Under The Microscope

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Payment Hubs Still Not Standardized

BOSTON-Payment services hubs (PSH) have been promoted as the leading approach to modernizing banks' payment infrastructures, but more work needs to be done to standardize the language and definitions according to a new report, "Defining a Payment Services Hub: Why Can't We Just All Agree?" from Celent, a financial research and consulting firm.

According to Celent, a full payment services hub must have the following characteristics: capable of processing any payment on a single platform, delivers core payment processing functionality for each of those scenarios and be built on a modern architecture.

Banks tend to focus their efforts on building one of four types of less ambitious payment services hubs: channel integration hub, clearing and settlement mechanism (CSM) integration hub, payment orchestration layer, or a vertical payment services hub. But Celent suggests a true payment services hub is a fundamentally different approach and is not simply a centralization of the existing infrastructure. Instead, it should manage payment-related interfaces with external and internal entities, such as client systems, channels, and clearing networks; define the rules how various payments are processed within the bank; capture payment information to use it to drive the payment processing; provide capability to process payment transactions; generate information about the payments going through the bank and interact with other systems in the bank by drawing on their capabilities if necessary and offering payment services and payment information to others as needed.

For info: www.celent.com

Loan Growth Remains Elusive

NEW YORK-It has been more than a year and a half since the most recent recession officially ended, and while many banks continue to recover with improved fundamentals, others remain pressured with severe asset quality issues.

The lack of loan growth still is a common theme for banks. With the economy showing tepid, yet uneven growth, will loan growth occur any time soon? According to the Federal Reserve's 2010 Q3 senior loan officer survey we are not out of the woods yet.

Indeed, certain elements in the survey provide a somewhat restrained outlook for many loan types. One negative indicator that suggests only a slow recovery in loan growth is that the bulk of banks in the survey anticipate that lending standards for most loan types, except for commercial and industrial (C&I) loans, will remain tighter than their historic norms beyond 2011. Nonetheless, there are some positive elements in the survey indicating that improved C&I loan growth may occur in the near term, including 12.3% of banks in the survey easing underwriting standards for C&I loans to large and middle-market firms and 10.7% easing standards for C&I loans to small firms.

Furthermore, and similar to the prior quarter, 28% of survey respondents noted a higher level of inquiries from potential borrowers for business credit lines and higher credit lines.

Given the tepid economic recovery, DBRS's view is that loan growth will likely percolate, yet remain pressured through 2011 given macroeconomic headwinds. The lack of loan growth is both a supply and a demand issue as banks' appetite to lend remains pressured by the still unclear economic picture, coupled with strained, yet improving bank fundamentals.

Meanwhile, stressed business conditions and high unemployment continue to pressure business and household demand for credit. Results from the latest survey are consistent with DBRS's view. For info: www.dbrs.com

Consumers Want FIs On Social Media

BROOKFIELD, Wis.-Consumers are interested in connecting with financial institutions through social media, according to a survey conducted by Fiserv, Inc.

The survey showed 11% of online consumers currently are connected with their financial institution through a social site, and more than one-third (36%) of those not connected are interested in doing so. Interest is highest among Gen Y consumers, at 45%.

According to the survey, consumers who are current users of financial institution social media primarily engage in informational and relational activities such as receiving information about financial services (66%), receiving information about offers or promotions (32%), reviewing other consumers' opinions or advice or posting reviews, complaints or questions (31%), and conducting customer service related activities (30%).

Other findings include:

* 31% of consumers overall and 45% of Gen Y consumers cited a lack of awareness as one of the main reasons they had not connected with their financial institution.

* Consumers indicated they would also be more likely to connect if community-building activities, such as reading reviews from other customers, were enabled.

* The primary reason consumers connected to any company via social media was because they were an existing customer, indicating that current social marketing tactics should focus on retention and loyalty.

* Consumers who are connected to their financial institution via social media and consumers who are interested in connecting use an average of 5.4 banking services as compared to 4.3 for consumers who have little or no interest in connecting.

* Usage of online banking and bill payment is strong among those who are connected or interested in doing so.

For info: www.fiserv.com/white-papers.htm.

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