The Financial Services Blog

I joined Xerox Global Services in the Q4 2008 to look after our financial services clients.  Now with about nine months under my belt, I am reviving the financial services blog which was created by my predecessor, Julian Troake. 

After 20 years working for financial services firms I don’t feel like I have left the financial services industry in this role at all.  My entire focus, and the focus of my colleagues, is all on financial services.  I must admit that the way I now look at the overall picture has expanded, and that would please many of the people in Operations and Technology roles that I interacted with in my past life (you know who you are!).  One example would be carbon allowances and all of the speculation on “EU-like” regulations being enacted in the U.S. Traditionally, I would think about the revenue to be generated from carbon trading as a financial instrument in the U.S. markets as a result of a carbon cap.  Now, however, I look at the implications to financial services firms from an infrastructure cost perspective - if in fact the Carbon Cap and Trade legislation (Waxman-Markey) that is being proposed is passed.

European countries have historically taken the lead and have been advanced in terms of their sustainability efforts.  I always thought this was because Europeans were just so much more enlightened than Americans.  However, it’s largely because the cost of not being sustainability focused in countries where there is carbon cap regulation and subsequent cost associated with excessive carbon emission and energy usage is notable. We’ve been talking about this kind of legislation for years.  It’s becoming more and more apparent that these regulations could be in the place in the U.S. by Q2 2010.

Establishing a price on carbon emissions is critical because large businesses are waiting for a “price signal” before they make investments in low-carbon technologies.  Further, businesses will have an obligation to deal with a capital commitment over the next 30 years that is unprecedented if (when) this legislation is to pass.

It will be interesting to see which banks are ahead of the game in terms of their infrastructure sustainability efforts.  After what we’ve been through over the last year or so in financial services, the focus on cutting costs has been key - but I am hearing more and more that sustainability is running a close second….we shall see. 

Xerox is certainly full of surprises in this regard - being that it used to be the “document company” I am truly amazed at how much of the current technology being deployed focuses on environmental sustainability, and digitization in place of documentation! 

The recent initial public offering of shares in Visa delivered a healthy cash injection to the balance sheets of some of the largest banks in the world.  This helped the industry at a time when their balance sheets were being hit by devaluation of their loan portfolios.

One way to further build the value of the credit card business is to use the transactional statement to deliver marketing messages.  These can be for other products and services from the bank or they could be from third party vendors.  This is a much more effective way to deliver promotional messages than the common envelope stuffers that come along with the credit card statement.

Here is some more detail about how this could work for you.

Most Financial Services companies are studying their impact on the environmnet and looking for ways to improve the sustainability of their business.  Last December the American Banker wrote aboout how financial institutions can make green from being green.  Cutting out waste and reducing power consumption can keep costs down and helping to improve the environment can improve good will amongst your customers.

Now there is a new tool to help companies measure the impact that their office is having on the environment.  Called the sustainability calculator it evaluates the office devices such as printers, copiers and multifunction devices and then identifies possible reduction of energy use, paper and solid waste etc.

It’s even more interesting to listen to a thought leader on the environment talk about how you can help make your business more sustainable.

My colleague Judson Phillips has been attending the Mortgage Bankers Association National Technology in Mortgage Banking Conference & Expoand he found that companies are looking at speeding up loan processing with the use of paperless technologies. Judson wrote “On Monday, I participated in a panel session titled ‘Saving Time and Money with Paperless Lending Initiatives’ and it was evident from our discussion that a hybrid solution, one that combines paperless processing from paper-to-image documents and computer generated e-documents, is the best way to create a streamlined process resulting in faster loan turn around times and reduced costs.  To achieve the best results, a web-based electronic loan folder, serving as a single repository would be the optimal way to securely enable mortgage participants to collaborate throughout the loan process.  One panelist discussed the challenges of attempting to develop this solution with internal IT resources.  He emphasized to the advantages of selecting a proven, software as a service (SaaS) solution to support paperless projects.   In addition Xerox Mortgage Services recently conducted a survey to check the mortgage industry’s pulse on moves towards paperless and e-mortgage processes and our results mimic what I observed at the show. More than 50%of the respondents said that a key attribute of mortgage technology solutions is one that enables collaboration.  When asked about the benefits of paperless technology respondents identified reducing costs and improving service though streamlined processes as most important. We’ll keep doing our part by listening to the mortgage industry and continue to supply it with the technology it needs to needs to succeed and grow. “ 

Yesterday the American Banker reported that the mini boom in mortgage refinancing that began in December and continued in January hit a wall in February as long term interest rates started to rise again.  Fannie Mae and Freddie Mac had also raised loan to value and credit score requirements and these factors reduced the number of potential refi customers.

