Bank

A bank is a financial institution that accepts deposits from the public and
[1]
creates credit. Lending activities can be performed either directly or indirectly through capital
markets.

1. Financial institutions, otherwise known as banking institutions, are corporations which

provide services as intermediaries of financial markets.

2. A capital market is a financial market in which long-term debt (over a year) or equity-
backed securities are bought and sold.

Banking Industry
International Encyclopedia of the Social Sciences
COPYRIGHT 2008 Thomson Gale

Banking Industry

The whole banking industry is based on charging people different rates.”

The use of blockchain in the banking industry is expected to reduce the risk of fraud in
financial transactions

FUNCTIONS

ORIGINS OF MODERN BANKING

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BANK REGULATION

BANKING AND MACROECONOMIC ACTIVITY

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POST-1980 INDUSTRY DEVELOPMENTS

FUTURE DIRECTIONS

BIBLIOGRAPHY

The modern banking industry is a network of financial institutions licensed by the state to supply
banking services. The principal services offered relate to storing, transferring, extending credit
against, or managing the risks associated with holding various forms of wealth. The precise
bundle of financial services offered at any given time has varied considerably across institutions,
across time, and across jurisdictions, evolving in step with changes in the regulation of the
industry, the development of the economy, and advances in information and communications
technologies.

FUNCTIONS

Banks as financial intermediaries are party to a transfer of funds from the ultimate saver to the
ultimate user of funds. Often, banks usefully alter the terms of the contractual arrangement as the
funds move through the transfer process in a manner that supports and promotes economic
activity. By issuing tradable claims (bank deposits) against itself, the bank can add a flexibility to
the circulating media of exchange in a manner that enhances the performance of the payments
system. These deposits may support the extension of personal credit to consumers (retail
banking) or short-term credit to nonfinancial businesses (commercial banking). If so, the bank
aids the management of liquidity, thus promoting household consumption and commerce. By
facilitating the collection of funds from a large number of small savers, each for a short period,
the bank promotes the pooling of funds to lend out in larger denominations for longer periods to
those seeking to finance investment in larger capital projects. Financing investment may take the
form of underwriting issues of securities (investment banking) or lending against real estate
(mortgage banking). By specializing in the assessment of risk, the bank can monitor borrower
performance; by diversifying across investment projects, the bank minimizes some types of risk
and promotes the allocation of funds to those endeavours with the greatest economic potential.
By extending trade credit internationally (merchant banking), the bank can facilitate international
trade and commerce. As one last example, by lending to other banks in times of external
pressures on liquidity, the bank can manage core liquidity in the financial system, thus
potentially stabilizing prices and output (central banking).

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To discharge its various functions, banks of all types manage highly leveraged portfolios of
financial assets and liabilities. Some of the most crucial questions for the banking industry and
state regulators center on questions of how best to manage the portfolio of deposit banks, given
the vital role of these banks in extending commercial credit and enabling payments. With bank
capital (roughly equal to the net value of its assets after deduction of its liabilities) but a small
fraction of total assets, bank solvency is particularly vulnerable to credit risk, market risk, and
liquidity risk. An increase in non-performing loans, a drop in the market price of assets, or a
shortage of cash reserves that forces a distress sale of assets to meet depositors’ demand can
each, if transpiring over a period of time too short for the bank to manage the losses, threaten
bank solvency.

ORIGINS OF MODERN BANKING

The modern banking industry, offering a wide range of financial services, has a relatively
recent history; elements of banking have been in existence for centuries, however. The idea of
offering safe storage of wealth and extending credit to facilitate trade has its roots in the early
practices of receiving deposits of objects of wealth (gold, cattle, and grain, for example), making
loans, changing money from one currency to another, and testing coins for purity and weight.

The innovation of fractional reserve banking early in this history permitted greater profitability
(with funds used to acquire income earning assets rather than held as idle cash reserves) but
exposed the deposit bank to a unique risk when later paired with the requirement of converting
deposits into currency on demand at par, since the demand at any particular moment may exceed
actual reserves. Douglas Diamond and Philip Dybvig have, for example, shown in their 1983
article “Bank Runs, Liquidity, and Deposit Insurance” that in such an environment, a sufficiently
large withdrawal of bank deposits can threaten bank liquidity, spark a fear of insolvency, and
thus trigger a bank run.
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Means of extending short-term credit to support trade and early risk-sharing arrangements
afforded by such devices as marine insurance appear in medieval times. Italian moneychangers
formed early currency markets in the twelfth century CE at cloth fairs that toured the Champagne
and Brie regions of France. The bill of exchange, as a means of payment, was in use at this time
as well.

Over the course of the seventeenth and eighteenth centuries, the industry transformed from a
system composed of individual moneylenders financially supporting merchant trade and
commerce, as well as royalty acquiring personal debt to finance colonial expansion, into a
network of joint-stock banks with a national debt under the control and management of the state.
The Bank of England, for example, as one of the oldest central banks, was a joint-stock bank
initially owned by London’s commercial interests and had as its primary purpose the financing of
the state’s imperial activities by taxation and the implementing of the permanent loan. This
period was also marked by several experiments with bank notes (with John Law’s experiment in
France in 1719–1720 among the most infamous) and the emergence of the check as simplified
version of the bill of exchange.

Eighteenth-century British banking practices and structures were transported to North

America and formed an integral part of the colonial economies from the outset. The first
chartered bank was established in Philadelphia in 1781 and in Lower Canada in 1817.
Experiments with free banking—as a largely unregulated business activity in which commercial
banks could issue their own bank notes and deposits, subject to a requirement that these be
convertible into gold—have periodically received political support and have appeared briefly in
modern Western financial history. Public interest in minimizing the risk of financial panics and
either limiting or channelling financial power to some advantage has more often, however,
dominated and justified enhanced industry regulation.

BANK REGULATION
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Various forms of bank regulation include antitrust enforcement, asset restrictions, capital
standards, conflict rules, disclosure rules, geographic and product line entry restrictions, interest
rate ceilings, and investing and reporting requirements. The dominant view holds that enhanced
regulation of this industry is necessary because there is clear public sector advantage, or for
protecting the consumer by controlling abuses of financial power, or because there is a market
failure in need of correction.

Where public sector advantage justifies the need for regulation, government intervention may
appear in the form of reserve requirements imposed on deposit-taking institutions for facilitating
the conduct of monetary policy or in the various ways in which governments steer credit to those
sectors deemed important for some greater social purpose. Limiting concentration and
controlling abuses of power and thus protecting the consumer have motivated such legislation as
the American unit banking rules (whereby banks were limited physically to a single center of
operation) and interest rate ceilings (ostensibly designed to prohibit excessive prices), as well as
various reporting and disclosure requirements.

The latent threat of a financial crisis is an example of a market failure that regulation may
correct. Here, the failure is in the market’s inability to properly assess and price risk. The
systemic risk inherent in a bank collapse introduces social costs not accounted for in private
sector decisions. The implication is that managers, when constructing their portfolios, will
assume more risk than is socially desirable; hence, there exists a need for government-imposed
constraint and control. State-sanctioned measures designed to minimize the threat of bank runs
include the need for a lender of last resort function of the central bank to preserve system
liquidity and the creation of a government-administered system of retail banking deposit
insurance.

