Peering Into The Future

Online banking carries with it the same question that accompanies every aspect of human activity moving online: Is it simply a more convenient way to do what we’ve always done, or is something new, particularly in the sense that we can do more, and therefore will do more?

There’s obviously no simple answer to this—the very act implies a level of customization that rules out any all-purpose conclusion. But if we still don’t know everything, what we do know now that we didn’t know even a couple of years ago?

A recent report from Javelin Strategy & Research has some answers, and they’re not particularly pleasant. Here’s the gist: Too many financial institutions still view online banking as the completion of a circle—consumers and (and maybe businesses as well conducting transactions, only doing it faster and more easily than by going to the bank. Javelin emphasizes that this “approach to online banking and bill pay has reached saturation because it is outmoded and unappealing in an era of customer-controlled interactive finance.” And that’s not all. Instead of new, technology-driven offerings drawing more business, Javelin theorizes, it might be even be a handicap: “The banking industry’s stale approach to online banking and bill pay leaves FIs particularly vulnerable to losing the 11% of consumers who are likely to switch primary FIs this year.”

The fundamental problem is the role of the bank in the equation—is it now simply a facilitator, the same way a basic piece of technology might be, or does it have more to offer?

Looking back, it’s easy to see that this is a transformation that’s been a long time coming. The availability of personal finance software two decades ago signaled a major shift in consumer behavior; the ability to collate huge amounts of information with ease and speed enabled a level of unprecedented control over money matters. The rise of online trading was another milestone—the boom years of the dot-com era surely had a lot to do with the voluminous buying and selling of the late ’90s, but instant access to business data was also responsible for much of it. Even the simple act of online bill paying was, in its own way, revolutionary.

In this context, it’s easy to understand that in the grand scheme of things, online banking in general and mobile banking in particular are still in their infancy. But in a few years (there’s a reason this blog is called Banking2020), everything we do now will seem antiquated. That still leaves the question of the banking industry’s role in this evolution.

For example, think of how consumers prefer to pay their bills. While FIs in general have a share of this market, they could surely get more. However, research shows that many consumers still indicate a preference for bill-paying services rather than their primary financial institution. What can the FIs do to bring the back the business that many think is rightfully theirs?

This may be a small issue, but it offers a perspective on a larger one. Throughout its history, the banking industry has thrived on certain core advantages—trust and credibility built over years of operation, the convenience afforded by a real-world presence and easy access, the stability that comes from size and government-backed insurance. But as with so many industries, the past couple of decades have brought about more changes than the dozen decades that came before. In the era of mobile banking, these advantages are still there, but they don’t mean as much as they used to.

The Javelin report urges FIs to “raise their aspirations beyond being an efficient pipeline for paying bills to instead become a place where customers gain control, oversight and insight into their bills, spending, cash flow and overall finances.” That said, there’s no magic bullet here—every institution will have to figure for itself what this change entails.

To be sure, this will require a fundamental transformation in everything from business philosophy to operating practices. Those that resist the change have a problem. However, those that take on the challenge early, and manage the change well, will not only survive but thrive.

Banking Industry Leaders Discuss Findings of Intuit Financial Management Survey

*This blog was originally posted on Bank Marketing Strategy by Jim Marous. Jim is a marketing services leader focused on building strategic solutions for the financial services industry. You can follow him on Twitter @JimMarous or connect on LinkedIn.

In conjunction with the release of Intuit Financial Services’ 4th Annual Financial Management Survey, Banking.com hosted a Twitter Town Hall yesterday, bringing together financial industry leaders to discuss loyalty and channel migration as well as some of the challenges and opportunities facing the banking industry. The following is a recap of the very robust one hour dialogue. (The complete transcript can be found using #IFSsurvey on Twitter)

The Town Hall discussion began around the issue of customer loyalty and the finding that many consumers thought their financial provider was not ‘in touch’ with their needs. Given the events of the past week, where many large banks reversed decisions around the implementation of fees due to highly vocal negative sentiment amplified by social media and credit union trade group support, most participants believed that banks are not leveraging current insight and technology to make better decisions and provide value added service.

