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Remaking the Branch

There are few topics that so engage the minds of retail bankers these days as the future of the branch. The continual migration of customer transactions from the branch to electronic channels can no longer be ignored, particularly in an era when profitability is under pressure and every expense must be scrutinized.

The Mobile Transformation

The mobile banking landscape has changed greatly in recent years as customers graduated from simply checking their account balances on the cell phone to actually making payments via the device. Increasingly, mobile banking is transmuting into mobile payments.

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About John Beran

John Beran on Payments Past – and Future
John Beran, Comerica’s former chief information officer, sees future payments game changers in social networks, mobile banking and enterprise payments architecture. by KENNETH CLINE
Mar 27, 2011  |  0 Comments

John Beran, Comerica Inc.’s former executive vice president and chief information officer, retired earlier this year after 30 years in the payments industry, 16 of those with Dallas-based Comerica. He delivered his swan song as it were on March 8 at the BAI Payments Connect conference in Phoenix, where he moderated a panel discussion on payments innovation.

We caught up with Beran during the conference for a kind of exit interview. Based on his three decades worth of experience in the industry, how can banks preserve their role in the payments system? Go it alone or partner with nonbank technology companies? In terms of internal governance, how should financial institutions sift through all the technology choices available when deciding how to allocate their investments? And what developments did he foresee as future game changers?

Beran provided thoughtful guidance on all these issues and a few warnings as well, as in his remarks about social networks and the need to accept that consumers rather than banks are in the driver’s seat. “The consumer marketplace is going to push things at us that we need to adapt and harness because we can’t control them,” he says. “If we don’t recognize what’s going on with social networks, it’s going to be very difficult for us to maintain our place in payments.”

Q: How can banks preserve their role in the payment system? Should they keep trying to go it alone or partner with nonbanks?

Beran: Banks must partner but the form and structure of the partnership is really key: you can either buy products or you can buy solutions.

Let me just backtrack a little bit. Back when I first started my career, there were really one or two players. IBM, for example, knew your business as well as you knew your business in terms of payments from end to end. Everything fit, everything worked, and they dominated the check processing environment with great operating systems.

The key is that when you work with someone – and call them partners rather than vendors – they have to be a partner. And in that partnership, you’re clearly defining the roles and responsibilities of each organization. You need to have service level and delivery commitments. I would do risk sharing and revenue sharing with partners in order to create the kind of environment where everyone either succeeds or fails together.

You need to be careful that you’re selecting someone who can deliver and who will truly work with you and not necessarily co-opt you. It’s about solving the problems jointly, which you can call co-opetition. But in any case, joint innovation and partnering are needed to be successful.

The other thing that needs to be kept in mind is that, whatever we do, particularly in payments, security is always going to be a factor. That’s been one of the issues we’ve had with some partners – their lack of understanding or insight into the safety-and-soundness issues that we face as financial institutions to deliver in a secure environment.

Finally, the environment is constantly evolving. There are times when you have to recognize that what you did previously will not make you successful today. It’s the ability to recognize the kind of change that’s going to make companies successful. If you stay with what you’ve always done, you’re going to fail. And part of that adjustment is changing your view about how you might develop and deliver technology.

Q: Looking at payments broadly, based on your experience, what are the three top game-changing technological developments that financial institutions need to be thinking about to stay competitive and relevant in payments?

Beran: I think the number one game changer is social networks. And the reason is that banks don’t control it. People talk about push-and-pull technologies but my own term is “reverse push.” The consumer marketplace is going to push things at us that we need to adapt and harness because we can’t control them. If we don’t recognize what’s going on with social networks, it’s going to be very difficult for us to maintain our place in payments.

Clearly, mobile banking is very important as well. It’s got widespread adoption. Right now it’s primarily an extension of online banking. But with the advent of remote deposit capture, person-to-person payment capability, and the proliferation of mobile personal finance applications, mobile banking potential could more than triple in the next couple of years. Also, the importance of alerts to consumers and corporate customers alike will grow in significance. You don’t need to be a mobile banking customer to be able to have access to alerts, which I think is one of the absolute, necessary applications. You can do so much to create a great customer experience with alerts.

The technology and capabilities of the smartphone is what’s really driving all of this. So this is another thing that we’re not necessarily in control of, but we need to adapt to it – and quickly.

