The Bankwatch

Tracking the consumer evolution of financial services

Building the Bank of the Future – 2

Last October 06, I tried what in retrospect was a rather poor attempt to consider the Bank of the Future, after considering the impacts of Web 2.0. It was poor, in the sense that I mentioned tools such as blogs, wiki’s and online communities, but I had no sense of the framework or how Banks could really use the tools to break out of their current transactional approach, and add the experiential side of the equation.

So, what if we looked out to 2020, and consider how consumers will engage with their Banking.

Latest hypothesis: customer centric can only be achieved if Banks recognise the reality that customers require more than one Bank.

Social Networking has gained enormous scale very quickly. There are two kinds:

Horizontal with broad appeal: MySpace, FaceBook
Vertical with common interest appeal: YourRunning, YourCycling

The game changing event came recently, when FaceBook announced F8.

Mass Distribution through the Social Graph Applications will gain distribution through what Zuckerberg called the “social graph,” the network of real connections through which people communicate and share information. Facebook and all social networks have two core elements: the social graph and the applications that run on it. Because of the efficient spreading of information through the social graph, existing Facebook applications, such as Photos, have grown to leaders in their categories.

A complicated statement from Zuckenberg that can be summarised; Applications will be aggregated by each consumer and the glue will be social networking.

Channel vs Product
During the advent of internet and internet banking in the mid 90’s discussions started on the right structure for a Bank. One had a Bank develop its own products and sell them through its proprietary channels. Another suggested a Bank of primarily channels that sold products from anywhere, their own, or from other FI’s.

It might be that the flaw there was that the assumption was generally that Banks would remain central to the financial services experience. Back then some speculated on portals becoming customer central, and online banking functions appearing there. This view did not get much credence at the time, but probably for the wrong reasons. There is no particular incentive to use one portal over another, except technical capability. Such capability is not something that generates long term loyalty.

Technical developments
One aspect of Web 2.0 which is still in infancy, and gets little airplay except within the technical community, is the web as an application. Microsofts discussion on Software as a Service (SaaS), Amazon S3, FaceBook F8, Google Apps, are all examples of web based applications, storage, and application capabilities that are run in a browser.

This will mean that consumers can design their own web, aggregated as they see fit. Consumers can pick and choose the applications they want and need, and access them as they see wish in a PC browser, or a mobile browser.

It also means, and this is key, that applications are componentised. Its mix and match. I might want Google Mail and calendar, Yahoo Flickr for photos, and Microsoft Live for blogging. The problem is that what is missing here is me, the user. I need a single view of my services. My identity needs to be under my control and allow me to use the same identity to pull all my services together into my view of the web. No-one has designed that yet. But F8 has potential, and others will appear.

The significance for Banks, is that online banking is the opposite of Software as a Service. Online Banking is proprietary to each Bank, and homogeneous. Individual elements of online banking, such as bill payment, or spending analysis, cannot be used anywhere except within each Banks online banking.

The missing element – is it “Social?”
What is missing is a compelling reason for a consumer to have their services seen in one place. That would require several things:

  • Trust
  • Identity management
  • an open platform built on open standards
  • a compelling experience

F8 has 1, 3 & 4. While work is proceeding, 2 is not anywhere in a useful and accepted standard yet, but 3 out of 4 is not a bad start.

The big change that Facebook shows is the ability to aggregate various functions, including (so far), communication, photo’s, video’s, product preferences, and a host of others being added daily. It works because participants can choose their contacts, choose what to show, and share information as they see fit. Social is not about teenagers chatting. Social is about shared and common interests providing benefit to the larger group beyond that which any one person can achieve – the Wisdom of Crowds. Communication/ messaging is one component in that view.

Amazon, Chowhound, TravelZoo and Wesabe show the power in shared opinions on services.

The service(s) that pulls together the right combination of these elements will be the winner(s) because thats the ploae consumers will want to pull their services into.

The Future Bank
The future Bank may not look like a Bank at all. What if we follow the contexts discussed, and imagine a situation like this – truly customer centric.

Consider these services alongside customers email, messaging, photos, feeds, etc.

Aggregated Banking services:

  • one log in
  • bill payment from Bank 1
  • Account history from Bank 1 and Bank 2
  • Investment history from Bank 2 & Bank 3
  • Social lending application
  • Social investment application
  • Generic debit card application (works for any open standard Bank)
  • Mortgage information and history Bank 4
  • Product comparison service from 35 Banks
  • Product application/ purchase service accessing 35 Banks

This scenario places the customer firmly in charge of his financial services. Banks must be following open technology standards, and their services must be componentised, including new services, eg, provide a feed into the product comparison service. Bank must also accept they are competing alongside social financial applications.

Relevance to Bankwatch:
What percentage of customers will seek to manage their banking this way? It embodies a radical shift from the big bank view we see today. Customers pick and choose the products they need, but aggregate them themselves.

To compete Banks would have to dis-aggregate, and open up their services to make themselves accessible in this mix and match environment.

