Banking Strategies for a Digital Age

Banks across the country are wrestling with the challenge of transforming current banking systemsthe foundations of which were conceptualized in the Middle Agesinto systems designed to serve the needs of the digital age. This marks a critical moment in time for banks. Some industry data appears to point toward a golden age of banking, including a growing economy, increased loan demand, technological efficiency and higher levels of profitability. However, these factors could only be masking more important developments that signify further underlying change.

Much of the world is already living with both feet firmly planted in the digital age. Bestselling author Brett King notes between 2010 and 2030, an estimated 2.5 to 3 billion people worldwide will come into the financial services space. Of those billions of people, King continues to say 95 percent will have never visited a bank branch.

International Banking Systems

There are hundreds of examples from around the world of what the digital age of financial services looks like. Kenya's mobile money service, M-Pesa, counts nearly 100 percent of adults in Kenya as customers and also transmits nearly 50 percent of the country's gross domestic product. China-based Ant Financial Services Group has been valued at $150 billion, a market cap higher than that of Goldman Sachs. Ant Financial has the world's largest money market fund, processes trillions of dollars in payments each year and can profitably make SME loans of as little as $50 in a matter of minutes. Examining international banking systems helps provide directional insight into various successful financial systems and institutions developed to serve the digital agewithout the hindrance of legacy regulatory and organization systems.

Evolution of Client Expectations

It's no longer good enough for banks to have a digital strategy or play the technology version of "keeping up with the Joneses" with their peers. Banks must have a forward-thinking strategy for the digital age, as their customers have become used to accessing world-class, technology-enabled services from their financial services providers. BKD recently conducted a survey of the employees of an advanced, progressive community bank, and we found that more than 70 percent of the bank's own employees had two or more credit cards beyond the cards offered by the bank, and more than 80 percent of the bank's employees had a banking relationship outside of their employer. Even employees who think highly of their bank have relationships with other financial institutions, exposing themselves to the best services the financial services industry has to offer. As customer expectations climb exponentially, banks are challenged with keeping up.

Banks may find comfort knowing some people prefer digital interaction with a financial services company for routine, immaterial transactions, but prefer the one-on-one experience of sitting with a banker and receiving guidance for major financial decisions. There likely will always be a place for high-touch client service in community banking. However, we're entering an age where people are comfortable visiting a doctor by video, and IBM's Watson outperforms doctors in some areas of health care diagnostics. If people are comfortable trusting their health to someone over the phone, and artificial intelligence is becoming better than humans at providing health care services, a disruption and transformation of the banking industry in the U.S. can't be far behind.

Moving Forward

As technology across all industries advances rapidly and relentlessly, the inhabitants of a digital age will expect nothing less from their financial services provider. In light of this intense transformation facing the banking industry, consider asking these important questions of your institution:

• Are we ready to be ambient? Can we completely surround our customers on all sides, no matter where they want to go or which device they use?
• Are we ready to provide end-to-end mobile account opening, with no paper forms or signatures?
• Are we deploying machine learning and artificial intelligence?
• Are we preparing to authenticate accounts and payments with facial recognition technology?

Even answering these questions affirmatively isn't enough.

Some prognosticators say it's too late for banks. While that's simply not true, banks do have to move more aggressively and rethink their approach to the market. Neither consumers nor regulators are going to materially slow technology's rapid advancement within the financial services industry. There's no turning back the clock on the digital age.

Based on the article, what is your take-away? Describe banking strategies for a Digital Age, and incorporate any legal theories or principles from your text in conjunction with the article.