How Many Mobile Wallets Are Too Many?


mobile-wallet-12-22-15.pngFor many years, the mobile wallet landscape was filled with small niche offerings that tested some important ideas, but never really gained much national traction. However, over the past 15 months, four major players have introduced their wallets and the tipping point for widespread mobile wallet adoption appears close. Apple Pay, Android Pay, Samsung Pay and Chase Pay have extended the technology and functionality of those early wallets and have started to close the gap on a wallet that would deliver value to the trifecta of stakeholders: consumers, merchants and the wallet providers.

Should every bank be preparing to support one or more of the existing mobile wallets? CG sees five prerequisites for widespread adoption of mobile wallets.

  1. Better security. Consumers have well documented doubts about the security of mobile payments versus more traditional payment methods. Mobile wallets must implement improved authentication processes (e.g., biometrics, account number tokenization) to allay these fears as the price of admission.
  2. More large-scale mobile wallet providers. The recent addition of providers (including Chase Pay) offers the market a wide range of mobile wallet options and a key move toward critical mass for merchant acceptance.
  3. More smartphones. By 2020, there will be 6.1 billion smartphones in the global market (most with biometric security features). That’s a stark difference from the 2.6 billion smartphones in today’s market—most of which do not have biometric capabilities.
  4. More merchant acceptance of contactless payments. Many of the new terminals that merchants are implementing support both contactless payments and the EMV chip.
  5. A good reason to keep using the mobile wallet. The new wallets either have or are planning to implement rewards programs into their product, which will give consumers a compelling reason to habitually use their mobile wallets.

Each of these prerequisites to mass adoption is trending in the right direction, which means every bank should be working to support one or more of the large mobile wallets as part of their future strategy.

Many banks seem content to support the provisioning of their card accounts into Apple, Android and Samsung. The announcement of Chase Pay at the payments-focused conference Money20/20 in Las Vegas in October sent shock waves through the 10,000 conference participants. If Chase felt it needed its own proprietary wallet, will other large banks follow?

The decision to invest in a proprietary wallet should be based on three key elements in each bank’s strategic direction.

  1. Does the bank have a customer profile that wants a mobile wallet offering and would that group prefer a proprietary wallet over a large national wallet like Apple or Android?
  2. Does the bank have the internal resources or external partnerships required to develop and sustain a wallet in a very dynamic environment? (The wallet of 2020 is likely to be very different from the wallet of 2016).
  3. What are the banks’ competitors inclined to do and how will their actions affect the banks’ customers?

Each bank must consider its own strategic differentiation when determining whether to build or borrow. What distinguishes it in the marketplace and how might that change in the future? What will draw new customers to the bank in the next five or ten years?

One feasible strategy is to let others pave the way in developing new products and then figure out when and how to offer them to your own customers. It’s an approach that can minimize risk without necessarily jeopardizing the reward.

The bottom line is, mobile wallets are coming. (We really mean it this time.) Most banks must allow their card accounts to be provisioned into at least some of them. Some banks (but not most) should offer a proprietary wallet, but only if it fits into their larger strategy. Add the wallet to fit your strategy; don’t change your strategy to fit the wallet. Focus on your strategic differentiator and ensure that most of your future effort and investment are focused on the differentiator and not spread across all the possible initiatives in which you could invest (including wallets).

The Big Banks’ Latest Trends in Mobile Banking


mobile-banking-9-10-15.pngBig banks have been committed to working out their mobile strategies over the past two years and are now unveiling the dramatic results they’ve achieved. According to AlixPartners, big banks controlled 67 percent of the primary banking relationships by the second quarter of 2014, while credit unions had 14 percent. Mid-size banks controlled 11 percent, community banks 4 percent and all others at 4 percent. Plus, 78 percent of people who switched accounts went to a big bank, while only 8 percent went to a credit union and the remaining 14 percent to a community bank, mid-size bank or other. It’s an even bigger gap with young people—82 percent of these switchers went to a big bank, while only 7 percent switched to a credit union, and 11 percent to a community bank, mid-size bank or other. The study also shows that in 2014, 65 percent of the people who switched accounts said that mobile played a role in their decision to switch.

Chase Bank, for example, is one of the biggest retail banks in the country and has seen massive gains in retention and customer engagement, along with a steady loss in attrition and branch expense. Over a four-year period, the number of products and services per household has gone up, and attrition rates have fallen to an astonishing 9 percent this year. According to Chase, mobile app users have increased by 20 percent in the past year, mobile QuickDeposit by 25 percent, mobile QuickPay by 80 percent and mobile bill pay by 30 percent.

Not only are these great things for retention, but they are also business strategies that are saving the bank money. Today at Chase, 10 percent of all deposits are made via mobile. Over a seven-year period, teller transactions have been cut in half, driving a tremendous cost reduction. Since 2010, Chase has cut out over $3 billion in costs.

For the past two years, Chase, as well as other top big banks, including Bank of America, Citi, Wells Fargo and U.S. Bank, have been offering the top five mobile services—mobile banking, mobile bill pay, mobile deposits, ATM/branch locator and P2P payments. The list is growing, as three new services have recently become a standard for all of these banks—Apple Pay, pre-login balances and mobile-friendly websites.

Apple Pay
By January of 2015, 300 financial institutions had been approved for Apple Pay, and in April, that number jumped to 2,500. Today there are about 375 active financial institutions using Apple Pay, 250 of which are credit unions.

