Thursday, July 30, 2009

Regulations, Outsourcing Top Industry Trends

By Mark Brousseau

As TAWPI prepares to raise the curtain on its annual Forum & Expo in Washington, D.C. next week, payments and document management operations executives are grappling with mounting regulations, industry-wide over capacity, and pressure from senior management to outsource.

"As a result of the industry scandals, bank and broker/dealer failures, and stock market decline, increased financial services regulations are likely," says Edward Kinsella, second vice president, transfer agent, for John Hancock Financial Services ( "Companies will need to find ways to quickly and efficiently adhere to these new requirements," he warns.

Kinsella says the financial services industry also is facing significant over capacity. "This will likely lead to consolidation, and mergers and acquisitions," Kinsella says. "Companies will be challenged to combine their operations to broaden their product offerings, increase profit margins, reduce expenses, and create new efficiencies and economies of scale," Kinsella adds.

Kinsella also sees a greater push towards outsourcing: "As a result of the economic slowdown, companies are focusing on their core competencies and looking to outsource functions and processes that can be handled by third-parties. Companies must steer clear of functions that distract them from their core competency, or can be handled more cost effectively by others."

Mike Reynolds, executive vice president and director of sales and marketing at Cash Management Solutions, Inc. (, sees continued interest in outsourcing across all levels of financial institutions. "This is being driven by economics, cost pressures, footprint considerations, and platform replacement decisions," he says, noting that many banks are struggling with whether they should invest in newer lockbox technology. "Innovative banks are exploring combinations of outsourcing and in-house processing."

John Kincade, vice president of business development for J&B Software, Inc. ( also expects increasing customer interest in "hybrid" outsourcing solutions where the customer keeps some of its more strategic payment vehicles in-house, and outsources the labor-intensive functions. "Vendors will have to provide modular solutions that allow this," Kincade says.

Mark Stevens, president and CEO of Moorestown, NJ-based OPEX Corporation (, expects significant consolidation in the retail lockbox market. "There are fewer and fewer companies doing this kind of work," Stevens says. "I believe that we will see three or four companies as the 'last man standing' in this space."

Kinsella says oversight and risk management is critical to the success of outsourcing.

Reynolds notes that for operations that stay in-house, the focus is on improving efficiency and productivity by taking a hard look at existing workflows, technologies, and analyzing staffing and capacity models.

“Companies are driving the last ounce of expense from the business as they strive to meet Wall Street targets,” agrees Bob Young of Manasquan, NJ ( “The latest round of earnings releases the past few weeks prove this point.” Payments processing executives are challenged with finding ways to use their current technology – software and hardware – to make their operations more efficient, to satisfy upper management, Young added. “I have to think that the purchase of new processing systems is a low priority, given the economy.”

Reynolds adds that everyone -- service providers, technology vendors and end-user customers -- are seemingly squeezing each other on pricing. "I'm seeing renegotiation initiatives on almost every front as organizations try to better align pricing with volume and product deliverables," Reynolds says, adding that he hopes this eases as the economy improves.

As part of the push to reduce costs and gain operations efficiencies, Stevens believes shared services will become a hot topic. "We are seeing several remittance shops with scanners looking to do AP work for their organizations," Stevens said, adding that he expects this trend to continue.

Similarly, Kincade believes the convergence of forms and payments processing will accelerate next year, with customers moving to more sophisticated correspondence management systems. In some applications, payments can accompany correspondence 30 to 50 percent of the time, Kincade notes.

What do you think? Post your comments below.

Federal Red Flags Rule Goes Into Effect August 1

Posted by Mark Brousseau

Beginning Aug. 1, 2009, hospitals and health care providers that extend any sort of credit to their customers - even something as simple as sending a bill at the end of the month - will need to have a documented, board-approved Red Flag compliance strategy in place to help combat medical identity theft.

Grant Thornton, LLP notes that the Red Flags Rule, a component of the Fair and Accurate Credit Transactions (FACT) Act signed into law in December 2003, requires that financial institutions and creditors in a number of industries implement a plan to identify, detect and respond to attempts to use stolen identity information.

"This rule is completely different from policies you have in place to protect sensitive information," says Randy Green, a principal in Grant Thornton LLP's Advisory Services group. "Instead, this regulation is designed to prevent thieves who have somehow acquired another person's identity - via medical records or otherwise - from using it to commit fraud. The rule requires you to identify all of the indicators that might tip you off to possible identity theft, implement appropriate preventive and detective controls, and react appropriately."

While the Rule has been in effect since November 2008, enforcement by the Federal Trade Commission (FTC) will begin Aug. 1 of this year. Initially, the FTC may assess retroactive penalties for violations, require additional compliance reporting from companies and obtain an injunctive compliance order. Further violations could result in a visit to federal district court and a fine of up to $16,000 per individual occurrence of identity theft.

"After Aug. 1, 2009, any occurrence of medical identity theft at your hospital or business exposes you to an FTC investigation," said Green. "We believe that enforcement of this rule will be complaint-driven, and given the staggering number of identity thefts, there will be no shortage of complaints."

