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On deck: hot new tech: what evolving technologies will alter the way banks operate and market themselves in the near future? Look for mobile telephone applications to explode. Also, expect ATMs and other self-service technologies to grow much more sophisticated.


Technology. Over the years, it has changed the way we interact with our customers. Recently, the introduction of remote deposit has opened up new possibilities for cementing relationships with business customers and for marketing bank services to prospects. Looking to the future, what new technologies just over the horizon are going to produce the next waves of change--and hence big modifications in the way banks operate and market themselves? To answer this question we talked to some industry experts and asked them to look at recent innovations and to predict what the changes will be around the year 2010.

The growth of online transactions

Let's begin by looking back. In 2006, online transactions accounted for 26 percent of total transaction volume. By 2007 that percentage moved to 31 percent, making online the number one channel for customer interactions. ATMs captured the number two spot and call centers (including interactive voice response, IVR) third in that year. This online growth trend is expected to continue to 35 percent in 2009 and 40 percent by 2010.

"A number of factors have spurred this growth," notes Jim Eckenrode, banking research fellow at the TowerGroup, a global research and advisory firm that specializes in the financial services industry, with headquarters in Needham, Mass. "First, retailers have worked to increase our comfort with the Internet. Merchants like Amazon and L.L. Bean have contributed in a big way to this end. Second, in financial services, a focus on development of greater online utility and significant enhancements in site design has made the experience simple and productive for the consumer. So, as we look across the channels for financial services (online, call center, Internet, ATM and branches), the growth of the online channel outstrips any past expectations."

ATMs are gaining greater functionality because of an ongoing shift in the popular type of operating system software used in them, notes Greg Steffy, senior director of integrated services, Diebold Inc., Green, Ohio. The company primarily makes self-service transaction systems, such as ATMs. "For the past couple of years, specific to the ATM channel, the single biggest shift is the operating system. As we enter 2009, 60 percent of banks are still running OS/2, despite the availability of Windows-based platforms as early as the late 1990s. Since IBM discontinued support of OS/2 in 2006, the move to Windows-based platforms has accelerated. The main implication of this change is functionality. Over the past several years, we have seen major changes facilitated by this new platform. Customer interfaces are more attractive and simpler to use with hypertext markup language (HTML) graphics and advanced functionality, such as transaction personalization. Check imaging has greatly advanced consumer acceptance of ATM-based deposits, Imaging also brought major cost benefit to banks with the advent of Check 21--now that a digital image is as good as paper, there is no need to visit the ATM every day to collect deposited checks. We are just seeing the edge of how customer relationship management (CRM) data can inform content in this channel, driving customized greetings and other targeted messaging."


Looking at change from a branch infrastructure perspective, Steve Simon, director of Industry Solutions for IBM Inc., Armonk, N.Y., makes this observation, "The technology management demands for the bank branch has expanded dramatically in recent years--digital video surveillance, multimedia marketing and others have taken branch data demands out of the realm of transaction processing. Along with increasing demands, the rapid development of alternative channels such as online begs the question: Do banks need a free-standing branch sales platform? Here we may see a convergence of the sales channel of brick-and-mortar banks with Web-based applications. A second response too may be to fully centralize the banking using hosted-client technology. Some banks will move to a complete hosted client model, where branch technology is simply a monitor, keyboard and mouse--with all in-branch technology supported centrally. This may occur in emerging countries where they are installing a new infrastructure.

"A third model follows the path of retailers. Here most data is hosted centrally, but data which is analyzed locally, such as digital video surveillance, is held at the branch and only portions of it are uploaded to the central location. The most common change is to simplify the growing branch technology 'rack.' Moving to blade technology great reduces the cost of system maintenance and upgrades (a blade upgrade can be as simple as unplugging the old unit and plugging in a new), therefore making ongoing technology enhancements much more feasible. On the software side, merging online and platform sales systems will eliminate redundancy, simplify management and greatly reduce cost."

