Pension-Tension-Freedom!

This story probably spans four generations.  I have tried to map the lifestyle of people across these four generations to financial services. Though there is no single definition of these generations, for the sake of simplicity , let’s assume my dad is a baby boomer, I am from the gen x or gen y and then folks born in the 90s are the gen z, and then we have gen alpha too!
There is a reason why I talk about three generations within a span of 3 decades (x-y-z). It’s because there is a considerable generation gap in culture and lifestyle in such a short span of time. Hope you agree with me and trust me, I don’t have any intentions of coming across as experienced (read, age old) in this blog.
Against this backdrop, let’s analyze lifestyles and how banking products are interwoven with lifestyles of customers.
Please note that I am writing this mostly from Indian context, but a similar pattern probably exists worldwide too.

Demographic details of Baby boomer generation:

Their parents: Very few were elitists in terms of education and profession, others mostly didn’t have much formal education and followed traditional professions. They mostly had on an average about 5-8 kids and sometimes one for each year until one parent passed on (no offense or disrespect intended, just trying to generalize a bit).
Education: First generation that probably had basic education and quite a few of them went onto hold bachelor’s degree, few did masters too and very few Ph.Ds.
Occupation: Made their careers in public sector companies/banks, government jobs, postal services, railways, large manufacturing companies, educational institutions, lawyers and CAs.
Family life: Count of kids came down drastically to two with few exceptions of going up to 4 or 5, wife would mostly be a house executive with few exceptions of working women either as government official/teacher/doctor etc.
Lifestyle: Most were in jobs which required them to work from 9-5 PM and everyone seemed to have a lot of time for family and relatives with one movie once in 2-3 months followed by dinner at a restaurant, bought what is required and always wanted to save for the future. Life for them was – work from 9-5 PM, educate kids, get them married and retire and look after their grandkids! Basically this is a generation which faced lot of hardship in life, is value based and mostly content in life supported by PENSION.
Financial lifestyle: Savings account, deposits – primarily RD (roughly translates to today’s SIP), chit fund investments, pigmy, education loan, home loan, PF and finally PENSION (derived as a percentage of their earlier salary which gets credited to their bank account every month, provided they visit their office once a year and declare that they are still alive! And if not, wife will get the pension, after them) and people loved to visit bank branches if not for anything else, just to have a chit chat with the friendly branch staff!
For this generation, strange working hours of branch, though inconvenient, were still acceptable as humans worked at branches, hence lunch time, early closing time, holidays on as many possible festivals were all norms of the day. Standing in queue was ok, as that would have been factored in their planning for the day/month. Remember these were the days when there were no ATMs, hence people used to plan well in advance on their cash requirements. Cheque, DD were the primary payment instruments, being literate was of great pride for these purposes and “instant” was only gratification of meeting branch staff and not payments.

This was the time where people went to banks and banks could dictate the experience!

Current state: Though this is a dwindling population, I feel there is still a largely untapped segment craving for true personalized banking products and services as they trust banks more than anyone else!
A revised personal finance plan with doorstep advisory services can unearth huge potential of profitable product offering to this segment, but due care must be taken of their risk appetite because these are really good people to bank with. This generation is also opening up to the idea of going on vacations across the globe with their friends, hence travel packages with financial instruments into them can be quite a welcome change. This generation also believes in gifting all that they have to their kids, grand kids and hence, a smart personalized relationship manager can really create unique experiences around the same. As with the age, their health conditions also would have become a worry point, hence personalized products can bundle appropriately designed insurance products too.
Also, though quite late to use social media, but am seeing a lot of them becoming very active on WhatsApp at least, to stay in touch with their kids! And I think, this is a learning for us/banks as to how a simple UX can lead to higher adoption rates. In the era of digital banking, it should be inclusive banking for them too, not excluding them. Newer products can be designed around their current financial status, which is probably way better than what it was when they were working!

Now, the gen x-y, my generation:

Hmm, I don’t know what to say about our generation, probably the most confused and tensed generation!
We were suddenly exposed to the possibilities with IT and that created a whole new set of creatures.