"In summary, the Red Flags Rule is likely to become the standard of care that all hospitals and health care providers will need to provide to prevent medical identity theft," concluded Green. "Skipping red flags compliance will expose you to real regulatory, reputational and litigation risks."

How has your organization prepared for the Red Flags Rule?

Tuesday, July 28, 2009

Digital Healthcare

By Mark Brousseau

There’s a lot of talk these days – driven largely by the Obama Administration – about electronic medical records and the potential cost savings that they could provide to the healthcare industry. The 2009 federal stimulus bill, the Congressional Budget Office notes, allocates 436 billion for doctors to install electronic records.

And there’s plenty of room for growth. The New England Journal of Medicine reports that only 17 percent of the 633,000 doctors in the United States have electronic medical records in their outpatient offices. Moreover, just 9 percent of the 5,708 hospitals in the United States (excluding Veterans Administration hospitals) have electronic medical records, according to the American Hospital Association.

In addition to potential cost savings, digitizing healthcare could also improve patient care: JAMA reports that 55 percent of serious drug errors can be stopped by a computer ordering system.

What do you think? Post your comments below.

Tuesday, July 21, 2009

PCI Compliance No Guarantee

Posted by Mark Brousseau

PCI-compliant companies aren't immune from data breaches.

A new report from Javelin Strategy & Research ( looks at the top reasons payment card breaches that have occurred despite compliance measures.

“The PCI Data Security Standard has raised the high water mark for security,” said Mary Monahan, Managing Partner & Research Director, Javelin Strategy & Research. “But there’s a persistent myth that compliance guarantees security. The reality is that PCI compliance is only a baseline. It needs to be monitored constantly as the threat landscape changes.”

Javelin Strategy & Research says the top three breach vulnerabilities of PCI-compliant companies occur because of poor tracking and monitoring, insecure Web applications, and inadequate protection of stored cardholder data. At PCI-certified companies that are breached, many compliance requirements are often found to be out-of-compliance, the firm notes.

“The notion that certified PCI-compliant companies cannot be breached is a myth,” said Robert Vamosi, Research Analyst, Risk, Fraud, and Security, Javelin Strategy & Research. “Our research has found that qualified security assessors can mishandle the PCI certification process or businesses may be compliant during the audit, but not follow-through later. In addition, compliance improves security, but it does not prevent breaches. Merchants, the PCI Council and issuers must continue to work together to resolve reoccurring complaints and speak with one voice against the common threats of loss and fraud.”

What do you think? Post your comments below.

Monday, July 13, 2009

Improving Teller Line Service

By Mark Brousseau

While online banking continues to grow in popularity, there is still a significant population that prefers to do its banking at the local branch. This is indicated in a recent study that found that 92 percent of all U.S. households have used a bank branch within the last 30 days. Because of this, it is important that financial institutions not lose site of maintaining efficiency and excellent customer service at their teller lines, says Hugh Clary, vice president of Monrovia, CA-based Addmaster Corporation. An easy, yet oftentimes overlooked, way of ensuring this is to use the latest teller line peripherals that enable tellers to better interact with customers, reduce technical error and quickly process checks and produce legible receipts, Clary adds.

Enable better interaction with customers
Clary notes that some of the latest teller receipt validation printers feature smaller designs, ergonomic improvements and quieter operation that enables tellers to better interact with customers. Smaller printer sizes reduce clutter and free up counter space at the teller window– providing a professional organized workspace that customers notice when interacting with tellers. Newer printers feature ergonomic improvements that simplify roll paper loading and improve form insertion. "This makes it easier for tellers to operate the machinery and focus more on customers," Clary says. "Newer ink-jet and thermal printer models are also considerably quieter than earlier serial dot-matrix printers. These new features enable tellers to concentrate more on making eye contact with customers, engage them in conversation and ask questions that can possibly lead to higher product and service sales."

Reduce technical errors
New teller receipt printers also feature integrated microprocessors and electronics for increased reliability, as well as standard see-through tear bars or optional metal tear bars. "These improvements reduce the risk of technical error such as paper jams, uneven tearing and print formatting problems," Clary says. "These problems can increase customers’ wait times and potentially damage the printers if not quickly addressed. New technology can greatly expedite teller line processes, especially when tellers – and customers– do not have to deal with the frustrating technical difficulties often brought on by outdated peripherals."

Quickly process checks and produce legible receipts
Improvements in new, automated check scanners dramatically decrease the manual workload of bank tellers, delivering a time savings of as much as 125 percent when compared to manually entered transactions, Clary says. Plus, new scanner features reduce the risk of leaving a batch of checks with an error since potential errors and check-validity problems are caught before a transaction is completed. Also, modern image quality and image usability tools immediately alert tellers of checks that are poorly scanned. "These tools help expedite check processing for tellers while further reducing the risk of costly errors," he explains.

New teller receipt printers are also capable of a wider variety of fonts and printer formats. Certain printers are compatible with a number of high performance print cartridges that operate at speeds as quick as 15 lines per second with resolutions as high as 600 DPI. These advances can maintain or improve service by providing higher quality receipts and transaction throughput–items that will undoubtedly be noticed by customers, Clary says.

