Mobile Banking – The Biggest Branch!!!

HSBC's oldest customer to download its banking app was 108 years old!!!

FDIC says that “In terms of technological change, there is little evidence that the emergence of new electronic channels for delivering banking services has substantially diminished the need for traditional branch offices where banking relationships are built."It does stand true when one see a rather marginal decline of branches in the US from 99,550 in 2009 to 94,725 in 2014. But can we ignore the average number of teller transactions per office declined by 45% between 1992 and 2013, from 11,700 per month to 6,400 in a backdrop where customer base has increased manifold. A recent survey finds that 19% of people aged 18 to 29 visited a bank branch which is 29% age group 30 to 49.

Mobile banking spread is twofold -  While on one hand it serves the’ Client Aspiration’ on the other it ‘Reaching the unbanked populace’

Client Aspiration

British banks (British Bankers' Association) are seeing stronger growth in mobile and internet banking from customers in their 70s and 80s than younger generations as nearly 2.3 million people aged over 70 are now using internet banking which is equivalent of 30 percent of that age group. Over 450,000 customers over 60 are using banking apps on smart phones, iPads and other tablets.

RBS launched ‘Touch ID’ which would be available for nearly one million Apple iPhone users that have RBS or NatWest mobile banking apps. The technology recognizes customers' fingerprints and they don't need to remember a password to log in.RBS added that this move is part of the bank's reaction to a decline in customers using its branches and growth in those banking online and via mobile phone apps.

Indias’ largest private sector bank ICICI launched the ‘pocket’ in the last fortnight which is open to anyone, whether they are ICICI account holders or not. No documentation or branch visit is necessary and funds can be added from any bank account in the country.

‘Wintrust Financials’ uses technology from Fidelity National Information Services where the customer uses an app to preselect the amount of money to be withdrawn. Then, the customer visits an A.T.M., and — without inserting a plastic card — presses the “card less cash” button. A Quick Response code appears on the screen, which the customer scans using a smartphone, and the machine dispenses the bills.

Reaching the unbanked populace

The Indian Prime Minister in a bid to end “financial untouchability" for the unbanked populace launched an ambitious scheme which resulted in opening 115 million new bank accounts. Of those, 80 million have no money. The answer seems to be in ‘payments banks’ to  bring bank to the door step of those 80 million accounts with no money spread across 600,000 villages.

Payments banks in India  could cut the use of cash in an economy where nine out of 10 transactions are still paid in notes and coins and kick-start the use of low-cost payment forms like mobile money that have been used by only one in every 300 Indians. That compares with 76 percent of people in Kenya, Africa's mobile money pioneer, where Vodafone's M-Pesa affiliate dominates the market. India like Kenya is targeting its Mobile operators .Retailers and Other payments company have applied for license .The opportunity is seemingly so vast that it has attracted India’s retail major the ‘Future group’ too apart from pre paid wallet companies like PayTM .One should not miss out ‘Tech Mahindra’ which has plans too .So what does Tech Mahindra is known to do? It’s one of the top IT outsourcing companies in India. To top it up India’s’ largest corporate house – Reliance Industries has tied up with India’s’ largest bank of India -State bank of India who asset is close to USD 400 billion with 17000 branches.

 A bank with 17000 branches with deep penetration across the worlds’ seventh largest country certainly is strongly forecasting a trend .

Social Media Banking – Balancing challenges and opportunities is the way forward

The figures below would indeed be very tempting to not only make a case for social media banking but to jump to the conclusion that social media is the future of banking .Take the case of Facebook with over a billion monthly active users, YouTube is close behind with 800m unique visits per month and Twitter has been growing fast but is still at the level of only 200m active users of which 25% are from mobile devices. Over 60 % in the US one sees the opportunity and potential in Brazils’ 34%, Indonesia’s’ 25% and India’s’ 6%.To top that all social media use is skewed toward younger age groups in the US with 83% of 18-29 year olds are social media users. Further on the lucrative side the galloping increase in use of smart phones .Certainly Banks can ‘leverage social media as a channel to personalize customer interactions at relatively lower cost as compared to branch banking or call centers. Besides banks can enhance customer intelligence by combining it with social analytics to get deep insights into customer behaviors, sentiments, and needs in terms spotting trends, generating leads & tailoring products earlier  as 90% of customers trust recommendations posted on social media websites and 71% are more likely to make a purchase based upon social media referrals. Partly the statistics has been leveraged as some banks backed by social analytic tools have achieved reduction in marketing costs and achieved higher conversion of leads. The speed is indeed slow and the approach cautious.