Alternatively and/ or in addition, some Banks could provide those aggregated banking services including services from other Banks (Open Finance). Banks could become the aggregator.

Written by Colin Henderson

July 5, 2007 at 21:57

13 Responses

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  1. This is a brave attempt Colin

    But do you really want to imagine banks across a 20 year horizon? Will social networking and aggregation be at the same level that we see today? Don’t you think we will be having holographic thought managers following us around giving us realtime price comparison and investment advice on just about everything? Will banks be institutions the way are today or will they become some sort of a repository of our collective consciousness/needs, and run by someone like EFF, Visa or a mobile company using micropayments that we pay everytime we transact?


    July 5, 2007 at 22:43

  2. have you seen this ?

    a clear step in the “web 2.0” direction…


    July 6, 2007 at 12:25

  3. Two simple ways banks could implement some web 2.0 services right now is in their online customer documentation and in how they provide their rates and other product information.

    The online documentation never seems to improve. In a web 2.0 system, it would continue to improve (both in the amount of content and in the organization) as customers interact with the customer service.

    All rate and product feature info should be available in XML which would allow services to automatically gather data for rate/feature comparison databases.


    July 6, 2007 at 14:46

  4. Hi Nishad ….. thanks for stopping by and commenting. Who knows 20 years out, but at least we can think outside the box a little that way. The other thing is that 20 years isn’t actually that long …. 10 years since online banking began, and not much progress, from Banks.


    July 6, 2007 at 16:48

  5. Colin…spot on. I have been trying to get the bank that I work for to participate in Facebook’s F8 platform. That is build an application in Facebook and get some experience in working within a social network platform. Sadly, it has been a tough sell


    July 10, 2007 at 09:25

  6. @banker … don’t give up! Some banks will get it, and those that do first will gain. But I know its a hard sell.


    July 10, 2007 at 09:45

  7. i think your assessment of our current situation and projecting outward based on that is spot on. FI’s need to understand how to decouple their services and offer best-in-class vertical solutions. this is going to be a huge challenge, particularly as large banks are trying to fix their problem of silos, largely created by growth through acquisition.

    Great food for thought. Thanks!

    Ed Terpening

    July 11, 2007 at 10:37

  8. […] the world won’t need the reassurance of visiting physical branches anymore. Read more at The Bankwatch. Posted by icontract Filed in […]

  9. Very interesting. Pls send me relative bibliography, if possible.


    July 24, 2007 at 01:43

  10. Thanks boysdb2f8c7f951209d08d54ed7275a96719

    Hi boys!

    February 1, 2008 at 09:29

  11. Colin,

    I realize that your article is now a year and a half old, but there is still a great deal of relevance. I’ve been in the banking equipment business for nearly 20 year with several Internet startups mixed in for good measure. Branch construction is where our company thrives – supplying alarms, video, vaults, drive-up systems and ATMs. We’ve done a great deal of thinking about the future bank.

    I think there are many factors that impact the horizon of the banking industry, but the main driver is the simple fact that less and less people (less every year) physically enter the bank. We’re all banking online – paying bills, checking balances, transferring funds, etc. The “branch banking” aspect is what we call Retail Banking. The face of retail banking change dramatically in 20 years. This is, of course, bad for me unless we can recognize and help shape the future bank. Most young people today see their bank as adding zero value and view financial institutions as a provider of a commodity that they can get anywhere.

    The successful bank of the future will recognize that value must be added in some way that goes much deeper than the pitiful Internet banking and bill-pay applications deployed today (supplied in most part by the banks core processor). People don’t want to be held hostage by their bank, which is exactly what happens when you use their online bill pay. Protocols have been developed that allow FI’s to exchange account data in a common format, but for the most part they’ve got kicking and screaming. Once again, I blame the core processors. Most banks don’t own the software used to track their customers accounts – they outsource it to companies (called core processors) like Jack Henry, FiServ and Metavante. These companies have very little interest in allowing third party applications access to their data.

    Our research says that users want to own their account data in real time, and that they want the freedom to choose any bill pay or Internet banking software they want. For anyone under 30, these applications ARE the future bank. They are what defines the banking experience. It’s not the number of plasma’s in the lobby or the number of drive-up lanes under the canopy. It’s the applications we use to control our money.

    Scott Oppliger
    Oppliger Banking Systems

    Scott Oppliger

    October 7, 2008 at 17:36

  12. Scott … thank you for stopping by, and nothing I can add, other than I will subscribe to your blog. Its a sad state of affairs that an 18 month old post remains relevant in this supposed fast moving world.


    October 7, 2008 at 19:21

  13. What an interesting topic! Ive been asked by a bank to help them create ‘a more community feel’ among their customers, and i can see that your article is still very relevant. It would be great if we could use 1 login to access all our bank accounts and bank statements, but unfortunately banks still have a long way to go. I myself have a booklet to keep track of all my bank logins and details, not to mention all my other logins for every other site i use on a regular basis

    Fay Afshar

    November 6, 2008 at 19:28

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