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Regulation explicitly limiting the risk assumed by managers of banks includes restrictions that
limit the types and amounts of assets an institution can acquire. A stock market crash will
threaten solvency of all banks whose portfolios are linked to the declining equity values.
Investment bank portfolios will be, in such a circumstance, adversely affected. The decline in the
asset values of investment banks can spill over to deposit banks causing a banking crisis when
the assets of deposit banks include marketable securities, as happened in the United States in the
early 1930s.
The Bank Act of 1933 (the Glass-Steagall Act) in the United States as well as early versions of
the Bank Act in Canada, for example, both prohibited commercial banks from acquiring
ownership in nonfinancial companies, thus effectively excluding commercial banks from the
investment banking activities of underwriting and trading in securities. This highly regulated and
differentiated industry structure in twentieth-century North America contrasts sharply with the
contemporaneous banking structures of Switzerland and Germany, for example, where the
institutions known as universal banks offer a greater array of both commercial and investment
banking services. The question for policymakers then is which industry structure best minimizes
the risk of banking crises and better promotes macroeconomic stability and growth.

BANKING AND MACROECONOMIC ACTIVITY

The relationship between credit, bank notes, bank deposits, and macroeconomic stability has
been the focus of much debate in the history of Western monetary thought. This debate grows
more vigorous in the wake of financial panics and crises, when its focus turns to causality
between banking crises and economic downturns.

Between 1929 and 1933 more than 40 percent of the American banks existing in 1929 failed.
With no deposit insurance, bank failures wiped out savings and forced a severe contraction of the
money supply. Milton Friedman and Anna Schwartz (1963) maintain that inaction by the
American central bankpermitted the sudden contraction of liquidity and magnification of real
economic distress. Ben Bernanke (1983), too, believes that monetary conditions lead real
economic activity, arguing that bank failures raise the cost of credit intermediation and therefore
have an effect on the real economy. Charles Kindleberger (1986) alternatively suggests that non-
monetary forces lie at the root of the problem, but that it was the failure of the Credit-Anstalt
bank in Austria that proximately forced a sudden withdrawal of credit from the New
York money markets and, in domino fashion, a contraction of credit throughout the United
States. For Hyman Minsky (1982), the evolving margins of safety between the streams of asset
income in relation to the contemporaneous changes in the cost of credit both characterize and
explain financial instability.

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Whichever the direction of primary causation, there is substantial agreement on the fact that
there exists an important relationship between a sudden contraction of credit and liquidity and a
considerable decline in economic activity. Consensus arises also around the likelihood that
central bank last resort lending, in the manner suggested by Henry Thornton (1802) or by Walter
Bagehot (1873), had it been exercised, might have substantially mitigated these effects.

Despite being subjected to similar nonmonetary shocks, and despite existing in an economy that
roughly mirrored the American economy at the time, the Canadian banking system of the 1930s
proved itself less vulnerable to collapse. Two factors may explain the relative stability of the
Canadian banking sector: a lower level of integration of commercial and investment banking
activities and a much more highly concentrated industry, with only a few large banks dominating
the Canadian banking landscape. While Richard Sylla (1969) suggests that monopolistic
elements in the post-bellum U.S. banking industry were present and may explain the apparent
inefficiencies he observes in the data, Michael Bordo, Hugh Rockoff, and Angela Redish (1994),
for example, argue for an absence of evidence in support of any similar claim that Canadian bank
cartels created gross differences in pricing. Contrary to common suspicion, stability, it appears,
was not at the cost of any significant loss in efficiency, at least in the Canadian industry.
Nevertheless, American apprehension about concentrations of financial power continued to
prevail. Legislation designed to minimize the future possibility of such crises focused instead on
enforced portfolio adjustments.

The relationship between crises and economic downturns has its counterpart in a later debate
about the financial structure and economic growth. In broad strokes, as an economy develops in
scale and scope, formal financial arrangements gradually (however incompletely) replace
informal ones. As the economy’s need for larger amounts of funds to finance larger capital
projects rises, the increasing inefficiency of many informal financial systems yields to the
efficiency of formal codified transactions. As Rondo Cameron and Hugh Patrick (1967, p. 1)
explain in Banking in the Early Stages of Industrialization, A Study in Comparative Economic
History, the proliferation of the number and variety of financial institutions and a substantial rise
in the ratio of money and other financial assets relative to total output and tangible wealth
are “apparently universal characteristics of the process of economic development in market-
oriented economies.”

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In “Finance and Growth: Theory and Evidence” Ross Levine (2005, p. 867) examines the theory
and evidence and concludes, “better functioning financial systems ease the external financing
constraints that impede firm and industrial expansion, suggesting that this is one mechanism
through which financial development matters for growth.” Whether the industry is segmented
(with an enhanced role for capital markets) or not (as with universal banking systems, and their
greater role for banks), does not seem to matter much, however. Several mutually reinforcing
changes have stimulated a renewed public interest in this question about the preferred industrial
structure.

POST-1980 INDUSTRY DEVELOPMENTS

The period from 1980 onward has been marked by increasing consolidation of banks, substantial
loss in the share of financial activity to financial markets (disintermediation), greater market
concentration, and considerable blurring of the traditional distinctions between banks and other
financial institutions. Banks are increasingly offering a broader array of financial services in an
increasing number of jurisdictions. The result is that banks in many countries where their scope
was once limited are becoming more like universal banks.

Forces of change affecting the financial system since 1980 include market forces, legislative
changes, and technological advances affecting communication and information. The dynamic
tension and interplay between these forces have contributed significantly to the growth of new
markets, new institutions, and new instruments, many of which fall outside the purview of
existing regulation by virtue of their location or definition or both. The result is that an
increasing amount of financial activity escapes regulation of any kind.

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National responses have been largely to advocate and initiate deregulation of the domestic
financial systems, justified by the same arguments that once supported the regulation. The
elimination of interest rate ceilings, for example, should increase choice and competition, result
in better and cheaper services for the customer, and increase the efficiency with which the
economy allocates scarce funds. Permitting the integration of commercial and investment
banking activities should produce greater efficiencies by permitting firms to capture greater
economies of scale and scope. Notably, the legal separation of these activities was repealed in
the United States with the 1999 Financial Services Modernization Act.
To date, international financial regulation is limited to the right-of-access rules negotiated by
the European Union member states and by Canada, Mexico, and the United States, as part of
the North American Free Trade Agreement, for example. Other international efforts have been
largely and significantly restricted to international agreements to incorporate proposed rules into
national legislation. The 1988 Basel Accord on the international convergence of capital
measurements and standards, for example, recommended minimum common levels of capital for
banks conducting international business. The twelve original signatories gradually adopted these
capital requirements, as did several other countries. The second Accord, reached in 2004,
broadened the scope of the earlier agreement and increased its flexibility to meet the objective of
setting standards for minimizing both credit and operational risks. There remain, however,
several markets and instruments in the international arena that have yet to be regulated or at least
have the relevant national regulation coordinated.

FUTURE DIRECTIONS

The future may well see an increased extent and variety of the bundling of financial services as
techniques and technologies of securitization, networking, and outsourcing offer new
organizational possibilities. The result thus far has been a blurring of the traditional distinctions
between banking and non-banking financial activity. Bank mergers and mergers of banks with
other financial firms are occurring with increasing frequency and magnitude, suggesting that the
future may well witness both a greater dominance of universal banking structures and a greater
international concentration of financial assets.

