridge holding company.  “This is designed to allow subsidiaries that are equity solvent and contribute to the franchise value of the firm to remain open and avoid the disruption that would likely accompany their closings,” Gruenberg said, adding that such an action should enable the business of the healthy subsidiaries to continue as normal even though the parent firm is in receivership.

Forward-looking stress testing should provide early warning, Fed says

Lisa Ryu, assistant director in the Federal Reserve’s regulation and supervision division, in a panel discussion at the Federal Reserve Bank of Chicago’s 48th Annual Conference on Bank Structure and Competition, said that previous bank regulatory testing was primarily a “backward-looking” exercise that focused on past performance and business, with little focus on the future. Newly designed stress testing, which most of the nation’s largest financial institutions recently passed, focuses much more on future scenarios, including a severe global recession, so it is much more likely to highlight potential problems, Ryu said. However, she cautioned that the stress tests, though carefully designed, shouldn’t be considered a panacea for identifying all potential failures of systematically important financial institutions (SIFIs).

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Wipit  – Introduced an online and mobile “account” that enables the unbanked to pay online with pre-paid cash. They provide a wallet that reloads at various retailers in real

Account Supervisor & Regional Manager at William Mills Agency

time. From there, consumers can shop online and pay with Wipit.. Prepaid smartphone adoption is growing rapidly, and this app should grow with it. 

BehavioSec – a behavioral biometrics company used in Europe and Scandinavia, introducing to the US market. How a user moves his/her mouse, how they type, how they act can add an extra transparent layer to security. No hardware, or user education necessary.

Flint Mobile – Announcing the new company that provides a mobile app to help businesses accept payments. Using your mobile phone camera, take a picture of the card – flint will only take the main numbers -  then you enter the verification info, customer’s email for the receipt, verify card number and customer signs on your touch screen. Also has a social media connection to draw customers into your sites. “Squares and triangles do not make the world go round.”

Cardlytics – the most important thing in the targeted marketing industry is scale. Now, Cardlytics can map and show where you have activity, drilling down to the single store level. It shows who has activated, but not redeemed offers, enabling you to adjust offers to increase activity.

Transparency Labs – wants to increase transparency (get rid of all the fine print) for the retirement community. This can help banks increase their sales in the segment. People walk away from 401-K when they change jobs, or do not know about the tax structures, and make many other bad decisions because they are largely uninformed.  $80 billion will fall our of the retirement savings sector this year.

MoneyDesktop – It’s crazy for a user to not have a complete and up to date view of their finances. We put the FI in a position to drive traffic with a strong mobile PFM platform. Some adoption rates are as high as 60 percent. Announced a partnership with Visa today and PFM linked deals. The deals can accelerate and drive the PFM adoption by spreading virally.

Bazaarvoice – Allows banks to amplify the voice of the customer. Also measures sentiment down to specific products. Look at your advocates, who is helping answer questions to customers, find a way to cross sell and/or reward them.

Kuspit – 1 out of 1,000 Mexicans has a brokerage account. We need to tap into this market and help educate the consumer on the process of investing, risk management, and managing their portfolios. Their platform has a nice, simple user interface.

Giftly – gifting is a social activity, so gift cards should be connected to social networks. Introducing a new app, not publicly available yet. It will watch your social networks for events that you may want to send a gift for – a birthday, graduation, etc. Choose from a variety of gifts, write a personal message and the recipient receives a link with instructions on how to use the gift. When you receive you register your credit card and all of the gifts you receive live on the card – and you can respond with a thank you note.

Portfolio Football – 180 million football fans in America – they understand the rules and concepts of that, but we have a problem with financial planning and portfolio management education. Now Portfolio Football is introducing a platform that allows you to leverage your knowledge of football to make better financial decisions.  It also provides access to a personal financial management report. They will be unveiling apps and other tools over the next few weeks. They will introduce a “find a coach” program to have access to advisors.

Wall Street Survivor – A beta social game platform to learn about the stock market and investing. Their stock market simulator enables users to “invest” in stock and see if they win by following real world market prices. It offers advice, definitions, real world advice, even a quiz to see what you’ve learned.

Virtual Piggy – Retail, game and other online retailers have difficulty selling to children under 18 year olds. With virtual piggy a parent can set up an account for their child, determining who they can buy from and how much they can spend, and give the child the ability to spend. You can also set savings goals, enabling kids to save up for bigger items. Also has a wish list that operates like a bridal registry.

CSI GlobalVCard – delivers secure, single use account numbers for non-plastic present transactions.  You can also share a secure one-time use URL with optional parameters. Available on all the app stores and for B2B use.