Mobile payments have a slow usage growth though—only 0.5 percent of people in 2014 with near-field communication (NFC) equipped phones were doing mobile payments regularly, meaning they did at least one mobile transaction per month. According to Deloitte, that number is forecasted to jump to 5 percent by the end of 2015.

Pre-login Balances
All five of the top big banks now offer the ability to check your balance without logging into mobile banking, and it’s a feature that is proving to be one more way to drive engagement and remove a barrier to mobile usage. Customers using Citi’s Snapshot, for example, sign in to mobile banking three times as often as those who don’t.

Mobile-Friendly Websites
Google announced in May of this year that there are now more Google searches on mobile than there are on desktop computers, a trend that greatly influences how people are making decisions to buy products.

In about six out of 10 cases, when people are shopping for bank products, they’re doing online comparisons, meaning banks now have to anticipate the growing percentage of website traffic coming from mobile. Currently, about 15% of banks’ website traffic is coming from mobile, which will only continue to grow.

Not only did Google announce the state of mobile search, but also starting in April, they’ve put a requirement in place that if your website is not mobile friendly, they’ll move the placement down on Google’s search results.

Of the top 10 banks, every single one has a mobile friendly website. Four out of the top 10 credit unions have passed the mobile friendly test.

As customers are flocking to digital services, the big banks are growing stronger. Credit unions and community banks can stay competitive, though, by continuously training their team to have a mobile mission and being disciplined enough to innovate constantly.

How Technology is Redefining the Customer Relationship


customer-relationship-7-30-15.pngYou can visit a lot of banks and never see one that looks like this.

Located in Portland, Oregon’s trendy Pearl District, Simple is one of the leading firms at the intersection of banking and technology.

The design is consciously industrial. Bike racks crowd every nook and cranny. There’s a piano. A sunroom. A large meeting room stocked with healthy snacks. The atmosphere is casual, yet charged with energy. The employees wear t-shirts and jeans, roughly a third of them work at standing desks, and you can count the number of non-millennials on one hand.

It’s too early to predict how the fintech revolution will play out, but there’s no doubt that this is the front lines of finance. And as in any commercial battle, it’s first and foremost about capturing the hearts and minds of consumers.

A growing cast of companies has emerged to meet millennials where finance and technology converge.

Simple, which teamed up with Spanish banking giant Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) at the beginning of 2014, offers a personal checking account accessible online and through its mobile app that’s designed to help people save. It does so by giving customers the ability to create compartmentalized savings goals.

Let’s say you need $50,000 for a down payment on a house in 24 months. By entering this goal into your Simple account, it will automatically deduct $68.50 ($50,000 divided by 730 days) each day from your “Safe to Spend” figure, which is essentially a person’s checking account balance less previously earmarked money.

Another technology-driven financial firm, Moven, offers a similar service. Described as the “debit account that tracks your money for you,” its home screen shows how much a person has spent during a month compared to previous months. If you typically spend $2,000 by the middle of a month, but are currently at $2,250, Moven’s app lets you know with each successive transaction.

“We create value by helping people build better money habits,” Moven’s president and managing director Alex Sion says.

A third player in the rapidly expanding fintech space, Betterment, builds customer relationships from a different angle. It offers an automated investing service. Give it your money, tell it your goals, and Betterment’s algorithms implement a strategy tailored to your financial objectives.

According to Joe Ziemer, Betterment’s business development and communications lead, it began the year with $1 billion in assets under management and now has $2.1 billion from 85,000 customers.

Finally, a growing number of Internet-based lending marketplaces connect yield-hungry investors with people and businesses in need of funding.

The best known of the group, Lending Club, offers personal loans of up to $35,000 to consolidate debt, pay off credit card balances, and make home improvements. Businesses can borrow up to $300,000 in 1- to 5-year term loans.

Funding Circle does much the same thing, though it focuses solely on small businesses. “There’s a perception out there that everyone is efficiently banked,” says Funding Circle’s Albert Periu, “but that isn’t true.”

Beyond using technology to refine the banking experience, a common set of objectives motivates these companies. The first is their missionary-like zeal for the customer experience. Their vision is to seamlessly integrate financial services into people’s lives, to proactively help them spend less, save more, invest for retirement and acquire financing.

“We created a product that allows customers to take control of their financial lives,” says Simple’s Krista Berlincourt.

This is done using elegantly designed mobile and online products that simplify and reduce friction in the relationship between a financial services provider and its customers.

To this end, a universal obsession in the industry revolves around the onboarding experience. “The onboarding experience is the moment of truth,” says Alan Steinborn, CEO of online personal finance forum Real Money.

Lending Club claims you can “apply in under five minutes” and “get funded in a few days.” Betterment’s Ziemer says that it takes less than half the time to set up an account with Betterment than it does at a traditional brokerage.

Finally, these firms compete vigorously on cost, with many forgoing account and overdraft fees entirely. In this way, they’re not only driving down the price of financial products, they’re also more closely aligning their own incentives with those of their customers.

Fueling the fintech revolution is the fact those millennials—people born between 1981 and 2000—now make up the largest living generation in the United States labor force.

Millennials see things differently. They “use technology, collaboration and entrepreneurship to create, transform and reconstruct entire industries,” explains The Millennial Disruption Index, a survey of over 10,000 members of the generation. “As consumers, their expectations are radically different than any generation before them.”

To millennials, banks come across as inefficient and antiquated. Two years ago, 48 percent of the people surveyed for Accenture’s “North America Consumer Digital Banking Survey” said they would switch banks if their closest branch closed. Today, less than 20 percent of respondents said they would do so.