Tobin Lee (@Tobin_Lee), Intuit Financial Services spokesperson stated, “It is time for a banker mindset shift; cultivating deeper relationships, more meaningful engagement and stronger advocacy for growth”. Campbell Edlund from EMI (@EMI_mktg4sales) added, “These findings provide a very strong argument for a communications plan around the customer lifecycle”.


The already robust dialogue really took off as the discussion moved to the acceptance and utilization of banking channels (especially mobile and tablet banking). Bradley Leimer (@leimer) from Mechanics Bank in the San Francisco Bay area believed mobile strategy will be the key to future engagement due to the portability and ‘always on’ nature of the device. He also believed that the correlation between mobile banking and smartphone use (41% of respondents owned a smartphone) could indicate a lower engagement with financial technology in general for non-smartphone users.

Edlund added that while there is currently a higher penetration of smartphones than tablets, tablets can not be ignored by banks since Oracle found that tablet ownership is expected to increase significantly in the next year. She also warned that we need to be cautious not to get ahead of the acceptance curve. . . “we always underestimate inertia”. Brett King (@brettking), author of Bank 2.0 and founder of Movenbank went a step further stating that within 3 years all bank websites will need to be built for tablets first. He also believed that branches will continue to diminish in presence and utility (according to the study, 27% of respondents still visit their branch once a month in addition to ATM visits).

Mark Zmarzly (@BankMarketing) did not believe bricks and mortar would completely go away, but definitely felt the relevance of branches will change. “It’s easy to say branches will go away, but is that realistic? They have to evolve, but customers will never let them become 100% irrelevant.” King responded that with the drop in branch transactions, the economics of the branch are not working. I (@jimmarous) illustrated the model of Boeing Employees Credit Union in Seattle, where only 2 of the 40 branch network have tellers, while the installation of multiple ATMs at offices and around the city have an average of 10,000+ transactions each. 94% of the transactions at BECU are done electronically, according to Howie Wu (@howie_wu) from the credit union.

“Relevance is the key to banking for tomorrow,” stated King. “By 2015, mobile will be the #1 day-to-day channel, OLB #2 with the branch network being #5. The challenge for mobile and online will be developing great customer journeys”. King doesn’t believe these journeys exist today and believes the goal should be to have banking so pervasive that it is not tied to a branch, device or website, but is everywhere customers are.

Edlund pointed to the retail industry as a forerunner for what we will see in financial services. “Social and tablets will change the landscape in banking as they have in retailing”, Edlund stated. (During the Twitter Town Hall, there was even a discussion of the integration of TV as a channel for banking). Representatives from EMI in Boston (EMI_mktg4banks) emphasized that we will continue to see a blurring of all channels with social media providing some of the glue for enhanced communication. Gamification and location-based rewards were also seen as a key elements of engagement by Leimer and Edlund.

A conundrum was discussed with regard to the needs of small businesses where checks still prevail and the need for branches. King believed that we will see significant attention paid to mobile payments for businesses in the next couple years, while I added that tablet apps for business are also being developed to respond to the needs of the business community. NFC was also seen as a game changer with regard to the need for branches for small businesses. Bob Williams (@bob_williams) from Harland Clarke believed that, while check usage is definitely dropping, there are much greater efficiencies today than in the past with RDC and other electronic tools.

It was clear from the Intuit research that was just released, the Bank 2020 research released in April, and the discussion during the Twitter Town Hall today that there is significant disruption in the banking industry with regards to channel support and device utilization. The consumer movement to new banking channels is mirroring the movement to more sophisticated devices such as smartphones and tablets. Many consumers are NOT choosing one device or channel over another, but are using multiple devices depending on their personal needs.

Consumer desire for an integrated banking experience without friction will need to be supported by banking organizations in the future. Distribution networks (whether tangible or intangible) will need to support an expanding array of capabilities that may include integration within retail or social sites as opposed to standing alone.

As I stated to the participants of the Twitter Town Hall at the end of today’s discussion, “If banks are not prepared for the channel migration that is already underway, they may experience the impact of ‘Bank Transfer Decade’”.

