Why Banks Should Experiment More with Wearable Computers

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With a storm of new wearable computing devices expected to hit this fall, including Apple's iWatch, banks ought to be investing in and experimenting more with the technology, some say.

Wearables lend themselves well to quick banking updates, such as fraud alerts and balance checks, and simple transactions like funds transfers. They're also expected to work well with voice-activated banking, in which customers verbally ask their bank for information or make a simple request, a la Apple's Siri personal assistant. And the devices are gaining popularity — Generator Research projects 8.9 million smart watches will ship worldwide in 2014 and that the number will climb to 214 million in 2018.

"Our conclusion is that you need to start thinking about this now, and if you're an innovative bank you need to decide where you're going to start experimenting," said Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research. "It's still very much a Wright Brothers experiment on a sand hill."

Charaka Kithulegoda, chief information officer of Tangerine Bank in Toronto, is one of the early experimenters. "Smart watches, fitness wristbands, smart glasses — wearable technology is everywhere, so why not banking?" he said. "We see a lot of potential with this technology, especially with the voice control and notification features."

Tangerine, formerly known as ING Direct Canada, is a direct bank with $38 billion in assets. It is piloting wearable apps and hopes to put them in clients' hands — or, rather, on their wrists -in the next few months.

"It fits in perfectly with what we believe in: providing our customers the ability to bank where they want, when they want and how they want," Kithulegoda said.

Few would dispute that wearable computing is poised for greater adoption.

"Wearables are the next wave, or I should say tsunami, in mobile computing and have already become part of the mainstream," Kithulegoda said by email. "Wearables stole the show at this year's Consumer Electronics Show and we're about to see a huge shift in technology. I personally don't go anywhere without my Fitbit. With the imminent release of Apple's iWatch, we're already seeing the capabilities that make wearables must-haves — technology that is relevant, affordable, user-friendly and contextual."

Consumers will be introduced to wearable computing at an "alarming" rate by the summer of 2015, according to Chris Dancy, founder of technology consultancy ServiceSphere, noting that Apple and Google have announced devices in their fall 2014 releases that will include health and environmental apps. Both companies obviously know how to achieve mass adoption for their products.

Schwanhausser sees potential for wearable computers to take off the way the iPhone did when it debuted in 2007.

"Everybody up to a certain point was skeptical: why would I even need one of these things?" Schwanhauser said of the early iPhone days. At some point, there will be enough practical elements to wearables that the question will change to, "How do I live without one?" he said.

Part of the iPhone's usefulness stemmed from the fact that it packed a bunch of devices and into one — phone, text messaging device, camera and music player. "What combination of tools will make wearables as much of a must-have as the iPhone was in 2007?" Schwanhausser wonders.

Of the wearables out there today, smart watches have the advantage, Schwanhausser said. "There are immediate things you can be doing relatively inexpensively even as a financial institution," such as sending customers alerts and letting them give instructions to the app by voice, hands-free.

U.S. Bancorp and USAA have already started down this path with mobile apps that accept spoken commands. (Both companies use voice recognition technology from Nuance.)

"That's a direction financial institutions should be moving in in general, regardless of" the type of wearable device, Schwanhausser said. "When you think about all the things we do to make the user experience better — reducing the number of clicks, trying to explain things faster, more simply and intuitively — being able to talk like you would to a teller is the Holy Grail."

Schwanhausser notes he already talks to his iPhone regularly, asking, for instance, who won the latest Padres game. "Nine times out of ten, the Padres lost, but I still talk to my phone," he said. "It's not quite the relationship with my device that you had in the movie 'Her,' but I feel comfortable asking a phone for straightforward information like that."

His colleague Ian Benton, a research specialist at Javelin, suggests developing voice banking technology in general first and then thinking about tailoring it to devices as they come out.

"Are people increasingly going to have to choose if they want to be a Google person or a Samsung person or an Apple person?" Benton asked. The capabilities will matter more than the devices over time, he says.

Schwanhausser sees promise in Google Glass's ability to present real-time information that enhances what the wearer is looking at. "It's part of the future we need to appreciate and wonder about and wonder where financial services fit in," he said.

Security is a stumbling block for wearables of all types, especially when they are sending and receiving information over a wireless network.

"The Internet of Things will introduce a plethora of new types of connected devices, which opens the floodgates for hackers," Kithulegoda said. "So yes, we feel that it is absolutely necessary to create security standards for the Internet of Things and this will take some time. While these standards evolve we need to find ways to minimize the risk."

But Schwanhausser pointed out security is always a concern with any financial services technology. "If we say we're not going to move forward until everything is secure, then we we're not going to move forward, period," he said.

Financial institutions could offer wearable computing apps to help customers improve their financial health, Dancy noted. "For example, a person who is trying to stay on a budget or save for a goal could use haptic feedback" — a computer-generated vibration or motion — "in a wristband when they are off course." So a bank customer's watch could pulsate to warn when he's about to overdraw on an account.

Wearable computing devices could give consumers real-time access to their "life dashboards," tools that track financial, physical and other types of health, Dancy said.

Financial institutions could also combine the capabilities of wearable computing and wireless devices such as beacons to determine how environmental factors influence customer behavior, he said.

"Going beyond proximity, and looking at temperature, humidity, air quality, light intensity, and sound levels could be used to understand the behavior of customers in branches," he said.

Banks could further tie the internal environmental data with external data sources, such as traffic, weather and zoning laws to shine additional light on consumer behavior that would allow subtle changes to how services are rendered.

"Ultimately the unification of wearable computing and the Internet of Things will allow banks to create customized transaction experiences in banks, homes, and retailers," Dancy said.

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