This doesn’t mean that millennials will render in-person branch banking obsolete. A 2014 survey by TD Bank found that while they bank more frequently online and on their mobile devices, 52 percent still visited a branch as frequently as they did in 2013, mostly to deposit or withdraw money. “Those who do their banking in a branch feel it is more secure and enjoy the in-person service,” the survey concluded.

Wells Fargo’s recently appointed chief data officer, A. Charles Thomas, makes a similar point, citing a Harvard Business Review study that identified “customer intimacy” as one of three “value disciplines” exhibited by long-time industry-leading companies.

The net result is that the personal element of branch banking, while still relevant and necessary to build and maintain customer relationships, is nevertheless taking a back seat to digital channels. For the first time in Accenture’s research, the firm found that “consumers rank good online banking services (38 percent) as the number one reason that they stay with their bank, ahead of branch locations and low fees, both at 28 percent.”

It’s for these reasons that many observers believe the banking industry is prone to disruption. According to The Millennial Disruption Index, in fact, banking is at the highest risk of disruption of the 15 industries examined by Viacom Media Networks for the survey.

Of the millennials queried, it found that:

Sixty-eight percent believe the way we access money will be totally different five years from now.

Nearly half think tech startups will overhaul the way banks work.

And 73 percent would be more excited about a new offering in financial services from companies like Google, Amazon and Apple, among others, than from their own bank.

This isn’t to say that younger Americans don’t trust banks. In fact, just the opposite is true. According to Accenture, “86 percent of consumers trust their bank over all other institutions to securely manage their personal data.”

It boils down instead to the simple reality that millennials are “genuinely digital first,” says Forrester Research Senior Analyst Peter Wannemacher.

More than 85 percent of America’s 77 million millennials own smartphones according to Nielsen. An estimated 72 percent have used mobile banking services within the past year, says Accenture. And, based on the latter’s research, approximately 94 percent of millennials are active users of online banking.

Banks need to think about the customer experience differently. Millennials, and increasingly people in older generations, want more than physical branches to deposit money and get a loan. They want digitally tailored solutions for their financial lives.

Will Cardless Cash Catch On?


mobile-technology-8-7-15.pngApple Pay, where consumers can pay for products using their iPhone, is widely known but not widely used. Will cardless cash do any better?

Six banks in the United States have begun offering a way for customers to get cash from an ATM using their smartphones, according to Doug Brown, senior vice president and general manager at FIS Mobile, a division of the core processing vendor FIS. Twenty-five more are working on rolling out the product, which is part of FIS’ mobile banking platform. The service lets customers use their smartphones to get cash from an ATM, which is billed as a way to increase convenience and security. So far, no adoption figures are being disclosed, Brown says.

“[The banks] are all pleased because adoption is far above what they expected,’’ he says. However, only about 39 percent of smartphone users with a bank account actually use their banks’ mobile banking app, according to a March survey by the Federal Reserve. It’s available. It’s free. And not even half are using it.

But Brown says he expects mobile banking usage to pick up in general, and that tens of thousands of users in the Chicago area have tried out the cashless card service, to rave reviews. BMO Harris Bank, which has $98 billion in assets, and $20 billion asset Wintrust Financial Corp., are offering the service and both are based in the Chicago market.

BMO Harris calls it mobile cash, and it works after you log into your mobile banking app on your phone. You can order up an ATM withdrawal at any of 900 of the bank’s ATMs and your phone communicates with the ATM near you, which flashes a QR code (a machine readable label) that you can scan into your phone. The ATM delivers your cash and a receipt is delivered electronically. You never touch the ATM screen.

All of this is done in about 15 seconds, versus 45 seconds on average for an ATM transaction, Brown says. BMO Harris, which launched mobile cash in March, also launched Touch ID for the iPhone in late July, where you can save even more time by not using a log in and password to access your mobile account—you just use your fingerprint. A PIN can also be used in lieu of a log in and password to save time. The fingerprint ID is available, for now, using the iPhone 5s and newer versions, with a similar Android service available soon.

Brown says cardless cash is secure because each transaction is tokenized, so no data from the transaction is stored on your phone. A secure cloud houses the QR code, Brown says. Fraud is always a possibility, but “it really minimizes the exposure compared to the magnetic stripe world,’’ he said.

Skimming, where fraudsters put cameras on ATMs to record card and PINs, is not possible with this service. “The security that is commonly used at ATMs is over 30 years old,’’ says Douglas Peacock, vice president of mobile banking for BMO Harris, which is a subsidiary of $633 billion asset Toronto-based BMO Financial Group. “It’s been that way since cards were introduced.”

The biggest challenge so far? Marketing.  BMO has a video tutorial for customers who log into online or mobile banking. Wintrust used social media, billboards and TV ads and the Chicago Cubs’ mascot to promote the service. “Like anything that’s brand new, it takes a little bit of learning,” Peacock says.

The Innovation Game


innovation-7-30-15.pngWhat would Amazon look like if it were run by a banker?

First, you’d have to go to an Amazon branch to buy a novel. When you asked for a novel, the teller would tell you that you weren’t signed up for any novels. When you asked to buy one, they’d tell you that you had to go over to the fiction department.

This critique comes from JP Nicols, formerly the chief private banking officer at U.S. Bancorp, now a management consultant. He was up at midnight in Hong Kong recently after a business meeting, Skyping and talking about innovation in banking, a passionate topic for him.

“The world is moving faster and faster, and the banking industry is not moving that fast,’’ says Nicols, the chief operating officer of Menlo Park, California-based Innosect. When bankers tell him that they are “fast followers” when it comes to technology, he tells them, “You’re only half right. There is nothing fast about what you’re doing.”