DenizBank from Turkey has been one of the success stories using Facebook and stands out for being the first to adopt such. Geographically diverse banks have adopted the platform with an overwhelming focusing on sales and marketing and some allowing access to accounts and allowing payments. Probably the longest stride has been by India based ICICI Bank which provides meaningful banking functionality through Facebook. The Facebook app is hosted on secure ICICI servers, and requires the customer to enter a debit card number and password before it can be accessed without leaving Facebook. This January it followed with allowing money transfer on Twitter.

A ‘constraint’ approach has been adopted by banks  as surveys after survey reveals the heavy involvement of the communications departments in many banks as mostly social media has been used as a tool as a brand communication tool and for corporate social responsibility activities. Besides it has been useful as a customer engagement tool where Banks are finding that customers are very open on social media and are willing to be engaged by the bank in a way they might not in another context. Banks are also looking at how to make use of the power of social media for advocacy – using promoters to get positive messages out for example relating to new products or services, and how to influence this process in the appropriate way. It’s possibly that social media also brings greater risks – lower bargaining power and influence, and greater risk of brand damage. Customers are empowered to voice grievances widely, and have much greater transparency to features and price.

The Bank must comply with applicable laws and regulations as when it engages in these activities to engage client in lending, deposit services, or payment activities .As such they should remain aware of developments involving such laws and regulations. Failing which they are exposed to ‘Compliance and legal risk arise’ .This concern is particularly pertinent to an emerging medium like social media. Failure to adequately address these risks can expose an institution to enforcement actions and/or civil lawsuits in form of defamation or libel risk when there is broad distribution of information exchanges. Emerging areas of BSA/AML risk in the virtual world is an area of concern which the banks should be aware of .Things like virtual world Internet games and digital currencies present a higher risk for money laundering and terrorist financing.

Reputation risk may surface when consumer information is handled carelessly. The privacy disclosures are to be made as required under laws like Gramm-Leach-Bliley Act (GLBA) in the US .Every geography has its whole lot of regulations. Privacy laws being just one of the compliance requirements. It may not be enough if  the Bank  complies with applicable privacy laws in its social media activities and provision needs to be made for any unto toward reaction if any consumer information like someone in public posting confidential or sensitive information like  account numbers on the financial institution’s social media page or site.

Reputation risk can also emanate from negative publicity at times even when the bank has not violated any law. Such can happen through comments made by social media users, spoofs of institution communications, and activities in which fraudsters masquerade as the institution. As a hedge the Banks should consider the use of social media monitoring tools and techniques to identify heightened risk, and respond appropriately so that they address the threats in a timely manner.

The Bank can potentially risk its reputation given the public nature of social media as it addresses customer complaints and questions whether its timeliness or appropriate. The participatory nature of social media can expose a financial institution to reputation risks that may arise when users post critical or inaccurate statements. Social is vulnerable to account takeover and the distribution of malware as well. Employees’ communications via social media may be viewed by the public as reflecting the financial institution’s official policies or may otherwise reflect poorly on the financial institution, depending on the form and content of the communications. Employee communications can also subject the financial institution to compliance risk, operational risk, as well as reputation risk.

The Bank should regularly monitor the information it places on social media sites. This monitoring is the direct responsibility of the Bank, as part of a sound compliance management system, even when such functions may be delegated to third parties. However the Bank’s ability to control content on a site owned or administered by a third party and to change policies regarding information provided through the site may vary depending on the particular site and the contractual arrangement with the third party. The Bank should preferably do a cost benefit analysis of using a third party along with a due diligence as to the benefits of using a third party to conduct social media activities. Financial institutions’ incident response protocol regarding a security event, such as a data breach or account takeover, should include social media, as appropriate. Aspects like the irrelevance of a social media site have to be provisioned for.

The tempting statistics on one hand and a host of regulatory requirement iced by the fragility of ‘Reputation Risk ‘ is something that requires a rigid cost benefit analysis as Banks move forward as they move ahead in reorganizing their business in response to state-directed capitalism – regulation reshaping the industry and dictating business models, face demographic challenges – changing priorities and opportunities for growth & Social and behavioral change – rising customer expectations and the need to regain public trust. As of now it seems to be a job well done.