22. August 2013–
Some might say Banco Bradesco went a little over the top. In 2012, the big Brazilian bank opened up a flagship branch in an upmarket shopping mall in São Paolo. Robot guides, biometric ATMs, touchscreens everywhere and a private room with glass that automatically frosts over when it's time for a consultation.
The real future of banking is more subtle and much more powerful. Just under a third of the world's mobile users now carry a powerful computer in their pocket – and smartphone banking is taking off in Europe, North America and Asia. Mobile banking in Kenya is extending to loans and savings products. Expect bank-branded app stores. Non-banks such as Mint, Dwolla and Simple are among dozens of new companies shaping the way customers pay, save and plan.
With one of the most important parts of daily life changing in front of us, what will the future of banking look like? Here's our take on some of the trends and guiding principles shaping retail banking and banking service startups:
In other words, making banking and non-banking transfers as quick and painless as possible. It could involve automating text-and-reply authentication for mobile banking, Facebook logins or new ways to send cash to people without their account numbers.
Commonwealth Bank of Australia's Kaching app, for example, lets you make payments using just the recipient's mobile number, Facebook name or email address, with a 100 per cent security guarantee. The catch is that recipients from different banks have to enter account details to pick payments up.
All this is great for those who need to make payments quickly and retailers who want to cut down abandoned purchases. It's not so helpful for chronic impulse buyers.
Sexy interfaces and personal finance tools
In the US and Europe, Simple, Mint, Check, Holvi, Numbrs, Moven and Avuba are among those redesigning money management. All shoot for the impossible goal of making it fun and easy to manage finances online.
Simple markets itself as a “replacement for your bank” with all the services you'd expect, innovative ways to manage spending and fewer of the usual account fees. Mint and Check are personal finance tools rather than bank replacements and can keep tabs on spending across multiple accounts. Holvi is particularly suited to freelancers, small businesses and groups who need a shared account.
None of these newcomers is actually a bank so if they want to give customers an account, they must partner with an established bank to do it.
Arguably the most revolutionary of the bunch, these companies rival banks for select services. TransferWise and CurrencyFair use peer-to-peer foreign currency exchange to make it cheaper to send cash abroad. Lending Club, Zopa, Prosper, Auxmoney and Funding Circle offer peer-to-peer lending for personal or business customers (Investopedia has a quick summary of advantages and disadvantages).
Banks are wising up. Gartner's Hype Cycle for Digital Banking 2013 report predicts peer-to-peer foreign exchange will go mainstream within two to five years and suggests some banks consider it, even if it cuts into normal foreign exchange revenue. Two community banks already partner with Lending Club. Funding Circle is in talks to take loan referrals from Santander.
Big data lending is shorthand for anyone using new technology to assess credit risk. Payday lender Wonga is perhaps the best-known and most controversial in Europe (for its business model rather than the algorithm it uses); others include LendUp, Lenddo, Kreditech, Kabbage and ZestFinance.
Most keep their methods pretty close; most bring social media data into the mix. Applicants who type in all lower-case or all upper-case are less likely to repay loans, ZestFinance's Douglas Merrill told The Economist. LendUp, according to TIME, weighs up how long you’ve had your account, how many friends you have, and how far away they are physically.
Will the big banks extend automated data collection to social media channels? Are they already doing it? Probably. Carefully. It's not a good year to get busted using customers' data in ways they don't expect without permission.
Persuading banks to give access to third-party developers might be easier than you think. Deutsche Bank, ABN Amro, Bangkok Bank, UBS and others are already members of the Banking Industry Architecture Network, which is developing standards for banking technology. The Open Bank Project offers an open-source, developer-friendly "API for banks". Yodlee, which claims to work with about 600 organisations, offers an API for permission-based access to financial accounts. Standard Treasury is running a pilot programme with five major banks.
Gartner's latest Hype Cycle for Digital Banking expects bank-branded app stores to become "demonstrated and accepted" within two to five years. France's Crédit Agricole dived in last year and currently stocks 26 apps in its Crédit Agricole Store.
One possible reward? More companies such as Dwolla that can link banks together – Dwolla built its own real-time transfer system, FiSync, to do it – and make it faster, easier and cheaper to move money around.
Change isn't always positive. Some new financial service companies will prove that but more options in the banking industry should be welcomed. If you think you can do better than the banks, now is the time to try.
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