It’s a biting retort for an industry increasingly attuned to the threats and opportunities afforded by financial technology companies, most of them nonbanks. The giants, such as Apple, Facebook and Google, along with startups such as online lenders and peer-to-peer payment processors, may not make banks irrelevant, but they may certainly put many of them out of business. Some banks are realizing that they have to change to keep up, and are trying to shift their organizational structure and culture to become more innovative, and more focused on what customers want and expect in an increasingly digital age.

Some of the biggest banks have introduced innovation labs in the last few years to experiment and develop software programs and solutions that benefit customers. Some banks are buying tech startups, or investing in them. Banco Bilbao Vizcaya Argentaria Group(BBVA), possibly the most innovative big bank doing business in the United States, is revamping its entire organizational structure to get rid of silos inside the bank that create friction for customers. U.S. Bancorp has 25 people working in an innovation lab in Minneapolis experimenting with new ideas and technologies, and working closely with the bank’s management team to bring new products to fruition. The biggest banks such as BBVA and U.S. Bank obviously have the money to invest, but some smaller banks are trying to get into the game as well. For example, a mutual with less than $10 billion in assets near Boston is spending 1 percent of revenues, or $4 million this year, on research and development with the intent of spinning off technology-related companies for profit. They are all trying to make their banks more innovative, and in the end, keep themselves in business.

But what is innovation, and why does it matter? There is no one definition of innovation. For Nicols, it means putting new ideas into action that move the organization forward. It may mean coming up with a completely new business model, or introducing a product or service that no one has tried before. It may mean solving a problem in a completely new way. Banks are used to identifying, monitoring and mitigating risks, more so than they are adept at innovating. But an argument gaining increasing weight is the notion that banks really are technology companies and need to think more like a technology company. Terms such as “disruptive innovation,” popularized by Harvard Business School Professor Clayton Christensen, have become mainstream, and they portray companies as vulnerable to lower-margin startups with innovative business models that begin taking market share at the bottom of the market and eventually displace established competitors.

Companies such as Amazon don’t worry about “disrupting” themselves, as Amazon did when it introduced its e-book product, the Kindle, even though it would cannibalize its existing print book business. The idea is that companies have to focus on what customers want and expect, not the business’ legacy systems and products.

Investors outside banking are so excited about “disrupters” stealing market share from banks and other financial companies that global investment in financial technology startups jumped 201 percent between 2013 and 2014 to more than $12 billion, across 730 deals, according to New York-based data research firm CB Insights.

Banks have been busy making sure they meet regulatory guidelines and laws, says Somesh Khanna, a senior banking partner at McKinsey & Co. “Meanwhile, their customers’ preferences have changed dramatically, and nonbanks are offering very simple solutions.” There are payment processors who are essentially money transmitters and there are tech companies offering loans, and regulators may eventually catch up to them in the same way they already regulate banks. But according to Kenny Smith, vice chairman and U.S. banking and securities leader at consulting firm Deloitte, the nonbanks will adapt to regulations, and it won’t be as difficult for them because they are more niche-oriented than the banks are. Banks are trying to react by investing in startups and creating innovation labs. They are collaborating in many cases with the “disrupters,” such as online lender The Lending Club and Apple, in an effort not to get left behind. Banks are trying to adjust to the new environment by becoming more innovative, giving people the title “chief innovation officer,” and hiring from tech companies such as Yahoo, Amazon or Google.

Spanish-based BBVA purchased a design firm and a variety of startups, including online banking services provider Simple, whose founders promised it was nothing like a bank. BBVA Ventures makes small investments in startups and introduces them to BBVA management across the globe. The company’s commitment to innovation really comes from the top. Earlier this year, the BBVA board announced it had reorganized to focus on technology in the company, and appointed D. Carlos Torres Vila as president and chief operating officer, a man who had been global head of digital banking and has an electrical engineering degree from the Massachusetts Institute of Technology.

“You’ve got enough bankers in banking. We don’t need more bankers,’’ says Brett King, the author of the books Bank 2.0 and Bank 3.0, and the founder of Moven, a mobile phone application that allows you to track your savings and offers you credit for purchases. “BBVA will be more tech than banking,’’ King says. “[Chairman and CEO Francisco Gonzales] realizes that. They are trying different models. They aren’t married to one way.” Just like a tech company, “they are trying different things and seeing what works.”

Already, the company had tinkered with its organizational structure to get rid of banking silos between departments, silos that didn’t really benefit customers. Jeff Dennes, the chief digital banking officer for BBVA Compass Bancshares Inc., the U.S.-based bank, is charged with digital integration of the bank’s products and services, including online banking, mobile banking, payments, a good portion of information technology and data analytics. He says the bank is “totally committed to investing in digital capabilities” that allow clients to have easier access to money, along with real time advice that helps them make sound decisions with their money.

The $85.5 billion asset BBVA Compass has a development center that employs 500 people in Birmingham, Alabama, according to Dennes. The company renovated an existing operations center into an 80,000-square-feet, open-floor office space that employs teams of five to nine people. They work in two week sprints to develop working software, compared to a more typical timeframe of six to nine months for software development. The compressed time frame creates a different environment. “The energy is off the charts compared to any other area of the bank,’’ Dennes says. “Every day, developers have to stand up and say what they were going to do yesterday, whether they got it done, and what they intend to do that day. It has a way of focusing you,’’ he says. But innovation is also transforming the rest of the bank as well. Even risk management needs to get creative, Dennes says. The vision of creating a digital bank “requires everyone to think differently,’’ he says. “If that was just one guy saying it, it would be tough. But you have senior leadership talking about it, and people tend to get on board.”

