Currently, the mobile banking experience is very transactional. Most mobile banking apps allow consumers to pay bills, make payments, transfer money, check balances or find a branch. Some offer an analysis of the user’s finances, or provide some additional product information, but the experience is largely functional, generic and task-oriented. This is all set to change. Innovators in the financial industry are working furiously on turning mobile phones and tablets into virtual digital advisors. Mobile banking will move beyond the transactional, product-pushing model predominate today to one that is radically customer-centric, proactive and goal-oriented, helping users make smarter decisions.
This means that financial institutions will need to develop a much deeper understanding of their users — beyond a purely financial perspective. What are they trying to achieve in life? Their account balance and past transactions will only provide a handful clues. What else can be gleaned?
Banking providers will have to provide richer interactions with consumers to learn more about their motivations, and make intelligent inferences from behaviors of those with similar profiles. They will also have to draw on third-party data sources in order to build more complete pictures of individuals, their families, friends and social networks.
The beginnings of this trend can already be seen in the market for investment products, with the launch of robo-advisors. These offer portfolio management tools, with automated advice based on data provided by users, such as online risk-appetite evaluations. For example, younger, risk-tolerant investors will typically be advised to put a bigger proportion of their portfolios into equities, for example. A simple start, but a helpful improvement on the past nonetheless.
For institutions and consumers alike, the mutual cost savings on relatively large investment transactions make them an attractive place for robo-advice. But the trend can extend into the full range of financial decisions, all the way down to the most mundane daily shopping transactions. Ever more efficient systems are commoditizing the payments business, so the race is on — including banks and fintechs alike — for value-added services in the payments space.
Here the big prize for banking providers is to do more than merely executing the payment. What if they could use their knowledge and data to make help consumers make better choices?
Big transactions — like buying homes or cars — are months, if not years, in the planning. Right now, banks and credit unions are generally only involved at (or immediately proximate) to the moment of payment. But with their transactional data and expertise, banking providers could step in to help consumers in the research and shopping phases, building on the experiences of millions of other similar customers.
Even with smaller transactions banks could play a more active role in providing tips and tools to help, given their role at the heart of the payments system. Indeed, they could embed themselves in the whole journey of searching, buying and, in some cases, use (think: “feedback and reviews on purchases”). As a result, they would be involved not just in the “how” to buy, but the “why” (“do I need this?”), the “what” (“which one should I buy?”), the “when” (“should I wait?”) and “where” (“who’s got the best deal that I can trust?”).
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The mobile apps banks and credit unions offer today typically focus only two functions: payments and savings. Most people have a whole host of other financial products — e.g., loans and investments with other institutions. The result is that most banking apps only provide a partial picture of an individual’s finances, which creates problems for institutions aspiring to deliver digital advice.
So the next big trend is aggregation — combining people’s financial data from multiple sources to create and analyze a holistic picture of their finances. A customer needs to know their total income and spending, the value of their loans, savings, investments and assets before they can make reliable plans and smart decisions based on a realistic budgets, right? Despite the formidable legal and IT hurdles, some providers have started tackling this challenge, but the enormous potential value to users suggests that the riddle will ultimately be solved.
In effect, banking providers will have to rethink their business model, moving beyond the dream of being the single multi-product provider to their customers to one where they offer value-added platforms for customers to access and manage their finances, whatever the source.
But why stop at financial products? Having built a complete financial platform for their customers, banks and credit unions could also provide access to the purchase of other products and services. Many financial institutions fret that the likes of Google and Amazon might move into financial services and eat their lunch. But by providing access to multiple online marketplaces, banking providers could beat tech titans to the punch.
This brings us to a third direction for mobile banking development. While the adoption rate of mobile banking has been nearly exponential, it’s not an activity that takes up more than a few minutes of the 3+ hours a day that many mobile users are spending on their devices. It’s functional, but borrring… It doesn’t have to be this way.