Perhaps more profound is the potential for the blurring of any clear distinction between financial
and nonfinancial activities. Nonfinancial retailers are joining forces with banks or opening their
own lending facilities outright. Developments in electronic communications and software have
the potential to erode the banking industry’s relative monopoly over bank deposits as the nation’s
dominant medium of exchange. It may only be a matter of time before the provision of
commercial and retail credit already offered by some nonfinancial communications companies
effectively challenges even these most traditional of banking activities. Whatever the precise
institutional details—and they will continue to vary from jurisdiction to jurisdiction—the
difference between financial and nonfinancial enterprises may be expected to become
increasingly difficult to define and regulate as the banking industry continues to evolve.
SEE ALSO Financial Instability Hypothesis; Regulation

BIBLIOGRAPHY

Bagehot, Walter. 1873. Lombard Street, a Description of the Money Market. Homewood, IL:
Richard D. Irwin, 1962.

Bernanke, Ben S. 1983. Nonmonetary Effects of the Financial Crisis in Propagation of the Great
Depression. American Economic Review 73 (3): 257–76.

Bordo, Michael D., Hugh Rockoff, and Angela Redish. 1994. The U.S. Banking System from a
Northern Exposure: Stability versus Efficiency. The Journal of Economic History 54 (2): 325–
341.

Cameron, Rondo E., and Hugh T. Patrick. 1967. Introduction. In Banking in the Early Stages of
Industrialization, A Study in Comparative Economic History, eds. Rondo E. Cameron, Olga
Crisp, Hugh T. Patrick, and Richard Tilly. New York: Oxford University Press.

Diamond, Douglas, and Philip Dybvig. 1983. Bank Runs, Liquidity, and Deposit
Insurance. Journal of Political Economy 91 (3): 401–419.

Friedman, Milton, and Anna Jacobson Schwartz. 1963. A Monetary History of the United States,
1867–1960. Princeton, NJ: Princeton University Press.

Kindleberger, Charles P. 1986. The World in Depression, 1929–1939. Rev. and enl. ed.
Berkeley: University of California Press.

Levine, Ross. 2005. Finance and Growth: Theory and Evidence. In Handbook of Economic
Growth, eds. Philippe Aghion and Steven N. Durlauf, 865–934. Amsterdam: Elsevier.

Minsky, Hyman. 1982. The Financial Instability Hypothesis: Capitalistic Processes and the
Behavior of the Economy. In Financial Crises: Theory, History, and Policy, eds. Charles P.
Kindleberger and Jean-Paul Laffargue, 13–39. Cambridge, U.K.: Cambridge University Press.

Sylla, Richard. 1969. Federal Policy, Banking Market Structure, and Capital Mobilization in the
United States, 1863–1913. Journal of Economic History 39 (4): 657–86.
 Thornton, Henry. 1802. An Enquiry into the Nature and Effects of the Paper Credit of Great
Britain, ed. Friedrich A. von Hayek. New York: Kelley, 1962.

fundamental

1 adj You use fundamental to describe things, activities, and principles that are very important
or essential. They affect the basic nature of other things or are the most important element upon
which other things depend.

fundamental

adj
1 of, involving, or comprising a foundation; basic
2 of, involving, or comprising a source; primary
3 (Music) denoting or relating to the principal or lowest note of a harmonic series
4 of or concerned with the component of lowest frequency in a complex vibration

Aims
1) To understand the nature of technological change and the roles it plays in firm
competitiveness, economic growth and development
2) To introduce students to the challenges of managing technological change at both the societal
(public policy) and firm (management/strategy) levels
3) To appreciate and use insights from economic history, economics, sociology and management
studies as they relate to technological change

Back to top
Objectives (Learning outcomes)
On successful completion students should be able to demonstrate:
1) an appreciation of the role of technological change in economic development, past and present
2) awareness of key models of the innovation process, their strengths and weaknesses
3) an understanding of the role of innovation in firm competitiveness
4) an appreciation of the management, policy and regulatory challenges in relation to
technological change and how firms and governments attempt to address them
5) The ability to critically appraise, synthesise and apply social science concepts relevant to
technological change.

S1 .HOW MOBILE TECHNOLOGY IS CHANGING BANKING'S FUTURE

Industry Looks to Grow in Emerging Markets With New Forms of Payment

By Kunur Patel. Published on September 21, 2009.

NEW YORK (AdAge.com) -- Recent technological developments that allow for deposits by iPhone and

mobile payments could one day make ATMs as quaint as brick-and-mortar bank branches. But the

biggest impact may be on the ability of banks -- and even nontraditional players such as Nokia -- to find

new revenue streams as they branch into emerging markets where cash is still king.

USAA: Deposit via iPhoneOn the home front, the

technology moves apace and isn't very hard to understand. The military bank and insurance
provider USAA recently launched mobile check-deposit technology, which lets users deposit
checks from anywhere using an iPhone. USAA customers take photos of both sides of a check
with the phone and transmit the images to the bank, which then verifies and makes the deposit.
The bank has only one branch in San Antonio and, because of its military legacy, has customers
in Afghanistan and Iraq.

'Woven into our growth strategy '

"Mobile is definitely woven into our growth strategy as we continue to expand," said Jeff Dennes,

executive director of USAA mobile. "We don't have branches and rely on our self-service channels, such

as phones and the internet."

Bob Meara, industry analyst for information technology in financial-services research and consulting firm

Celent, said USAA has deposit growth nearly triple the industry average over the past three years.

Further, 17% of all its customers across investing, insurance and banking use USAA's mobile app, which

also facilitates on-phone trading, filing claims for auto accidents, loan calculations and the usual access to

account information.

Right now, USAA represents the bleeding edge of mobile banking technology, but has no plans to
trumpet such technology in a marketing push, or to fight for more share.
Bank of America, which launched mobile apps in 2007, has more than 3.2 million mobile-banking

customers that can access informational services such as account balances and history, make transactions

and bill payments, transfer funds within the bank and locate ATMs. Chase also has an iPhone app, as well

as text message-based services. Both banks have featured mobile services in ad campaigns.

Bank of America's Doug Brown, senior VP-emerging technology and business development, said that his

bank's next-generation mobile functionality is headed toward touch-phone-to-pay, dubbed "contactless

payments," and new ways to make deposits. "We want the phone to be a more functional tool, like a

wallet at point-of-sale, where it becomes your payment credential, like a credit card," said Mr. Brown.
But for USAA, contactless payments are more of a long-term goal. In its sights are person-to-person

mobile payments. "Person-to-person payments are next on our road map," said Jeff Dennes executive

director of USAA mobile.

Nokia bets on electronic payments

And that's where Nokia comes in. The mobile heavyweight could use person-to-person payments as an

entry-point to emerging markets -- and a new revenue stream. It's partnered with Redwood City, Calif.-

based Obopay to launch Nokia Money, a service that lets users make financial transactions on their

phones. With Nokia Money, which will start to roll out in 2010 in undisclosed markets, mobile users can

send money to other mobile users, pay merchants and utility bills, or top up prepaid cellphone minutes.

Nokia Money will charge users a percentage or flat fee per transaction based on the market.

While there are a few mobile-payment players in the U.S., such as PayPal, Boku and Zong, Nokia's

global retail infrastructure means 4-year-old Obopay can expand these services to emerging markets,

including to consumers without e-bank accounts. Shops that are currently used to top up prepaid minutes

will act like Nokia Money ATMs that turn mobile payments into cash.