U.S. Bancorp’s approach is slightly different, but it has spent a long time making its bank forward-thinking. It has had an innovation group for more than eight years, with the original intent to look at long-term trends in the payments business. The bank realized early on that innovation was happening, and competition was coming from nonbank competitors, says Dominic Venturo, executive vice president and chief innovation officer for the Minneapolis-based bank with $403 billion in assets.

“It’s difficult to run a business as well as our business leaders do today, and at the same time focus on [the] long term and try to decide what’s important,’’ he says.

Nicols, who worked at U.S. Bancorp, says CEO Richard Davis decided shortly after becoming CEO in 2006 that he needed to make the bank more innovative. “Richard drew a line in the sand and said, ‘We’re going to be an innovative bank.’’’ Davis decided to invest heavily in the payments business. As a result, U.S. Bancorp was one of the first to introduce mobile photo bill pay, in early 2013. It signed up early for Apple Pay and Android Pay, Google’s rival to Apple’s phone-based payments service. U.S. Bancorp is consistently recognized as a leader in mobile banking for the variety of services it provides. The innovation lab has experimented with Google Glass and augmented reality, the concept that reality can be enhanced by computer inputs, such as images or information displayed in your glasses. Two years ago, Venturo published a paper on the privacy implications of the Internet of Things, which involves connecting everything mechanical, including such things as cars, TVs and refrigerators, to the Internet. The bank created a mobile shopping app called Peri that partners, such as retailers, could use to help people shop and compare prices using their smartphones.

But the innovation team isn’t cut off from the bank’s goals. Twenty-five people work on the team in the bank’s headquarters offices. Staff meets regularly with the heads of the four major business groups: wholesale and commercial banking, commercial real estate, trust and wealth management, and payments and consumer banking, which tell the innovation team what their problems are and their customers’ problems. The innovation team then works on solving them collaboratively with the bank’s management team. The team also brings in customers to the lab to collaboratively develop software that meets their needs.

Unlike BBVA, the bank doesn’t have a venture capital arm, and although it does partner with other companies or hire vendors to jointly create solutions, it doesn’t tend to invest in them or buy a lot of startups. Venturo himself has a banking background, having worked 15 years for U.S. Bancorp. Before that, he was with Bank of America Corp., and has worked stints in payments and as a commercial banker. He tends to promote from within U.S. Bancorp.

“One of the misconceptions about innovation is you have to go bring in a bunch of disrupters who don’t know anything about your business to think differently, but I think it’s more helpful to bring in deep domain expertise and give them permission to think differently,’’ Venturo says. “They are more likely to come up with an idea you can actually do.”

Community and regional banks may have a tough time affording an innovation lab, whether they come from in-house or the technology industry. Many of them already struggle with attracting and retaining talented people, and will largely have to rely on vendors to provide many of their technological platforms and services. Just because small banks often are focused on commercial clients, that doesn’t mean they don’t need to stay relevant to those commercial customers. “Those who want to be innovative have to have a plan in place that is executable, to make sure their technology presence is relevant and stays relevant, even if the business line focus is commercial,’’ says Ryan Rackley, a director at Cornerstone Advisors in Scottsdale, Arizona. Moven’s King advises banks to be very careful about picking a core platform vendor, and any technology vendors that they use on top of that. Since they are so dependent on vendors, they must choose wisely.

But a few banks are going beyond picking vendors and are experimenting with in-house innovation as well. After a merger in 2007, Eastern Bank Corp. president Bob Rivers noticed a huge drop-off in branch traffic, which has continued to this day. (The mutual’s busiest branch did 60,000 transactions per month back then, and it’s now half of that.) Rivers began to think, ”The world is changing radically, and if we don’t do something quickly, we are going to be left behind.”

With the support of management and the board, Rivers began networking around Cambridge, near the bank’s headquarters, where there was plenty of technology talent surrounding the Massachusetts Institute of Technology. “We knew we needed to make investments in new technology,’’ Rivers says. Rivers ended up recruiting the former executives of PerkStreet Financial, an online financial services provider with a rewards checking account tailored to each individual’s spending habits. The business ceased to operate after it failed to raise new capital. One of Eastern Bank’s recruits was Dan O’Malley, the enthusiastic, nobody-is-doing-what-we’re-doing co-founder of PerkStreet and now, chief digital officer at Eastern Bank with a team of about 20 to 25 innovators.

About a year ago, the bank put O’Malley and his team in charge of the customer call center, gave them access to a mass of data on the bank’s customers, and let them “build cool stuff, buy cool stuff and change our culture,” according to Rivers. The team’s goal is to spin off technology companies that make the bank a profit. Rivers said Eastern Bank’s directors didn’t need to be sold on the idea. “I would have to say, the board was more enthusiastic about it than management was here, by and large,’’ he says. Last year, when two members reached the retirement age of 70, the board brought in new expertise, including Joe Chung, a venture capitalist, and Bari Harlam, an executive vice president at BJ’s Wholesale Club in charge of membership, marketing and analytics. With such support from the top, the bank already has rolled out voice recognition software for the call center, so customers don’t have to answer a series of maddening questions to verify their identities. “The amount of friction we took out was huge,’’ O’Malley says.