Ironically it has been hard for some mortgage companies to handle the uptick in refi applications because of cuts they had made as a reaction to the housing market slowdown.  These capacity problems could be eased by Xerox Mortgage Services which speeds up mortgage processing by enabling lenders and others to share and work with mortgage documents electronically.

As the Fed. continues to reduce interest rates over the coming months I expect there will be another increase in refis provided that long term rates also come down.  These lower rates may also start to free up the logjam in unsold houses and kick-start new loan applications although I suspect that will take more time.

The list of financial services companies that are being sued as a result of the problems in the US sub prime mortgage market and the following credit crisis is very long.

Famous names such as Merrill Lynch, Countrywide and Citigroup are facing lawsuits brought by investors.  Individual shareholders and even cities are suing other companies in the fall out from past lending practices.  According to the Economist the number of law suits doubled in 2007 compared to 2006.

The bulk of this litigation is taking place in the US and although there have been some high profile cases in Europe such as Barclays suing Bear Stearns and HSH Nordsbank suing UBS it seems unlikely that the same volume of lawsuits will occur in Europe.

These financial services companies will have to undertake extensive searches of all their paper and electronic records as part of the litigation process.  For many years Xerox has been helping companies facing litigation to address the difficult, time consuming and expensive business of document discovery.  As more law suits are filed in the coming months this is going to be a necessary evil at an increasing number of companies.

The one bright spot in the mortgage market is the reverse mortgage according to a recent article in the American Banker.   Annual volumes have just passed the 100,000 mark and as the first of the baby boomers reach the reverse mortgage age threshold of 62 the popularity of the reverse mortgage is expected to grow rapidly.

Bank of America bought into this market niche last year when they purchased Seattle Mortgage Company’s reverse mortgage business and both Citi and JP Morgan are also interested and have confirmed that they are studying the market.

Companies who get involved in the reverse mortgage market have the chance to design efficicent business processes from the start.  Traditional mortgage processig is very paper intensive and handling documents from multiple sources can slow down the origination process.  Xerox is a leader in the electronic document management market and Xerox Mortgage Services helps clients to speed up mortgage processing for reverse mortgages and traditional loans.  If you are creating a new business to serve this growing segment of the mortgage market it makes sense to eliminate paper and streamline your operations which will help you to provide a better service to your customers.

Once again a Canadian Bank, RBC, is buying US companies.  Last week RBC announced that they are purchasing a Washington brokerage firm, Ferris, Baker Watts inc. while they are still in the process of buying Alabama National Bancorp to bolster their retail position in the south eastern United States.

With restrictions on growth in their home market the big Canadian Banks find the best path to growth is south of the border. 

Whenever these acquisitions take place it is essential to merge operations and share customer information quickly to deliver the best service to existing and potential customers.  This could be an unsettling time for a customer and an opportunity for them to shop around but good, clear and timely communication is the best way to retain customers during a merger or acquisition.  It could even lead to a stronger relationship with more selling opportunities.  You can read our ideas here, but what has your experience been?

I recently read an interesting report by Forrester in their “Customer Experience Index” series.  It was all about the insurance carriers and what their customers think of them.  They recommended that insurance carriers should appoint an executive who is dedicated to improve the customers’ experience but what really caught my eye was the endnote that talked about customer advocacy.

Forrester argued that it is not customer satisfaction but customer advocacy that encourages a customer to do more business with a company.  They define customer advocacy as doing what is best for the customer even if it is not what’s best for the company’s bottom line.  They describe four components of customer advocacy, simplicity, benevolence, transparency and trustworthiness. 

To be transparent and simple you need to have clear customer communications.  How else can a customer know that you are trying to do what’s best for them?

Working closely with BAI we have refreshed our white paper about cross-selling and customer loyalty. 

Called “90 Days That Make or Break the Deposit Relationship” it’s based on research from BAI.  It describes how banks can improve customer loyalty and business results by focusing on new customers.  In particular the research showed how important it is to nurture a new customer relationship in the first 90 days as this is the time when most problems occur but also when there is the best opportunity to cross sell other products and services.  In fact over 70% of cross selling to bank customers occurs in the first 90 days after a checking account is opened.  Of course, customer loyalty increases as the number of products owned by a customer increases so taking advantage of that 90 day window to increase cross selling efforts will really pay off. 

One way to increase the odds of successful cross selling is to develop a customer orientation program that makes the customer feel welcome and introduces them to new products and services from the bank.  Good programs can increase the number of customers who are more likely to purchase additional products by 50%.  The most important element of these programs is customer communication, either by phone or using personalized marketing material that clearly show how the bank’s products directly address the individual customer’s needs.

You can download the white paper here and we’d welcome your feedback.