FICO vs. VantageScore: An important debate over how to expand access to mortgage credit took center stage on BankThink this week. Debra Still, president and CEO of Pulte Financial Services, proposed that new credit-scoring models, like one from VantageScore that captures data so old it would normally be ignored, could help the problem without weakening underwriting parameters. As the housing market gets back on track, credit is too tight and we need to begin serving more qualified borrowers who are slipping through the cracks of the current credit-scoring models, she argued. One hundred ninety million Americans have FICO scores; the credit files of about 28 million people don't currently have one, according to Jim Wehmann, the executive vice president of scores at FICO. The scoring market leader throws away old and incomplete credit histories, but Wehmann argues retaining these isn't the solution to the credit-access problem. Instead, credit agencies should be using alternative data like everyday bill payment, he wrote.
Big Data, Not Big Brother: The data-driven economy stands at a crossroads, according to Craig Boundy, chief executive of information services firm Experian North America. As more information becomes widely available and useful to everything from the way we run our businesses to the way we treat medical patients to the way we browse the Internet privacy and security risks become more prominent. Boundy argues that corporations are now in a leadership position, in which they can champion the use of connected information to keep the data economy open, innovative and growing to counter critics fearful of big data's risks. "But doing so will require businesses to operate differently than they have in the past," he says. Companies that take this position need to walk the walk, not just talk the talk about privacy, security and ethics; they need to be able to comb through large amounts of data, determine patterns, determine the key takeaways and use it to make better decisions for their businesses and in turn, to drive the economy forward.
The Science of Cost-Cutting: Most banks keep tabs on things like the number of transactions that tellers process at each branch and how many deposit accounts they open or close. But these kind of basic cost-cutting calculations aren't so helpful when it comes to decision-making about operations and staffing, says Lynn David, president of Community Bank Consulting Services. Banks need to keep a lid on personnel-related expenses, and could do so more efficiently by more thoroughly examining data to determine the appropriate hours and staffing for retail locations. Most important, he says, is the way in which the banks collect the data. The time it takes to complete a transaction varies by type and teller. For example, it "takes more time to cash a check in the drive-up than in the lobby because the canister or sliding drawer must be used at least twice," he writes. By better collecting and analyzing data as well as monitoring and communicating cost-cutting measures, banks can make their staffing and operational adjustments without reducing the branches' operating hours or its staff.
Regulators in Denial: "It is a fool's errand to try to limit the uncontrollable damage of a Too Big to Fail failure," says banking industry consultant and investor J.V. Rizzi. He thinks that TBTF institutions should either be broken up entirely or we must accept the need for a taxpayer-funded bailout. Recently, the FDIC and Richmond Federal Reserve asserted that Dodd-Frank's legal provisions reduce the risk of another taxpayer-funded bailout substantially, but he calls the law's living wills and orderly liquidation authority "fantasy documents" rhetoric directed at a public that wants to be reassured there's no risk of future disaster.
Branch of the Future (Not an Oxymoron): No industry is immune to evolution, but evolution doesn't have to mean elimination. Customers might travel to physical branches less often to do basic transactions they have mobile banking for that now. Nevertheless, Financial Supermarkets executive vice president and chief development officer Dave Martin says branches will remain relevant as long as banks maintain quality employees who can provide financial assistance to customers and good customer service.
Facing Facebook: Banking isn't the only industry shaken up by mobile communication. Newspapers have been through the same struggle; publications like The New York Times, NBC News, and National Geographic are accessible to readers through a Facebook service called Instant Articles. Kevin Tynan, a community bank chief marketing officer explores three ways Facebook could break into the banking industry. It could offer financial services through a shopping mall app on its platform, not to sell financial products, but to manage online traffic and lease space to partners. He also floats the idea of a boutique retail bank and, in what he admits is a much less likely direction, a full service bank.
Faster Payments: Nacha's plan for same-day payments has big improvements to offer B2B transactions, but banks still stand to lose their position in that field. Karla Friede says there are so many sources of friction on the front and back end, that just making one part of the process faster isn't enough. Customers struggle with complex processes and managing supplier data and banks will have a huge role to play in translating those payments on both sides.
The Merits of 'Mission': Most banks are interchangeable to the average consumer but a recent survey shows community development financial institutions have greater employee diversity and are more committed to lending in low- and moderate-income communities. Saurabh Narain, president and chief executive of National Community Investment Fund, makes the case for why investors should more actively support such mission-oriented banks. Among his reasons: they serve the country's most disadvantaged communities with above-average poverty levels, and steer consumers and businesses away from pricier financial services providers like payday lenders.
Summer Reminder: With the onset of beach book season, it's almost time for American Banker's annual summer reading list. Send your recommended reads bank-related and otherwise to sarah.todd@sourcemedia, including the name of the book, the author, and why you think it's worth checking out.
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