Not all banks would have shareholders supporting long-term investments in research and development. But as a mutual, Eastern Bank doesn’t have the same pressure to meet quarterly earnings estimates that public banks have, and has more ability to invest, O’Malley says. Recruiting talent is always an issue, but O’Malley thinks the bank does have a leg up compared to a startup. The bank has a trove of data that can be harnessed to improve services and build new products. It already has a huge number of customers. It’s not trying to build capital and customers. It already has them. O’Malley is bringing in developers who have never worked for a bank. The head of the data center is an MIT-trained scientist who has been published in Science and Nature magazines. “You need people who know how to build stuff,’’ O’Malley says.

He feels strongly that banks need to adapt or they will lose business. “If we don’t do this right, we are going to lose chunks of our business. There are online lenders who will lend to small businesses within a day. Our traditional process takes a month, and they’re doing it in a day.” He thinks for many banks in the country, the situation is dire.

Judd Caplain, a banking advisory industry leader for the consulting firm KPMG, agrees that banks that don’t make changes will lose business. “As long as banks reinvent themselves, they will continue to exist,’’ he says. “Those that do not risk becoming dinosaurs.” Of course, banks have heard that before. The Internet was supposed to mean the death of branches, and yet they are still a powerful new customer acquisition tool, and a place to solidify a presence in the community. But Brett King has noticed a change. Bankers two years ago downplayed his predictions about a revolution in mobile banking, and countered that the Internet didn’t kill branches. Now, he doesn’t hear that anymore. “Banks are saying, ‘You’re right, it is changing, and we’ve got to do something now,’’’ he says. “It’s real this time.”

What Should Your Internet Banking Platform Look Like?


internet-banking-06-24-15.pngInternet banking is undergoing a transformation. In many ways, this evolution of the legacy Internet channel is being driven by the emergence and potential prominence of mobile banking. According to a report from the Federal Reserve, Consumers and Mobile Financial Services 2015, “the prevalence of mobile banking continued to increase, reaching 39 percent of mobile phone users with bank accounts and 52 percent of smartphone users with bank accounts.”

As Internet and mobile channels continue to evolve, so does the proliferation of other device categories, such as wearables, including smart watches. The expansion and convergence of these new categories give financial institutions the ability to better service customers and create a consistent user experience regardless of channel.

This is not about a single channel handling all customer interactions; users will likely choose all channels, and some will likely lead over others. Rather, it is about a blended experience across channels. Ask the management team of any community bank if they still offer telephone touchtone banking and the answer is yes. Channels rarely go away and there is nothing wrong with that. Again, the challenge is blending all these categories.

How Does This Impact Internet Banking Today?
The Internet channel can be classified as legacy technology. The way a customer uses the channel, the screens they see, the features available to them, are all “set-in-their-ways” and reflect a certain very specific design sensibility. No doubt this is a powerful legacy, so much so, that when the industry started creating the mobile banking experience, it was highly influenced by the Internet. Internet led the charge. Internet defined the standards. Then something changed. Mobile devices became ubiquitous.

According to the Federal Reserve study, as of December 2014, 87 percent of the U.S. population ages 18 and older owned or had regular access to a mobile phone. The smartphone was the most popular type: It runs applications in addition to accessing the Internet and functioning as a phone. The application is the single most significant part of this evolution toward smartphones. Easy to use, much more fun than the Internet and reflecting a new design sensibility, the smartphone marked a departure.

Mobile Is Now Driving the Evolution
The Internet needs a refresh. It is a somewhat old and stale legacy technology that has not been seriously refreshed in a decade. This technology and design refresh is being led by mobile. Internet banking will start to look like mobile banking apps, which have proven to be “cooler” and easier to use. And all of them will start to have a consistency in the features offered and their look. The customer wins. They get to do whatever it is they are trying to accomplish, via whichever channel they choose. The end result is a platform that is convenient, consistent and engaging.

The Best Customer Experience
There are many industry terms that try to encapsulate the concept of the many customer channels. The phrases “digital channel” and “omni channel” represent some of this industry jargon. We all generally agree that the goal is to have mobile, Internet and other systems provide a consistent experience for a customer. Bank boards and management teams should demand that the channels converge around whatever makes the best sense for the customer. The technology and the design sensibility are all avenues to the primary goal of creating satisfied and delighted customers.

The good news is that this is attainable today in a way that was never imagined a decade ago. The technology involved in delivering customer channels, such as Internet and mobile, have matured and in many ways blended due to industry forces and the regular movements of the technology markets. This is good for bankers and good for customers. This next step of transforming Internet banking will create the next big opportunity for banks to differentiate their digital strategies.

Does Mobile Matter?


5-1-15-Naomi.pngThere are five services via the smartphone that the top five banks in the country all offer: mobile banking, mobile bill pay, mobile check deposit, person-to-person payments, and ATM/branch locator. Does your bank have all five?

The question was posed at Bank Director’s Bank Board Growth and Innovation Conference in New Orleans on Wednesday. With more than 150 bank directors and officers in the room, only a handful raised their hands.

The speaker, Dave DeFazio, a partner at StrategyCorps, which provides deposit account and mobile phone products to banks, said all of these services are necessary. The nation’s population is increasingly in love with smartphones. If people lose their phone, they feel out of sorts, disconnected. It’s the first thing many people touch in the morning when they wake up. They use their smartphones when they’re driving (not a good idea). They check Facebook at work.

The end result is that banks that don’t provide easy-to-use, indispensable mobile apps will increasingly find themselves losing the battle for market share in the years ahead, DeFazio said.

