Banking in the Information Age

Ah the good ole days, a time when the bank was a destination.

You dress in your Sunday best, straighten your tie and put on your hat, wanting to look your best before you head to the bank. You remember those days ..... right? Of course not, but they really did happen. Those days are over. Banking is undergoing a metamorphosis that according to Brett King in his book Bank 2.0 started with the mass consumer adoption of the Internet and has accelerated through the use of social media. The facts are clear, banking has changed and continues to evolve. 

Banking for the most part is no longer about relationships, it is about the cold hard facts. Your credit score, loan to income ratio, how long you have been employed. There was a time that bank managers new your name and made you a loan based on your reputation and relationship with the bank. Today loans decisions are automated using algorithms established by consultants and lending application vendors that have no other connection to you or the bank. So take off your tie, remove your hat and saddle up to the computer. 

Brett King talks about four phases of disruption that has and will occur in banking. Each of these phases are game changers and must be successfully addressed in order to meet the needs of credit union members and bank customers. 

Phase One - Arrival of the Internet and social media – control and choice

• 12 years ago, 60% of all transactions where conducted in a branch. Today, 95% of all transactions are done through an ATM, call center, Internet and mobile phone. In summary, 60% of transactions “back then” were done in-person compared with a stunning 5% today.

Phase Two - Arrival of smart devices and apps – anytime anywhere

• U.S. market has over 100% adoption rate of mobile phones.
• As of December 2011, smartphone users average 94 minutes a day using apps compared to 72 minutes using web browsers.
• 99% of mobile banking users view balances.
• 90% of mobile banking users view transactions.
• 10 billion dollars have been moved using mobile transfer/bill pay.
• More than 50% of iPhone users have used mobile banking within the last 30 days.
• 33% of mobile banking users monitor accounts daily, 80% weekly.  

Phase Three – Arrival of the mobile wallet – cardless and cashless

• Mobile payments on a broad scale including near-field contactless mobile wallets, micro-payments, convergence of the mobile phone with credit/debit cards.
• If only 50% of cash transactions are replaced by electronic stored value cards, debit cards and mobile wallets, the branch infrastructure becomes cost prohibitive unless it is re-purposed.
• In 2000, 59.5% retail payments were made by checks. In 2010 it was 4.3%.

Phase Four – Anyone is a bank – pervasive and ubiquitous

• Banking is no longer somewhere we go, but something we do.
• Banking services and products are delivered wherever and whenever a customer needs the utility of a financial transaction.
• Banks and credit unions do not have the ubiquitous coverage to deliver these products and services in the new world.
• New partnerships will be required.
• Non-traditional value chains will meet banking needs.
• This phase will produce a fundamental split between banking as distribution and banking as a product/manufacturing or credit granting capability.

You can choose to agree or disagree with Mr. King, but there is no denying that the arrival of the Internet and social media have had a huge impact on how we bank today. Smart phones and devices are enabling banking 24/7 anywhere anytime. 

The mobile wallet despite numerous attempts by some very well funded and visionary companies  has failed to gain much traction, especially in North America. I believe that the mobile wallet will achieve mass success in time. The developers to-date have just not found the right mix of ease of use, security and point of sale accommodation that solves a problem. They will.  

What does this mean to credit unions and community/mid-tier banks? It means adjust your thinking and business model or risk shutting the doors. Bank and credit union executives must not only think about how they intent to meet the challenges of change, but must also be ready to take concrete steps to address the changing banking environment. Time is not an ally. 

How you plan today to meet the changing expectations will have a huge impact on the long-term viability of your credit union or bank. We are approaching an important crossroad in the financial services market and how financial products and services are delivered. Are you prepared? The 18 to 35 age bracket, collectively known as Millennials, now make-up the largest age segment of our population, passing the baby boomers. If you don’t have a plan to meet their banking needs then your credit union’s or bank's future looks bleak, because there are plenty of traditional and emerging non-traditional financial service providers that will. As I write this blog, there are over 1,000 venture backed or seeking venture capital companies that are breaking into the payments and financial services space. What are Millennials searching for from their financial services providers? I can promise you it is not the status quo.  

My next blog I will discuss solutions.