Demographic details of gen x-y:

Our Parents: Mostly could afford good basic education for us and somehow we could become only engineers or doctors. Our parents wanted us to achieve those dreams which they could not fulfill for themselves! For more details, refer to baby boomers section above, ding!
Education: Though most of us somehow ended up being engineers or doctors, almost all types of engineers ended up being a software/IT engineers and only few succeeded in holding their forte as “non-IT engineers”! Of course, our generation also saw most migrating to the so called advanced country- USA to do their MS and those who could not, still found their way to USA through H1B!
Occupation: Everything was IT or around IT and kind of destroyed quality professionals in other streams and of late, this generation is bitten by entrepreneurial bug and some have had self-realization in life and are heading back to their roots, organic farming etc.
Family life: Started as DINKEY – Double Income No Kid Yet, then to one kid and at max two, as career aspirations would always confuse us between our priorities (again, no disrespect to anyone here, just generalizing my thoughts) and also those set of folks, who have stayed single embraced single parenthood too.
Lifestyle: Our generation is the first set of globetrotters and with that started lengthy official calls across time zones, working 24X7 leading to weekend culture for family time and taking time off once or twice a year for vacation! We were the early adopters of apartment culture, swanky cars, credit cards, laptop usage, mall goers, air miles, bermudas and denims (whether it fits you or not, you need to fit into it)! And if you connect these dots, it’s quite clear that this kind of lifestyle is full of TENSION and has led to health issues – diabetes, back pain, hyper tension, obesity being the most common.
Though we are not mobile native, it’s definitely a prestige symbol for most of us and somehow we too have managed to be smart! We are a generation that mostly came from middle class backgrounds but then moved to upper middle class or became HNIs. As I said before, this generation is quite a confused generation as many firsts happened for us, like the internet revolution, mobile and smartphones, previously unheard of 5-6 digit salaries and thus we kind of took everything for granted (nature, relationships, health) and questioned many laws of nature too as we thought we knew everything and we need not care for anything or anyone!
To summarize, this is a confused generation sandwiched between two worlds but finally taking a hybrid lifestyle. People from this generation became quite materialistic somewhere along the way, and their lives revolved around the proverbial ‘I, Me, Myself’, and they primarily live a life of TENSION.
Quite a few of us seem to have reached a state of been there, done it and hence want to follow our passion (of being an entrepreneur, a biker, chef, wild life photographer, first time author, etc.). After much disillusion we now want to see life in a proper perspective but, for some of us, we are in a flow now, want to float around for a few more years.
Detox, yoga, meditation, going for vacation with friends, women only vacations etc., are becoming the order of the day for us and of course, there are some who want to give it back to the society too.
So if we read between these lines, the financial product offering too needs to be designed with personalization as a key pillar and around an ecosystem which plays to a person’s strength around the person’s lifestyle.
We do not like to be disturbed by too many text messages, ping and also set – best time for banks to reach us yet we go with our friend’s wisdom and of course google baba’s!
Financial lifestyle: Started with student loan, then credit cards, vehicle loan, personal loans, home loan, stock trading and then mutual funds, probably reflects the lifestyle also in that order and order of tension too! This generation witnessed the biggest technology revolution in the recent history – internet, hence are quite comfortable with internet banking, online trading, can do most of their banking needs, themselves without visiting a branch, unless otherwise for some paperwork. Some of us design these systems and are consumers of it also, including me and that’s where we are comfortable being consumers of channel banking.
Current state: A lot of us are talking about retirement at the age of 35-45 and going back to roots or following our true passion, finally! The way this generation accesses banking is not the only change, but the way banking is perceived has also changed. Providing personalized banking services is a given, where really the banking has to evolve for this generation is in terms of providing very efficient service with minimal paperwork, time taken to service with minimal friction, advisory services not on products offered but to complement businesses, investments of this generation and ease of doing business across the globe.
What I am not sure of is, whether technology led to open banking or current generation’s lifestyle, but there is definitely need for accounts and payments aggregation, dashboard, analytics based insights and that’s where this generation will see banking being of use to them. Essentially, we do see banking as a need but in an evolved avatar.

Then onto my favorite, gen z/alpha:

This is a generation which defines our future for the next 30 years or so and is quite a different breed altogether!
This is a generation which is cloud native, mobile first, guided by Google and can be mostly found on Facebook and Instagram.