Note: A summary of the findings of Intuit Financial Services’ 4th Annual Financial Management Survey and recently released related research is available in my previous Bank Marketing Strategy blog post.

If you weren’t able to join us, what are your thoughts around the impact of channel shift away from the branches and towards other media? Will we see the elimination of branches completely? Will another device or technology unseat smartphones and tablets?

Leave us a comment below, or Tweet at the author @JimMarous.

Consumers Are Increasingly Using Multiple Devices to Support Banking Needs

*This blog was originally posted on Bank Marketing Strategy by Jim Marous. Jim is a marketing services leader focused on building strategic solutions for the financial services industry. You can follow him on Twitter @JimMarous or connect on LinkedIn.

Traditional bricks and mortar facilities are being visited less as the use and importance of online and mobile devices continues to increase according to Intuit Financial Services’ 4th Annual Financial Management Survey released yesterday. According to the survey, while a large percentage of consumers still manage their finances offline (45%), the percentage of consumers using online services from their financial institution has continued to increase annually; increasing 11% since 2009 to 38% in 2011.

The main reason consumers said that they don’t visit their bank branch as often as they used to is because they are visiting their FI’s website and use their online banking tools (76%). These online banking tools are so important that one-third (33%) said they would switch their relationship to another institution if there were better online tools offered elsewhere.

The importance of online tools was reinforced by Brett King, author of the bestseller Bank 2.0 and founder of direct mobile banking start-up Movenbank at this year’s BAI Retail Delivery Conference in Chicago. “Banking is quickly changing from a place you go to something you do everyday,” stated King. He provided a chart from the American Bankers Association and Nielsen Research that illustrated the channel migration occurring today and projected in the future.

 

Source: ABA, Nielsen Research

It appears that the growth of mobile banking is only limited by the growth of ownership of a smartphone according to the Intuit study. Forty-one percent of all respondents indicated ownership of a smartphone, 23% said they used a mobile banking solution, and an additional 17% intend to try mobile banking in 2012. The primary reason consumers indicated that they do not use mobile banking was because they do not own a smartphone (25%) followed by the fact that they prefer to bank online (22%).

These findings are similar to the findings last week from comScore that drew a correlation between mobile banking and smartphone adoption. “The investments in mobile made by financial service institutions, along with the continued growth in smartphone adoption, have had a positive effect on the use of mobile financial services,” states Sarah Lenart comScore vice president for marketing solutions.

As expected, the adoption rate of mobile banking is demographically skewed. Young adults (aged 18-32) are three times more likely to carry their bank in their pocket, compared to Gen X, baby boomers or seniors. And while 65% of mobile banking users access their accounts through the internet/Web, 28% use a mobile application. “Regardless of age, each customer expects to connect to their financial institution in their own way,” said CeCe Morken, president and general manager of Intuit Financial Services.

In another Intuit study of more than 50,000 mobile banking customers, it was found that consumers tend to interact with their financial institution 45% more often if they use a combination of both mobile and online tools. These customer also tended to have larger relationships and a better retention rate.

“While we anticipate that there will be some mobile-only consumers, most people will be using multiple devices on any given day in the future,” said Intuit spokesperson Tobin Lee in a conversation yesterday. “Financial institutions must be prepared to deliver financial information and insights across multiple devices (PC, phone, tablet), optimized to the merits of each device it they are going to meet customer’s needs. If they don’t, someone else will . . . probably displacing a bank’s relationship.”

The desire for ‘anywhere app access’ is also supported by a just released study from Oracle entitled, Opportunity Calling: The Future of Mobile Communications – Part Two which found that while there was a stronger preference to use a tablet for mobile banking (34%) compared to a mobile phone (11%), the majority of consumers (55%) would prefer to use both devices. This is important to prepare for since the same study found that almost 30% of the U.S. mobile customers that do not already have a tablet device plan to purchase one in the next 12 months. These findings were also reinforced in last April’s, Intuit 2020 Report: The Future of Financial Services.

