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3 Keys to the Bank of the Future

Three takeaways from a recent panel on how banks can stay relevant with customers in a changing competitive landscape.

The competitive landscape in banking is shifting thanks to technology, changing regulation and new players entering the market. It’s widely expected that the industry will be disrupted by these factors, and although no one knows who will gain the upper hand from that disruption, the outlines of what will be required to succeed are becoming clear, Niti Badarinath, SVP and head of mobile and money movement at U.S. Bank, said during a panel discussion hosted this week by Verizon on the future of banking.

“We know the problems that we need to solve -- providing personalization and contextual awareness in real-time… Whoever can provide that will win,” he explained to the audience.

Three major trends emerged from the discussion that are changing the way that banks and customers relate to each other: growing awareness of cyber security and sophistication of threats, the rise of new technologies to help banks understand customers and stay relevant to them and new competitors that are raising customer expectations.

Security: New Threats, New ID’s

With cyber security a hot topic (thanks to more and more data breaches), customers are growing more aware of security. It’s imperative that enterprises take take advantage of that growing awareness to educate consumers on threats and ways they can protect themselves, the panelists agreed. But the panelists differed on which enterprises were best positioned to educate those customers.

[For More on Data Breaches and Security: 3 Keys To Making Payments More Secure]

“Consumers are bad at protecting themselves… we constantly see them using the same usernames and passwords again and again. Financial institutions are going to have to help customers protect themselves,” said Bryan Sartin, director of risk at Verizon. About four out of every five data breaches are the result of “weak, default or easily guessed credentials,” Sartin added.

But financial institutions have been trying for years to change security behavior among their customers, U.S. Bank’s Badarinath pointed out. And clearly the rate of data breaches shows that customers haven’t taken those education efforts to heart.

“We think the onus has shifted to the mobile network operators to promote better security awareness… that’s something that the network providers need to change,” Badarinath remarked.

Fortunately there may be another solution to the issue of customer passwords and usernames: get rid of them. The current security landscape has moved beyond the usefulness of passwords, tokens and other credentials that other organizations have “impressed upon customers,” Mike Versace, global research director of IDC Financial Insights, said during the discussion.

“In the future it will be about the our behaviors, characteristics and habits -- that’s what will build our ID… like what are my typical online behaviors? What airline do I usually fly? It will be about how much of that data am I willing to give up and share [with the enterprise],” he explained.

The Four Pillars of the Future

The rise of the S.M.A.C (Social, Mobile, Analytics and Cloud) technologies will be a key factor in determining the winners and losers in banking, the panelists agreed.

“Those technology pillars, the adoption of them is going to be critical… banks have to make bets on these four pillars,” Versace advised.

Banks are increasing their investments in those technologies, Versace shared, particularly in analytics.

“We used to say that transaction processing is core. Today, it’s more about analytics; it’s in the middle of everything,” he observed.

These technologies will help banks embed themselves in consumers everyday lives as consumer lifestyles continue to change, Chandan Sharma, Verizon’s global managing director of financial services, predicted. Banks need to optimize their digital channels, much like they’ve done with the branch to do that, he added.

“People don’t look forward to applying for a mortgage or a car loan, they look forward to getting a house or a car. I think we’re going to move away from a unique bank app towards [a model of] an service embedded in your experience. This will be a long journey, but the technologies are there,” he commented.

New Entrants Raising Expectations

Unfortunately for banks many of the new players in financial services already have greater expertise with some of these four technology “pillars” than banks have. For instance, Google has a core strength in data and analytics that it can bring to bear on its efforts in financial services. Leveraging that strength it can provide consumers with predictive modeling to help them plan their spending, saving and investments, U.S. Bank’s Badarinath said.

Banks also have an inherent advantage in customers trust, even after the financial crisis, and will have to leverage that to retain their customers and attract new ones, he added.

That will require faster innovation on the part of financial institutions, which will likely need to be achieved through partnerships that leverage other organizations strengths in certain areas, Badarinath predicted. And that innovation will need to be focused on one goal: providing the best customer experience.

“That’s going to be the only sustainable advantage: the better experience,” Badarinath shared.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

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Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
6/13/2014 | 6:30:10 PM
re: 3 Keys to the Bank of the Future
Thank you for your comments Abdul. I think the biggest barrier to the simplicity that you're describing, at least here in the U.S., is the aging legacy systems that many banks are still running on in the back end. Those systems make it difficult for banks to quickly roll out new capabilities that change the customer experience. And that opens up the opportunity for some of the new players in the market to gain traction with customers since they can innovate more quickly.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
6/13/2014 | 6:26:19 PM
re: 3 Keys to the Bank of the Future
Great point Kathy. Along the same lines, the point was also made during the discussion that customers don't think about banking in the same terms that bankers do. Customers don't think that they are interacting through a channel, they just think they're interacting with their bank. Truly understanding the customer is going to require abandoning some assumptions within the industry.
Abdul Jaludi
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Abdul Jaludi,
User Rank: Apprentice
6/13/2014 | 5:11:15 AM
re: 3 Keys to the Bank of the Future
First, I find it very interesting that Verizon, a company in an industry known for having low customer service ratings, is offering to help banks with customers and the future of banking.

Regarding security - Blaming customers for failing to implement a CIA level password management process is a cop-out. Technology is available for banks to properly protect customers. If you know customers aren't following security guidelines and do nothing about it then you are to blame!

Banks want to provide customers what analysts think the customers need, not what customers really want. Customers want simplicity. They want to be able to do things for themselves without having to call for help or go to a branch. Most of them don't mind applying for a mortgage. What they don't like is the mountain of paperwork, the bureaucracy and the amount of time it takes. If the IRS can go paperless and process a refund in a matter of days, there is absolutely no reason why banks can't do the same with a mortgage application. More than knowing what's in his account every minute of the day, a father would rather be able to send money to his children instantly in an emergency, without having to jump through hoops.

Many banks don't give customers what they really want because they can't. One of the global banks ran a contest several years ago looking for the best ideas for the future of banking. There were several great ideas selected by staff around the world as banking features they really wanted but haven't seen from any bank, and yet not one of those ideas has been brought to market.

It's much easier for banks to invest in new technology that tells customers what they can afford to buy than to get the enterprise back end developers and the digital folks to work closely together to simplify the banking experience.
KBurger
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KBurger,
User Rank: Strategist
6/12/2014 | 6:50:17 PM
re: 3 Keys to the Bank of the Future
Interesting discussion and 2 quotes jumped out to me: Badarinath: "We know the problems that we need to solve -- providing personalization
and contextual awareness in real-timeGǪ Whoever can provide that will
winGǥ; Sharma: "People donGt look forward to applying for a mortgage or a car loan, they look forward to getting a house or a car." This tells me that banking will be less about bank transactions and more about life style, life changes etc. -- when we talk about customer experience, we need to mean the customer's LIFE experience, not the banking experience. It'll be taking the ongoing shift from product focus to customer focus to a next level.
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