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What is the Future of Digital Banking?

digital banking

A panel of bankers met at LendIt to discuss the future of digital banking. The following discussion offers an interesting snapshot of what it might look like. I say, count me in.

Jeremy Balkin, head of innovation at HSBC USA, started the conversation with this observation: “We live during the ‘millennialization’ of everything. We value freedom and mobility. In banking, it’s no different.” Balkin went on to say that banks must cater to all types of customers, from Millennials to Builders, who aren’t likely to adopt emerging technologies. “The challenge is the adaptation of customer data.”

Millennial Banking, From the U.S. to China

Millennials have an average of 14 different financial services apps on their phones, Balkin said. In that regard, they are primed for mobile banking. Mitch Siegel, KPMG’s national FS strategy and transformation leader, agreed with that.

“I would say mobile first, not only,” he said.

While the average millennial is engaging with financial services companies on their phones, they are mostly performing simpler tasks, he said. Meanwhile, they’re putting off mortgages, kids, car loans, marriage, etc.

“Yet, as their lives become more complex, they’ll interact more on more devices,” he said.

Shanghai Huarui Bank is one of only five privately owned banks in China. Andrew Fang is head of innovation at the bank, which caters to technology startups in the retail sector.

“Facebook is blocked in China,” Fang said, “but we leverage the social networks to distribute banking services. We’re one branch. We have no offline presence.”

Because Shanghai Huarui is a digital-only bank, they don’t compete directly with the big banks in China. Fang said their fiercest competition comes from fintech companies, and WeChat. He sees something similar happening in the states.

In terms of digital banking, it’s Asian companies leading the way. In China, Singapore, India, and other Asian countries, more people have mobile phones than laptops, and there are huge populations of the unbanked and the underbanked. This makes it a rich environment for digital-only banking innovations.

“In China,” Fang said. “Everyone is on WeChat. Consumers can pay for things through the social network, and it has become a distribution channel for us to acquire customers. You can access your account through a single click banner, login, and see our banking services while chatting with a friend.”

Who’s Adopting Mobile Banking?

BankMobile is the U.S.’s equivalent to Shanghai Huarui. Ash Exantus is a best-selling author and the director of financial education at BankMobile.

“Larger banks are the ones who started to drive the habit in consumers to go mobile,” Exantus said. “Because we are mobile-only, we can provide services to customers faster and not charge as much as traditional banks. We have no ATM or overdraft fees. Millennials don’t like those. Because we can keep costs low, we can provide our services cheaper.”

Exantus went on to say that one key business strategy for BankMobile is building strategic partnerships. The bank doesn’t try to provide all the services they offer. Instead, they partner with other financial companies such as auto lenders, investing firms, and other financial services companies. BankMobile sees itself as a distribution channel for those providers.

“Yes, we want to provide services through mobile,” Exantus said, “but the consumer wants human interaction. Mobile keeps us affordable. Our strategic partnerships allow us to provide other services.”

Fang said the financial services sector in the U.S. is more mature than in many other parts of the world, including China. That’s one of the major reasons the U.S. regulates the sector, he said. Then he tossed out the rhetorical question, “Can Google, Facebook, and Amazon get into financial services? They have all the data to make it happen.”

In China, he said, it’s easier to start a financial services company. Companies like WeChat and Alibaba can get the data they need and transition into financial services at a much lower cost.

Siegel jumped in and asked, “How do you enable an ecosystem similar to that of China in the U.S.? It boils down to whether you spend money or save money. Financial services are embedded in e-commerce.”

Regulating Digital Banks Vs. Traditional Banks

After discussing the nature of mobile banking and technology, the panel moved on to regulation.

“Technology companies don’t want to be regulated like the banks,” Balkin said.

Siegel added, “A relaxed regulatory environment is not going to be relaxed from a bank’s perspective. We’re going to do what is necessary to keep customer data safe.”

Exantus said it was the regulatory environment in the U.S. that allows BankMobile to thrive. “We are able to provide services to consumers at a low cost or no cost because of some of the laws in place,” he said. “Whatever changes happen, I believe it will be in the best interest of helping consumers.” By leveraging distribution models through strategic partnerships, BankMobile was able to grow to two million customers since 2014. “It costs us $10 to acquire a customer. It may cost a bank $300 to $500.”

That’s very strong evidence of the benefit to current regulation for mobile banking.

How Digital Banking Will Grow

With mobile banking on the radar, it’s likely going to be millennials that popularize it. After the early adopters get on, they’ll get their parents involved. Later generations will come on board during the growth and expansion stages.

The interesting thing about millennials in the U.S. is that 63% don’t have credit cards.

“It’s annoying,” said Balkin. “I don’t like waiting when the chip doesn’t work and waiting around for authorization. My kids may not know what a credit card is.”

By contrast, in China, there are about 600 million credit card users. With 1.357 billion Chinese citizens, that’s less than half the population. Many people access credit is through a credit line at the Jingdong platform, Fang said.

“These users don’t have a credit card,” he said. “The credit line allows them to make purchases offline.”

Exantus said it’s all about building trust.

“Millennials want mobile, but they aren’t willing to switch because they want to feel secure,” he said. “Once you build trust, you can gain their business.” Exantus also said millennials love to use p2p payment services. “They like the ability to borrow money and pay someone back easily.”

In terms of the future, Balkin sees biometrics gaining traction. He also thinks mobile banking will become more secure, and it will become easier and faster to use.

“Technology is fantastic,” he said. “It levels the playing field for customer experience. It allows the customer to win back their time.”

Siegel agreed. He added that transactions will become more dynamic and micro-services will increase.

“You’ll be able to get life insurance for the time you’re on the plane,” he said. “Designing dynamic transactions for the mobile phone is a huge opportunity for fintechs.”

The panel was moderated by Aaron Lucchetti of The Wall Street Journal.


Allen Taylor
Allen Taylor


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