As customers continue to use multiple channels to connect with their bank, it will be increasingly important to have a 360-degree view of customer device touch points and to leverage the advantages of each device to provide an optimum customer experience. The current anxiety over online and mobile security needs to be addressed at the same time as innovations such as near field communication (NFC) and location based services get integrated into online and mobile solutions. Bankers will need to get ahead of the payments innovation curve and prepare for major distribution channel disruption. In short, banks will need to do a paradigm shift by becoming nimble at a time of increased regulation and consumer scrutiny.

Are today’s banks prepared for the massive changes ahead? Or will new online organizations such as Ally, BankSimple, Movenbank and others steal the hearts and wallets of Gen Y and device savvy consumers?

Leave us a comment below, or Tweet at the author @JimMarous.

What We’re Reading: Banks & Hurricane Irene, Mobile Security and the ‘She-Conomy’

Below are interesting stories the Banking.com staff has been reading over the past week. What have you been reading? Let us know in the comments section below or Tweet @bankingdotcom.

  • Amex Expands Digital Payment Product Line

American Banker

American Express Co., which has been developing prepaid and digital payment options to expand its audience, has added yet another product: an online-only gift card. The non-reloadable eGift Card is intended to be used solely online – the New York company does not offer a plastic card to go with it. Amex launched a more flexible digital payment product in March called Serve, which can be paired with a plastic card for point of sale payments. Serve is meant to attract a broader audience than Amex reaches with its credit cards, which are typically marketed as high-end products. In June, Amex began offering a low-fee prepaid card to further broaden its appeal to the masses.

Read more

  • U.S. Bank Expands Mobile Alerts to ATMs, Debit Cards

American Banker

U.S. Bank, which was one of the first banks to offer mobile fraud alerts to credit card customers three years ago, has expanded its alert program to ATM and debit card holders. These alerts are part of a larger effort on the bank’s part to provide customers with near-real-time financial tracking.”This streamlines a number of processes for the consumer,” says Dominic Venturo, chief innovation officer, U.S. Bank, adding that the service can be useful in cases such as expense management and fraud mitigation.”It’s in a broad context of making the mobile device a place to go to get information about an account,” he says.

Read more

  • Silicon Valley Bank Debuts Global Payment Hub

Bank Technology News

Large banks such as Bank of America and Wells Fargo have been working for years to build global payment “hubs”: online banking platforms their corporate customers can use to send and accept payments of different types and in foreign currencies to their customers and partners around the world. It’s an exceedingly difficult task; even offering one online banking interface for the many accounts a corporate customer holds is not simple; having disparate payment pipelines all feed into that online banking interface with the ability to execute transactions is a major IT challenge. Santa Clara-based, $17.5 billion-assets Silicon Valley Bank may be beating such larger competitors to the punch.

Read more

  • Over Half of Middle Market Companies Are Willing to Refer Their Primary Bank

Barlow Research

Referrals are an important way to draw in new customers. In Barlow’s Middle Market Banking study, respondents are asked whether or not they would refer their primary bank to another company with similar needs. A satisfying business banking relationship is essential to a bank’s survival in these economic times and winning a customer’s referral can further cement the loyalty of that customer to the bank. It only takes one dissatisfied customer and business will be taken elsewhere.

Read more

  • Here Comes the ‘She-Conomy’

Credit Union Magazine

Over the next decade, women—particularly those in emerging markets—will become a dominant force worldwide, assuming increased leadership responsibilities across business, government, and education. And due to urban migration, improved access to education, mobile technologies, and the availability of micro credit, nearly one billion women will enter the workforce or start new businesses by 2020.This move to the “she-conomy” is one of 20 trends that will shape the next decade, according to the Intuit 2020 Report, prepared by Emergent Research in partnership with Intuit. In addition, women from generation Y, across race and ethnic lines, will dominate both college graduation rates and professional workplace entry, expanding their role in management and in professions such as law, business, and medicine, according to the report.

Read more

  • Banking in a Mobile Society – Less Talk, More Action

Credit Union Times

For credit unions, great member service once depended on the availability of live, empowered and intelligent people who could answer critical questions and nurture personal relationships. But, making time for chit-chat is not a priority for Generation Y, nor even Gen X or the Boomers. Today’s technology-savvy consumers want a little less conversation and a lot more action. For them, speed and self-service through tools like mobile banking are key to achieving satisfaction.

