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10 Big Ideas for Banking in 2013

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Augment How You Authenticate
Ever since banks have been online, they've employed knowledge-based authentication questions as a secondary layer of security. But there's a growing problem with this type of credentialing.

Harness Untraditional Data to Widen Your Customer Base
The days of relying so heavily on traditional credit scores to evaluate customers are gone.

Look into E-Invoicing
There's a perfect storm brewing for small businesses looking for more help from their bankers with financial analysis.

Think Differently on Fees: They Don't Have to Be Punitive
Customers famously revolted a year ago when Bank of America floated the idea of charging $5 a month for using a debit card.

Become a Legal Black Belt
Lawyer Scott Pearson had successfully represented consumer finance companies in more than 70 class actions, but he was getting frustrated by the increasingly adversarial relationships he saw developing between banks and their outside counsel.

Think Mobile for Sales and Marketing
Mobile strategists, listen up. Within five years, mobile is going to be the hub of the customer relationship.

Huddle Up
Banks of all sizes are loosening the purse strings when it comes to technology.

Tighten Your Grip on Operational Risk
In the wake of the storm damage and lengthy, widespread power outages brought to our shores by Hurricane Sandy, it's a good bet that natural disaster preparedness has been high on the list of discussion topics this winter for management and boards at banks across the country.

Try a Reverse-Mentoring Program
Just look around your bank. Chances are your colleagues represent a diversity that gets diverse-ier the lower down the totem pole you look.

Many experts believe it's time for private capital to return to mortgages. The stakes for banks are high, with KBW pointing to this controversial component of financial reform as the single greatest growth opportunity for U.S. financial stocks over the coming decade.

 

1. Augment How You Authenticate

Name your favorite movie. Recall the address of the place where you worked five years ago. What was your high school's mascot called?

Ever since banks have been online, they've employed these kinds of knowledge-based authentication questions as a secondary layer of security, requiring the customer to come up with an answer that only he or she might know to gain digital entry to their accounts.

But there's a growing problem with this type of credentialing. Much of the information used for these purposes (a mother's maiden name, for example) has become widely available. More consumers willingly disclose clues to their personal information on Facebook, while criminal rings have gotten better at compiling information from third-party data mills and manipulating security procedures at financial institutions.

"A few years ago it was a lot more reliable," says security analyst Avivah Litan, a vice president at Gartner. "This data is not so private anymore."

There's also a cost to the high failure rate of challenge questions, which is somewhere in the range of 10 percent to 15 percent, according to Gartner. The failures most often are a case of legitimate users forgetting their not-so-immutable answers to questions about a favorite food or sports team-or getting stumped because of outdated or incorrect credit report file data connected to the places where many challenge questions arise. Litan, who is divorced, noted she was once asked challenge questions by her bank regarding her ex-husband's second wife.

These snafus usually wind up costing institutions $12 to $15 per incident since authentication problems for customers usually escalate up the call-center chain to supervisors. This not only increases customer aggravation, but may encourage frontline workers to let their guard down on security measures as a good-faith (and cost-saving) measure that allows an opening to fraud, such as when criminal rings use publicly available information to masquerade as a customer.

Besides the less-than-challenging questions in today's socially connected world (where hometowns, old street addresses and pets' names are easily discovered), there also are droves of new customers (such as immigrants) who banks are taking on with thin credit files or none whatsoever, which makes it more difficult to build questions around credit-bureau data.

Given the problems with traditional challenge questions, it's easy to ask why banks don't just dump them, especially when there are more secure, multi-factor authentication options available like tokens, text-delivered access codes, device or IP address identification and geo-location software.

But replacing knowledge-based authentication completely is off the table for most banks, according to Litan, who says that its established use as well as its low cost means "there will always be a place" for it. But that doesn't mean banks can't incorporate additional layers of identity proofing following a log-in or transaction request, by tracking user credentials throughout a session, verifying caller ID or risk-scoring a user's activity, for example.

"I don't think [knowledge-based authentication] should just be totally thrown away," Litan says. "But you just can't count on it alone."

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2. Harness Untraditional Data to Widen Your Customer Base

The days of relying so heavily on traditional credit scores to evaluate customers are gone.

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