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FRESH FRIDAYS: What can we expect from banks of the future?

Here in our Interim team we've seen a big increase recently in projects focusing on discovering and developing "go to market strategies" for new products and services in retail banking. With that in mind, I thought I'd take a deeper look at the technologies that we're going to see innovate financial services in the future.

Financial Inclusion

It's estimated that over 2 billion people today have no access to financial services, and as a result have to resort to cash for all of their transactions. The traditional banking system has all but ignored this group of people, as they don’t fit their established business model. It's important to note that banks don't shy away from supplying these customers because of their reduced revenue generation, it's simply because they don't have access to them - a large majority of this group are based in rural areas and lack exposure to traditional banking services (e.g. branches and ATMs).

However, the increasing use of mobile phones has proven to be "a very powerful instrument of not just communication, but also inclusion", ensuring that telecommunication companies are increasingly seen as instrumental in making financial services available to the unbanked. In the past we were used to dealing with our banks through heavily secured websites - all using different specific and incompatible hardware security tokens. Smartphones, and especially tablets, have simplified this considerably. However we still have a way to go as this doesn't change the fact that we're still dealing with a different app for each service provider, when what we really want is to have a flawless and integrated outlook of our financial assets. In an ideal world we'd have one identity and one user interface across all service providers.

So what are the main innovative technologies in banking?

Bitcoin-inspired distribution systems:

This system is based on secure wallets managed by the consumers themselves, and a distributed ledger. For those of you who're not au fait with this (like me!) a distributed ledger is a digital accounting ledger that notes down every transaction you complete. Nothing can be deleted, so if you make a mistake the only way to correct it is with another transaction.
 
From the customer perspective, this technology is low cost. This is because the system is open and as there is no central authority necessary, no fees need to be paid to intermediaries for transactions.

API’s:

An API (Application Programming Interface) is "the interface implemented by an application which allows other applications to communicate with it." For example, you'll be using an API when using  Facebook on your phone, tablet and computer. Historically, banks have been reluctant to use API’s as it opens the systems to be freely edited by the consumers, but despite this it's on the increase.

In fact, there are several ways in which API’s have been used in banking:

  • New service providers (payments, insurances, loans, etc.) can be connected and discovered easily
  • Customers can freely choose how to combine different services on platforms in new ways that suit them

Here's a couple of examples:

  • The Open Bank Project allows bank account holders to choose who they would like to share their transaction data with, e.g. allowing an individual to share a transaction with their accountant or, a company with their directors or stakeholders.
  • Stripe offers processing services for online and mobile transactions which allows businesses to quickly incorporate payment systems into apps.

Identity Systems

The present financial systems within banks have extensive regulations to ensure that they can confirm the identity of the people that open accounts and conduct transactions with them, AKA  "Know Your Customer." These activities can be very time-consuming and awkward as it's pretty  labour intensive to verify numerous documents. This in turn can prevent large numbers of people from setting up a bank account.

I came across a good example of this recently, as we had a candidate who had just relocated to the UK from Canada. She said the process of opening an account in the UK was very tricky if you don’t have a document proving that you live at a particular address (but living at a particular address usually requires you to have a bank account). So it's a bit of a catch-22!

However there are companies that have come up with a solution to this problem:

  • The Respect Network has developed a crowd-sourced reputation system on the internet which allows people on the internet to trust each other based on their "digital reputation", e.g. their social media.
  • A German financial service provider, Fidor, allows you to open an account with only your Facebook profile. It starts off by only giving users a reduced service and these services then increase as they get to know more about you. This new and powerful innovation will increase financial inclusion for millions around the world.

Hopefully this has helped give you an insight into the ways in which we use banking might change in the future!

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