Banking Technology Trends

Written by Jill Vasant, AP Technology (2005)

Lately there have been several areas to watch in the banking industry, particularly when it comes to technology trends in the financial sector. This article highlights just a sample of innovations and projects that are on the move, which could potentially shape 2005 and beyond.

The Future of Online Banking

In this fast-paced and internet-savvy era, corporations and merchants alike are constantly demanding immediate access to their banks and financial institutions, and more importantly that this access should only be a click away. The banking industry is racing to keep up with the needs and desires of their clients by making their banking services readily available and easy to use online.

As part of their Q42004 "Banker Scorecard," Watchfire GomezPro reviewed which banks provide the best experience for their online users. "Online banking firms face many challenges - the proliferation of new online privacy and security threats, increased competition, market consolidation, and pressure to increase revenues while cutting costs - all of which add to the complexity of managing this channel." *1

The two highest-ranking banks were E*Trade and Bank of America, respectively. Both banks ranked high in the category of "Check Accounts" which focuses on online users who are looking for information on account balances, transaction histories and account documents. *2

E*Trade and Bank of America were so highly ranked because they provided a wealth of information on various checking accounts all within an easy-to-view "account management area." Within the Scorecard, both online bankers and non-online bankers ranked the need for online document delivery, the ability to see statements and check images online, as the most important features. Check images, online deposit statements, and paper suppression are offered by both banks, a combination of services not offered by the majority of banks. *2

E*Trade was further applauded for its ability to show check images and allow customers to record payee names for display within the transaction history all online. An additional convenience to online users was that E*Trade places the "text input box for the payee name" directly into the check image window, which is something that other banks simply don't provide.

Although Bank of America finished second in the "Check Accounts" category, it took first place in the "Ease of Use of Check Accounts" category, tying with Wachovia. Bank of America's site was highly rated for the fact that it remembers usernames. The site also displays a wide-range of information on other credit products that a client may have, all within the same session. The greatest feature of Bank of America's site is that information is "easy to find and use." *2

With E*Trade and Bank of America paving the way for others to follow, it should only be a matter of time before online users of all banks will be able to experience and view similar online features and products offered by these two banking giants.

What's New with Check 21?

At the end of 2004, there was a buzz in the banking industry about becoming Check 21 compliant, raising questions of concern for merchants of all sizes. So now that Check 21 has been floating around for a few months, what have banks been doing to align themselves with the Check 21 legislation?

California Bank & Trust

California Bank & Trust is a great example of how a banking institution nipped Check 21 in the bud. CB&T is home to many corporate clients. However, many of these corporate merchants have multiple locations, making it hard to bank within the mere 90 CB&T branch offices. With Check 21 around the corner, California Bank & Trust seized an opportunity, allowing it to compete with the nation's larger banks.

Due to the limited number of branches, CB&T's commercial clients were "forced to send their daily deposits to the bank via courier," and often required multiple depository accounts. Using remote capture technology by NetDeposit, CB&T was able to provide an easy, no hassle solution to its corporate clients. *3

"NetDeposit software generates a posting file to the bank's demand deposit account (DDA) system, which posts customers' deposits to their accounts." According to John Russell, SVP, cash management, CB&T, "the customer's location actually becomes a branch, and they can consolidate all their regional depository accounts into one."

CB&T installs the software and the scanner at the client's location, allowing them to scan checks and transmit images through the Remote Deposit service. "An IRD that contains the front and back images of the check are printed at remote print sites throughout the country for presentment to the paying bank." *3

This innovation greatly speeds up the check processing time from days to hours, allowing corporate clients to make deposits from anywhere in the world. Michael Campbell, EVP and director of corporate services, CB&T stated," Remote Deposit allows us to be extremely competitive with the large banks that have extensive branches." *3

Wells Fargo Bank

Check 21 raises many questions and concerns about how banks will adopt check imaging technology in order to be compliant with the new legislation. Wells Fargo is on its way to faster Check 21 compliance by recently obtaining a stake in Viewpointe Archive Services, LLC. Viewpointe, founded four years ago by Bank of America, JPMMorgan Chase, Sun Trust Bank, and U.S. Bancorp, stores and exchanges images of more than 25 billion checks annually. *4

Wells Fargo will have access to Viewpointe's check image services, providing "efficient ways to store, retrieve, and share check images with other organizations." *5 "Our investment in Viewpointe reflects our belief that image sharing, rather than image movement among individual banks, is the most effective way to improve efficiency and service quality," stated Webb Edwards, president of Wells Fargo Services. *5

Speeding up the transition period between paper processing and digital-image processing benefits banks across the board, and Wells Fargo's new ownership in Viewpointe will benefit all other participating banks by reducing the expense of check collection, states Bank of America Chief Technology, Service and Fulfillment Executive and Viewpointe board member Barbara Desoer. *5

A Possible Resurgence of Smart Card Technology?

Smart cards, aka chip cards, have not had much success in the U.S. in recent years, but have seen wide-spread popularity in Europe. A smart card is similar in size to the credit cards we all carry in our wallets. "The smart card has a microprocessor or memory chip embedded in it that, when coupled with a reader, has the processing power to serve many different applications," such as the ability to make a purchase or exchange value. *6 Experts in the payment industry believe that smart cards are merely in hibernation and that in anywhere from five to 10 years, the U.S. will see a resurgence of smart cards. In fact, it is very likely that smart cards will one day take over magnetic stripes and radically transform the payment industry. *7

"Smart cards are revolutionizing banking with massively better security and scope for multiple additional applications beyond simple debit or credit card functionality. Early adopters are not only reducing fraud but generating entirely new revenues and differentiation. EMV (Europay, MasterCard, Visa) is the global standard that is helping ensure smart cards, terminals and other systems can interoperate." *8

The shift in liability associated with EMV is causing many banks to issue smart cards because according to EMV rules, "responsibility for liability fraud that could have been prevented by chip technology will fall on the party that has not made the upgrade." Merchants and banks are also being enticed by lower or higher interchange rates on transactions that are made with chip cards or POS systems. *7

The fate of smart cards in the U.S. is yet to be determined. With several factors such as the proliferation of smart card technology across industries, elimination of cash-based systems, rise in fraud, and the global migration of smart-card-enabled payments affecting the future of a smart-card-driven world. Only time will tell how soon Americans will adopt this savvy technology.