Mobile Banking Watershed Signals the Arrival of the Virtual Bank

Richard Hamerton-Stove, Infosys Senior Principal in Financial Services

At the end of March the British Bankers Association (BBA) announced that the number of transactions made through banks’ smartphone apps has doubled over the past year. This announcement marks what I believe to be a watershed moment for mobile banking services and the tipping point towards their mass consumer adoption. It proves that the previously fragmented mobile banking market has become simplified, with a second generation of improved services that consumers are taking to with relish. At this key moment in the mobile banking revolution, it is worth taking stock of some of the far reaching implications that it will have on banks and their customers.

Customer-centric banking

Richard Hamerton Stove

Perhaps the biggest impact of today’s ubiquitous and powerful mobile connectivity is that customer expectations have completely changed. Mobile banking services (along with our wider online culture) are encouraging customers to expect to be able to engage with banks at a time and place of their choosing. To meet this expectation banks need to start thinking about their entire customer base in aggregate and to shape their workforce of financial advisors accordingly, freeing from the traditional restrictions of branch, region or geography.

If customer expectations have radically changed then the only sensible reaction from the banking sector is to position the customer at the centre of the relationship, connecting with customers at the time, place and channel of their choosing. If a customer wants to talk about their finances on a Sunday morning then the advisors need to be available at that time. If a customer wants to talk to two different advisors back to back then the bank needs to make this happen. If the customer would prefer to conduct his business from his own home office, kitchen or living room then bank needs to adjust to this.

Virtualising the retail bank

Such an approach relies heavily on technology as an enabler. Banks will in particular need to embrace video-conferencing and ensure that they have in place solutions to challenges around security, network bandwidth and sales compliance. None of these challenges are insurmountable and all of the technology already exists, it is simply up to banks to seize the initiative. Indeed most UK banks are already trialling such systems today.

A clear advantage of this approach is that it will make compliance significantly easier. For each transaction banks need a full and complete audit trail of authenticity and authorisation.  This becomes increasingly complex as customers interact in multiple ways through multiple systems yet crucial for compliance with banking regulations. By recording the online interactions of our virtualised bank, (and thus obtaining evidence of customer intent) creating a clear audit trail becomes a simple exercise, reducing banks’ exposure to risk.

The end of the branch?

Of course, progress in one area usually means that there will be loss in another. In the case of mobile banking, many are concerned that it will come at the cost of the traditional bricks-and-mortar branch office. Many customers are attached to their local branch, but the undeniable fact of the matter is that branches do not make much sense from an operational perspective. For example, opening hours are mostly mapped to when working people are otherwise occupied and few branches offer services that can’t be delivered digitally. Branches are also highly expensive to maintain.

Branches, however, provide many customers with kind of security blanket that makes them feel safe. It is this largely the feeling of security that branches give customers that they remain so popular.  In fact, recent Infosys research[1] found that customers feel much more comfortable sharing personal information in a branch than online and while mobile. This is perhaps one of the most important factors in fully realising the promise of mobile banking.

Banks need to invest in the right network security products and anti-fraud data mining technology so that customers can rest assured that everything that can be done to secure data has been done.

The importance of trust cannot be overstated, with 77 per cent of respondents to our survey stating that they would consider changing banks if a competitor offered assurances that their data and money would be safer. Worryingly, nearly a third of consumers (31 percent) still feel that their current bank or financial institution does not have a clear process for addressing fraudulent issues.

This is not something banks can afford to be laissez-faire about. Digital banking is the only kind of banking the next generation understands and increasingly success in the retail banking sector will be defined by the strength of mobile banking services.  The BBA’s watershed announcement should be celebrated, but while mobile banking is no doubt the future, there are many lessons of the past banks need to take with them on this journey.