Read more

  • Acting as a Trusted Partner

Javelin Strategy & Research Blog

Helping out in the face of disaster is a natural. Javelin’s  Beth Robertson was glad to hear from one of her banks this week (via e-mail) to see that it was being proactive in reaching out to customers. With all the bad press that banks have had recently, the recent East coast hurricane offered a chance for this bank (and others) to reach out as a partner and friend. The bank in this case was Chase. She uses another bank for online banking and bill pay, but did not hear anything from it.

Read more

  • Banks give victims of Irene a break ; Some are waiving fees and offering low-cost loans

USA Today

As Hurricane Irene has left East Coast residents with rushing water, power outages and mounting bills, some banks are offering financial help. Banks and credit unions are temporarily waiving overdraft fees, letting customers skip payments and offering low-cost loans to relieve some of the financial burden on hurricane victims. “When we went through Hurricane Katrina, we learned a lot,” says Ryan McInerney, CEO for JPMorgan Chase’s consumer banking. “What we created was a playbook that we can use in natural disasters like this.”

Read more

Gen Y: The Digital Generation

The Intuit 2020 Report, The Future of Financial Services, predicts that in the next 10 years Gen Y will transition from young carefree spenders to an important part of the financial services customer segment. By 2020, a majority of this group will be in their early to mid-thirties and learning to manage money as adults, with families and mortgages.

Gen Y, also known as the digital generation, is a tech-savvy group of individuals who were brought up using mobile technologies, Facebook and email. Javelin Strategy & Research recently released a report, Gen Y: How to Engage and Service the New Mobile Generation, which outlines how to reach the mobile generation as financial members and customers.

Some of the key findings include:

  • 4 out of 5 Gen Y consumers already have a personal and/or joint checking account, and 38 percent of them are very satisfied with their current banking relationship.
  • A Gen Y consumer is nearly twice as likely as an everyday consumer to be a mobile banker, and 31 percent of Gen Y consumers review account balances more than eight times a month via mobile banking.
  • Gen Y has high expectations from PFM tools, and 23 percent want PFM to categorize their spending.
  • For mobile PFM users: 46 percent want to make comparisons when shopping, and 33 percent use it to track finances on a daily basis.

For more Gen Y statistics, Credit Union Times has a slideshow here.

Are your Gen Y customers and members using mobile solutions more frequently than Gen X and Baby Boomers? Do you see a high demand in PFM functionality from Gen Y’ers? Let us know in the comments section below.

Risk Shift Creates Opportunities for FIs

Over the past few decades, economic, political and social changes have resulted in the shift of risk management responsibilities from institutions to individuals, a trend we are forecasting to become more acute over the next 10 years.

The biggest driver of this shift is the changing nature of work. Lifetime employment – and the retirement, health care and career planning benefits that once came with it – are no longer the norm. For example, according to the Bureau of Labor Statistics, only 28 percent of Americans, and less than 20 percent of Americans working in private industry, participate in a traditional defined benefit pension plan.

In addition to the decline in corporate benefits, support services from federal, state and local governments are also being reduced due to fiscal problems. The current policy debates in Washington and state capitols are not about whether or not to cut services, but instead how much to cut.

These shifts are resulting in an increased burden of responsibility for both individuals and families in all aspects of personal financial management, including planning and decision making in the areas of education, retirement planning, health care and elder care.

While this shift in responsibility enhances individual choice and can be empowering, it also forces individuals and families to shoulder the burden of managing the risks and complexities of their financial lives. This is a time consuming task requiring discipline, skill and specialized knowledge.

Driven by the risk shift, individuals and families will turn to products, services and trusted advisors to help them anticipate and understand the implications of their financial decisions. Financial institutions are well positioned to provide individuals and families with their increasingly complex financial planning and risk management needs.

While all adults are facing the risk shift, baby boomers (born 1946 – 1964) in particular have a very complex set of planning needs. They are reaching traditional retirement age, but many are also financing their kids’ education and dealing with aging parents.  Gen Y (born 1980 to 2000) will also need help as they move from the relatively carefree spending days of the 20s to the more careful financial management years of middle-age.