"While the numerous improvements that have been made to teller line technologies may seem small, they can make a big impact on customer service in bank branches by enabling better interaction with customers, reducing technical errors and expediting check processing and producing quality receipts," Clary says. "And, because many of the new devices that feature these improvements also host a variety of customizable features that enable them to easily replace different printer brands or integrate into existing systems, banks can update their branches at minimal cost."

What do you think? Post your comments below.

Wednesday, July 8, 2009

Recession Will Leave Its Mark

Posted by Mark Brousseau

The impact of the economic downturn has clearly been significant, however not all companies are equally affected by the recession, according to a study of executives at 570 leading global companies by Ernst & Young LLP. The comparisons with a similar study in January also reveal that while the white heat of the crisis has passed, the majority of companies are still focused on survival. However, a significant minority are looking to take advantage of the situation to pursue new opportunities.

The study finds nearly half of those surveyed (43%) said that their operating model had been permanently altered by the events of the last 18 months. A further 45% said there had been a temporary impact. Similarly 56% of the executives said that their risk management processes had been permanently altered, 33% temporarily. For 45% the regulatory framework for business had also fundamentally changed.

Other alterations to their business model – price sensitivity, profitability, competitive sensitivity and economic stability were viewed by respondents as more temporary although a significant minority – above 20% in each case – viewed the changes here as permanent as well.

“The impact of the market changes has clearly been significant and some business models have changed radically,” said Michael Rogers, Principal, Transaction Advisory Services, Ernst & Young LLP. “Company management is being forced to review their methods of organization due to a range of macro influences such as challenges from diversification, globalization, and (de)regulation. Businesses that emerge strengthened from the current crisis will be those that reshape intelligently, not those tempted to move quickly to extract additional value. ”

It is still really tough out there
Ernst & Young LLP carried out a similar study five months ago. The corporates Ernst & Young talked to then, and the thousands of companies it has discussed the research with since, are still seeing huge competition on price. Companies are still seeing significant numbers of bankruptcies and competitors withdrawing from their sector, but there was also an increase in those organizations reporting new entrants in their sector.

The overall mood is still somber. Although 64% of executives said they had been able to make cost reductions, 31% said they had improved revenues and more than a third said the environment was more positive in terms of making strategic acquisitions. A majority of executives had seen deterioration in revenues (58%) and profitability (56%). Only 20% had seen an improvement in investor confidence, and a similar low number saw any improvement in accessing affordable capital or credit.

“Perverse as it may seem, a period of crisis can provide an opportunity to drive change more rapidly and effectively than a period of prosperity,” noted Rogers of Ernst & Young LLP. “Company leaders are finding ways to take advantage of this economic climate. This survey shows 25% of companies are actively planning for growth, 34% are seeking strategic alliances and 36% plan to enter new geographies.”

Are we past the worst? A slight shift in emphasis from the responses from January gives some credence to the thinking that the worst ravages of the recession are behind us. At the time of the last study 82% said the focus of their business was on restructuring their business to deal with the recession and 74% were looking merely at survival of the present operations.

Those figures have declined to 74% and 65% - still remarkably high - but in conjunction with the fact that the proportion of companies who said that they were “taking advantage of the recession to pursue new market operations” had increased from 59% to 69% - suggest there are some more companies out there bargain basement hunting.

Cash is actually tighter
Back in January over a quarter of executives said cash was not an issue. That proportion has slipped to 18%. Respondents also highlighted an increase in communications to lenders and rating agencies. There was however less talk of companies disposing of assets purely to raise cash.

“Working capital is the lifeblood of a company, and the ability to manage it becomes even more important in a downturn due to falling revenue and restricted access to funds,” said Kevin Cole, Americas Accounts & Business Development Leader, Ernst & Young LLP. “Companies need to secure their position by identifying and resolving critical issues quickly to protect against value erosion, or to be well placed to take advantage of opportunities.”

How have companies responded in the short term?Over the last year 86% of executives said they had accelerated cost reduction programs, 52% had speeded up their restructuring plans and 38% had pushed the button on a “significant employee reduction program.” When asked about their key drivers in the short term there was increased scrutiny on profitability (73%), pricing strategy (55%) and their relationship with customers (52%). Internally it was no surprise that 38% had seen more investment in risk.What’s next in the longer term?In terms of looking post-recession, executives were pretty evenly split between expanding into new geographies, increased use of strategic alliances, acquisitions and speed to market and divesting non-core business. “Companies that maintain a sustainable business model through the current downturn will not only survive the downturn, but will emerge stronger and in the best position to take advantage of new growth opportunities as the economy improves,” said Cole of Ernst & Young LLP.

“The bottom line is, that in both good and bad economic conditions, successful organizations are those that have clarity around their proposition, strategic direction and brand positioning,” said Donna Campbell, Americas Advisory Performance Improvement Leader, Ernst & Young LLP. “A successful company also has an effective management information capability that is aligned with the business strategy to enable agility in responding to market or other environmental changes.”

What do you think?