Mobile service vendors are not the only ones who think mobile matters. There are now more mobile phones than landline phones in the United States.  Sixty percent of smartphone or tablet owners who switched financial institutions said mobile played an important or very important role in their decision to switch, according to a survey by the consulting firm AlixPartners.

It’s important not to confuse mobile services with online services for a laptop or desktop. Young people use their phones, and less frequently, their laptops. Your customers shouldn’t have to sign up for mobile banking services using an online portal for a laptop or desktop, he said.

“I have young people in my house who barely touch their laptops anymore,’’ DeFazio said. “Make it your mission to have an app people can’t live without.”

Millennials, the generation that tends to be in their late teens through early 30s, are distrustful of the biggest banks, but a greater percentage of them switch to big banks than older generations, according to the survey by AlixPartners. The reason? Millennials want digital services that are convenient and easy-to-use, and small banks don’t provide the same level of mobile services that big banks do, in general. Millennials aren’t as interested in going into a branch and speaking to a banker face to face as older generations are.

Not everyone in the crowd at the Bank Board Growth and Innovation Conference was impressed. One attendee questioned whether his bank should want to attract millennials. He pointed out that most of the more successful banks profiled at the conference focus on commercial customers. DeFazio answered that whatever its audience, a bank should pay attention to its mobile offerings.

“There are as many digital baby boomers as digital millennials,’’ he said. There are other reasons as well. Those most interested in using mobile services from their banks are the young and those with higher incomes. People who use mobile banking services tend to get a higher number of banking products from their bank than the average customer, according to AlixPartners.

Smaller banks may not have as many offerings as large banks, but some of them have leaders who don’t want their banks to fall behind. Brian Unruh, president and CEO of $600 million asset National Bank of Kansas City, in Overland Park, Kansas, says it’s almost overwhelming how many different technology companies are out there offering services to banks. But his bank is committed to offering mobile banking services. It recently switched Internet banking providers, and went with Austin, Texas-based Q2 Software, a smaller and more nimble company, he said. His bank recently hired a software developer and may hire a second, to develop mobile apps in-house.

Mobile services are definitely necessary, he said. “You have to get it to attract new customers,’’ he said.

The Rise of the Camera in Mobile Banking


2-27-15-Malauzai.pngWhen was the last time you took a picture with your phone or tablet? Probably pretty recently, right? Now, when was the last time you took a photo with a digital camera? You might have to think a little harder about that one. Smartphone and tablet cameras are in fact becoming so advanced that some experts speculate they will surpass the physically larger and now ubiquitous Digital SLR (DSLR) cameras in a few years. No doubt, mobile devices have become our go-to picture-clicking tools.

As the photo-taking abilities of these devices have improved, mobile banking has seen significant benefits. We are all very aware of how successful mobile check deposit has become. In many ways, mobile check deposit is the killer-feature of mobile banking. Based on Malauzai usage data, we know that 25 percent of active mobile banking users make deposits at least once a month. The mobile camera enables this success, supported by image recognition technology that can easily read a document and convert it into data. Now, the camera is driving new innovations for the mobile channel, including using the camera to simplify the onboarding process and to revolutionize how consumers pay bills.

Imagine opening a new bank account by simply taking a picture of your driver’s license. The typical onboarding process that can take up to 45 minutes at a branch can now take only five to 10 minutes inside the branch. Employees are provided with iPads enabled with advanced cameras, making quick onboarding a reality. Employees can even open accounts outside of the branch and pursue new clients in public places, such as a shopping center or company office. The technology is also being used by virtual mobile-only banks to allow direct customers to open accounts in self-service mode. Prospective customers can download an app, take a picture of their licenses and deposit a check in 15 minutes. This process is enabled by advanced mobile cameras.

Lastly, there is bill pay. When the industry set out to provide bill pay, the initial focus was being able to present bills electronically. This proved to be a challenge, and today paper bills are still in circulation based on some consumer preference, as well as billers that still do not make their bills available electronically. Enter the camera. With mobile photo bill pay, a consumer can take a picture of a bill and immediately make a payment. There is no data manipulation involved in the payment process; just point, click and pay. In a single effort, this solves the biggest problem that exists within bill pay. On average, 15 percent of active mobile banking users utilize mobile photo bill pay to pay bills every month when it is integrated in to their mobile banking app. That is four times higher than traditional bill pay when it is offered as a feature in mobile banking.

People enjoy taking pictures. From opening an account to depositing a check and paying bills, the advanced mobile camera is a driver in establishing mobile banking as the channel of choice for both banks and their customers. As the technology continues to mature, it will only improve. Mobile banking is poised to become the channel of choice for bank customers. As Internet banking stagnates in terms of generating additional revenue, clever usage of the camera is making mobile banking not only good for banks, but fun for consumers. Who said banking wasn’t fun?

Big Banks Deliver Mobile Shopping Features


The five biggest retail banks—recognized by the brand names U.S. Bank, Chase, Bank of America, Citi and Wells Fargo—control over 50 percent of total assets in the U.S. and are driving the mobile banking agenda. In a race to meet the mobile transaction needs of their customers, these banks have all conquered the most basic services that soon almost all banks will have—mobile banking, mobile bill pay, mobile deposit, ATM and branch locators and P2P payments. Now in phase two of mobile banking, these banks are in an arms race to further engage with customers’ mobile lifestyles, particularly by helping people save money when they shop.

U.S. Bank has been previewing Peri, a mobile app that will launch soon that allows customers to instantly purchase products from what they hear on the radio and television or see in a print ad. For example, if you’re watching a TV commercial, Peri can simply “listen” to it to identify the product and find the place where you can buy it.

