Fis strategic insights vol 2 september 2011


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Strategic Insights is a newsletter published by FIS that provides research, thought leadership and strategic insight on banking and payments.

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Fis strategic insights vol 2 september 2011

  1. 1. FIS ENTERPRISE STRATEGY VOLUME 2 • SEPTEMBER 2011The “Global” Trends in IN THIS ISSUEthe Big, Global and Digital • The “Global” Trends inBanking Marketplace the Big, Global and Digital Banking Marketplace • Customer Loyalty Does Not Translate to Cross- By Fred Brothers sales for Community EXECUTIVE VICE PRESIDENT, ENTERPRISE STRATEGY Banks • The Value Proposition In last month’s article, I talked about two trends related for U.S. Mobile Payment to how the concept of “big” is dominating banking Adopters ( These two trends — competing in the land of the giants • The Cost of Uncertainty … and customer expectations being defined outside of And the Impact on Bank banking — are among eight trends highlighted in a Earnings presentation I delivered at FIS Client Conference and FIS InfoShare entitled “Competing in a Banking Market that Is Big, Global and Digital.”In this month’s article, I’m digging further into the two “global” trends from that presentation, specifically: 1) we operatein a global — not a U.S. — banking system, and 2) we can build personal relationships with customers from anywhere.These are two important trends reshaping your financial institution’s market and deserving of more attention than I couldprovide during a 10-minute presentation segment at the conferences.The U.S. banking system has evolved into a global banking system. The biggest U.S. banks are multinational. Despitethe fact that the U.S. is the most over-served banking market in the world, numerous Global 100 banks have purchasedmid-tier U.S. banks (Figure 1). Foreign-owned banks are buying U.S. banks because having a U.S. market presence iscritical to their business strategy. Although the U.S economy is not growing as fast as other markets, our economy stillaccounts for 23 percent of global GDP. And as money transforms from paper to digital, the global movement of money isbecoming faster, cheaper and even more strategically important.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 1
  2. 2. Here’s one example of how important theglobal movement of money has become. Figure 1: Top-50 U.S. Bank Holding Companies OwnedAbout $50 billion is remitted to other or Substantially Owned by Foreign Banksnations from the U.S. annually versus about$3 billion of inward flows. U.S. banks only Number of Deposits Institutionprocess about 3 percent of outward flow Offices ($B)FIS ENTERPRISE STRATEGY much of the VOLUME 1 •dollars — largely because TD Bank 1,121 $128 2011 JULYforeign-born population sending moneyback home is unbanked or underbanked in RBS Citizens 1,524 $94the U.S. The rest of those dollars are moved HSBC 486 $92by global banks and non-bank providers Union Bank 400 $66such as Western Union and MoneyGram. BBVA Compass 759 $49From the foreign-born worker’s perspective,the process of sending funds to relatives is M&T Bank 759 $47as easy as sending a MoneyGram at the Sovereign Bank 747 $46Walmart Money Center, where they’re Bank of the West 721 $46already going to buy groceries and goods at Harris Bank 356 $31the same time. It’s not cheap, but it’s easy. RBC Bank 427 $19Global remittance growth was on a rapid Source: FDIC, Summary of Deposits, 2010growth track until the recession slowed downcash flows (Figure 2). As global economies Figure 2: Total Global Remittancerecover, we expect growth to rebound. Figure 2: Total Global RemittancesEstimates for 2011 indicate that global $445 $441remittances have nearly reached the amount $420 $425registered in 2008 prior to the recession. $380Next, I’d like to offer a few thoughts on $325how banks can provide personalizedservice to their customers from anywhere.I believe customers care less about the Billionshome location of their services than theycare about the quality of the services theyare receiving. This enables banks to buildpersonal relationships with their customers,even when they’re using remote and virtualtechnologies (more about that in my columnnext month).Online banks, self-service merchandisecheck-out, in-store kiosks, and automated 2006 2007 2008 2009 2010(e) 2011(e)recommendation engines have introducedconsumers to building personal relationships Globalwith companies that don’t interact with them recession effectphysically in person. As an industry, thistrend can benefit us. Bank transactions are Sources: The World Bank, 2011; eCommLink, 2009; SWIFT, 2010on the increase via Web and mobile whilethe number of branch visits is decreasing.Branches won’t go away, but the branchsystem is already evolving into a morerationalized one.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 2