CoverHound – Public introduction of a new way to shop for insurance. Consumers can compare multiple, instant and accurate options. The company allows FIs to white label the store front on their sites, boosting non-interest income. This is free to banks.

Swipely – Introducing new customer analytics, targeted campaigns and payment processing to unlock the data behind transactions.  Merchants can identify lapsed customers, identify the revenue it would be worth to win them back and let them do a one-time campaign to re-engage those customers. This type of action has a 35% response.

On Deck Capital – Lending platform uses big data to help FIs make better credit decisions. On Deck integrates with over 12 sources to approve 40% more customers that competitors. It watches cash flow, and more accurate factors than credit score. It also continues to monitor the business through the life of the loan.  

DeviceFidelity – Created contactless payment technology that inserts as a chip into Android and iPhones. The NFC chip has all payment credentials (certified by Visa Mastercard) and, with the downloaded app, makes payments to a POS terminal. It also provides history, a locator for NFC capable stores, and money transfers at no cost. Offers full white label platform for issuers and retailers.

FutureAdvisor – a free webservice that replaces your financial advisor. They provide academically based best practice scenarios that tell you step by step what you can do to as a best practice, including how to avoid fees and manage accounts. They are 60 days since launch and already have $1 billion and 1.5 million 401Ks under financial analysis.
 
SoMoLend – peer to peer lending that allows small businesses to lend money and earn interest. The founder, Candace Klein, is involved in the legislation making this possible. Key Bank is a client, since they are interested in lending locally. Announced national availability today.

Klarna – An established payments provider in Europe, not yet in the US.  They are available at the check out of a web store, offers shoppers the option to pay at once, or thorough installments. It is safer for merchants, with little default and fraud risk.

Access Development – Discussed Power Deals to drive member engagement and loyalty while keeping cost down. Uses a point reward system to create value and exchange for deals. Has 300,000 merchants with deals up to 50% off, and plugs in very easily to FIs.

Balance Street – Debt settlement and collections agencies have thousands of complaints, they are taking thousands of dollars and the process is clearly broken. Balance Street is a free to consumer negotiation tool that connects creditors to consumers, and eliminates the middle man.

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Account Supervisor & Regional Manager at William Mills Agency

Dwolla – Wants to change the way we look at ACH; payments has some problems. Transactions should be real time and we’ve created that. Demo moves $5,000 out of Ben Milne’s bank account using a web service in real time. Fisync.dwolla.com provides real time bank transfers for consumers free of charge. This core engine can be used by FIs to create more secure and faster transactions.

WattzOn – Identifies best, most sensible energy saving opportunities. Analyzes gas costs (and cars), electric bills and more. WattzOn Connect can be used by FIs to help consumers save money on bills and expenses.

Taulia – Gets small businesses paid early and large businesses more profitable by providing incentives for early payment.  Dynamic Discounting makes $100 of millions available early across 40 countries. Launching cloud platform to make early payment offers from lenders. $1,000 invoice amount paid early for the cost of $18, based on risk calculation.

BancBox – Takes care of the payments plumbing and hard integration so banks don’t have to. New app: TweedlePay – allows selling of goods on Twitter. BancBox has processed more than $1 billion in transaction over the last few months.

Affinity Solutions – Loyalty programs demoing two patent pending technologies: 1) combines retailer data with banks data; 2) Real time Coupon-on-a-Card that with FirstData provides instant merchant discounts at POS.

Social Money (previously SmartyPig) – Goal saving applications that can be renamed and reskinned to match any FI website. Also links and connects to contacts on social media sites. Opportunity for FIs to offer lending for goals, cross sales, create campaigns around the data and savings analytics.

Expensify – Expense reports that don’t suck, launched at Finovate 2009, now realizing that a lot of expenses are itinerary-based: hotels, airfare, etc. So, today they are launching full trip tracking with mobile reminders of flight info, hotel, cars, and trains, whatever your next action item may be. The goal is to streamline the entire process while managing all expenses.

BillGuard – An antivirus for bills, introduced last year at Finovate – now found one bad charge on one of every four cards it scans in its beta testing period – saved $634,755. This comes from its own algorithms and consumers, empowering customers to help each other identify fraudulent bills. Now the company is unveiling a merchant dispute resolution to help in the second stage.

Bill.com  – Cashflow Manger helps businesses collect payables, pay bills and easily monitor all cash standings. Presentation was given in an Ebenezer Scrooge poem, making banking enjoyable for even the hardest to please.

Kabbage – QuickData, allows small businesses to send data via email, Bill.com, or a variety of other sources to get a better view of the company and ultimately help gain access to more cash by raising their Kabbage scores.