Looking forward--from the customer's perspective

Then we asked the question, what customer needs will drive the next wave of technology development? The answers seemed to cluster around the increasingly complex demands of consumers. Eckenrode comments, "The problem that we have right now is that 'the customer' is an elusive concept--boomers, Gen Y, immigrants--huge groups with totally different priorities! So banks find themselves with one foot in the past and one in the future. We need to continue to support customers with today's wealth and anticipate the needs of those who will control wealth tomorrow. Boomers opened their first savings account, the only savings account available at the time, got a 5.25 percent rate--take it or leave it. Our Gen Y clients look to Apple, Google and Wikipedia as their most impactful brands according to a recent survey. Their comfort with technology, comfort with the Internet, growing up with more products than they will ever buy at every corner supermarket has redefined expectations. These customers expect to get what they want. Banks will need to respond to their individual needs in the manner of these other brands. That shift will take the form of continued development of predictive analytics and more real time/event-based marketing and services. Offers will have to exist at the individual level. With this group it all comes down to three imperatives: be responsive in the moment, do it immediately and personalize it."

All automation that consumers are using in other industries, they will demand from financial services as well. "It will be increasingly important for banks to understand how consumers are interacting with businesses and companies that they enjoy. There is great learning to be had from those companies--multiple-channel leverage is a great example. We know that consumers are demanding self-service across channels--look at airlines as an example. This industry has shown that the concept and premise of tree converged or multichannel experience is real and achievable. Self check-in, online check-in, even mobile check-in has answered consumers' expectation for choice with multichannel integration," says Brian Bailey, vice president of financial industry market, NCR Corp., the global technology company, which is headquartered in Dayton, Ohio.

This desire for self-service will also drive development of enhanced deposit transaction capability at the ATM. In the Middle East, Eastern Europe and Asia Pacific, basic deposit hardware and infrastructure are seeing layers of new applications. In the area of remittances (cross-border transfers), banks now allow customers to preauthorize senders and receiver for transfers. A notice of fund availability is sent to the receiver's mobile device and funds are collected from an ATM with a one-time PIN. Development of clear remittance corridors have been driven by migration trends--Central and Latin America to Spain and Western Europe; Southeast Asia corridors; Eastern Europe to Western European--and these same types of corridors have emerged in the United States. Banks will have a great opportunity to displace traditional providers such as Western Union and Moneygram--providing authorized services at a more reasonable cost to the consumer and recruiting next generation consumers.

Looking forward--from the bank's perspective

From the banker's point-of-view the focus continues to be on cost management. "Commercial banks have seen a steep upward slope in hiring," comments Tower's Eckenrode. "Efficiency ratios have stabilized and banks are looking around for new ways to do more with less. They are looking particularly at rationalizing their technology, making sure they don't have five different technologies doing the same thing. They are looking to less customized applications, but that change will be evolutionary, not revolutionary."


Some South American, Canadian and European banks have recently looked to business-process outsourcing as a source of savings. "The complexity of channels continues to increase--in the ATM channel, Windows-based technology, regulatory requirements such as Check 21 and enhanced data encryption standards, and market conditions are causing reassessment of channel management approach," says Steffy. "The classic model of buying ATMs and engaging six or seven different providers to manage the process is being challenged. Expect to see more fully outsourced ATM models coming to the United States, instead of the large capital investment and large operating staffs that we have seen historically. The benefit to the bank is cost savings; the benefit to the consumer is faster access to the latest technology."

Despite the enormous growth in the online channel, check processing volume still presents a cost challenge. As a percent of transaction volume, checks accounted for 55 percent of total volume in 2000, which will drop to 17 percent by the end of the decade--but the increasing volume of transactions conceals the challenge. Banks will look to technologies such as deposit automation in ATMs, point of sale (POS) check truncation, and we can expect to see remote deposit capture move to consumers. Another innovation to watch is online demand deposit account opening--from taking the application through credit checks and scoring, right through delivery of the checkbook. ING and Citi have led the way in this technology.

Building on this notion of ever-expanding transaction volume, NCR's Bailey looks at some other areas of technology consideration, "Financial transaction volume will rise from 20 bib lion in 1969 to 120 billion in 2019--rapidly accelerating beginning in the late 1980s with ATMs, then call center, online banking and mobile banking. We expected self-service transactions to replace full-service transactions--instead they have incrementally added to the ways and times customers interact with their bank. And this trend will continue--banks need to look to new self-service technologies to allow in-branch resources to focus on high-value interactions. Globally, teller-assisted cash recyclers have greatly reduced settlement time and leakage [loss of accounts]. In the U.K., Alliance and Leicester PLC, the bank, has migrated 50 percent of its low-value transactions to intelligent deposit devices located at the front end of the lobby. They have repurposed branch staff from transactional roles to the bank's front end to direct traffic and have greatly reduced costs and focused human resources on quality interactions."

