by John P. Robertson, Senior Business Process Specialist As a Senior Business Process Specialist for the Experian Decision Analytics, John provides guidance to clients in the areas of profitability strategies for risk based pricing and relationship profitability. He assists banks in developing and implementing successful transitions for commercial lending that improve both the financial efficiency of the lending process and the productivity of the lending officers. John has 26 years of experience in the banking industry, with prior background in cash, treasury, and asset /liability management. For quite some time now, the banking industry has experienced a flat funding curve. Very small spreads have existed between the short and long term rates. Slowly, we have begun to see the onset of a normalized curve. At this writing, the five year FHLB Advance rate is about 2.00%. A simplistic view of loan pricing looks something like this: + Interest Income + Non-Interest Income – Cost of Funds – Non-Interest Expense – Risk Expense = Income before Tax The example is pretty simple and straight forward, “back of the napkin” kind of stuff. We back into a spread needed to reach breakeven on a five year fixed rate loan by using the UBPR (Uniform Bank Performance Report) national peer average for Non-Interest Expense of approximately 3.00%. You would need a pre-tax rate requirement of 5.00% before you consider the risk and before you make any money. If you tack on 1.00% for risk and some kind of return expectation, the rate requirement would put you around a 6.00% offering level. From a lender’s perspective, a 6.00% rate on a minimal risk five year fixed rate loan doesn’t exist. They might as well go home. CFO’s have been asking themselves, “What do we do with this excess cash? We get such a paltry spread. How can we put higher yielding loans on our books at today’s competitive rates? We’ve got plenty of capital even with the new regulation requirements so can we repo the securities and use the net spread for our cost of funds?” Leveraging the excess cash and securities in order to meet the pressing rate demands may be a way banks have been funding selective loans at such low rates on highly competitive, quality loan originations of size. But you have to wonder, what about that old adage, “You don’t short fund long term loans.” Won’t you eventually have to deal with compression and “margin squeeze”? Oh and by the way, aren’t you creating a mismatch in the balance sheet which requires explanation. Are they buying a swap to extend the maturity? If so, are they really making their targeted return? If this is what they are doing, why not just accept a lower return but one that is better than the securities? Share your thoughts with me.  

While bankcard originations increased 26 percent year over year to $85.3 billion in Q2 2014, delinquencies continued their downward trend, reaching 0.47 percent of balances — an 8 percent decline year over year.

Online crooks are getting more sophisticated by the second. Nowadays, fraudsters have the ability to conduct “clean fraud,” obtaining legitimate identities of users from the black market or data breaches to compromise a victim’s card account. Malware, too, is becoming more sophisticated both in the mobile and non-mobile space. But how can organizations fight such high-level tactics in such a broad, complex space? John Sarreal, Senior Director of Product Management at 41st Parameter, an online fraud prevention player, sat down with PYMNTS after the recent release of the white paper “Surveillance, Staging, and the Fraud Lifecycle” to reveal the inner workings of a cyber criminal’s mind, what should be done before and after data is snatched, and which aspects of account takeover are the most overlooked and dangerous. Interview excerpts Take us through the mind of a cyber-criminal. What are the most sophisticated tactics used today to capture account information from corporate systems? JS: The amount of clean fraud that we see with our customers is unprecedented. By focusing on obtaining legitimate credentials and identities, fraudsters are more easily able to bypass traditional controls. This means that fraud tools need to adapt and gather additional attributes to augment their fraud screening. Although the techniques they’re using now to obtain these credentials are increasingly sophisticated, the MOs are still rooted in basic phishing and social engineering attacks. Fraudsters will use identity information obtained from the black market or data breaches to conduct very convincing phishing attacks to reveal everything that is needed to compromise a victim’s card account. There’s also increasing sophistication in the use of malware to steal sensitive credentials in both the mobile and non-mobile arena. In Android, for example, Google recently passed a vulnerability that allows sophisticated malware to impersonate digital certificate signing authorities. This vulnerability allowed the malware to install itself on a mobile device without any user notification or intervention – obviously, a very dangerous attack. Link to the podcast and transcript here.