The Future Model of Banking
Susan Ochs is a former Treasury Department advisor and a senior fellow at the Aspen Institute.

Full Frontal Banking

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The future of consumer banking is all about intimacy. Forget the genial, ask-about-the-kids familiarity. This will be a level of closeness previously reserved for medical probes. It will be a vastly different kind of relationship, and we'll love it, once we get over feeling stark naked.

Banking is naturally an intimate activity. Financial institutions play a part in most major life events: college, marriage, buying a home, raising children, divorce, financing a business, retirement, illness or death. Customers are often full of emotion, feeling anxious or vulnerable as they approach their financial providers.

It's no wonder trust is so important to banking. In fact, research by BAV Consulting shows trust is actually more important to banks than other nonfinancial brands. The same research found that the key driver of consumer trust in the financial sector is not honesty or fairness, but helpfulness. Customers want a bank that is trying to look out for their interests.

Over the next decade, banking is going to get even more intimate, and helpfulness even more vital to success. This deeper level of intimacy will come from three factors, all born out of technological advancements.

First is location. In ten years, nearly all banking will be done in your home or with a mobile device, in the places comfortable to you, not on display in the picture windows of a sterile retail branch. Banking will occupy your spaces and develop an everyday closeness as it fits seamlessly into your life.

The second factor is data. Soon, your bank will know you better than you know yourself. Vast amounts of information about our spending habits and financial behavior are already being collected. Combined with demographic details, thoughtful analysis will tell a great deal about an individual's patterns, risk tolerances, even upcoming financial goals then offer the services he or she actually needs or wants. It will feel like a multi-faceted version of Amazon's "you might also like" function.

And unlike the rigid and blunt FICO score, big data can create a precision instrument for banks that is a far better predictor of credit risk. (Yes, there are discrimination concerns around fair lending, but in my future world, this has been addressed carefully by regulators.)

The last factor is personalized service. As technology makes retail banking cheaper, and big data makes it more insightful, banks will be able to provide mass customization of services. With just the tweak of an algorithm, an offering gets tailored to a customer's specific patterns and profile. I won't have to troll other bank websites to find a credit card with the right constellation of features and terms, because my bank will know how to create a custom card that suits my exact needs.

Future banking will feel more like a medical relationship integrated into everyday life, understanding and serving you with the intimacy and attention of the family doctor.

This full frontal banking will be better for everyone consumers get a more useful experience, improving their financial health and opportunities. Banks get a better tool to gauge credit risk, plus the ability to spot troubling patterns and try to help consumers before delinquencies even arise. Banks will also launch more effective, targeted sales pitches with better success rates. Ultimately, they will have deeper and more stable consumer relationships, which are also more profitable.

But this powerful type of relationship only works with a Hippocratic-oath level of trust. (Imagine a bank using this new personal data to find the most effective ways to bilk you?)

Since trust is driven by helpfulness, new technology is really only a conduit the special sauce here is intent. Are you trying to improve my long-term financial life?

Any bank can talk a big game about customer-centricity, but the business models have to back it up. So far, the new players e.g., Simple, Moven, GoBank seem best at embracing this kind of helpful relationship in all aspects of their organizations. (Moven even has its own oath.)

Future consumers will get over the creepy sensation of being this exposed and revel in the ease of banking and their newfound financial health. Future bankers will accept that success in the land of intimacy requires a genuine, long-term commitment to the well-being of every consumer.

The only question is whether today's established players will be the bankers of the future.

Susan Ochs is a former Treasury Department advisor and a senior fellow at the Aspen Institute, where she founded The Better Banking Project.

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Comments (10)
You draw an interseting picture of the future. The one difficulty I see is banks have spent the past 20 years losing the trust of their customers by doing the opposaite of what you say is required - act in the best interest of customers.
As an industry we are now rated worse than "other financial services". That means people must now trust the individual banker not the institution, which is the tradtional rating position of the brokerage and insurance industries. If you only trust the individual you know, then the automated approach you envision breaks down because there is little individual personal contact as I read your description. For the level of trust you require to become reality banks need to adjsut their culture, compensation practices and product offerings.
Posted by Bob Merkle | Monday, July 15 2013 at 12:19PM ET
The article is well written. As the first comment has stated, the culture for the last two decades at the major banks has been the reverse. Lip service continues to be given by the heads of the major banks as they use advertising dollars to attempt to drive revenue; but, Ms. Ochs is right on target. Change will occur initially at glacial speed but it will occur. Once critical mass is reached then the pace will escalate. There is opportunity for smaller banks to strike first and secure their markets. Then the major banks will only be able to use "price" as their marketing advantage but that will be offset by their need to keep their PEG ratios up. There will be a shake-up at the banking associations as smaller members will have to decide if they have the ability to reverse the philosophy of the major banks which still appears to be to abuse customers. It will be hard for the 6000 smaller banks to be represented by such diametrically opposed association leadership.
Posted by frankarauscher | Monday, July 15 2013 at 2:01PM ET
Sounds a little creepy. The whole full frontal thing. Maybe just not a good analogy. Nor is that of a proctologist.
Posted by drhuneycutt | Tuesday, July 16 2013 at 8:23AM ET
1) Relating banking to healthcare is probably not the best thing to do right now given all the issues around healthcare and that with the pay-per-service attitude, I would not say my relationship with my Doctor is that great.

2) I would not rely much on regulators to fix anything right now. If you recall, these are the same regulators who are pushing banks to make sure they only take pristine mortages to get Qualified Mortgage rules, while at the same time, bat them over the head to make CRA loans to those that wouldn't qualify. I wouldn't say anything they do is 'careful', would you?
Posted by BankerBud | Tuesday, July 16 2013 at 10:30AM ET
My read of the article is that she is speaking to the larger banks. Small community banks have been capable of doing this for decades albeit without the tech support. Well run "Trust departments" (not usually found at big banks- but at true Trust companies) already provide this as do Wealth Managers, Family Offices, and other non-bank financial professionals that have a duty of prudential advice. Remember, many banks fight to not have any "duty" of professional financial conduct placed upon them.

But the article is accurate for the middle class in major urban areas. Her focus is on "Trust" which when associated as an adjective with major banks is almost an oxymoron.
Posted by frankarauscher | Tuesday, July 16 2013 at 10:58AM ET
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