Demographic details of gen z/alpha:

Parents: Mostly well educated, well settled in life, love to experiment and firmly believe that how their parents behaved/taught them was not the right thing to do, but they know it (googled!), better. Also, believe in giving financial stability to their kid/s and provide loads of options, so that the kid/s can choose whatever they want to become and without an expectation. For more details, refer to Gen x-y section.
Education: Well, it depends! Bearing the fruits of their parents’ work and thinking, this generation is not constrained by finance, hence does what it likes, how it wants, when it wants and it’s ok if it doesn’t want it too, because there is google, anyway! An MBA/MS is a given, but a lot of them have taken to ventured into unconventional areas too, which is a welcome change.
Occupation: Quite difficult to put them in one basket, because they have the FREEDOM to choose, which has resulted in people getting into fine arts, documentary movie making, acting, photography (3 idiots!), digital marketing, forensic psychiatry (yes!), hospitality industry, airlines, data science, travel guides (it’s quite cool to travel around the world where someone else pays for your trips!) and some are entrepreneurs by the age of 25!
Family life: Too early to talk about it, however their belief in institution of marriage seems to be dwindling. Their parents also expect them to be independent and hence, staying together as a family is not really an ask.
Lifestyle: Most lead a life of pizza, burger, cola, café culture with their life being an (open) Facebook filled with selfies, groufies, bothies, biking is a rage and growing beard too and those tattoos and some weird sense of fashion (better I say nothing about it, though they say that they like to wear what they like to and who are we to comment!).
Their day is decided by the Googles and Alexas of the world and at times people of this generation feel orphaned and handicapped if mobile network is not there! This generation looks-before-they-leave, loves to get likes for their pics with cute puppy, celebrates birthdays, new year as if there is no life tomorrow and zoom and zoom to see who is wearing what dress in these pics, likes to be a kid by playing games all the time (someone told them that they should never let their inner kid die and they have taken that quite literally!).
What is admirable though is, quite a few of them genuinely care for nature and have taken a liking towards joining politics, and UPSC is becoming a career option again, though I would say this is still in very small numbers. And my respect also goes out to those early twenties entrepreneurs too, but please be clear of what you are doing and don’t do it, because it is cool to be an entrepreneur.
Financial lifestyle: We live each moment, cannot wait for anything – that’s the motto of this generation and hence, savings, taking home loan are not what they look for (their parents anyway have ensured all that for them) and definitely do not know what is a branch banking. Those early twenties entrepreneurs are taking route of Tokens (virtual shares) too and bitcoins are becoming quite the thing to own.
What banks need to do is recruit some of these gen Z and start rebranding, repositioning themselves, if they want to stay relevant after 10 years, in the retail banking space.
In a generation where same gender sex is Freedom, commenting anything and everything on social media is tolerance and FREEDOM, banking too needs to be sensitive to this behavior and present itself in multiple forms and be there where this generation is, much ahead of them.
The message is loud and clear on the walls of Facebook (!) for banks from this generation – for them banks have got to become invisible, but banking embedded into their lifestyle. Banks need to be pervasive and not invasive into the lives of their customers.
As a summary, the three generations of customers of banks – Pensioners, generation living with tension and then the freedom seekers in a way reflect onto the three generation of bankers too – those who recently retired or about to retire from their illustrious banking career, then those who are sandwiched between traditional ways of banking and the digital wave and finally, Open banking era, hope you are able to appreciate the parallels being drawn here with lifestyle of customers and that of banking/bankers.

Banking in the Fourth Industrial Revolution

In 2016, Klaus Schwab, the Executive Chairman of the World Economic Forum wrote that we are currently experiencing the fourth industrial revolution. According to him, this revolution is “unlike anything that human kind has experienced before” 1 in its “scale, scope, and complexity”1. The fourth industrial revolution is characterized by an amalgamation of physical, biological borders and technology. The impact of the fourth industrial revolution will be felt across our way of life, and will have broad impact on every industry.
For example, the automotive industry has been facing changes due to technology evolution – from changing views on ownership – platforms like UBER providing easier options to ride without ownership to changing views on operation – autonomous driving changing our views on driverless cars. While some of it sounds like science fiction, there is concrete work being done on this front. Several car makers (new entrants and traditional) are focusing on driverless technology – ranging from assisting a driver to fully autonomous cars which don’t require a driver. In fact, earlier this year, Nissan revealed their research on “Brain to Vehicle” technology, which reads the user’s brain signals to make driving decisions – proving the point that physical, biological and technological worlds are increasingly interconnecting.
The impact is being felt in banking as well – banking industry is perhaps one of the industries that has seen leading indicators of this revolution. Digitization of banking services and processes is gaining ground, not only in enabling smoother customer journey but also in fine tuning internal processes. Future of banking will be truly digital – like the fully autonomous cars. It will be integrated in the day to day activities of the consumer, not requiring a separate interface for banking.
A typical customer journey would be seamless, completely integrated, and intuitive. For example,

