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Full Frontal Banking

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.


(10) Comments



Comments (10)
You're absolutely right. Consumers are slowly becoming more comfortable with the privacy-personalization trade-offs that your full frontal banking will require. This is being driven, primarily, by a generational shift--younger consumers are just more comfortable with third-parties having and using their personal information. The question, as you allude to at the end of your post, is who will provide this new, more personalized banking experience. I've argued previously that new providers like Moven and Simple are a huge competitive threat to traditional banks because of their focus on providing this next-generation banking experience. Time will tell if traditional banks are able and willing to fight back.
Posted by Alex Johnson | Wednesday, July 24 2013 at 10:31AM ET
First of all, I think you have to begin by defining what you mean by "banks" or banking". We throw that term around so loosely anymore. The reality is that the industry is very fragmented among big banks, medium size banks, small banks, credit unions, mutuals, and non-bank financial institutions. I think you will find that the opinions of the customers/public will vary widely among these different institutions. But assuming the author is referring to large to medium size banks, I would tend to agree with her premise. One comment said there are 4 million Americans who will never trust banks again. I am surprised that the figure would be that low. I am a banker and I don't trust the big banks nor will I ever. I have a hard time trusting any large, powerful entity. At 2.4 trillion dollars in assets, an entity can do a lot of damage and have a lot of power and control. The problem is not trusting these entities .... the problem was, we should have NEVER trusted these entities.
Posted by GeorgeBailey | Friday, July 19 2013 at 10:47AM ET
In 1985 the American Bankers Association asked 5 other retail bankers and myself to evaluate a program which was self-service financial planning for the 80% of customers with 20% of the money. It was "come with only the info in your head and your ideas about what your goals would be". A video/computer interface had a Walter Cronkite figure ask you a reasonably short list of questions for about 15 minutes. You input quickly on a keyboard, and walked out with a highly actionable, easily understood financial blueprint. Cost in 1985 was pegged at $40. The algorithms were written by a Nobel Prize winner mathematician. We were very impressed. The plan could be taken to any type of financial rep for discussion about implementation (not just at the bank but the program was designed with banks in mind). The second half of the program used big data to interface with the customers accounts everywhere and track the person's progress toward their goals.It would provide regular reports to the customer. At the time the internet was in its' infancy and consolidator programs were not actionable. The ABA panel recognized the logistical impediments and articulated them to the developers. The developers of the program were facing too many bank mergers and interstate banking for their business model to make them money. Today, it would be very easy for a bank to provide the service.
And today, the range of options to be "helpful" to customers is much more than in 1985; but, too many big banks are preoccupied with this years CEO bonus.
The other 20% of customers with 80% of the money are mostly too educated to use a big bank for good financial advice for their big assets. They use Fidelity, Schwab, etc. or other registered financial professionals (I realize that big banks have subsidiaries that get some of that business).
My point is that Full Frontal Banking is easily doable by innovative bankers; but, it probably will require a vendor to "help them do it".
Posted by frankarauscher | Wednesday, July 17 2013 at 11:27AM ET
There are four million or so Americans (or "former customers") who will never really trust the banks, ever. After witnessing the consequences of their actions, the children of those Americans will not be disposed to place much trust of faith in those institutions, either. The rest of the population will find ways to accommodate the "asymmetric" quality to the exchange of information in the financial realm. While the banks can see all the cards an individual has been dealt over the years, the customer can only wade through a sea of data and try to make some kind of informed guess about the hand that a bank is holding very close to its vest.

The notion of building "trust" given this imbalance comes off as an imperious conceit - customers may not have to simply accept their fate - they may seek out other models that allow an individual to access capital and credit on a more level playing field (perhaps in the international domain). If Nixon can go to China ...
Posted by teknoscribe | Tuesday, July 16 2013 at 9:58PM ET
I read this article because my first thought was "I've never had a really personal/positive relationship with a Doctor. Some were better than others, but mostly I try to completely avoid seeing MDs because I was just a dime a dozen to them."

Am in the minority a)Not thinking too highly of my "relationship" with MDs? and b)Not really wanting that experience to be a role model for other services?

At any rate, personal service is not the future unless you have enough personal wealth come up to the deposit limits. (Maybe this was written to encourage Docs to put their money into banks??) I bank with a credit union that's trying to automate as much as possible, to the point of putting all tellers on video conferencing. It took some getting used to, but I'm very happy with the fees saved and dividends earned in this low rate environment.
Posted by cdguest | Tuesday, July 16 2013 at 6:41PM 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
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
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
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
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
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