The next big revolution in retail banking is sitting in the palm of your hand

Retail banking is changing through many external forces. The on-going global financial crisis has impacted the regulation surrounding the banking industry, but there are other factors changing the environment banks find themselves operating in, writes Vineet Vijh, senior engagement director at Unisys (right).

One of the key catalysts for change is mobile technology, which represents the biggest opportunity to retail banking since the advent of the credit card four decades ago. This new dynamic is redefining the relationship between the bank and its customers.

The traditional view of a bank is as a transactional medium. Banks are where people save, retrieve and borrow money.  Despite considerable investments by European banks in developing their branches into ‘financial services supermarkets’ this view still remains the case today.  Smartphones, tablets and other mobile devices bring with them many ways for banks to at last tackle this perception, enabling them to embed themselves far more deeply within their customers’ lives.

The move to mobile banking is being touted heavily by market analysts. According to Gartner, worldwide mobile payment transaction values will surpass $171.5 billion in 2012 and Sandy Shen, research director at Gartner, has said: “We expect global mobile transaction volume and value to average 42 percent annual growth between 2011 and 2016 and we are forecasting a market worth of $617 billion with 448 million users by 2016.”^[1] These predictions represent a paradigm shift in the retail banking model and a potential opportunity for disruptive and highly innovative players to meet the needs of the technology-savvy consumers who rely on their mobile devices for many facets of their day-to-day life.

Over the next few years we think there are three key areas in retail banking which will be transformed by mobile devices, these are: payments; products and customer service.

Payments are the most obvious aspect of a bank’s operations that can be streamlined and enhanced by mobile devices.  While many banks in Europe have hesitated to roll out m-payments, other parts of the world have moved more quickly.  Mobile payments are an accepted way of life for some consumers in Japan and Nordic Europe.  Closer to home, Barclays Bank in the UK offers person-to-person mobile payments through its Pingit app, with many more mobile payments services being highlighted in the media, such as Square, founded by Twitter co-founder Jack Dorsey.

The adoption of the m-payments, to date, has not been held up by lack of payment enabled handsets but by the perceived value of just a simple payment or money transfer function – they compete with many other methods that are already available. What changes things now is the smartphone’s ability to integrate the payment function into other applications; it is this which will make banks more relevant to the everyday lives of consumers. Phones will be used interchangeably with a credit or debit card, reducing the potential for fraud, while enabling banks to add real value to the shopping experience – for example flashing up real-time balance updates on the smartphone’s screen, or offering services like extended warranties or damage insurance at the point of purchase.

The benefits of being able to interact with customers via their phones, based on their location, aren’t just limited to payments.  Mobility makes a whole range of new service paradigms possible.  Consider home-buying: offering customers the ability to source a preliminary mortgage quote and book an appointment with an advisor from the property they are viewing would be a tremendous help to them, and a powerful way of capturing mortgage business from current account customers.  Smartphones’ location-awareness could also mean property particulars are sent automatically to branch advisors, making the sale easier still.

Location-awareness has also proven itself valuable for products where eligibility, costs and conditions can vary geographically.  In the USA, Unisys has developed a location-aware mobile application for a loans provider, which can automatically provide a tailored quote based on the customer’s location.  A manual address check is still needed, but the system enables the company to provide quotes immediately, starting the sales process without delay.  Insurance and leasing are other product areas which stand to gain considerably from this unique feature of mobile devices.

Handheld devices won’t just have an impact on how banks deliver and market services to consumers – they can also drive big changes in the ways banks organise and manage their own staff.  A European bank Unisys works with has recently issued branch staff with tablet devices so they can strike up conversations with customers visiting the branch, answer simple questions about products, and very quickly and easily schedule a meeting with an advisor should they wish to find out more.  We provided a simple app which links directly to the bank’s CRM and scheduling systems – so even if the meeting gets postponed, staff can still follow up on the customer’s interest.

Less of a security risk than you think

With every new technology, the theory goes, come new risks and challenges.  While prevailing wisdom suggests mobile handsets are far less secure than more conventional means of banking, the truth is they can bring far greater security, providing they are integrated properly.  The wrong approach would be to attempt to re-purpose their online banking security system, for mobile banking, or to develop a completely new and different security system solely for mobile apps. Banks need to evaluate their security systems holistically and redesign the system to be common for all channels or modes of communication with the customer. This includes harnessing mobile devices’ capabilities to protect customers and minimise fraud.

Location awareness could be a boon for fraud management.  Key indicators of fraud, such as two transactions occurring in very different places, can be easily investigated and, by checking customer location data, rectified with minimal inconvenience.  Similarly, mobile devices could enable banks to implement biometrics almost universally, in a way which customers will welcome – using voice and even facial recognition to authenticate transactions and digitally ‘sign’ documents like direct debit mandates.  In this way, the smartphone could begin to replace the aging and increasingly risk-prone systems of PIN codes and personal details which have been the mainstay of authentication in banks for decades.

We think the opportunities and changes brought about by the innovations we have outlined here will together be far more significant than the advent of online banking fifteen years ago.  Indeed, the m-commerce paradigm has been successfully adopted by leading businesses in other industries, particularly retail, where customers have responded particularly positively to the advent of mobile shopping.  In this sense, the mobility model is well proven.  Where banks in particular stand to benefit from mobile technology is in fraud control, authentication, and supporting sales of complex financial products.  Clearly, security is the key to progress, and banks must carefully evaluate their systems and procedures here.  However, the potential to transform relationships with customers, exploit cross-selling opportunities, and improve security and fraud detection, is a heady cocktail for European bank executives smarting from four years of intense public scrutiny and depressed margins.  The commercial opportunities for mobile banking are enormous.