  • Product Search – Banking products will be embedded in larger processes. The focus would be to become a part of a larger ecosystem, as customers will not be looking for banking products specifically. For example, a large purchase will automatically trigger a loan. This is already being done, but in its nascent form.
  • Onboard – Customer onboarding will be done via federated identity, garnering information from multiple sources rather than asking the customer to provide the details.
  • Authenticate – Security and authentication will be ensured by using AI technology. For example, based on analysis of devices used and behavior of customer. This too is being done today, but mostly in experimental stage.
  • Deepening of Relationship – This would be driven by advanced analytics, AI, where customers’ needs are anticipated. The aim of product suggestions would be to help customers achieve their goals and aspirations.

The common thread running across the various stages is that human involvement will be minimal, with technology enabling most of the processes. While the above example is retail focused, corporate customer service and product offerings will also reshape in the fourth industrial revolution. For example, IoT information for tracking of shipment can be integrated with trade finance which can automate the trade finance process.
The same will be extended to the banks internal processes as well. Activities like product design & distribution, marketing, customer management, operations etc will be automated – technology will augment humans in some cases and will completely replace in others.
Fintechs and neo-banks are already down this path, using technology effectively – their extensive use of APIs, advanced analytics, AI, IoT etc enables them to provide better products and services to their end customers, at a fraction of the time and cost of the traditional banks.
The ball is now in the banks’ court, to use the technologies available in their processes in order to turn the tides to their advantage or to step into the future without the tools to survive.
Sources:
https://www.weforum.org/agenda/2016/01/the-fourth-industrial-revolution-what-it-means-and-how-to-respond/

Virtual Account Management – Driving More Value with Less

Transaction banking is no exception to the unprecedented challenges that the banking and financial services industry faces today. With traditional business margins eroding consistently, banks are looking to contain costs, eliminate inefficiencies and streamline operations in every function. Moreover, to match the agility of non-bank entrants such as payment institutions and service providers (PISP), banks need to come up with innovative cash management solutions for their increasingly demanding corporate clients.
A cash management solution is not new for the corporate banking business. But what corporate and SME customers need today is a solution that ensures smooth reconciliation for payment and collections, and provides enhanced control over liquidity positions to optimally meet working capital requirements. A Virtual Account Management (VAM) solution is what will help banks and corporate customers here, offering a cost effective way of maximizing working capital management by adding or introducing non-physical or virtual accounts linked to a real physical account.

Understanding Virtual Accounts

A corporate or SME client has on an average 6 banking relationships, with close to 100 or more accounts across those relationships. With one physical bank account for all the payments and collections, it is a challenge for corporates to keep track of their payments, collections, account receivables and account payables.
Virtual accounts are dummy accounts for routing payments to one underlying real or physical account. The actual fund transfer happens through the main physical account, but with a virtual account allocated for each payer, an enterprise has greater visibility and control over working capital.
Virtual Account Management (VAM) solutions allow corporate or SME customers of a bank the flexibility to design the hierarchy and structure of their virtual accounts.

Leveraging Virtual Account Management (VAM) Solutions for Flexibility and Control

Payables and receivables in a corporate enterprise are spread across multiple layers – global, regional or domestic. Moreover, multiple types of transactions and operational payments take place through different enterprise operating accounts at different banks. Dispersed account structures of an enterprise and hence the absence of a single source of truth makes reconciliation inconsistent. Limited automation to track payments from various payers also makes the process prone to errors.
For a bank, multiple internal systems within the bank add to cash management complexity. Another challenge before banks is the long cycle of integration with customer ERP systems.
A Virtual Account Management (VAM) Solution reduces the administration cost and effort, by connecting multiple bank accounts, thus increasing the visibility of funds and control over working capital.
VAM solutions provide corporate and SME clients user friendly self-service capabilities and the flexibility to manage their virtual accounts while banks control the real or physical account, providing a cost effective way of centralizing funds.