That means new territory for the world's largest handset maker, which has faced tough competition from

the iPhone and Blackberry. For those global consumers who currently use mobile phones but don't have a

bank account -- according to Nokia, there are more than 4 billion mobile phone users and only 1.6 billion
bank accounts globally -- Nokia has the potential to be the first point of contact for consumers new to

electronic payment services.

Mobile payment technology would take on a different role in North America and Western Europe, where

there's such an established payment infrastructure with ATMs, branches, credit cards and e-payments,

like paying babysitters, peer-to-peer payments and e-retail purchases. But for economies in South Asia

and Africa where cash is central to financial transactions and people live outside the reach of banking

infrastructure, phone-to-phone payments could be the developing world's answer to cashless payments.

Person-to-person mobile payments are already gaining popularity in Africa and South Asia. For example,

M-Pesa in Kenya has more than 6 million users.

"In the Western European and North American markets, there isn't a threat [to financial institutions]
because we have a well-established payment infrastructure," said Red Gillen, senior analyst at Celent.

"Nokia Money probably won't supplant anything in industrialized nations. But in Africa and South Asia,

the mobile carrier would be the consumer-facing entity for financial services."

Why it stands a good chance

Betting on mobile rather than traditional banking isn't exactly a risky move.

Nokia claims there are 4 billion mobile phone users in the world and only 1.6 billion bank accounts. The

World Bank's Consultative Group to Assist the Poor estimates there are 1 billion people in developing

countries who have mobile phones but no access to formal financial services. What's more, mobile-

industry trade organization Global System for Mobile Communications Association's dedicated mobile-

money unit projects the unbanked-with-phones population will nearly double by 2012, representing $5

billion in direct revenue potential.

Kenya's M-Pesa mobile-payment service, which launched in March 2007, serves as a successful case

study. According to the Central Bank of Kenya's FinAccess 2006 report, 38% of people in Kenya, a

country of about 37 million, didn't use any form of financial service. GMSA tells us that in 2009, M-Pesa

has nearly 7 million registered customers and this year's Finaccess report shows that M-Pesa has become

the most popular method of money transfer in Kenya with 40% of all adults using the service.

Now scale that for India, the second-largest wireless market in the world, next to China, where 36% of

people have mobile phones, according to Celent. The Boston-based financial-research and -consulting
firm also reports that 84% of Indian households were unbanked in 2005 and that mobile banking in India
has grown 94% since 2002. That adds up to projection of India's mobile banking active user base

reaching 25 million by 2012.

5 ways technology has changed banking forever

TransferWise content team

28.06.16

4 minute read

Banking is one of the world’s oldest businesses. It's been with us in one form or another since the
merchants of Ancient Babylon started offering grain loans to farmers who needed to transport
goods between towns. It wasn’t until 14th century Italy that banking as we recognise it today
developed: In fact the oldest bank still trading today (the Monte dei Paschi di Siena) was founded
in 1472.

The speed that modern technology has developed has meant that the traditionally slow-moving
financial institutions have had to invest billions to remain relevant to customers and competitive
in the marketplace. So, which aspects of technology have caused the biggest disruptions - and
which have changed the way banking works in the 21st century?

1. No more queuing
If you are over 30, you've probably spent hours in interminable bank queues over lunchtimes or
on a Saturday mornings, to withdraw money or pay in a cheque. Banks have leaped on the
opportunities offered by online - and now mobile - banking. It's possible to do everything online,
from simple transactions to complicated issues such as applying for a mortgage.

A new study by YouGov reveals that one in three retail banking customers feel their bank’s
mobile app isn’t as good as their online banking provision however. This, coupled with the fact
that more people are relying on their phones to access their banking, is sure to be a focus for high
street banks in the coming years. Some banks are now onlyavailable virtually - banks like Smile
in the UK and Simple in the US don’t have any physical branches at all (although they're
partnered with existing institutions which ensures the funds are completely safe).

2. One quick tap and you’re done

Although Mobil first issued contactless cards for customers to use at their petrol stations in the
US as early as 1997, the very first contactless cards associated with banks were given out by
Barclaycard in 2008. Now there are well over 32 million in circulation in the UK. By 2011,
mobile technology had merged with contactless, and the first wave of apps that allowed their
owners to pay by tapping the phone against the terminal were born.
Google Wallet is now one of the most popular in the world, allowing users to store debit, credit,
loyalty gift and store cards on their phones. A few years ago London buses opened their doors to
contactless technology - you can now pay your fare with a quick tap of your card as you step
onto the bus.

3. Cybersecurity and data protection

In the first half of 2015, 400 data breaches took place in the US, according to the US-based
Identity Theft Resource Center, with 117,576,693 personal records put at risk. 10% of these
breaches were in the banking sector - and that is an 85% jump from the same period in the
previous year. Keeping financial information safe is one of the biggest areas of investment for
banks, and it is also a responsibility for customers.

Easy passwords, public computers and “phishing” scams are some of the most common ways we
are separated from our money. Take a look at Which?’s guide to banking online safely - and
their rundown of the safest UK banks.

4. A different sort of customer service

2015’s World Retail Banking Report spelled out some bad news for high street banks: Positive
customer experiences had fallen for the second year in a row. Younger, Generation-Y, bank
customers are less likely than their parents to show loyalty to one particular bank. Customers are
generally less willing to take their bank’s word for which secondary products such as mortgages
and investments they should take, preferring to do research themselves. Online banking and
mobile banking mean that generic customer services are no longer needed. Customers expect a
more tailored and personalised experience when they - on rare occasions - need to contact their
bank by phone or by chat, or even in person at a branch.

The IT research company Gartner suggests that gamification will become increasingly
important for customer service in the coming years. Customers will need to be more engaged
digitally through the use of the sort of mechanics usually only seen in video games, combined
with virtual reality technology such as gesture recognition and head-mounted displays.

5. More competition and bigger challengers

One of the biggest changes to happen to the banking sector is the opening up of competition to
some of the processes that were only ever available in-bank before. Take Transferwise, which
can save you on the fee your bank would charge you for an international money transfer, as
an example. It will be interesting to see how banking evolves in the future, and which institutions
will be flexible and nimble enough to keep up with the demands of today’s society. What those
demands will be and what banking will look like in five or ten years time is an exciting
proposition.

Choosing a Mobile Banking Solution from a Technology Vendor in 2018

08/05/2018
With more mobile phones on the planet today than there are people, mobile banking has become
a hot topic. Many banks and financial institutions began by seeing it as a possibility to cut costs
by enabling customer self-service. For others, it was initially ‘me-too’ functionality, to avoid
being overtaken by rivals. However, banks now also see how important mobile banking can be to
the overall customer experience, and therefore to customer satisfaction and loyalty.
New players like FinTech companies are also adding to the competition that traditional financial
institutions must face. Mobile banking can help them to fight back. In its latest (2017) Global
Mobile Banking Benchmark report, Forrester Research stated the need for digital banking
strategy executives to ‘deliver useful and usable mobile banking services that not only exceed
customers’ current expectations but also anticipate their future needs and improve their financial
well-being’. While digital marketing teams will have a crucial role to play in making this
happen, the mobile banking technology will also be a key factor.