On the surface, apps like Peri seem a bit futuristic, but many of us actually already have these types of features on our phone right now. The Amazon app uses its “flow” image recognition technology to allow iPhone users to find the product in the app just by pointing the phone’s camera at it. U.S. Bank is simply taking the best in class, “for the future” shopping features and ensuring they can deliver that functionality in a way that helps their customers.

In a recent presentation to bank executives, Dominic Venturo, chief innovation officer for U.S. Bank Payments Services, shared another pilot program that will allow the bank to be a connector between its retail customers and small business customers. With this technology, merchants can see in real time where consumers are using the app and asking to receive discount offers.

If a customer decides “I want coffee,” or “I want lunch,” they just click in the app to request a discount offer. That message is sent to small businesses in the area, which can access a portal showing all the customers who are currently requesting a deal. The merchants that rise to the occasion will pop up on a map on the customer’s app in real time.

According to Venturo, it’s an entirely different way of thinking about search and awareness offers than banking has produced in the past. The program was tested in Minneapolis and saw offer-to-conversation rates in the mid-double digits, which is an extremely impressive redemption statistic.

In late 2012, Chase Bank acquired Bloomspot, a start-up company that used credit card data to allow merchants to target their best, most loyal customers with offers tailored to their specific interests. Bloomspot was started in 2010, and by the time it was acquired, it had around 2 million members and 500,000 merchants, while raising $46.1 million in venture funding. Chase bought Bloomspot for $35 million, taking in both its technology as well as its team. While Chase has yet to announce their exact plans, they’re likely to use the tools that Bloomspot built for their own debit and credit cards and mobile app experience.

Other big banks are also snatching up or partnering with start-ups that offer shopping assistance in the form of budgeting. When BBVA acquired Simple in 2014 for $117 million, they gained only 100,000 new customers but gained the technology that’s likely to steadily grow a massive audience. TD Bank also partnered with Moven in 2014 to offer customers more advanced financial management tools in their mobile app—tools that the online bank Moven had already built for its customers.

The rest of the world, particularly investors, are beginning to take notice of this growing sector. Just last year, there were 250 investment deals involving Fintech start-up companies, and that number has been growing since 2008. More and more, big banks are funding as well as buying some of these best in class start-ups so they can use their fresh new ideas.

While many other banks are just now catching up, U.S. Bank, Chase and other big banks are now on their way to offer products and services that go beyond the basics to impact their customers’ financial wellbeing.

A Look at what TD Bank is Doing in Mobile Banking


Toronto-Dominion Bank’s (TD) recent partnership with Moven is a material strategic move to help the bank’s customers advance their personal financial fitness. Moven, along with other nontraditional mobile banking providers like Simple and GoBank, are challenging the financial industry’s line of thinking of what a mobile banking app can be. These types of bank apps offer budgeting tools that can help customers prevent overspending and learn how to more effectively save money.

Moven, the New York-based “neobank” founded by Brett King, brings TD the opportunity to offer customers more advanced financial management tools in their mobile app, including instant notifications about spending patterns and a variety of budgeting capabilities for each purchase. It’s a mutually beneficial partnership for Moven, who will now be granted access to three million TD Bank customers in Canada.

“The TD agreement with Moven offers our Canadian customers access to leading-edge technology with a simple, convenient and innovative way to manage day-to-day financial choices alongside long and short-term financial goals,” said Rizwan Khalfan, chief digital officer, TD Bank Group. “The addition of real-time money management capabilities to the TD mobile app demonstrates our commitment to comfort and convenience and to our growing leadership in the digital banking space. Customers will be better informed on how they use their money and empowered to improve their financial wellness with each spending decision they make.”

TD is primarily located in Canada and in the northern U.S., yet consumers outside of these areas may be familiar with the bank because of TD’s #TDThanksYou campaign video that flooded the Internet this past summer, showing that TD Bank is making major advances in communicating its message in the digital age. The tearjerker video shows real TD customers being surprised by an ATM that has been transformed into an “automated thanking machine.” A voice from the ATM surprises different customers with gifts picked out just for them—a Blue Jays fan gets a personalized shirt, is surprised by baseball player Jose Bautista and gets the chance to throw the first pitch at an upcoming game. A mom of two boys is given an all-expense paid trip to Disneyland because she had never been able to take them. These and other heartfelt stories allowed the YouTube video to get over 6 million views in only one week. The video now has over 18 million views, making it one of the most successful viral videos to ever come out of the financial industry.

TD Bank’s most recent announcement about the launch of Moven is also getting the attention of the banking industry, as the majority of banks are still figuring out how to differentiate their mobile banking, while ensuring each move they make is customer-focused.
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“Can I afford it?” is one of the most important questions people have to answer about their financial lives. That’s why the budgeting categories serve as one of the main features of Moven’s, and now TD’s, mobile banking app, allowing it to become more than just a list of transactions, but instead, a resource for every shopping decision. The categories are used to get people to focus on things they really need and separate that from the luxuries that can tempt people into overspending.

“If you want to get people to save money, you’ve got to stop them spending, so we’re helping them understand where they’re spending money,” said Brett King, founder and CEO of Moven, in a recent interview with The Globe and Mail. “What we start to see, after three to six months [of usage] is that people in certain categories—dining out, catching taxis—start to level off.”

Yet the financial industry may question—is teaching customers not to spend money going against the best interest of the bank? Moven and TD Bank understand that their best interest is helping customers, and one of the most valuable ways to do that is to help people spend money in a smarter way with the type of advanced technology that consumers of today demand.