  3. 3. For example, a study conducted by the Marriott School of Business at Brigham Young University recently found thatfour out of five consumers are willing to use a video banking system to receive personalized banking services, and onein three would switch banks for after-hours access to a video banking service. The use of video via ATMs and kiosksis becoming more common and could help banks gain more efficiency from their investment in “brick and mortar”locations. Imagine visiting a small, well-located bank branch that services its customers either mostly or solely via video,call center and sophisticated ATMs. Or imagine using video banking to communicate from home or work to an individualFISaENTERPRISE STRATEGYat bank branch or call center. We’re in a world where this is not far-fetched. Skype reportsVOLUME 1 30 million users that it has • JULY 2011online during peak times.Remote and virtual channels can be serviced personally — at a lower cost — from anywhere. The FIS™ people servicesbusiness is one of the fastest-growing lines in the company because financial institutions are outsourcing front-office andback-office process that are: 1) expensive to operate internally, and 2) don’t help them differentiate themselves fromcompetition. They are outsourcing a range of functions ranging from mobile tech support to after-hours and overflow callsupport to fraud management to item processing. Most customers who need to resolve an issue after normal bankinghours don’t care if the customer service rep works in Milwaukee or Manila. They care that someone who’s competent andcourteous is available to fix their problem.The new global marketplace is both bad and good news. The bad news: your competition is bigger and broader —often not a bank, and very possibly not down the street from your branches. The good news: tools are available to helpyour bank remain competitive while enabling you to focus resources on strengthening your real, compelling competitiveadvantages that are visible to your profitable customers.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 3
  4. 4. Customer Loyalty Does Not Translate toCross-sales for Community BanksFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 By Paul McAdam SENIOR VICE PRESIDENT, RESEARCH & THOUGHT LEADERSHIP Community banks generally have a customer loyalty advantage over their large bank competitors. Whether the metric is customer satisfaction, likelihood of repeat purchase, or Net Promoter Score®1, community banks consistently receive higher marks. Numerous consumer surveys have demonstrated this over the years, including research conducted by the FIS Enterprise Strategy team.2But, unfortunately for community banks, customer loyalty advantage does not translate to superior cross-sales performance.Our analysis reveals that customers of large banks3 hold an average of 3.13 deposit and lending services with their primarychecking account provider, compared to only 2.61 among community bank customers (see Figure 1). Community banksexperience a similar disadvantage in terms of deposit balances per primary checking account household, with averagebalances that are 14 percent lower than those captured by large banks. Figure 1: Although Community Banks Enjoy a Customer Loyalty Advantage, Cross-sales Performance Lags Large Banks Comparison of Net Promoter Score® and Cross-sale of Deposit & Loan Services 25% 23% 3.50 Deposit & Loan Services per DDA 20% 3.00 3.13 Net Promoter Score Household 15% 14% 2.50 2.61 10% 2.00 5% 1.50 0% 1.00 Community Bank Customers Large Bank Customers Net Promoter Score® Services per DDA Household Source: FIS Enterprise Strategy, September 2010; n = 1,808FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 4
  5. 5. While cross-sales is not the only metric that matters, it’s certainly a key indicator of a competitive retail banking franchise.Plus, from an efficiency standpoint, it’s also less expensive to sell additional products to an existing customer than togenerate a new customer. Dick Kovacevich, former chairman and CEO of Wells Fargo, reminds us of this in his renownedquote, “The cost of us selling a product to an existing customer is only about 10 percent of selling the same product to anew customer.”4FIS ENTERPRISE STRATEGY cross-sales performance falling short? Community banks generally achieve higher customerBut why is community bank VOLUME 1 • JULY 2011loyalty due to their high-touch service and emphasis on local community involvement, ownership and decision making.Many community bank customers consciously select a smaller bank over larger bank options in the marketplace for thesereasons. This generates tangible customer longevity advantages. According to our research, 68 percent of consumers whohold their primary checking account with a community bank have had that relationship for five years or longer, compared to58 percent for customers of large banks.Despite these advantages, community bank cross-sell