The new anatomy of banking

We all could be forgiven for losing a little faith in the banking industry. It is only a decade on from the worst financial crisis since the Great Depression and controversy has dogged the investment banking sector ever since, with LIBOR and Forex manipulation scandals succeeding the 2008 crash.

Whilst investment banks have faced the brunt of the backlash, retail banking has not made it through unscathed – with PPI mis-selling, fake account creation at Wells Fargo and IT dramas at TSB all grabbing recent headlines. Moreover, the physical estate of banks is also under pressure, with branch footfall declining year-on-year as customers shift to online banking in increasing numbers, similar to what we are seeing across the broader high street. 

However, despite these challenges we believe all is not lost. Innovation is seeping into the industry, increasing the number of ways customers can interact with their banks and execute payments. These new forms of interaction – technology-driven and often more secure 
signal a significant anatomical remoulding of the bank-customer relationship and providing the opportunity to rebuild trust. 

 

Face

Face time in retail banking is becoming a rare commodity. In 2017 alone, 762 bank branches are expected to close in the UK - a record high. This will leave the country with around 8,000 branches, compared to just under 18,000 in 1989. What’s more, customers who continue to visit branches do not necessarily require human contact, thanks to the introduction of immediate deposit machines (IDMs).  

This decimation of Britain’s branches reflects the decline in relationship-driven banking and the role banks formerly played in local communities, and emphasises how convenient it has become for most people to do their banking online. Banks, too, are attracted to the cost savings made from not having to maintain such a large physical network. 

As face-to-face relationships decrease, the use of face ID is becoming more prevalent, thanks to the availability of new biometric technology. With a number of smart phones now featuring facial recognition functionality, banks are focusing on the opportunity to incorporate this into their app security features. For example, in late 2017, with the arrival of iPhone X, NatWest began offering its customers the chance to access their banking app simply by looking into their phone’s camera. 

Nevertheless, there are serious concerns regarding the impact of branch closures on customers who may not be as comfortable using online services or for whom interacting with a cashier remains one of the few physical interactions they have each day. To offset some of these concerns, Lloyds Bank has introduced a mobile banking branch, which travels around rural areas and offers customers both access to a number of everyday banking services and interaction with a bank employee.

Voice

Voice technology is widely considered to be core to the future of customer experience, with many retailers looking to add vocal functionality to their online shopping services. Banking is no different – using voice to confirm customer identity or to authorise payments is claimed to be more secure, convenient and quicker than existing methods. 
 
In the UK, HSBC has introduced voice-recognition technology as a way of allowing customers to confirm their identity and access telephone banking services, replacing more traditional methods, such as PIN or password. HSBC claims this method is more secure, as, in theory, a person’s voice cannot be replicated (although a case involving twin brothers has been reported which disputes this claim).

In addition to security, banks have also been exploring the use of voice as a way of allowing customers to make payments. N26, a German digital bank, already offers customers the ability to make payments using voice technology. By simply giving the request to Siri, customers can transfer up to €25 per transaction up to a total of €100 per day. Furthermore, N26 users can also request money from their contacts using iMessage on iOS.  

Although undoubtedly convenient, there are worries that neither facial nor voice recognition are infallible, and there is a risk that fraudsters may attempt to exploit these new technologies by using voice recordings and lifelike facial images to assume customers’ identities.  

Brain (artificial intelligence)

Increasingly, banks are looking to artificial intelligence (AI) as a way to improve customer experience and produce detailed insights into how they spend their money.

In 2016, RBS introduced AI into its customer query service. Named Luvo, the online chatbot, which is available 24 hours a day, is capable of answering questions and directing customers to appropriate web pages. RBS has claimed that the introduction of Luvo is not simply a cost cutting exercise, but a way of providing a more convenient service to its customers.

The challenger bank Atom has built an AI bot into its app, which provides immediate answers to customer questions. The bot uses analytics to take into account the context of the query before providing a relevant response. Machine learning ability also means the bot’s answer will become more helpful over time.

As well as enhancing customer service, AI is also being used by some firms to provide their customers with data-driven insights into their spending and account activity. N26 has added a feature, Pulse26, to its platform which provides users with analysis and insight into their habits – such as a frequently visited restaurant or the place they’ve used their card the most. Such a tool can help customers with budgeting and provide awareness as to where their money is going. 

Eye 

The enhanced accessibility to our money provided by technology comes with an enhanced risk of fraud and theft, as criminals endeavor to exploit weaknesses in the security of new systems. One way banks are looking to counteract this threat is through the adoption of biometrics for online identity verification, which, unlike passwords and PINs, cannot easily be replicated. 

Although TSB has recently been in the headlines for all the wrong reasons, in 2017 the bank introduced iris recognition for customers accessing online banking via the TSB app. Users must own a specific Samsung handset, but are then able to log in simply by looking directly at their phone. This method of identity verification is considered both faster and more secure than traditional methods – as the iris contains "266 unique characteristics compared with 40 for fingerprints” – providing a double benefit to customers. Furthermore, it demonstrates that banks are trying to leverage technological advancements in other industries (in this case, smart phones) to boost and protect their own services. 

Finger 

A more common use of biometric identity verification is fingerprint technology, which is used across a number of banks’ apps and at some ATMs. The potential of this technology is further being explored in relation to card payments, with both Visa and Mastercard piloting banks cards that contain fingerprint scanners – a development that could sound the death knell for the PIN. Again, the argument for the change is one of security, with proponents of finger-scanning cards claiming they can be a valuable weapon in the fight against fraud, especially in parts of the world where it is more prevalent.

Whilst this all seems like a step forward, there are concerns that fingerprint technology may not be the panacea it first appears. For starters, some critics have argued that it’s an imperfect replacement for passwords due to the fact that fingerprints can change throughout the ageing process. 

A more sophisticated use of finger biometrics is the finger vein, which relies on the pattern of veins beneath the surface of the skin on the finger to identify the individual. Considered more secure and harder to replicate than other biometrics, in 2017 Barclays starting using this technology to allow some of its corporate customers to approve payments.


Summary: A watershed moment?


Traditional banks are often considered laggards when it comes technology, weighed down by bulky legacy systems. Yet, there are clear examples in the retail banking sector where they are turning to more advanced technologies – including biometric identification, artificial intelligence and machine learning – to deliver better customer outcomes. The impetus for this change comes from both a desire to reduce operating costs and from customers, who are demanding more convenient, secure and faster banking services.

When coupled with the increasing number of branch closures, these advancements represent a potential watershed moment in the bank-customer relationship – away from one built on longevity and relationships, towards one defined by speed and technology…and the human body. Whilst some customers may lament the loss of human contact, the majority of us may end up receiving a service which is more secure, more convenient and more personalised. 
 

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Author

Oliver Maskell Consultant