The risk shift is a powerful trend that impacts almost everyone. It also creates new fee-based service and product opportunities for financial institutions that can effectively and efficiently help individuals and families navigate their increasingly complex financial lives.

For more information on this topic, you can view the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry over the next decade.

 

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.

 

 

 

 

Infographic: The Future of Financial Services

Intuit 2020 Report: The Future of Financial Services

Today, Intuit released the latest edition of the Intuit 2020 report, Intuit 2020 Report: The Future of Financial Services, which identifies and examines four key trend areas that will  transform the financial services industry over the next decade.  These are:

1.  A New Playing Field for Financial Services: Regulatory pressures will increase and competition will grow from both traditional competitors and new entrants. These forces will lead financial institutions to explore new business models, collaboration and partnerships, and increased consolidation.

2.  Shifting Segments, Changing Markets: Consumer demand for financial services will increase across all age groups. The two largest contingents – aging baby boomers and GenYers – will demonstrate particularly acute shifts in their needs and types of products and services they purchase.

Competition to serve mid-market businesses will intensify, slimming financial institution margins.  However, the overall small business sector will continue expanding, with the total number of small and personal businesses increasing by more than 7 million over the next decade. Most of this growth will come from micro and personal businesses (less than $1 million in revenue) creating opportunities for financial institutions that can serve these firms efficiently.

3.  The New Customer Connection: Technology’s role in the customer experience will take center stage. With increased cost pressures and a growing demand for flexibility, accessibility and personalization, financial services organizations will accelerate their use of technology to meet customer needs.

Cloud computing platforms and applications will combine with advanced analytical tools, ever-larger data sets, and social and mobile computing to reshape the way the financial services industry designs and delivers value-added products and services to customers.

4.  Reputation and Relationships Rule: Institutions that use technology to serve up useful customer insights will win. Over the next decade, the financial service industry will shift its focus from transactions to customized value-added services.

Through a combination of both virtual and brick-and-mortar branches, banks will develop stronger, more personal relationships with businesses and consumers, helping them manage risk, build wealth, plan retirement and anticipate health care expenses.

Intuit 2020: The Future of Financial Services builds on the data, trends and forecasts in the Intuit 2020 report, which identifies 20 emerging trends and shifts that will shape business and society over the next decade.

As part of the research process, Intuit’s Financial Services division and Emergent Research conducted a series of interviews and forecast workshops with financial services professionals, academics, and industry analysts. These sessions helped identify the important trends and implications that will impact financial services over the next 10 years.

Click here to download the report.

About Steve King:  Steve is a Partner at Emergent Research. His current research and consulting is focused on economic decentralization, the growth of small business and the future of work and workplaces. Steve has extensive consulting, marketing and general management experience with both large and small companies.  Steve is a senior fellow and board member at the Society For New Communications Research, a research affiliate at the Future of Work and an advisory board member at Pond Ventures.

About Carolyn Ockels:  Carolyn is the Managing Partner at Emergent Research.  Her current research and consulting is focused on economic decentralization, the growth of small business and Gen Y.  Carolyn has extensive consulting experience, and prior to Emergent Research managed Cambridge Energy Research’s Asian energy consulting business, led market research in Japan for RCM Capital Managment, and held a variety of domestic and international consulting positions with the economic forecasting and planning consulting firm Data Resources, Inc.

A Look Into the Intuit 2020 Report: The Future of Financial Services

This report provides a view of the significant demographic, economic, social and technology trends and forces that will affect the financial services industry over the next decade.

The starting point for this forecast is the Intuit 2020 Report, released in October 2010, which identified 20 emerging trends and shifts that will shape business and society over the next decade.

To prepare this follow-up report, Intuit Financial Services and Emergent Research conducted a series of forecast workshops, exercises, and interviews with accounting professionals, academics, and industry analysts. These sessions identified the important trends and implications that will affect the financial services industry.

Check back on Monday, April 11th for more details and follow us @bankingdotcom and @financeworks.