Indeed, if banking providers aspired to become omnipresent trusted advisors, they could build a much deeper emotional connection with consumers. Financial transactions may not be fun (although people do get a buzz from bagging a bargain), but the spending goals that lie behind them are often highly emotionally charged. Think of the excitement around taking a tropical holiday, or getting a bucket-list present for a special friend.
Financial decisions are inseparably woven into people’s lives, so their feelings and emotions need to be taken into account. The new field of affective computing is already making progress in developing sensors to do so. Combined with the insights that can be teased from behavioral economics (which has yielded a wide range of psychological biases deflecting us from the coldly rational calculations of traditional economic theory), this could lead to much smarter devices. By learning from someone’s moods and behaviors and of those similar to them, these high-functioning devices could help consumers make decisions that are not just more cost effective, but more emotionally satisfying; ones that don’t just avoid mistakes, but also lead to success and well-being.
Speaking of satisfaction, people derive happiness largely from interactions with others. We’re social animals. The financial decisions in most households are driven by the needs, interests and reactions of other members in the household. We care about the reactions of our friends, neighbors, colleagues and peers. Yet mobile banking apps are still locked in the private, exclusive world of the user and the bank.
There’s huge scope to make mobile banking more social. This is not to say that people are keen to share their financial secrets with one another — they’re not. However, facilitating intra-family and intra-household goal setting/sharing, budgeting and transfers would be a good place to start. In the new world of virtual digital advice, people may be happy to share their wish lists, tips and tricks, reviews and experiences with others. After all, people trust their families and friends more than companies. And the amount of information people consider “private” continues to shrink.
That notwithstanding, preserving privacy and security will be a paramount precondition here. This will also depend on users opting in only to the features that they want and personal data being protected or anonymized or randomized through aggregation.
Now you might be thinking, aren’t existing social networks like Facebook better placed to do this? Perhaps. But financial institutions — for now — do have some advantages. Big banks have millions of customers, even if they have barely begun to connect them in online communities. They have financial data — on incomes as well as transactions — that the social networks and tech giants would die for and might never have. They also enjoy the lead with respect to expertise in cybersecurity, credit evaluation, and financial planning.
Think of the possibilities. With savings, for example, most people have particular goals in mind, such as buying a car. Within their customer base, a bank could have a ready-made community of potential car buyers and sellers, who could share thoughts about which cars to buy, where to buy them, even how to maintain and insure them. Or think of the trend towards crowdfunding. Banks could facilitate the development of platforms for all forms of peer-to-peer finance, and take their modest cut. Existing joint ventures with P2P platforms hint at a future of more collaborative finance.
A fifth direction for mobile banking is to become more forward-looking and dynamic. People appreciate the new 24/7 convenience of mobile banking, but it’s all a bit static and backward-looking.
By harnessing big data about users and applying the predictive analytics tools, banking providers are already starting to provide more sophisticated alerts about their clients’ finances. Looking at their typical spending, for example, they can be warned that their account might be about to slip into overdraft.
Eventually, these personalized micro-economic forecasts might stretch into the longer term, such as indications of future utility bills or the ranges of potential savings returns. Indeed, such personalized forecasting is essential if mobile banking morphs into financial advice, because all borrowing, saving and investments require a view on the future.
The transformation towards holistic advice will also require even higher frequency contact with users. Although mobile banking has already multiplied the number of contact moments between clients and their banks this has much further to go. Rather than being event-driven, or merely reporting to or alerting users, finance will become more interactive, immersive and engaging.
In the background, the virtual adviser will have to remain ‘always on’, scanning for opportunities and threats to its users. In the process, users, like their devices, will learn as they go along about how to make smarter decisions .
The notion of an adviser ‘always on’ suggests that the ultimate direction of mobile banking will be to free itself from dependence on mobile devices such as the app-driven smartphones and tablets that we are familiar with today. The development of cloud-based computing, artificial intelligence and the ubiquitous sensors of “the internet of things” open up the prospect of ‘ambient computing’. In the coming decades, we migrate to an electronic environment that recognises our presence, senses our situation, anticipates our needs and responds to our commands. Let’s just hope that the ambient financial advisor figures out a way of handling financial market turmoil.