performance falls short. Product selection is a key factor as largerbanks generally possess a broader suite of product offerings. Larger institutions certainly have the ability to leverage theirscale to invest more in advertising and analytic marketing capabilities. They also benefit from expansive branch and ATMnetworks and some are consistently on the leading edge of self-service banking and electronic payment deployments.Indeed, large institutions have some key advantages. But in most cases, community banks can obtain product, marketingand delivery capabilities that are very competitive with those of the large banks. And, many community bank customersaren’t interested in the expansive distribution networks of the large banks. They’re perfectly content with a local bank thathas servicing options convenient to their home or work. It’s also true that while large banks are more likely to be in theenviable position of being able to afford highly-visible ad campaigns and sophisticated marketing capabilities, communitybanks can counteract these advantages through superior local-market knowledge.So why the cross-sales disadvantage? More than any other factor, the answer resides in the income and future earningspotential of community bank customers. As demonstrated in Figure 2, community bank customers report significantly lowerannual household income and education levels than large bank customers. Thus, on average, community bank customershave a lower degree of affluence, which leads to less demand for a wide range of banking services. Figure 2: Community Bank Customers Are Less Affluent than Customers of Large Banks Comparison of Education and Annual Household Income 40% 38% $60,000 College Graduate or Higher Annual Household Income Annual Household Income $58,266 College Graduate or Higher 30% $55,000 22% 20% $50,000 10% $48,948 0% $45,000 Community Bank Customers Large Bank Customers College Graduate or Higher Annual Household Income Source: FIS Enterprise Strategy, September 2010; n = 1,808FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 5
  6. 6. We also see this affluence gap in the total deposit balances consumers hold at all of their banking providers. Large bankcustomers reported total deposit balances of $33,876 compared to $26,260 for community bank customers — a 22percent difference. Even though community banks capture a larger share of their customers’ deposit wallets (66 percent forcommunity banks vs. 59 percent for large banks), the affluence gap translates into average deposit balances from primarychecking account households that are 14 percent lower than the average balances captured by large banks (see Figure 3for comparisons of community and large bank performance).FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 Figure 3: Comparisons of Community and Large Bank Performance Community Banks Large Banks Gap % Customers Very Satisfied 54% 42% 12% % Very Likely to Repeat Purchase 45% 38% 7% Net Promoter Score® 23% 14% 9% Deposit & Loan Services per DDA Household 2.61 3.13 (0.52) % Primary DDA Households > 5 Years Tenure 68% 58% 10% Deposit $s Held with all Deposit Providers $ 26,260 $ 33,876 $ (7,616) % of All Deposit $s Held with Primary Bank 66% 59% 7% Deposit $s Held with Primary Bank $ 17,284 $ 20,028 $ (2,744) Annual Household Income $ 48,948 $ 58,266 $ (9,318) % College Graduate or Higher 22% 38% -16% Source: FIS Enterprise Strategy, September 2010; n = 1,808These affluence differences represent a dramatic strategic disadvantage and significant headwind for community banks.Investments by community banks to expand product offerings, sales and marketing capabilities will not realize their fullpromise unless this strategic issue is addressed.To be fair, there are certainly a number of community banks that outperform their larger bank brethren in cross-sales andother relationship expansion metrics. It’s also the case that numerous community banks place a primary strategic emphasison small business and middle-market banking and also compete very effectively with larger banks. But taken as a whole,our research reveals an urgent strategic priority for the community banking industry.These research results have motivated FIS to launch a follow-up consumer research study to explore this issue morethoroughly and specifically investigate differentiation strategies for community banks. This consumer research has recentlybeen fielded and we’ll be reporting results and recommendations in future newsletter issues.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 6