Banks have an initial choice to make about their mobile banking technology – in-house or
outsourced. They can also use vendor platforms and components as building blocks, which they
then customize with their own specific features and brand. Larger organizations may do more by
themselves. Smaller organizations with fewer resources may look more towards white-label
solutions. Some vendors offer one part of the solution (mobile app design or back-end system,
for example). Others offer a complete mobile solution, front-end and back-end, for integration
with a bank’s other financial systems.

What Do Customers Want from Mobile Banking?

Any mobile banking solution must start with customers’ needs, wants, and expectations. Mobile
banking apps that do not satisfy customers will likely be abandoned and deleted. Back-end
systems will sit idle, a loss of time and money for the bank concerned.

Customer needs and wants will vary. Millennials in Asia may want cool functionality and a
designer app interface that aligns with their native digital lifestyle. Rural communities in
America or Africa may be more interested in quick and efficient account services that save them
the time and effort of driving to their nearest bank, perhaps many miles away. For the unbanked,
mobile banking may be the only feasible way of offering them the advantages of secure banking
services.

For an excellent and enduring customer experience, a mobile banking solution should also be
flexible. Customer tastes and requirements can change rapidly, and the solution must be able to
adapt. Nonetheless, some features are more frequently offered or requested than others. A 2017
survey by the Federal Reserve Bank of Boston of 505 banks in the US and the mobile banking
functionality currently offered showed the following percentages of banks providing each type of
functionality:

 Check balances (DDA, Savings) 92%

 View statements and/or transaction history (DDA, Savings) 89%
 View credit card balances, statements and/or transaction history 12%
 Bill payment 86%
 Bill presentment 30%
 Transfer funds between same owner’s accounts within owner’s bank 91%
 Transfer funds between same owner’s accounts at different banks 35%
 Mobile person-to-person payment (P2P) 44%
 Mobile remote deposit capture (RDC) 72%
 ATM/branch locator 81%
 Personal financial management (PFM) 12%
 Access to brokerage services 2%
 Cross-border payments 1%

The same survey included statistics for 177 credit unions. The percentages were very similar,
apart from the item ‘View credit card balances, statements and/or transaction history’, offered by
53% of the credit unions, compared to just 12% of banks.

Banks and other financial institutions should analyze their own existing and targeted customer
populations to understand how best to serve them with mobile banking functionality and
interfaces. A mobile banking solution vendor may also be able to contribute insights and
experience to help the bank optimize its mobile banking decisions.

Design of a Banking App for Mobile Devices

The user interfaces in mobile banking apps should as be user-friendly and intuitive as the mobile
phone technology allows. Banking apps can take inspiration from mobile app best-sellers in
other domains, whether for social media, news, games or other uses. A minimum number of taps
or swipes to reach a desired function or information must always be the goal. Many non-banking
apps manage to do this within one or two taps from a clear, uncluttered, attractive interface. This
is a standard of usability that mobile banking apps should

achieve too.
Inside the app, the priorities are performance, robustness, and rapidity of development and
release. Suitable development frameworks offer significant help in meeting these objectives.
They also make the app software architecture modular and intuitive, allowing for a maximum of
code reuse. This, in turn, speeds up a time to market and reduces costs.

How Should the Back-End Systems be Implemented?

Flexibility in mobile banking back-end systems is also important. As front-end functionality
changes to meet new customer needs, the back-end systems must keep pace. They must also be
scalable to handle increasing numbers of connections and transactions, as the popularity of the
mobile app rises. Outages and long waiting times must be avoided. Customers expect ‘always-
on’ availability for online

services, and minimum or zero wait times for their requests to be handled.

A microservices architecture is often well-adapted to this requirement. Self-contained functions

or functional components, each running as a microservice, communicate with others to serve the
front-end. New features can be implemented in one or just a few of the microservice modules,
for faster, more reliable releases. A well-designed back-end architecture will also allow a bank to
run the software on web servers and databases of its choice. This will give even smoother
integration into existing IT infrastructure.

As added advantages, microservice-architecture solutions can be faster to install, integrate, and

launch. When front-end and back-end components are available as an integrated solution,
updates and extensions to the microservices can be better synchronized with releases to
customers of new mobile banking apps.

Security and Compliance

Security is a critical consideration. It must be built into a mobile banking solution from the
outset. However, while giving maximum protection, it must not unduly limit functionality,
performance, or usability. 2-factor authentication is a suitable level of security for customer
actions such as registration, authorization, and confirmation of transactions. 2-factor
identification should then also be available for all interactions and events in the application.
Back-end systems must be hardened before the operation, removing vulnerabilities and
tightening platform security beyond default configurations of IT database operating system,
server, and storage unit vendors.

Compliance with regulations is essential. New or recently introduced laws and directives
affecting mobile banking include GDPR (General Data Protection Regulation for the European
Union) and the EU-wide second payment services directive (PSD2).

Market Overview of Mobile Banking Solutions

We consider examples of mobile banking software and solutions available for licensing and use
by banks, credit unions, and similar financial establishments. For this reason, we leave out of our
list any solutions specifically designed for just one bank or financial institution.

 Digital Insight. Mobile banking is one of the applications offered by NCR’s Digital
Insight. Others include retail Internet banking, electronic bill payment and presentment,
personal financial management, funds transfer, and financial institution website
development and hosting. NCR announced in 2017 that its Digital Insight software
powered mobile banking for ‘nearly half of United States’ top-performing financial
institutions. Digital Insight offers Android and iOS mobile banking apps, with biometric
access.
 FIS™ (Fidelity Information Services). Mobile banking is part of the FIS payment
processing and banking software solutions for retail and investment banking. The FIS
customer base includes Bank of America, Key Bank, PNC Bank, People’s United Bank
and BMO Harris. Features include mobile commerce, business mobile banking, P2P/on-
demand payments, and financial calculators for customers, with analytics for financial
institutions.
 Malauzai. Mobile and online banking solutions for community banks and credit unions.
Solutions utilize the SAMI (SmartApp Management Infrastructure) platform for real-time
updates and REBA (Real-time End-user Behaviour Analytics) for customer insight and
decision making. Other products include SmartwebApps, SmartwearApps, and MOX™
mobile business wallet. Customer references include Bank of Hope, Capital Bank, and
First Financial Bank.
 Metryus. Provides mobile front-end and back-end banking technologies for a full mobile
banking solution. Metryus uses the React Native framework for its CAVU mobile app
development for both iOS and Android operating systems. Security includes 2-factor
authentication and biometric access control. The server component uses a microservices
architecture. Clients range from FinTech start-ups to large banks, like the International
Bank of Azerbaijan.
 Q2. Solutions include mobile banking, web development, security assessments, and
marketing for banks. Customer references include A+ Federal Credit Union, Broadway
Bank, Inwood National Bank, and First Financial Bank. Features of Q2 mobile banking
for customers include a consistent design and user experience regardless of device,
fingerprint login for Android and iOS, user-customizable alerts, and contextual personal
finance management (PFM) for improved customer engagement.
 SAB. Makes mobile banking services available via mobile phones and SMS messaging,
including withdrawals from authorized outlets if there are no ATMs close by. SAB
shareholders include IFC, a member of the World Bank Group. SAB’s mission is to
improve financial system infrastructures in the Middle East, Africa, and Asia. References
include Banque Palatine, Banque de l’Industrie et du Travail (Lebanon), and Compagnie
Monégasque de Banque (Monaco).

