As we think about technology trends that will shape the next chapter in US Banking, the most difficult thing is reducing the list to a manageable number. The seven trends, presented in this White Paper (in alphabetical order), will have the biggest impact on US Banking technology through 2010.
Electronic Payments
Payments are at the heart of a bank’s relationship with customers. The adoption of electronic payments by consumers and businesses has been one of the most profound changes seen in financial services during the past 20 years. More recently, we have witnessed the rapid evolution of debit cards and dramatic growth in automated clearinghouse and Internet payments (notably e-bill payments). This is a “perfect storm,” if you will, in the migration to electronic services.
Also, small and mid-size enterprises (SMEs) have begun to adopt “remote capture”, which basically digitizes checks using special check-reading equipment and transmits the electronic checks to a financial institution for immediate deposit. Additionally, some financial institutions are piloting check imaging at the automated teller machine to lower costs and improve service. Given the limited use of self-service capabilities for check deposits, shifting these basic transactions from the branch represents a significant cost-saving opportunity.
The challenge for de novo banks will be offering a full range of payment options to customers on competitive terms and finding new revenue sources in an environment where traditional payment products are under revenue pressure.
Customer-Centricity
At a time when organic growth has become an over-arching strategy for US banks, the pursuit of a customer-centric strategy has become critical for de novo banks seeking to attract new customers and then deepen those relationships over time. Customer Relationship Management (CRM) technologies will play a key role in attaining customer-centricity. Developing and nurturing the right culture and business processes will position de novo banks to meet customer needs and deliver memorable service quality regardless of which delivery channel the customer uses.
Also included in this technology category are “personalization technologies”, which will finally deliver on the power of oneto-one marketing, customizing products around consumers’ personal needs and preferences. Today, the opportunity for innovative, customized financial products is in how core components are linked, personalized and leveraged to provide flexible, relationship-based bundles that grow with the customer. Relationship-based elements in product design have traditionally been the missing link in customer strategy for many financial institutions.
For additional information, please refer to the Fiserv White Paper by the same author entitled, “ The Road to Customer - Centricity - Driving Success in Tomorrow’s Banking Business”.
Networking
We’re heading rapidly toward a time of “ubiquitous connectivity” to the Internet. Many banks have already found that Internet protocol communications, including voice over Internet protocol (VoIP), offer the potential for more cost-efficient, secure, and reliable communications. VoIP changes how telephone calls are delivered. It sends calls in digital packets over data networks rather than via the circuit-based public switched telephone network.
Additionally, the convergence of data, voice, and video will, over time, produce a new level of excellence in customer service. Broadband connectivity is pivotal to this. According to the Organization for Economic Co-operation and Development, (www.oecd.org/us) there were more than 49 million broadband Internet subscribers in the U.S. at the end of 2005. Market research points toward ubiquitous broadband access in the U.S. during the next 10 years (assuming subscription costs follow their expected downward path).
As broadband gains pace, so does the viability for electronic delivery of high-touch, person-to-person service, especially in the financial services industry, which relies upon trusted relationships between the business and consumers. Broadband will enable an online version of “face-to-face” transacting that could capture the hearts and minds of consumers who are reluctant to conduct business online. Broadband can facilitate a significant improvement in the online service experience.
Risk Management and Compliance Automation
Regulatory changes will continue, though perhaps not at the same pace or magnitude as we’ve seen in recent times. Regulatory compliance represents a huge burden for many banks, especially the smaller ones. In the next few years, advances in the quality and availability of tools and business processes to automate compliance will bring much-needed relief and allow financial institutions more financial freedom (and time) to innovate.
Security and Privacy Technologies
Consumers are only too aware of the emergence of scams such as identity theft, phishing, and pharming. Additionally, data breaches involving some high-profile companies (financial and non-financial) have created uncertainty and fear in the minds of customers.
Despite these threats, online banking has increased 47% during the past two years, making it the fastest-growing Internet activity, according to the Pew Internet & American Life Project (http://www.pewinternet.org/). With this growth comes the risk of online fraud, and it has become a strategic necessity for banks to protect customer data.
To reiterate this, the Federal Financial Institutions Examination Council (http://www.ffiec.gov/) issued a mandate that financial institutions adopt new, secondary secure-identification technology (often known as two-factor or multi-factor authentication) by the end of this year. Additionally, banks can provide customers with “safety net” services such as credit monitoring tools and alerts to help customers maintain control over their credit histories and other personal data. Over time, biometrics will emerge as a major weapon in the battle against fraud.
Service-Oriented Architecture (SOA)
The Organization for the Advancement of Structured Information Standards (OASIS) (http://www.oasis-open.org/) defines SOA as “a paradigm for organizing and utilizing distributed capabilities that may be under the control of different ownership domains. It provides a uniform means to offer, discover, interact with, and use capabilities to produce desired effects consistent with measurable preconditions and expectations.
In 2003, financial institutions hardly talked about SOA. The industry set about systems integration through the use of middleware or specific integration technologies. Today, SOA - driven by the power and flexibility of Web Services - has emerged as an important information technology (IT) strategy for many leading financial institutions. Looking forward, the integration of channels, products, and system architectures will continue to be critical to credit unions’ future prosperity. The financial services industry increasingly will adopt SOA to achieve such integration.
Wireless Financial Services
Several U.S. companies are testing hardware that turns phones into payment mechanisms, the next wave in what has been labeled “proximity payment technology.” Phone manufacturers already are building the technology into their phones. Also, JPMorgan Chase and Visa (http://www.corporate.visa.com/) have been testing a mobile phone payment system in Atlanta since December, and Discover Financial Services has been testing a contactless payment phone.
Third- and fourth-generation (3G and 4G) phones bring with them incredible advances in functionality, including music and movie downloads, and the ability to take and transmit photos and video. We may not all be rushing to conduct financial planning on cell phones this side of 2010, but checking balances, transferring funds, trading stocks, and receiving alerts will be mainstream functions in the near-term. Beyond that, much will depend on advances in functionality and improvements in security.
As we look forward, we see the promise of significant advances in technology and the power it can bring to our business. As is the case in leadership, “with great power comes great responsibility.” Let’s use the power of technology wisely and never forget that the business has to drive IT and not the other way around.
Printable version