  7. 7. I’d like to know what you think. Do you agree with the conclusion that community banks are at a significant cross-salesdisadvantage? What steps you think community banks can take to close the gap in cross-sales performance? E-mail meat to let me know.1Net Promoter Score®, or NPS®, is a loyalty metric based on the survey question, “How likely is it that you wouldrecommend [Company] to a friend or colleague?” Developed by Satmetrix, Bain & Company, and Fred Reichheld, theconcept was first popularized through Reichheld’s book The Ultimate Question, and has since been widely embraced as aFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011standard for measuring customer loyalty.2The research results cited in this article are based on a primary research survey fielded by FIS in September 2010 that wascompleted by more than 1,800 consumers.3 A large bank in our analysis is defined as both: 1) a national banking institution that operates in many states across thecountry, and 2) a regional banking institution that operates primarily in a state or in neighboring states. A community bankis defined as a banking institution that operates only in a local area.4USA Today, “Wells Fargo’s Kovacevich Banks on Success as a One-Stop Shop,” March 26, 2007. Mr. Kovacevich also citedthis information in multiple analyst presentations.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 7
  8. 8. The Value Proposition for U.S. MobilePayment AdoptersFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 By Mandy Putnam DIRECTOR, RESEARCH & THOUGHT LEADERSHIP Several years ago I worked on a project that involved watching commuters at Japanese train stations touch their DoCoMo mobile phones to vending machine readers to buy a Coca- Cola. Mobile payment offers great convenience to consumers in markets such as Japan with relatively underpenetrated consumer credit payment systems — not to mention an urgent need to make a quick payment before the train leaves the station. Japanese consumers understood the value proposition offered by mobile payment. The value proposition for mobile payment is not as clear to U.S. consumers, who have a multitude of payment options — many offering rewards beyond convenience — at theirfingertips. Still, our online survey of 4,000 mobile phone owners in February 2011 conducted by FIS™ Enterprise Strategyfound more than one-quarter of U.S. smartphone owners indicated they would be “extremely likely” or “very likely” toadopt mobile payment during the next year if near-field-communications (NFC) technology was available to enable it(Figure 1). That translates into an estimated 17 million plus consumers who are prepared to exchange their cash-and-card laden wallets for a different payment method.1 Figure 1: Likelihood of Using Mobile Payment During the Next Year Likely Unlikely 27% 30% Neutral 43% Source: FIS Enterprise Strategy, February 2011; n = 4,002FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 8
  9. 9. The U.S. mobile payment landscapechanges continuously with new Figure 2: Key Stakeholder Segments in Mobile Paymentsentrants and occasional exits. Itincludes a wide range of stakeholdersegments, often with competingagendas (Figure 2). Also, manyFIS ENTERPRISE STRATEGY do not seemstakeholders’ game plans VOLUME 1 • JULY 2011 Paymentto be consumer-centric — based on aclear value proposition to consumers networks— and could fail as a result. Mobile Merchants network operatorsPayment networks andmobile network operator(MNO) alliances SmartphoneRecently, Isis™ — the mobile ownerscommerce venture among AT&TMobility, T-Mobile USA and Verizon Smartphone FinancialWireless — added Visa, MasterCard manufacturers institutionsand American Express as additionalpayment networks beyond Discover PaymentFinancial Services. This event likely terminalups the ante for Google’s Google suppliersWallet, which has partnerships withCitigroup, MasterCard and terminalmanufacturer VeriFone to offercontactless payment on Androiddevices. Source: FIS Enterprise StrategyFinancial institutionsLooking to preserve as much payment revenue as possible, financial institutions are seeking alliances such as Citigroup’spartnership with Google and MasterCard that enable their debit and credit cards to retain or achieve “top-of-wallet”status.Payment terminal suppliersVeriFone’s CEO Douglas Bergeron told NFC World last spring that the company will include NFC technology in all newpoint-of-sale hardware, thereby removing some of the onus of reader technology investment from retailers’ plates.However, small independent retailers do not update their POS systems often and will not likely be ready to acceptcontactless payments for several years.Smartphone manufacturersSmartphone manufacturers are taking NFC into consideration in developing next-generation models but seem to befollowing the lead of the MNOs in terms of launching NFC-enabled phones. Google has installed NFC in its next-generation smartphones and RIM Blackberry Bold 9900 series will be NFC ready, but Sprint is the only carrier at thispoint promoting NFC in its version of the Bold 9900 according to Near Field Communications News. Google’s pendingacquisition of Motorola could pave an easy path for Google to load Google Wallet features into its Android phones.However, Apple continues to keep speculators guessing about if and when it will release an NFC-enabled iPhone.A mid-May report from Business Insider indicates that the next-generation iPhone will not include NFC technology.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 9