Mobile Banking in the Future
The general principles of good mobile banking solutions will continue. Efficiency (making a task
easier), effectiveness (saving time or money), and contextuality (using personalized insight) will
all be priorities. Financial institutions are already turning to mobile apps with unique abilities to
 enhance customer experience and improve banking revenues. Ease of use and digital value will
continue to rise. To meet expectations, outsourcing mobile banking technology requirements to a
suitable third-party technology provider will continue to be the right solution for many banks and
financial institutions.

S2. Internet banking

noun
1. a method of banking in which transactions are conducted electronically via the Internet.
"the payment can be made through Internet banking"

Online Banking

What does Online Banking mean?

Online banking refers to banking services where depositors can manage more aspects of their
accounts over the Internet, rather than visiting a branch or using the telephone. Online banking
typically is comprised of a secure connection to banking information through the depositor’s
home computer or another device.

ˈInternet ˌbanking (also online banking) noun [uncountable] a service provided by banks so
that people can find out information about their bank account, paybills etc using
the InternetFrom Longman Business Dic

Internet ˈbankingthe services provided by banks that only exist on the InternetInternet banking
allows customers to carry out transactions, money transfers and other business 24 hours a day.

Types of Internet Banking

There are different forms of online banking which are web-based banking where customers can
access their accounts when they use the internet (Aladwani, 2001). A second form of online
banking is where the bank customer, through a modem, dials-up to the bank’s server to access
his bank account. This is known to be dial-up banking. A type of dial-up banking, called
Extranet, is a private network between a bank and its corporate customers.

Currently there are three kinds of internet banking which are employed in the market place
(Thulani et al, 2009; Yibin, 2003; Diniz, 1998) and these are Informational, Communicative and
Transactional.

An Informational website is the first level of Internet Banking. Marketing information about the
bank’s products and services are found on a standalone server. There are typically no path
between the bank’s internal network and the server.
A Communicative/simple transactional website allows a limited amount of interaction between
the customer and the bank’s system. The interaction is restricted to e-mail, account inquiry, loan
application or static file updates (name and address). Fund transfers are not allowed.

An Advanced website allows bank customers to make queries about their accounts, electronic
transfer funds to and from their accounts, pay bills, update their account information and conduct
other banking transactions online.

Therefore a bank who is planning to offer internet banking services, is expected to create an
informational website first, then introduce a communicative website and finally an advanced
transactional website where customers can perform the basic transactions.

Advantages of Internet Banking

Both the provider and the consumer benefit from internet banking. Online banking is considered
to be the most important way to decrease cost and enhance or maintain services for consumers
(Hua, 2009). From the banks’ perspective, it is the cheapest banking products delivery channel
(Pikkarainen et al, 2004). Together with saving time and money, this service minimizes the
possibility of bank tellers committing mistakes ( Jayawardhena & Foley, 2000). Less staff is
required since the customers serve themselves in cyberspace. Karjaluoto et al (2002, p.261)
argued that time and location were no longer limiting factors in banking as all over the world,
customers can now easily access their accounts 24/7.

Internet makes the transactions efficiently and expertly at an unmatched speed. Internet banking
offers the possibility to manage several bank accounts on one site and these sites are compatible
with software such as Microsoft money.

With increasing competitive pressures from existing firms and new blood on the market,
competition is an important logic to be considered. Using internet banking as an alternate
channel has allowed banks to target various demographic segments more efficiently, thus
retaining existing customers and attracting new ones. While supplying internet banking services,
banks establish and extend their customer relationship (Robinson, 2000).

The concept of online banking is an uprising in the field of banking and finance as the account
holder does not have to visit the bank and queue to perform the basic transactions like balance
inquiry, recent transactions record, transfer fund to employees accounts in the form of salary, bill
payments and phone account top up. On top of this, the interest rates are higher for online
banking than with traditional banking (3.4% to 4%).

Many persons like internet banking as there is no credit check. If someone has a bad banking
history of financial problems, at a traditional bank, their application to open a bank account
would be turned down. This is not the case with internet banking. Some banks offer the facility
of online loaning where an instant loan is provided by only filling a form. Internet banking web-
sites are highly performing systems, easy to understand and navigate, with simple instructions
designed to answer all queries about banking. Customers also have a wide range of opportunities
to invest such as stock quotations and news updates (Lee, 2009).
Qureshi et al (2008) stated that it is essential to extend internet banking to customers in order to
maximize the advantages for both the service providers and the customers. The navigability if
the site is a very vital part of internet banking as it can become one of the biggest competitive
advantage of a financial body (Ortega et al, 2007). The banking sector performance increases
everyday due to the rise in technology usage. Online banking is time saving (Qureshi et al,
2008).

E-banking is now less vulnerable to safety and security related issues. Secure Socket Layer
(SSL), Password Based Encryption (PBE) and electronic signatures has increased the level of
security. If any inconsistency occurs in an account, it can be traced easily, making internet
banking more trustworthy. Avinandan & Prithwiraj, 2003; Urban, Sultan and Qualls, 2000 have
identified trust to be an important factor for the financial online services. Furthermore an
empirical study has shown that consumers make online decisions based only on trust. In
developing countries, trust plays a crucial role for customers to accept and use online banking
(Benamati and Serva, 2007). Belanger, Hiller and Smith (2002) defined privacy as being “the
ability to control and manage information about oneself”.

Some banks offer real time customer assistance to customers who have trouble finding their way
through the web site or the proceedings of the internet banking registration through instant
messaging, email or even the telephone.

Disadvantages of Internet Banking

Indisputably since the emergence of internet banking, it has been playing an important role for
both the service providers and the consumers. Nevertheless, this phenomenon is observed
differently among customers who either accept it heartily or reject it. Those who accept it, as
proposed by Clark and Mills (1993), prefer impersonal relationship, that is, “exchange oriented
customers”. They like the 24 hour availability of services, the simplicity of the transactions, the
no-queuing factor and no fixed branch-operating hours (Al-Somali et al,2009) while those who
reject it look for the human touch and social benefits of traditional banking. These are known as
the “communally oriented customers” (Clark and Mills, 1993).

Those who reject internet banking are wary of the risks involved in it. Featherman and Pavlou
(2003) defined perceived risk as the “potential for loss in the pursuit of a desired outcome of
using an e-service”. The risks perceived are;

Financial risk

it is the constant anxiety of transactions faults causing a monetary loss suffered by customers
who perform online transactions. Clearly internet banking lacks the assurance provided in
traditional banking (Lee et al., 2009, p.2) and this is due to the fact that online banking is
considered as an innovation which is incompatible with consumers’ habits (Kuisma et al., 2007,
p.77).

Performance risk
This risk is innate from the consumers’ fright of losses incurred by failures of online banking
websites. Customers are often troubled that a disconnection from the Internet might occur while
performing electronic transactions which might lead to “huge” unexpected losses (Kuisma et al.,
2007). This was confirmed by Sathye (1999) who claimed that Internet access is a decisive
variable on which the adoption of online banking depends and by Almogbil (2005) who
succeeded in showing that a significant relationship exists between the speed of Internet access
and the acceptance of electronic banking.