I would say the third game changer is the development of a true enterprise payments architecture (EPA), which is basically a middle services layer that connects the front-end payments system to the back-end accounting systems. For me, this has been the Holy Grail.

There are basically two things that I wanted to see done in my career. One was putting together a true EPA and the other was real-time payments processing. While real-time payments processing is still a little ways off, we did put an EPA strategy together at Comerica and we’re now executing on that strategy. We’re building that middle services layer with the goal of getting rid of the individual connections that one payment channel has to have to all the back-end systems.

What that allows you to do is have one layer for security, one layer for compliance, etc. You can truly create a complete transaction repository, rather than have an ACH over here or wire transfer over there. The technology finally has gotten to the point that we can put that in place.

Q: Banks, of course, face a lot of tough decisions in terms of spending their technology dollars. What sort of governance structure do you need to set up to sort through these choices?

Beran: I believe in trifurcating technology into three areas: infrastructure, products and tools. Products and tools are applications but they serve different purposes. Infrastructure is the data center, the operating software, database management, security, etc. In banking, products are those applications that actually generate revenue for you, the things that service your customer. So, that would be applications such as online banking, deposit systems, trust systems and commercial loan systems. Tools are the things that employees use to make themselves more productive, more efficient, such as email systems and sales and customer management systems.

The way in which you look at each of those three things should vary. A tool is not really a competitive advantage, so for me, it may be best to outsource. I would rather focus resources on developing products that generate revenue and provide capabilities to our customers.

Now the interesting thing about social networks is that they involve both an internal view and a customer view so you need to manage both. You want to manage around how your employees are going to interface with the networks and the communities you’re going to create internally, things that you’re going to have to deal with in terms of HR policies, security and all of that. But then, you’ve also got to extend the process to the customer. And as I’ve already indicated, that’s not necessarily something we can control. We can control what’s internal but not external.

So, implementing a social network and media strategy involves a lot of experimentation. You need to listen, you need to learn, you need to respond, you need to adjust and you need to learn how to govern. This is different from the typical product life cycle standards that we think about when we do major product applications. It doesn’t fit the old paradigms.

Q: How do you minimize the chances of placing your bets on the wrong technology?

Beran: First of all, you need to have a program, as we did at Comerica, which constantly looks at emerging technologies. We developed what we call a “technology research agenda,” and we received input from a lot of different sources: what we read, what we knew and what our business partners knew. It all came together. We actually have a formalized, disciplined approach to looking at these technologies, in terms of what we would look at and spend time on, versus what we wouldn’t.

I’m not saying we were always successful, but if you’re going to fail, fail fast. I don’t think you can necessarily always be 100% sure that what you’re going to do is right. But you do need to be disciplined enough so that, if you get into something and you don’t feel it’s right, you get out of it as fast as you can. For me, it’s probably less about making sure that every bet is going to pay off as it is about minimizing the potential for losses when you do make a bet. And that’s probably more important for an organization like Comerica or other banks our size that are up against the mega banks with their massive budgets.

Finding good partners can help minimize losses but you’ve got to do the business cases up front, you’ve got to do the assessments. At Comerica, before we actually laid down the bet, we did a lot of research up front to increase our odds for success before we would really start doing something. Then, you’ve got to be in a position to pull the trigger, execute, and hold everyone accountable for performance.

Q: Looking back over your long career in payments, what part of the business has changed the most?

Beran: There are two things. One, I believe that technology as a driver has increased the pace of change dramatically and is outpacing our ability to truly manage and leverage that change. Rates of adoption are so much quicker than they used to be, which is creating innovations in payments before we’ve actually had a chance to fully comprehend and understand the implications. So, in general, the rapid acceleration of adoption of electronic payments in any form, be they pre-paid cards, image, whatever, is so much quicker than it was in the early days of ACH and ATMs. Obviously, Check 21 implementation is a clear example of this.

The second thing – and this is a troubling aspect – is the impact of the regulatory environment on the industry and payments in particular. I don’t think we have a clue yet how Dodd-Frank is going to fully impact our industry. The burden of compliance, managing systems risk and reporting could be overwhelming and very expensive. I think it’s critical that banks take an active role in the rule making process to ensure that regulations appropriately address payments risk management, balancing the cost and risk issues which, if done capriciously, could stifle innovation in the payments industry.

Mr. Cline is managing editor of BAI Banking Strategies. He can be reached at kcline@bai.org.


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