  10. 10. Merchants Figure 3: Main Reasons Preventing Use of Mobile PaymentMost merchants have been resistantto the idea of upgrading their POSterminals to accommodate NFC mobile Stores where I like to shop might not 61%payments, but will likely be changing have readersFIS ENTERPRISE STRATEGYof recenttheir perspectives in light VOLUME 1 • JULY 2011developments from VeriFone and Visa. Might not get points for using certain 34%At the early May Smart Card Alliance credit/debit cardsConference, Walmart’s director ofpayment services indicated that Would be less secure than other 29%Walmart’s payment initiative is clearly payment methodstargeted toward bringing EMV (chip-and-pin technology) to the U.S. market Would still have to carry identification 24%to boost transaction security, not towardenabling NFC. All of Walmart’s terminalssupport EMV cards. Walmart DirectorJamie Henry responded to a question Would still have to carry loyalty cards 21%about the role of NFC in the POSenvironment by stating, “There’s Would be too easy to lose track of howno business case for NFC yet.”2 20% much I spendWith Visa’s recent announcement to I would rather use other paymentaccelerate migration from magnetic 14% methods Im more comfortable withstrip cards to EMV contact andcontactless chip technology in the U.S., I only use my phone or other mobilethe adoption of mobile payments via 7% device for calls and/or emailNFC chip-based technologies will likelyspeed the adoption of mobile payments.In a contrarian perspective to Walmart’s I dont see the value in using it for 6%stance, merchant Kevin Knight, executive paymentsvice president of Nordstrom, views Visa’s Source: FIS Enterprise Strategy, February 2011; n = 4,002move as laying the groundwork formobile payments and a positivedevelopment.3The mobile payment ecosystem will ultimately evolve and sort out various players’ roles within it. However, it must beshaped by a value proposition that resonates with consumers and offers them a good reason to change their paymentbehaviors. Even enthusiastic early adopters will need a reason to exchange their current credit or debit cards for a mobilewallet, since it will take years for a large number of retailers to install new readers. Early adopters’ top concern about mobilepayment — “stores where I like to shop might not have readers” — is justifiable (Figure 3).Another barrier to consumer adoption is the fear that mobile payment is less secure than other payment methods. Thoughsecurity risk is not perceived as an impediment to usage by a large percentage of likely early adopters, superior securityoffered by NFC-enabled payment could be coupled with the benefits of reducing time at checkout and wallet bulk to builda stronger value proposition for adoption across a broader group of smartphone owners.This article is derived from the recently published white paper, “A Value Proposition for U.S. Mobile Payment Adopters.”Please follow this link to access the full report: The Nielsen Company, “Q2 Mobile Media Marketplace,” 2010.2 Jamie Henry, director of payment services with Walmart treasury organizations, quoted by NFC News, May 2011.3 Kevin Knight, executive vice president with store chain Nordstrom, quoted by, Aug. 9, 2011.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 10
  11. 11. The Cost of Uncertainty …And the Impact on Bank EarningsFIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 By Jim Gamble DIRECTOR, RESEARCH & THOUGHT LEADERSHIP Unprecedented events of the past few weeks — the impasse in Congress, the downgrade in the U.S. credit rating, the European debt crisis —have called the economic recovery into question. So what does this mean for bank earnings in the U.S.? In last month’s edition,, I talked about how U.S. bank earnings are recovering and undoubtedly the riskiness of the forecast has increased since then (Figure 1). But, it is too soon to conclude that the bank earnings outlook will become as grim as the outlook for a continued turnaround in the economy. Figure 1: Forecasted Bank Earnings Before Tax 250 Estimated Bank Earnings (Index 2000 = 100) 200 150 100 50 - 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (50) Bottoms Up Estimated Bank Earnings Before Tax (100) Macro Based Top Down Estimated Bank EBT Sources: FDIC, Moody’s Analytics, Standard & Poor’s, FIS Enterprise StrategyFIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 11
