The Three Phases of Smart Banking

The majority of financial institutions are focused on ensuring their strongest asset for driving growth, namely their retail banking network, remains relevant with the rise of Fintech start-ups and new types of banking competitors. This need is most prevalent in Asia, and more specifically China, where there is an enormous and underserved appetite for smart digital solutions. Chinese consumers are at the forefront of willingness to adopt to Fintech services, with 40 percent of consumers using new payment methods, compared to only four percent in Singapore.

China is already the world’s largest and most developed e-commerce market, accounting for 47 percent of all global digital retail sales. Its 10th annual Singles Day, a holiday that celebrates being single, made $30.8 billion alone. Meanwhile in the United States, Black Friday weekend generated an approximate total of $14.05 billion in online sales for US retail websites. In fact, Singles Day sales beat out the combined sales for Black Friday and Cyber Monday.

As technology titans such as Alibaba Group launch their own banking system in partnership with Ant Financial Services Group (formerly Alipay), it has become clear that technology disruption within the world of banking is not limited to retail networks. This most recent example shows that a virtual financial ecosystem can be created to touch every part of a consumers’ daily life. In addition to Alibaba, other Chinese technology giants, Baidu and Tencent, are also aggressively creating their own platforms with the aim of making their services ubiquitous in consumers’ lives through financial and non-financial solutions.

In response to younger, tech savvy consumers, banks have launched new branch experiences that leverage the best of digital technology.

“Smart Banking” emerged from this need and has been in practice for some time now, with leading innovation coming from Asia. Citigroup was first to introduce this as part of a new branch concept in Tokyo in 2010 and two years later in the Philippines. The Citigroup Smart Bank pioneered a wide range of digital tools not typically found in a bank. The experience included a multi-touch media wall displaying a diverse range of product and services information, in addition to a wide range of services moving towards a paperless banking experience. The new concept offered instant account opening technology, allowing customers to open an account virtually, without the use of paper documents, and at their own pace. The new concept was also one of the first to use video chat services. Many banks followed Citigroup with their own version of Smart Banking 1.0, introducing the most advanced technology such as the Ping An Bank and Standard Chartered Bank in Hong Kong.

Since then the definition of smart banks has evolved, moving from interactive towards a completely frictionless experience,  with Asia again leading in innovation. In our upcoming breakfast session, we will present research on many new immersive technologies and banking models that point to the future of how consumers will engage with their banks. We have identified three phases of the evolution of Smart Banking as part of a continuum of change leading to an ideal customer retail banking experience.

Smart Banking 1.0: The Move to Digital

The initial Smart Bank branches were hubs for the newest in interactive digital technology, allowing financial institutions in China to meet the growing needs of consumers who cannot live without their smartphones. The Smart Banking platform also allowed banks to move expensive, in-branch transactions to online and mobile platforms, freeing frontline staff to focus on loans, investments and wealth management. The initial movement towards Smart Banking also included the reduction of paper within branch transactions, replacing lengthy, complex paper documents to just a few. Our observation of working with many banks in China is that the majority of regional banks are implementing 1.0 level of conversion, moving towards paperless and digital transactions with unique Digital Learning Hubs found within the reception and electronic banking area.

In addition, banks have expanded their digital 24-hour banking platform to include the latest in self-serve ATM technology from iATM’s that allow customers to do all of their banking transactions through video ATM’s, providing customers personal service beyond banking hours. Some banks have included the addition of friendly robots as lobby greeters, more for the benefit of entertaining waiting customers than truly replacing the human aspect of banking. All of these technologies were introduced to remove many of the transactional friction points along the customer journey. However, what has not been adopted by banks in China is the cash recycler platform, which allows banks in North America to remove the heavy security required in managing cash transactions. For this to occur in China the government will need to make changes to the current “Five Star” branch implementation guidelines that require concrete walls and bulletproof glass for all bank teller stations.

Smart Banking 2.0: The Rise of AI and Machine Learning

The second phase of Smart Banking being led by Chinese banks is the move towards AI and Machine Learning. The use of these emerging technologies is primarily focused on gaining greater backroom operational efficiencies. Other potential benefits include a promise of reducing loan risks and better understanding  customers’ specific needs. Ping An Bank is employing big data and artificial intelligence to reform the retail banking business and remodel the processes of risk management, precision marketing, intelligent services and other areas.  Industrial Bank recently teamed up with Microsoft to build a cloud-based AI technology platform. Ultimately, Smart Banking 2.0 is focused on aspects of the banking process customers would not see, namely the supporting infrastructure that allows banks to minimize risk and better understand the financial behaviors of their customers. With all aspects of consumers’ financial lives being rated as part of a new Chinese social ranking system, Chinese banks will be the first in the world to have a truly 360 degree view of their customers.

Smart Banking 3.0: The move to “I” Banking

The third phase in Smart Banking will shift the vernacular from “Smart” to “I” where the key benefit of technology will be the ability of providing personal and customized immersive experiences. The “I” Banking phase is yet to occur, and will reflect many of the features predicted in the 2002 American movie Minority Report, directed by Steven Spielberg and loosely based on the short story “The Minority Report” by Philip K. Dick. The combination of AI and machine learning linked to digital technology will allow each customer’s engagement at the bank level to be fully immersive and personal. The advancement in both facial recognition and sentiment analysis will not only help tailor content and offerings to each individual customer; it will also know the mood and anxiety level of the customer, ensuring they are in the right frame of mind to be presented with a new service. The advancements of Smart Banking 3.0 will occur when we will have abandoned smart phones for smaller, less cumbersome two-way communication devices, with mobile e-watches representing the leading edge of change.

New AR glasses and contact lenses that allow for virtual viewing of content are already being tested, and voice-activated personal assistants will be the foundation of how we handle our banking. No longer will customers rely on their smart phones or clunky digital signs to gain information. The future of content will be personal and customized to the customer’s immediate given needs. AI and IoT will also allow this information to reflect overall living behaviors, leading to the elimination of mundane, repetitive tasks.

Towards Tomorrow

The definition of the term “smart” is going to be redefined, most likely by a Chinese bank looking to gain greater market differentiation amongst both government and private banking institutions. Through the ability of leveraging AI, machine learning and IoT, these forward thinking institutions will show the way for many of the lagging global banks to follow. If history has shown, banks are the most reluctant to take risks or undertake future-focused changes. It will take a country and culture with a long view of the world to lead the way.