Social risk

It stems from the fear of being seen in a negative way by others (Kuisma et al., 2007, p.77) or
causing the disapproval of one’s friends/family/work group by adopting online banking
(Agarwal et al., 2009, p.4). Venkatesh and Morris (2000) approve that social influence plays a
central role in determining the approval of new information technologies. Nonetheless, it is
commendable to note that others’ opinions are particularly informative in the early stages of
experience (Hartwick and Barki, 1994) when potential information technologies’ adopters are
not sufficiently informed.

Privacy risk

It refers to the possible loss due to fraud or a hacker, putting at risk the security of an online
customer (Lee et al., 2009, p.2). This risk is emphasized since the appearance of phishers whose
hobby consists on attempting to deceptively collect personal information, such as usernames,
passwords and credit card details. They not only lead to users’ monetary loss, but also violate
users’ privacy (Entrust, 2008). Suh and Han (2002) point out that, unlike in offline banking, that
is traditional banking, trust is a pressing need in internet banking.

Time risk

It is the time’s loss and the lateness in receiving the payment or the difficulty of navigation (Lee
et al., 2009, p.2). This can be due to a disorganized Web site, to slow-downloadable pages, to the
long time needed to be a PC-literate.

Apart from this, the credulity of an institution must be verified before opening an account in an
internet bank and entrusting the life-savings of an individual. The institution must be legitimate
and must be checked against the listing of the FDIC.

A major disadvantage would be that when several failed attempts have been done to login the
account, after having given the wrong password, the account becomes inactive. The customer
will have to go through a lengthy procedure to get it reactivated again. Weeldreyer (2002) claims
that internet banking is not living up to the hype.

Another problem would be the down time of internet, where no customer will be able to access
hi/her bank account because there is no internet connection for hours probably. The connection
could also be unstable during bad climatic conditions such as heavy rain.
1.1.The Evolution of Mobile Banking

Mobile devices are reshaping the world as we know, gradually transforming our lives, daily
behaviors, and how we do business with banks. Together with the evolution of mobile
technologies, customers also evolved, pushing banks to be more consumer-driven.

Fulfilling customer needs

In the beginning of the smartphone era almost a decade ago, it was easy to impress customers
with the possibilities new devices and technologies provided; the leap of progress was huge,
even maybe it was a small change presented as a new way of dealing with the convenience.

Over the years, customers shifted to mobile devices, adopting new technologies with the goal of
simplifying their lives and demanding more from banks. Forrester predicts that by 2017, 108
million customers in the United States alone will be using mobile banking.

Mobile banking stands out from the rest of the industries affected by mobile technology due to
millennials’ willingness to use feature-rich banking apps. A study by the Federal
Reservereported that millennials’ mobile banking usage in now close to 70%, compared to 18%
of consumers aged 60 or over.
As the way in which we handled our finances changed, banking also needed to keep up with
mobile trends to survive in a mobile-first customer environment by tailoring their businesses to
suit customers’ needs and creating mobile apps.
Improving customer experience

Not long ago, it was a common practice to go directly to local bank’s branch to make a simple
transaction or transfer funds. Then came telebanking, and then banks finally spruced up their
websites and started offering services on the web.

However, with the mobile evolution, opening a mobile bank app on a smartphone is a strong
alternative to going to a bank branch. The ability to access information in just a few clicks from
our smartphones changed how we access our bank accounts. With a mobile banking app,
customers can check their bank balances, transfer funds, or make payments in just a few seconds.

In a recent Nielsen survey, nearly half of the global respondents (47%) said they had checked an
account balance or conducted a transaction on their mobile devices in the past six months, and
42% said they had paid a bill using their mobile devices.
Creating new sales and communication channel

Customers have evolved from passive recipients to hyper-informed ones, constantly looking to
get more from their mobile devices. Therefore, mobile banking needed to extend the portfolio of
services offered by mobile apps, resulting in new sales and communication channels.

By adding some simple services to their mobile apps, such as checking bank balances and
transferring funds, banks realized the enormous potential those apps have for their customers and
their businesses. Banks started building mobile apps with more complex services available, such
as requesting loans, opening savings accounts, or making mortgage payments.
In 2015, Bank of America reported over 18 million active mobile banking users and its biggest
annual earnings in nearly a decade as well as a 29% growth in bill payments and a 20% percent
growth in money transfers.

The report also showed a trend of customers opening new accounts through mobile apps, with
sales increasing by 50% over the previous year.Tracking customer behavior in apps by
interpreting collected data creates a chance for banks to offer products and services that better fit
their customers’ needs.

In addition, sales and marketing teams now have new channels to market new services and to
upsell and cross-sale services since 70% of customers are willing to provide their banks with
more information if doing so leads to increased personalization or better service.

Reducing operational costs

Banking apps are not only fulfilling customers’ needs but also lowering banks’ operational costs
by reducing the need for physical branches. Last year, there were more than 1,600 bank branch
closures in the United States. A study titled “Digital Disruption” by Citi predicted that by 2025,
up to 30% of current employees could lose their jobs because of new technologies.

However, this does not mean that jobs at bank branches will disappear; these employees will
simply need to jump into different roles. Customers still have positive perceptions of physical
branches due to the human touch they provide when it comes to long-term financial decisions,
such as mortgages.

The shift will require employees and banks to open new, customer-oriented departments to
provide individual and personalized support, focusing on small business loans, personal
investment advice, and help with the onboarding process and mobile issues.

Mobile banking experience redesigned

Mobile banking is growing and evolving rapidly, pushing innovation in the first plan. We are
witnessing the dawn of new mobile banking solutions that are trying to change the mobile
banking experience from the inside out.

Simple and Moven are working on changing the banking experience as we know it. Their mobile
solutions include all the regular services you would expect from a banking app, such as tracking
expenses and making mobile payments. However, they are paving the way and raising the bar for
other players on the market by building apps and integrating exciting new features.
With Simple, you can create Goals. A Goal is a digital envelope that allows you to save and stash
away funds daily. Users can set aside discrete amounts of money for specific purposes and
effectively hide money from themselves before they spend it. On average, Simple customers who
use these Goals save twice as much as those who do not.

Another exciting feature is Safe-to-Spend. This feature allows users to spend spontaneously and
worry less about overspending their monthly budgets by calculating the difference between their
total balances and all their scheduled bills and Goals.

Simple also offers a way for customers to visualize their spending, discover how they really
spend, and find easy ways to save money. The app can search and analyze every transaction
made from a bank account while allowing users to add notes, photos, and hashtags to any
purchase. Best of all, Simple does not charge any fees, not even maintenance, card replacement,
or minimum balance fees.

Moven’s mission is to change how people engage with their banks by delivering mobile-first,
customer-centric solutions. Moven is a financial service provider that creates digital bank
accounts and provides an innovative app that provides real-time insights to empower users to
make informed decisions that directly affect how they save and spend money.
The new breed: mobile-only banks

Mobile banking adoption resulted in a few banks trying to position themselves as pioneers of a
new type of banks: mobile-only. While all major banks provide some form of mobile banking,
with either a smartphone app or a mobile website, these new banking players only offer digital
solutions and do not have a single physical branch.

German mobile bank N26 is on a mission to replace traditional banks. To become a client, users
must install the company’s app and have a short video call with a clerk. During the call, the bank
representative turns on your front phone camera to take your profile photo and scans your
passport through the back camera of your phone. In only few minutes, you have new bank
account, debit card, and credit card—pretty elegant, right?