  12. 12. Uncertainly ReignsOne need look no further than Standard & Poor’s 500 stock market index to see that uncertainty reigns (Figure 2). The VIXindex — a measure of stock market volatility — jumped as it has during previous times of distress. Yet there hasn’t been thecorresponding drop in expected earnings per share. In fact, corporate earnings have been the bright spot in the economicrecovery. During the second quarter of 2011, 70 percent of the companies in Standard & Poor’s 500 Index beat theirFIS ENTERPRISE STRATEGYestimated earnings. Something other than a drop in expected earnings has occurred. VOLUME 1 • JULY 2011 Figure 2: New Risk Prompts a Flight to Quality 90 4.5 80 4 10 Year Treasury Yield (%) 70 3.5 60 3 VIX Index 50 2.5 40 2 30 1.5 20 1 10 0.5 0 0 12/31/07 10/31/08 12/31/08 10/31/09 12/31/09 10/31/10 12/31/10 2/29/08 4/30/08 6/30/08 8/31/08 2/28/09 4/30/09 6/30/09 8/31/09 2/28/10 4/30/10 6/30/10 8/31/10 2/28/11 4/30/11 6/30/11 VIX Index 10 Year Treasury Yield Source: Capital IQThe decline in the stock market must be attributed, therefore, to a lower price-earnings multiple for the stock market asa whole. In order to remain within their fiduciary mandates, large investors are selling off some of their riskier holdingsand rebalancing portfolios.These market moves, however, generally have a short-lived impact on the market. A betterexplanation for the reduction in the market price-earnings multiple is widespread perception that investing in the stockmarket has become riskier.Tough Decisions RequiredThis perception of increased risk could be blamed on several factors: the U.S. credit ratings downgrade, acrimoniousuncertainty surrounding the U.S. budget, the European debt crisis and disappointing jobs numbers. Many of these marketinfluences can be directly correlated to actions, or more precisely, the inaction of lawmakers both here and abroad. Whileit is unusual for the market decline to be so directly attributed to the actions of lawmakers, it appears that is exactly whathas happened. The highly visible and ugly process of the last-minute raising of the debt ceiling took its toll. And, despitethe temporary resolution, the net reduction in the budget was insufficient to avoid a credit ratings downgrade for U.S.treasuries. Unlike prior occasions when the market has fallen sharply, lawmakers were in a position where they had thepower to directly affect the direction of the market.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 12
  13. 13. Ironically, U.S. 10-year treasuries have risen in the midst of this flight to quality. In a somewhat contrary opinion to Standard& Poor’s analysis, large investors still see U.S. debt as the best means to mitigate risk in their portfolios (Figure 3). Figure 3: Current 10-year Treasury Yield vs. Forecast 7.00FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011 6.00 5.00 4.00 Yield (%) 3.00 2.00 1.00 10 Year Treasury Yield on 08/19/2011 0.00 Jan-2000 Jan-2001 Jan-2002 Jan-2003 Jan-2004 Jan-2005 Jan-2006 Jan-2007 Jan-2008 Jan-2009 Jan-2010 Jan-2011 Jan-2012 Jan-2013 Jan-2014 Jan-2015 Fed Funds Rate 10 Year Treasury Yield Sources: Moody’s Analytics, Capital IQThe immediate concern for financial institutions is that the economy could slide back into recession. As consumers loseconfidence and feel their wallets shrinking, they buy less and are less willing to assume debt. As consumers cut back, so dobusinesses. Adding to the pain for financial institutions, low interest rates on both the long and short end of the yield curvesqueeze the net interest margin.It’s premature to say the economy is headed back into a recession and too soon to conclude that the outlook for bankearnings should be downgraded and, if so, by how much. Corporate earnings have been very strong and balance sheetsremain healthy. Even if the economic recovery slows, companies are more prepared to endure a downturn now than theywere three years ago.Policy makers in the U.S. and abroad must craft credible strategies to solve their respective countries’ debt problems.Developing budget plans won’t be easy, nor will the solutions be popular among many constituencies. However, restoringthis credibility of lawmakers and re-establishing rational policy would go a long way toward removing the uncertainty nowdriving the market down, and toward restoring the confidence necessary to resume the economic recovery.FIS STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 13
  14. 14. FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011Strategic Insights is a monthly newsletter that provides research, thought leadership and strategic commentary on recentevents in banking and payments. The newsletter is produced by the Enterprise Strategy team at FIS. FIS is one of theworld’s top-ranked technology providers to the banking industry. With more than 30,000 experts in 100 countries, FISdelivers the most comprehensive range of solutions for the broadest range of financial markets, all with a singular focus:helping you succeed.If you have questions or comments regarding Strategic Insights, please contact Paul McAdam, SVP, Research & ThoughtLeadership at 708.449.7743 or STRATEGIC INSIGHTS • V 2 SEPTEMBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries. 14