The Bank CIO Agenda For 2012

In IT spending, banks hear two distinct and opposing voices - one screaming to apply the brakes until the economic picture clears, the other preaching the importance of innovation to drive recovery. Thankfully, for most banks, the second voice is starting to win out.

"Banks are going to be spending. You won't see huge rates of growth, but steady increases," says Nicole Sturgill, a research director at TowerGroup.

Gartner projects that worldwide bank IT spending will increase to $299.3 billion in 2012, from $287.5 billion in 2011. For 2013 it's projecting $312.9 billion.

Celent says bank IT spending in the U.S. should hit $48.2 billion in 2012, up from $46.1 billion in 2011. For 2013 Celent is projecting U.S. bank IT spending will reach $50.3 billion.

The breakdown from Celent: $30 billion in retail bank IT spending for 2012, followed by $13.6 billion for wholesale and $5 billion for brokerage and investment management. It predicts slightly more spending for internal IT versus external in the U.S., and a nearly 3-to-1 ratio of maintenance to new investment.

At least some of the investment will be driven by necessity; compliance and security are a must-spend category for all banks. But there are plenty of new customer-facing products that will get plenty of attention - namely increases in mobile banking, payments and customer experience.

"With ATM advancements, remote deposit capture and mobile, there seems to be a new channel every day," says James Washburn, a global practice leader at Cap Gemini. The maturing of channels such as mobile will lead to more upgrades of older customer relationship management platforms, another major investment, he says. "Banks are going to want to make their CRM more agile."

Of course, each bank has its own unique set of business pressures and IT priorities. BTN spoke with three of the industry's big-bank CIOs - Huntington's Zayid Afzal, Capital One's Rob Alexander and BB&T's Paul Johnson - about how new and continuing projects will focus their IT strategies for 2012.

13% Growth in IT Budget at Huntington
The Columbus, Ohio bank has no plans to scale back technology spending any time soon. On the project list for 2012: data security improvements, new mobile and tablet apps and business intelligence

Huntington Bank is engaged in projects that cover some of the biggest challenges facing bank IT shops - data management centralization, security risk mitigation, digital channel upgrades, and branch redesign.

With the upgrades required by these initiatives, ranging from business intelligence to mobility to new CRM tools, Huntington is budgeting more money for IT at a time when many other banks are being forced to wring more efficiencies out of stagnant IT budgets.

"Our investment in technology at the corporate level has been significant," says Afzal, who has been CIO and executive vice president of the Columbus, Ohio, company since 2007, following its acquisition of Sky Financial Group, where he was also CIO. "Not only are we using technology to align innovation with business priorities, but also to meet regulatory pressures and improve information security," he says.

Areas the bank will focus on include centralizing systems and data to ensure the information that sales and service staff are using is consistent, accessible and up to date. The $53 billion-asset bank's IT spending has grown about 13% regularly, and that should continue for the next few years.

"The tech investment will continue to grow and won't slow down for us anytime soon," Afzal says.

Afzal says the bank has built a long-term strategic plan around information management. Over the past two years it has constructed a foundation for transactional and decision support repositories to consolidate all information centrally. "We are starting to reap benefits now, but we still have a lot of work to do to get there," he says.

"Through our enterprise information management initiative, we have a single source of customer information that is feeding into the Salesforce.com solution so that we can get a 360-degree view of the customer," Afzal says.

Ensuring cross-channel consistency is also considered crucial for the bank's mobile strategy, as new apps for smartphone and iPads are made part of a holistic electronic banking platform. "We have not yet rolled out the mobile part of that solution, which is in the pilot stages," Afzal says.

The bank is also using business intelligence tools from Oracle and MicroStrategy to consolidate all of its reporting, scorecarding and dashboarding, and is using predictive models to generate intelligent leads, which it feeds to its CRM system. MicroStrategy's software can be used to create dashboards and reports that can be pushed out to browsers and mobile devices such as iPad, iPhone, Android and BlackBerry. Oracle Business Intelligence Enterprise Edition enables reporting, ad hoc queries, and dashboards that can be accessed through collaboration workspaces and through ERP, CRM, mobile and Microsoft Office applications.

On the security front, the bank is in the midst of an information control project in which every aspect of how the bank distributes information will be examined across all mediums and channels. One of the goals is to strengthen controls and standardize policies across all business lines and activities, so there aren't different approaches to data security that could present security and data breach vulnerabilities.

Other projects include a $100 million branch renovation project in which the IT department is driving improvements such as digital signage. The bank's branches will be outfitted with 40-inch flat-screen panels on which tailored content can be quickly uploaded to each location, controlled by remote PCs. The bank will use Stratacache software to create, schedule, manage and monitor messaging in the branches from the marketing office. New work on the branch project in the year ahead will include teller station upgrades.

"We've got the whole teller environment being upgraded to imaging, the work on that will take another year or two," Afzal says.

Capital One Girds for M&A Conversions
With pending acquisitions of credit card portfolios from HSBC and ING Direct, Capital One CIO Rob Alexander is scaling up the bank's IT infrastructure to accommodate a potential flood of new customers. Customer data management and mobile capabilities are top priorities for the McClean, Va., company and virtualization and commoditized hardware are being implemented in the data centers

Capital One in the past few months has announced agreements to purchase HSBC's U.S. credit card business for $2.6 billion and ING Direct for $9 billion. The deals, which were under regulatory review at press time, would have major ramifications for the $200 billion-asset Capital One: They would make it the nation's largest online bank and one of the five largest banks overall.