NCR's Bailey looks at three key driving needs for bankers over the next two to three years. "First, the battle for the consumer will become more rigorous between financial institutions and nonfinancial institutions. We can expect to see more loyalty programs intended to grow customer relationships. Telecommunications companies could be competitors as mobile technology becomes more ingrained in consumer life. Banks must position themselves with the right technology solutions to empower consumers to transact when and where they want--as these new competitors will."

"Second, risk and security will be a major area of trust. Despite implementation of chip and PIN in the U.K., card fraud continued to increase 25 percent from 2006 to 2007. New channels like the mobile device can now be utilized to let customers know via their phone or ATM messages that fraud may have occurred and to prevent further unauthorized transactions. And third, we need to take a customer-driven approach to operational efficiency in our technology decisions--driving non-customer-facing costs down in order to continue to invest in customer-facing channels."

What does all of this mean to development?

We then asked our experts what all of these needs and trends will mean to our technology focus over the next couple of years, mobile technology applications led the way. Mobile phone utility will boom with the availability of the next generation of near field communications (NFC). Chips embedded into cards or mobile phones will let consumers make small transactions without handing their card over or swiping their card. The London Transit system's Oyster Card is contactless and allows both transit payments and payments for small purchases such as newspapers in the subway stations. Extend this idea to cards communicating with ATMs to load various accounts--Malaysia's May Bank has enabled consumers to load road-toll payment cards at their ATMs for a small fee to the consumer and the transit authorities--a "virtual card" existing on mobile phones is now taking over the function that these contactless cards have today. "Japanese banks are now branding the payment application rather than a physical card--dynamic branding rather than physical branding," notes Bailey.

Eckenrode points to this mobile development from a different perspective, "Mobile banking is gaining traction and hold--most banks will implement some form of mobile banking interface and transactional channel. Leaders will recognize payment and near field communication (NFC) opportunities--bill payment, remittances. Using bill pay drives customer retention--as will mobile. We will see focus on convergence of payments--credit, debit, prepaid card, transit card, health savings card, all will ultimately live on your phone."

A second theme is increasing applications of more sophisticated self-service technologies. Even queuing technologies are gaining in sophistication--empowering the consumer. Bailey notes a Singapore bank that lets consumers select the product or service they are interested in at a kiosk at the bank's lobby. The customer is given an estimated time of that service, the kiosk takes a photo of the customer, and a call is placed to the customer's mobile phone when an associate is available to service him or her. The associate then greets the customer based on the photo taken at the kiosk!

Third, the ATM experience will be become increasingly sophisticated. Data from other sources, such as CRM will drive specific content on the screen. This is happening in a simple way today at WaWa convenience stores, where special discount coupons are presented to customers based on the time of day they traditionally use the ATM.

In the area of online payment vehicles, our experts identify the fourth trend as the challenge presented by online brands like PayPal. They have become the branded payment vehicle--relegating banks to the settlement role. Banks will focus on ways to become more direct participant in that process. Additionally, as penetration of broadband into households grows, the current chat and cobrowsing idea will extend to video conferencing. This will provide a more personal (and yet remote) experience for the customer.

Teller optimization is the fifth trend. Cash dispense and teller-assist devices will continue to move routine transactions to automation. Branch associates will increasingly focus on providing advice and more complex service--driving a need for more sophisticated people in those roles.

How useful was this article? Please use the postage-free Reader Opinion Card provided in this issue or leave a message at (202) 663-5075. You can also send comments by e-mail to

In addition to writing for this magazine, Deb Stewart of Charlotte, N.C., is an independent consultant working for the financial services industry. Telephone: (704) 759-1633; e-mail: DebLstew@aoLcom.
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Title Annotation:Technology
Comment:On deck: hot new tech: what evolving technologies will alter the way banks operate and market themselves in the near future?
Author:Stewart, Deb
Publication:ABA Bank Marketing
Geographic Code:1USA
Date:Jun 1, 2008
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