BOSTON - Opening the 2004 Financial Insights banking technology conference here, Michon Schenck, the chief operating officer of the Framingham, Mass., research firm, said that bankers "are and have historically been one of the highest spenders in technology."
Though Ms. Schenck advised bankers to continue this trend, especially in preparation for the Check Clearing for the 21st Century Act, not all those at the conference plan to follow her advice.
Technology executives participating in a panel discussion described their spending strategies. Some companies are in a conservative mode, while others say they are willing to spend on specific initiatives.
Bernardo Nicoletti, the chief technology officer for GE Consumer Finance in Stamford, Conn., said he tells colleagues that "CTO means cost takeout," because projects typically carry large price tags. His budget goal for the next year at the General Electric Co. unit is to ensure that spending remains flat, he said.
But Jane Soybelman, the chief operating officer at Legg Mason Inc., said, "I'm sure our spending will go up in 2005." Regulatory and compliance issues are the critical drivers for the Baltimore investment banking firm, she said.
William Wray, the chief information officer at Citizens Financial Group Inc. of Providence, R.I., a subsidiary of Royal Bank of Scotland Group PLC, has an approach that falls somewhere in between.
A major consideration in tech spending is the need to increase efficiency, Mr. Wray said, and he is using Six Sigma statistical analysis techniques to evaluate practices. Though the quality program is more commonly used by larger banking companies, notably Bank of America Corp., he said it is also applicable for Citizens. "For things we do already, there is constant pressure to become more productive."
Citizens has also made its recent acquisition of Charter One Financial Inc. a priority. "One of the key drivers of investment is integration," Mr. Wray said.
GE is also spending on rebranding efforts, primarily because the company's chief executive, Jeffrey Immelt, "did not like the names" of the divisions, Mr. Nicoletti said. The CEO's philosophy is that "we should not stress the product, we should stress the need," he said.
As a result, in Australia and some other markets, "we have changed from the product - consumer credit - to the need that we are trying to identify," he said. In those markets the consumer finance unit is now called GE Money.
Aside from those efforts, GE tends to take a conservative approach, Mr. Nicoletti said. "We try not to be the first" to implement new technologies.
Check imaging is an area in which banks should not adopt a wait-and-see attitude, Ms. Schenck said. With the Check 21 legislation scheduled to take effect next month, check imaging is going to take on more importance. Banks "need to invest, and ... quickly," she said.
Banks should also do more than just purchase imaging systems, Ms. Schenck said, because clearing paper checks as electronic-image files will give rise to new fraud concerns that must be addressed.
Check images should be treated like other paperless transactions, she said. Instead of concentrating on physical security features, like watermarks, banks should focus on the same behavioral fraud detection techniques that are applied to credit cards.
"Look at what happened to the fraud rates in the U.S." for credit cards between 1992 and now, Ms. Schenck said. "It has dropped 70%. Technology matters," she said.
Ms. Soybelman at Legg Mason said that all aspects of security are a focus for financial companies. "You cannot do enough, so we are constantly looking in this area."
Mr. Wray said that the threat of terrorism is now a factor in his technology budget at Citizens and that banks need to be prepared for a potential attack. "There are a lot of things in the world that are scarier than IT issues," he said.
Bill Bradway, the vice president of Financial Insights' banking group, compared terrorism to an earthquake and pointed out that banks in earthquake-prone regions must always be ready.
"You don't know when it's going to hit, and you don't know how big it's going to be," Mr. Bradway said.
