Community Service with the Personal Touch

September 23, 2014
/   Insights

Question: Community branch, personal service, mobile banking—which is the odd one out? Answer: None. Otherwise, the industry is in trouble. For some time now, there have been discussions about the future of community banks...

Cause and Effect: If you build it, will they come?

July 23, 2014
/   Spotlight

Many financial institutions assume that digital banking is lucrative because the most valuable customers happen to bank online. While there is certainly a correlation between online bankers and higher profitability, quantitative evidence suggests that...

Fast Facts: Student Loans

January 22, 2013
/   Insights

The Financial Services Roundtable recently released another iteration of its Fast Facts, reliable, bullet-point research about issues facing the financial services industry. Topics span TARP, Dodd-Frank, insurance, lending, retirement savings and more.  Below are some updated Fast...

Intuit 2020 Report: The Future of Financial Services

April 11, 2011
/   Insights

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...

Small Business: Perception vs. Reality

November 21, 2012
/   Insights

In the most recent election cycle, like most others before it, the one sector of the economy that got the most attention was small business.  This is the future, we were told by every...

The Top 10 Trends in the Digital Banking Industry

December 18, 2013
/   Spotlight

2014 is rapidly approaching and as the year wraps, the Digital Insight team has pulled together the top 10 trends in the digital banking industry based on data and trends from studying financial institutions....

Mobile Banking Engagement: Data from Digital Insight

June 24, 2013
/   Spotlight

Intuit Financial Services has been conducting a comprehensive and ongoing study of financial institution customers. From these studies, the company has been able to provide a deeper view of banking customer behavior across several...

Financial Literacy Month: How are you celebrating?

March 22, 2013
/   Insights

With April approaching, it’s almost time to kick off Financial Literacy Month! Strongly supported by the United States Congress and the Financial Literacy and Education Commission, Financial Literacy Month aims to promote the importance...

One reason the technology industry is so unique is that it has—or more accurately, successful companies have—developed the art of self-cannibalization. It’s a neat trick, and everyone can learn from it.

As technology consumers, we’ve come to expect that every product will invariably get ‘better-faster-smaller-cheaper.’ For their part, most technology vendors know that if they don’t deliver advances at a lower cost, someone else will. As a result, companies build around a business model that routinely cuts into their own profit margins. It’s counter-intuitive yet vital.

It’s not necessarily a discipline that travels well across industries, although there are exceptions (anyone remember how much flat-screen TVs used to cost?). But elsewhere, the price tag for everything from cars to houses continues to rise. With technology, it almost always goes the other way.

The banking industry seems to be in the process of learning these lessons. At a number of industry events recently, leading lights from the world of financial services have gone public with the need to change some fundamental operating assumptions. At its heart is the vexing question the technology industry has long confronted: Can customers benefit only at the expense of the vendor?

This is the new normal, and everyone needs to change accordingly.

To be clear, the banking industry does face major challenges. While overall economic belt-tightening surely takes its toll, governmental pressure hasn’t helped either. For example, regulations that place curbs on debit card and overdraft fees have hit the industry hard; banks could collectively lose revenue in the $12 billion range.

But the problems are even more systemic. The new normal is worlds removed from the past—customers now routinely expect more from less, and they have more options than ever before. Even a question as basic as branch banking is now the source of constant headaches. On the retail side, this model has been the cornerstone of virtually all market-facing initiatives. But as customers do more online, this model has been thrown into turmoil. Today, every institution must conduct extensive cost-benefit analyses on which branches to close and which, if any, to open. Of course, this affects everything from staffing to capital expenditures on real estate, which in turn affects the bottom line.

In the same vein, the plethora of mobile apps available from every financial institution means that everyday processes have been completely transformed. For example, it’s estimated that, rather than walking up to a teller’s window or even stopping by the ATM, customers now deposit checks via their mobile devices 10,000 times a day. And if that’s the case now, imagine what the numbers will be in five years. For the record, as related by William S. Demchak, President of the PNC Financial Services Group, this change in user practices customer saves $3.88 per transaction. That’s money the bank gets to keep.

So new technologies and changing user habits benefit the customer and benefit the bank—everyone’s happy, right? Sure, but this is why additional and alternative revenue models are so important. Key question: if customers no longer have to go to the bank or even an ATM to deposit a check, would they be willing to pay a very small fee for the convenience?

In other words, does technology enable only savings or additional revenue?

This is why the lessons to be learned from the technology industry are so important. It has weaned the market to want new products—the latest smartphones, software upgrades, cool accessories—regardless of the validity of the model they already have. There are plenty of Apple iPhone 4s to be had for very little money, but everyone wants the iPhone 5. And that’s just one reason why Apple recently had the highest market cap of any U.S. company in history (though it’s fluctuated since).

Not every company can be the paragon of innovation that Apple is, of course, and financial services is a very different industry. But as we’ve covered on this blog before, the former has benefited greatly from disruption and innovation, leading to an endless supply of emerging market leaders, while banking seems to have the same players and same business models year after year.

Banking’s new normal brings not just disruption but opportunity. There are new markets, new capabilities, new technologies and new customers. All of that should surely add up to some new revenue.

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James W. Gabberty

Gabberty is a professor of information systems at Pace University in New York City. An alumnus of the Massachusetts Institute of Technology and New York University Polytechnic Institute, he has served as an expert witness in telecommunication and information security at the federal and state levels and holds numerous certifications from SANS & ISACA.

Marisa Mann

Marisa Mann brings over 15 years of experience in consulting and financial services industries to the Solstice team, working on large scale enterprise initiatives across many technologies, including specializing in the digital space – Internet and mobile. Mann is passionate about mobile and the endless possibilities for the enterprise, delivering business value through strong brand recognition and driving to excellence in the consumer experience. Prior to Solstice, Mann worked at JP Morgan Chase, Diamond Management and Technology Consultants, Washington Mutual, Inc, and Accenture.

Zachary Ehrlich

25-year-old writer, and as a native San Franciscan, I am unreasonably loyal to Bank of America, if only for their superhero-like origin story, involving the 1906 earthquake and Italian fruit vendors.

Brad Strothkamp

http://www.forrester.com/rb/analyst/brad_strothkamp