From Appliances to Apps: What Does Digital Mean for Banks’ Products and Services?
Some of you may be old enough to remember when one of the products offered by many banks was a toaster. Sure, banks in the 1960s were primarily in the business of helping people manage their money—through checking accounts, mortgages, credit cards, etc.—just like they are today. But given the era’s culture, and the hassle of coming into the bank to set up accounts, many banks also felt obliged to be in the small appliance giveaway business.
How will the cultural changes of today’s era of digital disruption change the products and services offered by financial institutions? Clearly new, less physically-oriented products are coming. Indeed, some are already here. Consumers today rarely think of a mortgage as a piece of paper that you need to pick up (along with your toaster!) during a visit to a branch.
Product waves that banks around the world have identified as imminent, in a study headed by my European colleague Torsten Eistert,include:
• Electronic wallet solutions that provide both e-commerce capabilities and credentials such as health cards, loyalty cards, and driver’s licenses.
• Application suites through which handheld devices can replace tellers and bankers for functions from account transfers all the way to loan applications.
• Personal financial management (PFM) tools to help consumers understand, plan, and manage their finances.
• Video chat functions for advisory services, already gaining popularity in Nordic and Benelux countries.
Many banks have taken bold strides in these areas. For example, Spain’s CaixaBank has a PFM service called ReciBox that consumers can use on computers, tablets, or mobile devices to organize bills and highlight anomalies. And the United Services Automobile Association (USAA) has a mobile app featuring a Siri-like assistant who helps customers complete more than 200 different actions — all from the smartphone. USAA understands that the mobile device will soon be everyone’s central portal, to their financial lives as well as all the other components of their lives. Now there’s no need to offer people toasters—because there’s no need to get them to come to the branch.
[For More of Arjun Sethi’s Contributions On Bank Systems & Technology, Check Out: Banking On the Death of Cash]
I like to think of these offerings as second-wave products and technologies. The first wave was traditional retail banking and commercial lending — what today we should probably start labeling legacy products. The second wave is breaking now. And just beyond the horizon is a third wave, even bigger, in which digital disruption causes a rethinking of banks’ organization and governance, pricing and revenue models, culture and people.
Yet we can’t merely express wonder at exciting new digital frontiers—we must also grasp the urgency involved. A heavily mobile digital world is coming faster than most people think it is. And many banks are not ready.
To demonstrate, I encourage you to perform your own exercise. Visit a standard American bank website, any website, even an innovative “direct bank” such as Bank of Internet USA or Ally Bank. Now visit the website of Korea’s Hana Financial Group, and compare the designs. Which site more resembles the homepage of your smartphone?
The mobile-optimized Hana site has icons for several apps where customers can perform banking tasks right from a handheld device. One of its apps is a mortgage product that can be fully processed online in five steps from application to closing. When it comes to new digital products and services, Hana is laps ahead of American banks.
Granted, there are many differences between Hana and American banks: Hana operates in a small country with phenomenal mobile penetration and a banking industry relatively unscathed by post-2008 economic crises. It’s had the luxury to invest time and money in digital technology instead of risk mitigation. Furthermore, different geographies develop digital demands in different ways and times; in some global markets, banks have even gotten ahead of their customers’ demand for new digital products and services.
So this is not a criticism; we shouldn’t say that Hana is “better” than the typical American bank. It does seem clear, however, that its website is an indicator of the inevitable direction of bank products and services.
Arjun Sethi is a partner with A.T. Kearney, where he leads the Strategic IT Practice for the Americas.
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