"These acquisitions would launch us into the big leagues," says Rob Alexander, chief information officer of Capital One, adding that the bank will differentiate itself through its online and mobile presence. The ING Direct addition, in particular, would position Capital One to compete for the business of a younger, more tech-savvy customer base.

The company is upgrading its mobile capabilities internally and externally, as its customer-facing staff responds to higher consumer demand for robust technology and its IT department adjusts to the shorter development cycles of smartphones and tablets.

For example, Capital One recently made iPhones and Android devices available to its staff, after previously being a BlackBerry shop, and has also developed a collaboration platform that allows iPads to connect to the company's network. The bank is also upgrading videoconferencing capabilities. "To be a great online and mobile company, we have to make sure we have the right productivity tools for our employees," Alexander says.

Capital One has emerged from the financial crisis in decent financial shape, with solid earnings, slight increases in income and a drop in chargeoffs in the third quarter of 2012. This steady performance has positioned the McLean, Va., company to go shopping. "This allows us to make bold moves around significant acquisitions, so as a consequence of that, we're growing our IT spending," says Alexander, who became CIO in 2007 after stints in the company's credit card business and at the consulting firm Bain & Co.

The pending acquisitions will also affect Capital One's underlying IT infrastructure. If Capital One does consolidate with ING and HSBC, customer data management technology to ensure consistency of information from one institution to another, and one channel to another, will be vital.

"Underlying all of this is the customer experience," Alexander says. "So often we talk about the next bell or whistle, but the most foundational thing is to make sure your systems are always on."

Capital One is looking for ways to modernize its data centers. "We have a program under way in which we are standardizing and rationalizing the technology that drives our data center," Alexander says. Like many financial firms, Capital One in the past dedicated IT resources to new products as they were introduced. Now the goal is to evolve toward virtualization in data centers and underlying systems.

Alexander says all banks are under pressure to increase tech spending. He says despite the overriding economic pressures, the focus on spending more on innovation will win out.

"As we move to digital channels and handle customers' demand for high service levels on the Web, there will be pressure on financial institutions to invest in those areas. There are pressures that are tied to needing to spend more. There are regulatory pressures, and there are also pressures to reduce costs," Alexander says. "You need to invest to stay competitive in this business, and you'll see lots of investments in foundational infrastructure, data centers and core technologies."

Reacting to Regulation
BB&T is growing its technology budget slightly in 2012, but regulatory issues will consume a high percentage of the IT department's time, attention and budget

Like many bank IT executives, BB&T's Paul Johnson feels that part of his 2012 tech budget has already been written for him, by people hundreds of miles away who don't even work for the company.

"When you look at the economic and regulatory climate we are in, there are relatively fewer revenue opportunities than in a more robust economy," says Johnson, who has been information chief at the $157 billion-asset BB&T since 2001. "With significant layoffs in a number of our partner organizations and in the industry as a whole, it's still a very tough environment with unparalleled regulatory and legislative efforts that draw on critical IT resources."

Johnson says the Winston-Salem, N.C., company's IT budget is increasing slightly. "There will be areas that we will invest in, some of them not so glamorous. Regulatory issues will make up a larger percentage of our portfolio than we would like," says Johnson. "But that spending is necessary, and a significant piece of our IT strategy for the next year focuses on regulatory compliance."

The vast array of regulations, Basel III and Dodd-Frank among them, will require the bank to consider how its IT systems are prepared to respond to new mandates for credit risk, disclosures and reporting.

"All of these regulations generate the need for compliance or proof of compliance, so you have to implement changes to systems," Johnson says, adding the bank is also working on security upgrades as part of a data loss mitigation program.

Johnson says that the new compliance mandates increase the number and types of examinations, particularly for top tier banks. That will place a focus on data management storage and access. "Regulators and others are requiring more information, both horizontal and granular, to answer questions they have," Johnson says, adding that systems upgrades for regulatory purposes will be undertaken with broader use cases in mind. "So if we need to replace a system we want to get the advantage of the business functionality and capabilities."

Other areas of focus for Johnson in the new year include BankAtlantic, which BB&T is acquiring in hopes of expanding in South Florida. If the deal goes through, IT integration will be needed. BB&T is also in the midst of a multiyear initiative to revamp its network infrastructure, with the goal of saving up to $100 million in costs by 2013. It's also replacing its human resources, general ledger and accounts payable systems. Johnson would not identify vendors that the bank has tapped for these projects, but says "we are in one case going to a utility-based or cloud solution. [That allows] improved reporting through newer, more agile technologies, with better, more optimized workflows."

The company is also developing technology for its small-business unit and for mobile banking. It recently launched BB&T Small Business Online, which provides businesses with unlimited online bill payment and account alerts. It recently became one of the few banks to offer consumer and small-business mobile banking capabilities for a range of mobile devices including the iPhone, BlackBerry and Android and a new free Android app for smartphones and tablets.

"For the most part, this is something that we do ourselves internally," Johnson says. "Mobile is one of the areas that we identify has having explosive growth. Our clients are getting more familiar with it and our employees are getting more comfortable. That's has increased the expectations of what you can deliver."

That focus on mobile also affects the bank's plans for CRM and business intelligence tools (the bank develops its own BI tools). BB&T's goal is to increase analytical capabilities tied to its management of customer data in all channels. "We want to be able to analyze information to detect use patterns and preferences for our clients," Johnson says.