The Virtual Account Management (VAM) Solutions Banks Need

Most of the VAM solutions on the market are point solutions or over the top (OTT) solutions built as a wrapper on top of online banking, current account systems, payment processors, and liquidity or cash management systems of banks. Since these solutions are not integrated with the bank’s IT landscape, they cannot be scaled easily. Furthermore, in the wake of new regulatory requirements such as PSD2 that require banks to open up their account management systems to third parties, a complex financial accounting structure that cannot be changed on demand can significantly slow down operations.
What banks need is a VAM solution that is integrated with the bank’s core IT landscape, and its payment hub components such as message processor, re-router and settlement manager. This system also needs to lend itself for ledger posting, liquidity posting, and account reconciliation. What’s more, banks must be able to provide their corporate and SME customers with access to their A/R and A/P records on-demand and on the device they choose. This requires that the VAM solution connect seamlessly with any customer touchpoints such as portal, online banking or mobile banking through an Omni-channel hub.
With the retail banking business facing challenges from the new entrants in the sector, banks will need to strengthen their corporate banking business. Solutions like the Virtual Account Manager can be a huge asset here.

Artificial Intelligence for Financial Inclusion

Next Tide: We need to be ready

The Indian Rural Banking landscape has just seen a major transition, by way of Financial Inclusion under the guidance of RBI. It started with Small savings accounts, Agency banking channel, Aadhaar number, Pradhan Mantri Jan Dhan Yojana, BBPS, BHIM, AEPS payments, UPI etc.
First time in the history of India’s Banking sector, the RBI gave out differentiated licenses by way of 10 Payments bank1 and 11 Small Finance Bank Licenses2 in 2015.
At the other end, urban banking is witnessing another wave of transitions with a number of Fintech players competing to offer banking services by way of Robotics and AI to automate banking by machines.
HDFC’s Ira, the first ‘humanoid’ branch assistant, City Union Bank’s ‘Lakshmi’, and Canara Bank’s ‘Mitra’ are just a few examples of how banks and financial institutions are integrating AI and robotics in their services.
Keeping in view the above two trends and if both these paths merge, sooner or later it may be wise for the Banks to think of ways to take Automation to Rural banking. Furthermore, regulation might also require compliance that can be significantly simplified with automation. banks and the solution providers need to be ready and need to be able to identify what all can be done to employ Artificial Intelligence to enrich Financial Inclusion.

The Journey has just begun!!!

What sources of data do we have, what processes of rural banking can be enriched, who all could be the immediate stake holders, what enhancements would a technical solution require and finally what is the revenue model? These are some of the questions that banks may not yet have ready answers to, since we are still in the starting phase of our AI journey. As I write this thought paper I do see some ready clues which both banks and solution providers can pick and proceed.

Sources of Data: its already there

As on Aug 2017 Over 9.3 crore3 PAN cards linked with Aadhaar numbers.
Recent initiatives of Govt. to link Pan card with all bank accounts, and then to link Aadhaar to PAN Card and mobile number, sets the right path for the required source of data. This can be a good starting point for our data scientists in the AI Journey. Using the Aadhaar linked Database, the government is able to track the number of SIMS a person may have, the number of gas connections, the amount and volume of transactions done on his/her accounts. It facilitates a single Point of tracking and also an easy KYC.

AI Applications: Give it a thought

From the existing banking landscape and the rural customer experience, some of the applications of Artificial Intelligence in Rural Banking that the solution providers and banks can explore are:

  • AI to build credit history: In rural India, there is hardly any credit history. Artificial Intelligence can be applied to collect and study data like Aadhaar linked data, crop turnover, handset details, SMS logs, social network data, GPS data, call logs and contact list etc – to identify the Credit worthiness of customers. The system can recommend a smaller value loan and then to top up further based on the renewed credit worthiness re-estimated by the AI machine.
  • AI as a Relationship Manager: Most of the bank staff have urban orientation and do not have inclination and patience to talk to the rural customer. We can have NRLP (Natural Regional Language processing) based AI trained robot- to train and talk to the Rural customers in Regional language: explain them about banking products, can also discuss about the amount of the debt that they have and suggest how much do they need to save. AI trained Robots can become their financial advisors.
  • AI assisted Lifestyle based banking: There are a number of Govt. schemes that are rolled out like Gram Sadak Yojna, Swachh Bharat Abhiyan, MNREGA etc. The Incentives for most of the schemes go through the Pradhan Mantri Jan Dhan accounts. Banks can use feeds of all such incentive payments data from the UIDAI database into the AI engine and come up with the best possible products the customer can be offered. The offer can also be combined with a discount. The higher can be the discount with the raising level of financial health of the customer.

Major Stakeholders: What’s in it for me?

