Technology is changing how consumers learn about, buy, and use financial products and services.

Already the Internet gives access to information "24/7" from anywhere on earth. Already companies partner on the Internet to deliver comprehensive and flexible offerings. As the Internet matures and access becomes faster and easier, more information about products and price will be available to customers, and more information about customers will be available to suppliers.

The changes brought about by technology - price transparency, intensifying competition, and increasing consumer expectations - will lead to nothing less than the demise of traditional retail banking. Knowing why, how, and when this will happen is vital.

The future of banking is your own software robot, or "bot." Someday each of us will have one.

This personal financial bot (PFB) will be an Internet-based service accessible by phone, personal computer, TV, ATM/kiosk, etc. It will know us and be our agent in financial dealings, often without troubling us with the details. It will shop for us, manage our funds, adjust our insurance coverage to changing needs, and maintain inventories.

PFBs are arising because we want to get all we can out of financial services, but we also want someone, or something, to choose what's best for us. Our PFB will be an extension of our own thinking.

A PFB may sound futuristic, but it is the culmination of several online services that are evolving and converging. E-wallets already contain consumer's private information. Shopping bots search the Internet for the best deals on products and services - some now offer research. Auction sites offer wide menus and are starting to provide support such as escrow accounts and insurance. Personal portal sites are adding features and collecting more and more personal information. Online trading firms and other Web users are expanding beyond their original functions on the Internet.

As these services, and perhaps others, grow and overlap, PFBs will emerge. True, the PFB described above is not right around the corner. But it is coming. And in response, retail banking has only begun to acknowledge them.

Time-starved consumers confronting an expanding assortment of product and service offerings seek companies that can simplify things for them. In financial services, there are two new business models that have especially strong immediate potential here: auctions and product configurators. Auctions include traditional ones (for example, E-Bay), reverse auctions (Priceline), and bargain finding engines - high volume, fee-based intermediaries like Lending Tree that match buyers with sellers. Product configurators offer personalized products on demand. Financial services are increasingly incorporated in packages organized around a primary product such as credit or insurance.

Retail banking as we know it today - credit, insurance, investment, and funds storage and transfer - will be fundamentally changed:

Consumers will have more power and access to services. They already research and apply for mortgages online; one day their PFB, acting on customer-defined criteria, will work with bargain-finding engines to do the job on the customer's behalf. Searches for home equity lines of credit and for insurance will work in much the same way. PFBs will give even average investors a range of sophisticated investment options and optimize the portfolio allocation daily or even hourly.

Financial products can be made more sophisticated. For example, as transaction costs decline and information about consumers increases, home equity lines of credit could be secured by a variety of assets (a car, furniture, jewelry) and could be used for a range of purchases, large or small. More knowledge about customers and their possessions (brand, date of purchase, patterns of usage and maintenance) also means that property insurance policies can be tailored and precisely priced.

Financial products will be sold as part of a primary product configuration. Just as auto dealers now package financing into the sale of a car, real estate agents will incorporate a mortgage into the sale of a home - by collecting information from the PFB and submitting it to various mortgage providers for bids, for instance. Insurance will become part of the home or car sale package. Customers will reach for financial products only as a means of bettering their lifestyle.

Traditional retail banks that want a role in the coming PFB era will need to make changes:


  • Think of customers, not products. Rather than marketing a traditional suite of financial products and services, you should personalize offerings. Structure your organization around customers and make your offerings easy to understand and use.
  • Partner with primary product providers. Work with best-of-breed outfits so you can tailor customer solutions.
  • Get better at assessing risk. Learn to create and use information to get up-to-the-minute evaluations of customers.
  • Master the technology. New channels allow customers to make transactions anywhere, any time. Providers have to be universally accessible to customers.

As PFBs come into their own, providers will have to interact with them quickly and effectively through all media - and may even want to offer their own PFBs. Consider partnering with a software developer to get in early on the PFB revolution.PFBs will change the game - but not overnight. Traditional banking activities centered on cash, checks, and credit cards will remain for some time, though at reduced volumes. Those who lack the skills for the new game can strive to become the most efficient old-line provider - the last check processor, if you will. Those who want to win at it had better adjust now.

Mr. Famulla is a partner in the Washington office of Andersen Consulting.

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