TASCET – Synthetic identities is a problem that will not go away. Other solutions are focused on the wrong points of the problem: you can not verify someone without identifying them first.  TASCET provides a digital profile based on a FSN, financial security number, that is associated with a fingerprint, picture, and more. The concept is to give privacy back to the consumer and engages them in the fight against fraud.

Cache Financial Solutions – Introducing a new product, Select Business Tablet, using Cache Construction small business example – with hard hats. It’s an RDC and dashboard suite of solutions that enables small businesses to scan, and deposit all checks immediately via tablet devices, with executive/admin approval to review by employee, or timeline.

Nomis Solutions – Price Optimizer 4.0 – over 20 banks globally have been using this to optimize interest rates and fees. It replaces Excel and other models to analyze customer price sensitivity score and profitability potential to determine the appropriate price/rate to meet goals.

Experian – Business IQ Express enables small businesses to manage customer and vendor relationships by monitoring companies for positive or negative changes. Provides a dashboard to review full portfolios and includes a coaches corner for advice.

SaveUp – Intentionally different than any other PFM, it’s meant to be more fun. Average user links six to seven accounts and plays the ”game”, earning credits to win prizes in cash, certificates or coupons.

TIO Networks – A bill payments processing company out of Vancouver. The company is introducing its first mobile app – TIO Mobile Bank, enabling consumers to pay their bills via an electronic database of 5,000 billers, soon to be up to 10,000. App is being approved and will be available soon. Also, TIO Wallet, which serves the underbanked, is a demo for the next Finovate.

ProfitStars – Introduced BudgetManager, a budgeting tool that enables FIs to better control of the budgeting process by receiving continuous accountability and buy-in from all individuals throughout the organization.

MShift – Introducing Mobile Banking 2.0 to help FIs connect their mobile users directly with retailers. Demoed example of buying a $100 gift card for $60 though Airforce FCU mobile and easily sending it as a mobile gift card to mom.

eDeposit – Uses a model called buyer authorization to show a seller that buyers funds are good. Essentially, “Show Me the Money”. Sellers can send a payment request to make the actual transactions too. FIs can offer eDeposit to make transactions faster and easier for small business customers.

Concur – SmartExpense: the antidote to expense report procrastination. It works directly with TripIt to make expensing a business trip simple and sends an automated PDF report direct to your company.

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By Sarah Lewis, Account Coordinator at William Mills

Public relations and marketing professionals are wordsmiths at their core. Many will tell you that long before they entered the working world, writing and crafting ideas with words was a passion. From creating news releases and developing campaigns to pitching the media, professionals today must generate content that is compelling – the status quo will no longer garner any attention.

The media are inundated with hundreds of releases and story ideas each day. So, how can you make your press releases and article topic suggestions original, persuasive messages that stand out above the rest?

Editors and reporters see the same old, tired terms and phrases again and again. They wonder how a company is innovative or a leader when every other company uses the same description. And above all, they must understand how a company’s offering or message will impact their readers. If you do not deliver an idea that will resonate with an editor’s key readership, you will lose your opportunity and worse – lose your credibility.

One way PR professionals can avoid providing stale messages is by revamping their language. Use creative words and terms and most importantly, tailor your communications to match the style of each targeted publication.

According to inkhouse, these tired terms are overused, abused, too corporate, too tech-y and lack substance.

• Premier
• Leverage
• Excited/thrilled/delighted (should be stricken from all press release quotes)
• Web 2.0
• End-user
• Productize
• Holistic
• Integrated
• Transparency
• Cloud-based
• Next-generation
• Game-changing
• Incentivize/monetize/strategize
• Innovative, innovator
• Real time

According to Business Insider online, the words “leading” and “solution” were the most frequently used terms in press releases in a 24-hour period. “Leading” was used in 776 releases, while “solution” was a close second  at 622.

The full list:

1. Leading (776)
2. Solution (622)
3. Best (473)
4. Innovate/innovative/innovator (452)
5. Leader (410)
6. Top (370)
7. Unique (282)
8. Great (245)
9. Extensive (215)
10. Leading provider (153)
11. Exclusive (143)
12. Premier (136
13. Flexible (119)
14. Award winning/winner (106)
15. Dynamic (95)
16. Fastest (70)
17. Smart (69)
18. State of the art (65)
19. Cutting edge (54)
20. Biggest (54)
21. Easy to use (51)
22. Largest (34)
23. Real time (8)

While some of these words are certainly useful at times, many have become industry buzzwords. Using commonplace language does not do your company or client any favors – your pitch or release will most likely end up directly in the trash. Retire these words, and give the media better, more descriptive and unexpected words that set your company apart in a world of industry jargon and overused marketing descriptions.

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