By adaptive - November 14th, 2016

The future of digital banking holds great promise for consumer convenience, innovation, and growth opportunities for legacy institutions as well as startups.

     But like all great disruptive eras, this is a time of great uncertainty. And as Robert Gray lays out in this second installment, there are a number of major challenges facing industry executives such as improving user interfaces, security and risk management, and mobile data and behavioral analytics.
Whither Branch Banking?
         While bankers may be tracking funding, quite a few executives are watching real estate—monitoring the oft-debated future of brick-and-mortar banks. A full 1/3 of respondents in the Mobile Banking and Payments poll forecast a significant number of physical location closures.     
That level of pessimism may reflect the current disruption in the industry or millennials’ purported preference to interact digitally rather than interpersonally, but it may also be a harbinger for opportunity as nearly half of the execs queried predict new services will arise to replace the teller and personal banker.
       Santander’s O’Brien says that digital-only banks have been in existence for years and it has not yet led to an exodus from traditional banks.
       “Banks are very good at eliminating unnecessary costs,” he notes, adding, “If the determination is that the brick and mortar branch is an unnecessary cost then we will see them disappear fairly quickly.”
       For O’Brien, bank branches still represent trust in the guise of a human face where depositors look their banker in the eye. “I think it will take some time for people to change their mental trust paradigm from a centralized entity to something like a distributed ledger; and that is all after the technology issues are worked out.”
       Perhaps unsurprisingly, Moven’s Sion does not see the same symbolism in the corner bank branch. He sees banking on the verge of disruption akin to that witnessed in the media and entertainment businesses since the turn of the century.
      As music went more digital, record stores largely disappeared over the past 10-15 years save for a few crafty boutiques (some tied to in-store concerts and resurgent vinyl have managed to buck that trend). And then there’s the cinema where a social experience keeps the doors open and seats full despite a preponderance of digitally delivered home entertainment options.
      He notes, “You are talking about completely virtual digital products that by all rights can be delivered 100 percent digital, but the real question is, is the branch a record store or is it a movie theater?
“I see (physical banks) as 95 percent a record store, but I can see the ability of a bank to craft some experiences that would make it more like a movie theater.”
Navigating the Omnichannel Experience
      No matter whether the customer is at a branch, on mobile or desktop, it has now expected that banks will provide the same service options seamlessly, no matter the platform.
This expectation of omnichannel excellence mirrors the disruption and opportunity currently ongoing in retail. There are excellent experiences in some instances and that trains the consumer to expect it across the board.
      Industry insiders say that today it means just going beyond an interactive app that looks slick with limited functionality. It is about providing a consistent experience, whether it’s using notifications when they make sense, offering full functionality from the phone as well as the desktop in a move that negates the need to visit an ATM and brings that automated teller experience to the customer.
      The mobile wallet has provided a solution for many, even if some banks are not thrilled with the terms being dictated by the likes of Apple or Google. The experience has been somewhat stymied by the lack of ubiquity in acceptance, even among leaders such as Starbucks. Consumers may be baffled to find that some of the coffee giant’s locations are franchises not equipped with the POS terminals capable of handling payment via app.
      Online and mobile interfaces were first set up to reduce call center volumes but now they need to reflect the full suite of an institution’s offerings.
     So perhaps it’s no surprise that mobile remains a focus for so many fintech and banking professionals since the phone has become such an integral part of the consumer’s life.
Securing Digital Transactions and Managing Risk
       The increase in digital experience brings to bear another source of concern for many but an opportunity for others—security.
       The focus is on secure transactions and the digital identity as the industry weighs the proliferation of fingerprint ID verification with retina scans, voice recognition and other methods.
      Many financial institutions are using multi-layer fraud prevention. For instance they are using biometrics along with device identification so that fingerprint + device = security. But predictive modeling, analytics, and big data are also being tested for additional methods of securing transactions and functions.
      JPMorgan Chase’s Smyth notes that “Apple Pay, Android Pay, Samsung Pay, all those NFC-based phone capabilities are leveraging biometrics. But it’s not centralized, it’s becoming a part of the overall ecosystem and I think we’ll see that expand.” He adds there are two big barriers for consumers in getting their buy-in for biometrics: getting them to provide the data securely and verified as well as making them comfortable with the experience.
      One of the newer technologies that’s starting to go more mainstream is intelligent conversational interfaces, or the voice-assistant, such as Amazon’s Alexa on Echo. U.S. customers of Capital One can check balances and pay their credit card bills using the service.
      If these digital recognition methods gain widespread acceptance, many current forms of banking will be radically altered. The future of ATM cards, the need for a mobile phone and digital wallet or app, and other current forms of verification and payments may be rendered obsolete.
      “Imagine if you didn’t need a device,” says Santander’s O’Brien. “Imagine you could go to a digital or physical store and buy something with the transaction approved based on a combination of biometrics, such as an iris scan and a voice scan. The device gets disintermediated and the new disrupter is the business that controls the customer’s digital identity.”
       Of course once the customer is identified, the underlying concern is securing the transaction. And risk management will face new challenges to offer tight security but a smooth experience at the same time so security doesn’t hamper the user’s transaction.
Big Data’s Promise
      Whether that customer identity data is anonymized or not, the analytics functionality exists to work with the customer by examining activities preceding, during, and following payment for example. Maybe this is helping the consumer decide which method of payment is best: debit or credit for instance.
       The big question is which data to measure and avoid information overload, while still providing the useful analytics for internal use as well as for the customer-facing solutions.
       Some industry insiders are looking at payments as an instant opportunity for follow-on marketing and even transactions. One idea would be selling a warrantee or product insurance via mobile, which is a more direct, less cluttered way to pitch than via email on a desktop.
         Plus there’s the opportunity to collect data on purchases, habits, and location that can be honed to create targeted marketing in a way that online just can’t since mobile phones track location and with increasing frequency, purchase amounts and methods of payment.
Gamifying Finance: Everyone’s a Winner
         The next step for financial transactions may be making everyone a winner through gamification. Santander’s O’Neil says, “It will become a thing to generate a sense of winning while saving. We are going to see uses of data and behavioral analysis to create a sense of instantaneous gratification with each kind of financial transaction.”
         Clearly not everyone in the financial services game will be a winner after the expected shakeout comes over the next several years. Disruptive forces such as Apple Pay and Google Pay, fintech firms, and bitcoin are already gaining traction.
      As for the future of banks, Santander’s O’Neil sees the pace picking up for technological innovation and change: “The context for banking used to be a physical one and now it’s a digital context. We spend more of our time immersed in our digital worlds and less in the physical world, for better or worse. Banking needs to move into the specific contexts where we spend our time…we have to be present in those digital contexts.”


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