  • Business Impact for Banks: Banks can think of newer revenue channels and find ways to encash AI enabled features. The AI enabled credit rating feature can be offered as a monetized API to other enterprise in similar businesses like MFI, NBFC, Credit Rating agencies etc. In Chile4, for instance, supermarket chains have started writing credit histories for their unbanked clients.
  • Enhanced Rural customer financial engagement: AI trained Robots can better engage with rural customers and there by elevate them on the financial and economic ladder. Quoting an existing application in agricultural field: Microsoft & ICRISAT’ s pilot5 cloud based app can predict the best sowing week depending on weather conditions, soil and other indicators. This has benefited the farmers with better crop yields. Similarly, Banks can provide AI enabled guidance on possible product harvest returns that the farmer may get based on image analysis of the Crop. The same can be then linked to the customers earning capacity which will in turn be linked to a number of other banking related decisions.
  • Government Scheme Effectiveness: With the suggested approach of AI Engine to work in conjunction with the UIDAI database, there are a number of ways solution providers can estimate the effectiveness of various Government schemes linked to Aadhaar. For instance: the latest image analysis technology can be adapted to study the effectiveness of Swachh Bharat Abhiyan and accordingly map with the incentive announced by the Government through the Jan Dhan Accounts.
  • Solution Provider Dimension: Technology solution providers are already there in the AI journey by way of AI assisted Risk assessment, fraud detection, better customer services and sooner or later the divide between rural and urban banking solution will be minimized. To be specific, in the field of smart agriculture, there are drones and other IOT devices6 which collect on field information about the crops or the MSMEs. The technology solution providers will have to be ready with the built in interfaces with these sensors, drones etc. to bring data into the Big data space which can further act as an input to machine learning algorithms.
  • Regulatory Bodies View: Take one step at a time. RBI has also expressed keen interest in the latest technology developments including block chain, although with caution. Firms like IDRBT7 has even gone to the extent of forming a core team to draft a white paper on Digital Currency, Identity management & KYC and Trade Finance. All the ecosystem players like Regulators, Banks, financial solution providers, Fintech players are still in the learning curve – and the much awaited legal clarity will take due time. Hence it is time to experiment cautiously on a smaller scale.

Word of Caution: The below view holds good for both rural and urban banking.

  • With the initial excitement, there is also an inherent fear of handing over decision making to AI. Accepting the fact that even a human can’t be 100% right, AI can’t be a pursuit of perfection, it is more to bring in greater quality at scale and speed.
  • The intelligent machine learning algorithms comes with a risk to the Line of Business aims. The Three laws of Robotics8 (also known as Asimov’s laws) will definitely hold good, where necessary caution has to be taken to not break the existing law of the land.
  • How much is too much? – with IOT devices and Artificial intelligence algorithms working on everything and anything which humans touch or see, banks and the solution providers will have to draw the line on the extent that technology can intrude the privacy of their customers.

Is it worth it?

Considering the small ticket size or value of transactions, banks and technology solution providers might have a tough time testing the economic viability of AI enabled robots in rural areas and villages. So is it really worth it? Yes, and No. Although the transaction values are low the volumes are definitely significant. The initial investment may be high and one may need to wait for the results to come in. However, considering the enthusiastic Indian crowd and the way we welcome new things – the robot will be the center of attraction and can be the overnight hero of the village. As the future unfolds itself, the early risk-takers will have an added advantage as Automation and AI are here to stay for a way long time.

References:

