The Bank of the Future

A couple weeks ago I attended Tearsheet’s Bank of the Future conference in New York.It was an inaugural event which brought together a strong group of incumbents and challengers.Banks such as Wells Fargo, USAA, Chase, and PurePoint spoke alongside fintech startups like Chime, Moneylion, SoFi, and Stash.

Among the many presentations a few themes emerged:

·Fintechs are looking at Gen Z: The emergence of Gen Z into the workforce came up multiple times.BankMobile discussed its Vibe Student Savings Account and a new offering called Current explored improving the financial habits of teens. Presentations only mentioned millennials to highlight how their financial needs are mirroring older consumers as they age.

This is a no-brainer and underscores why we think the importance of generational behavioral differences is overemphasized.By and large, life stages will dictate the kind of services a consumer will need.Age can be indicative of certain behavioral tendencies, but technology adoption tends to follow a similar curve, no matter if you’re a Baby Boomer and Gen X.

·Branch still drives engagement: Presentations highlighted the importance of the branch in driving engagement.PurePoint Financial, part of MUFG, was very vocal about its efforts to design a branch which creates an environment conducive to meaningful interactions.A couple other presenters highlighted work they had done on design, notably the Capital One café concept in partnership with Peet’s coffee.

Recent Celent consumer surveys support the continued importance of branches, and it’s something we’ve discussed often.Consumers consistently note that while they may not use the branch very often, they prefer in-person interactions for specific complex use cases like home buying.It was refreshing to hear the branch mentioned in a conference about banking’s future.

·Digital banking is about rebundling of services: Fintechs like Stash and SoFi outlined plans to offer a broader range of services such as checking accounts. Others like N26 and BankMobile talked about rebundling within digital banking, wrapping core offerings around ancillary products to create a more complete platform.

We’re starting to see a convergence in the industry where fintech’s with profitable offerings in lending or investments move towards retail DDAs. These startups are all vying for the consumer-facing side of the business.The rebundling of financial services will require institutions to think about what their role will be as a platform provider and what impact that may have on the brand.

·Challengers focused on value as a differentiator: The topic of value as a differentiator was a common thread. SoFi Money and Stash’s retail bank account will carry higher interest than incumbents, while MoneyLion and others will use a monthly subscriber model which is more transparent and cheaper than banks. According to an article on NerdWallet, checking account fees average $1000 per account over the course of a decade.

Opaque fees like overdraft have frustrated consumers for years. MoneyLion notes that its subscriber model and low fees result in a less than 2% churn across its customer base. However, new challengers will need to couple better prices with better offerings.Checking accounts alone have not been enough to move the needle.

·Customer experience is more important than sales effectiveness: Unsurprisingly, discussion around the importance of customer experience was pervasive. USAA had a presentation specifically about how design drives behavior.They said a consumer is 6x more likely to buy after an emotionally positive experience, going on to suggest that banks need to think about how many designers they bring onboard versus developers.They explained that the ratio of designer to developer should be one to somewhere in the teens for a regional-large bank.The challenges of customer experience come at the intersection of compromise between what’s desirable, what’s feasible, and what’s viable.

This is something we’ve been noticing for a while based on FI survey data from 2016 which showed a definitive decline of sales as a primary strategic imperative and the emergence of customer experience as number one aspiration. The industry understands that experiences will lead to sales effectiveness.

Overall, the speakers were refreshingly practical in the topic areas covered. While there was mention of blockchain, augmented reality, and AI, they were typically brought up within the context of more tangible points.Speakers mostly focused on framing the bank of the future in terms of where the industry is today, staying away from overly fantastical views of the future.This made the content digestible and actionable, something these kinds of conferences often miss.