Digital Delights – An approach for the Next-Generation Bank

The term “Digital” is not just a buzzword in today’s business lexicon. It is suggestive of a new economy riding the digital computing wave of technologies transforming processes, transactions, operations and business models. In financial services we should expect digitization and digitalization to revolutionise banking. So what could the next-generation bank look like?
People like banking, but not all of them like banks. Tomorrow’s banks should aim and aspire to be amongst the most-loved and popular global brands such as Disneyland or some popular technology brands. They must equip and help customers in fulfilling their ambitions. And everyone working at such a bank will be required to focus on activities generating value for customers and looking after customer relationships. Cutting-edge technologies will be at the heart of operations.
The next-generation bank will have a digital platform like the App-Store to host value-adding applications. The apps and accompanied digital services will be available for customers to pick and use as they wish, to accomplish their goals. The app-store can be the platform for banks to offer diverse product blends and to inject capabilities from FinTechs or other partners. Such a platform approach can enable financial institutions to go beyond vanilla money management, add smart offerings on top of theirs, or even link to non-financial products and relative digital services to meaningfully meet a wider range of customer needs.
The new bank will act as a key partner to help retail customers achieve their financial goals and to provide personalised guidance on how customers can meet their financial obligations (pay back a loan, clear a credit card), or hit a saving milestone (save enough money for kids’ college education, deposit needed for mortgage to get on to the property ladder etc). Personal financial management will include analysis of customer cash flows, spending patterns, peer/segment consideration and price-comparison mechanisms (like Amazon) to indicate how money could be spent smartly in various retail transactions, bills or other payments types.
The role of a data bank will become as important as a money bank. Banks sit on a wealth of personal information that can be harnessed using analytics, the key ingredient to truly personalize the services offered to customers. Machine learning and cognitive banking is the next stage of enterprise intelligence. It refers to a system’s ability to learn based on data inputs and outputs and improve with every iteration. Personal Robo advisors for asset and wealth management will rise. When all the data about customer fortunes along with all events in various important fields is processed by a Robo advisor, the consulting financial structure will be able to make swift actions, hence a virtuous cycle of customer satisfaction will be formed.
The bank of the future will also boost entrepreneurial economy and pay a lot of attention to this dynamic customer segment. Renewed product offerings could target entrepreneurs to help them enter the business arena and move from the inception of a business idea to practice. Uber-speed support could be provided on how to write the business plan, how to ease the business set-up with premises, resources, how to automate their business with digital offerings sourced from the bank, how to expand and enter foreign markets, almost anything to help these individuals pursue and fulfil their ambitions.
Innovation does not always imply invention. Innovation could either mean implementing a new entrepreneurial idea, or introduce an existing product with to an untapped customer segment. A very representative example is a dedicated online banking application enriched with gamification elements and facelift for kids to make banking look and feel like a game. The purpose would be to increase kids’ financial literacy by using finance puzzles, to train kids to establish good saving habits for purchasing items they desire and to familiarise them with their first online purchase while providing parallel control to parents to be aware and informed of usage and operations.
Adults love play-machines too. Augmented Reality (AR) is a new way of distributing and interacting with dynamic media content and it can help banks play a larger role in the everyday life of their customers. The next generation bank could be offering a home-finder AR application to help home buyers pull up real-time data as they cross houses for sale on the street. Asking price, property valuation, price guides, local trends, forecasts and house history could instantly be made available, together with available loans to supply buyers with all the information they need to make a prompt decision in a real estate market with a high ratio of potential buyer to property. AR branches or AR agents could also turn it to a more fascinating experience for those not able to visit a branch nearby.
Robotic Process Automation has been touted as one more disruptor in financial services. The name may imply robots, but mainly they’re intelligent software systems able to execute and automate repetitive tasks of low value and high volume in the back-office, or in the front-office such as typical customer inquiries. Now imagine the impact of conversational banking with devices that are able to understand natural speech, or chatbot banking with devices that are able to understand chat interactions written in a language as natural as the one you use when you type your Google searches. The next generation bank will be operational 24×7 using robots, always available when customers need it, help customer service representatives cope with thousands of customer queries improving workload management and, as a consequence, customer satisfaction levels, and feel so truly human.
Blockchain technologies will be heavily adopted by the next-generation bank. Blockchain represents a common store of data between institutions improving the know-your-customer systems and combating identity fraud. It is also a marketplace where any form of value can be exchanged like money, property, and shares in a transparent, conflict-free way using smart contracts, while avoiding the services of middlemen. Blockchain will expedite cross-border payments and all trading activities and settlements. But the most fascinating thing about Blockchain is that it can become a medium where new forms of transactions can be invented. For example all text messages currently convey characters and thus information. Using Blockchain and artificial intelligence we could enable text messages to carry value and transfer money using sms, or Facebook and Skype messages. And there are quite a few experiments on revolutionary transactions that will change the financial world as we know it.
It is important that financial institutions reimagine themselves and prepare for tomorrow. Modernization of core banking systems and channel applications will simplify business operations and provide the agility needed to power digital transformation. The question is not whether to transform the organisation, but when and how. All technologies referenced above can allow banks to rethink their business model, transform the channels of engagement, distribute fresh digital content and augmented financial products on a renewed technology layer and upon customer’s access integrate banking with people’s everyday lives to provide relevant and personalized customer experiences.