The UK’s first bank built exclusively for mobile is Atom Bank, which aims to disrupt the
banking industry just as Uber did with transportation. Even before this app-only bank officially
launched, the startup was valued at around $226.6 million after only 18 months and landed a
massive investment of $68 million from Spanish bank BBVA

Atom’s app provides complete customization with some high-end features. Opening an account
is simple, and the process can be completed in just a few steps. For authorization and
registration, users do not have to enter usernames or passwords or scan a photo ID since the app
uses biometric security.

The app currently relies on face and voice recognition, but the company announced that it will
implement fingerprint ID and eye scans soon. Once those features are introduced, users will set
up three forms of biometric ID, two of which are mandatory, and a six-digit passcode to access
their accounts.
Clydesdale Bank and Yorkshire Bank launched a digital banking service and created a mobile
app: B.

B promises to make everyday banking simple and intuitive for every financial action, from
checking account balances to making payments, while providing tons of tools that allow users to
take control of their funds.

B’s set of features allows users to tag purchases or set up their own savings and budget targets.
One feature collects financial data to predict how a user’s account balance will look at the end of
a month based on previous behavior.

If users are about to fall a little short, the app will send an alert, or if have some extra funds, the
app will suggest spending or move funds to savings. B also integrates with Apple Pay, making
wallet-less payments just a fingerprint away.
The future of mobile banking

The evolution of mobile banking has begun, with biometric security, smart automated savings,
and deep expense analyses being introduced. So, what can we expect in the near future?

With the rise of virtual digital assistants, such as Siri, Cortana, and Google Now, and apps
being opened up to third-party developers, mobile banking will become completely consumer-
centric. As digital assistant capabilities become smarter with every OS update, users will not
even need to tap on their devices; voice commands will allow users to manage their bank
accounts, make payments, and analyze their spending.

Bankers will need to acquire a much deeper understanding of their customers and push services
that go beyond transactional. Connecting data from third-party apps, learning about customers’
saving habits, and analyzing customers’ spending behaviors will allow banks to create complete
profiles of individuals and lead to powerful intelligent interfaces.

This will result in complex portfolio management tools that allow users to obtain complex risk
analyses on long-term investments and assistance when applying for mortgages or investing in
emerging markets, high-yield bonds, or stock market bonds.

Over one-third of the world’s population now owns a smartphone, and in the next four years, that
piece of the pie will expand to 70%. With one in three adults relying on mobile banking by 2020,
customers will push banks in one direction if they want to survive: going mobile.

10 Ways Banking Will Be Different in 2020

An obvious statement: The banking world is changing. However, it does give rise to less
obvious questions: Just how fast is it changing, and in what ways? For instance, what will the
banking world look like in five years? Will there be chatbots in every smartphone and every app?
Will bitcoins or other cryptocurrencies be mainstream forms of money exchange?

In Bank Innovation’s State of Banking Innovation in 2016 survey, we asked the survey’s 171
respondents — the majority of whom self-identified as bankers —what they thought banking
will be like in 2020.
Here are ten different ways they responded:

1. Mobile Everything, But Same Old Banking

Several respondents championed the future of mobile:“Everything you need will be done on your
mobile phone,” one respondent wrote. “Mobile payments will completely displace real wallets.”
Another added this could lead to the fabled cashless utopia: “More innovation but on mobile,
innovations to handle micro payments—sweeping cash out.”
Another added that mobile will replace all the other channels, but it will still be the same old
banking: “Smartphones will dominate service delivery and interaction. Robo advice will be
standard taking human risks out. Financial markets will be even more computerised and it will be
harder to change market share. As I see it, the lessons of the past will be forgotten and mistakes
repeated. I was in banking when Westpac almost went under and the financial crisis of the 2000s
was due to the same behaviours. However, this time a bunch of computer engineers will be in
charge.”
2. Banks Absorb Fintech Startups
One respondent was skeptical that current startup culture would still be around, noting that there
will be “very few large scale startups. Most will be acquired and assimilated into the larger
ecosystem.” He didn’t elaborate as to why, but we might suggest funding drying up, regulations
increasing, or greater synergies developing between fintech companies and innovative banks.

3. All Processes Go Digital

Before we get to mobile we have to eliminate pesky, pesky paper and other remnants of the Dark
Ages, which is why some respondents claimed we will have moved entirely onto electronics in
the next five years. Wrote one banker, “Branches will be obsolete or will co-exist with
partnerships such as coffee shops, etc.,” while another stressed increasing “digital” evolution to
come. A third expected that there would be “very limited branches, more conversational.
Blockchain, internet of things and wearables will be driving bank interactions. 95% [of]
transactions [will be] digital. In 2020, we will see the beginning of the end of car ownership.”

4. “Banks” Disappear
Some participants declared the collapse of the entire banking world, like one respondent who
wrote, “It will be in rags after the next banking crisis and we will see a completely new financial
infrastructure in its making.” Another was less dramatic and wrote that in the future one could
expect to see, “Some of the same and some that is new. Many of the larger banks will be well on
their way to a seamless integrated channel experience. They can’t afford not to.The smaller
banks will struggle and will either have to partner with 3rd party sources or get swallowed up
through M&A. Fintech will go through a period of their own disruption as smaller providers fold
and larger providers either partner with banks or are swallowed up by them. Regardless, there
will be a shake-up coming.” A third thought that banking in general would be gone–except not
really, writing, “I humbly submit ‘banking’ is the wrong term. Customers will have one (or
many) financial partners. They will have access to all of their relevant financial information in
real time to help them make the right financial decisions in their day-to-day activities. Whether
this is to be delivered by banks or disruptive startups is yet to be seen.” Lastly, another
respondent predicted chaos, writing, “total transformation; incumbents who adapt will survive—
[there will be] significant automation and even AI. Many jobs and old processes [will be] gone.”

5. Community Banks Will Still Be a Thing for Communities…

Some respondents thought community banks would succeed by serving, well, communities. (See
Kasasa Chief Innovation officer John Wauph’s upcoming book Bankruption for more on this
theme.) One respondent wrote, the banks’ survival will “depend on geographic location — small
communities will continue to be primarily served by community banks. Large cities will see a
continued shift to a virtual banking model.” A bifurcation of banking between branch and digital
based on geography? Interesting.
6. …Unless the Regulators Kill Small Banks
And some respondents thought exactly the opposite, like this banker who noted the importance
of regulation: “Technology is moving exponentially at this point and not linear, so it’s hard to
predict. But community banking will drastically decline … unless the government regulates
fintech harsher.” Regulation (or lack thereof) was seen here as protecting fintech startups and
hurting community banks.

7. Staff Shrinks, and Shifts to IT

Some bankers predicted that the rise of technology would led to less staff in finance — unless
they happen to do a particular job, like this one respondent who wrote, “Only 20% of current
staff levels [will remain], but [banks will employ] twice the number of IT staff. Traditional banks
will lose their direct channels to specialist channel providers.”

8. Channels Shift to Wearables and the Internet of Things

Some respondents predicted the rise of wearables and truly mobile banking, like this participant
who kept it simple but enthusiastic, posting just, “MOBILITY AND IOT.” No need to shout, we
hear you! All caps aside, the shift to internet of things seems to be coming, but fraught with
difficulties. Gartner predicts 20 billion (!) IoT devices by 2020. And yet, we haven’t really
figured out security, let alone identity, on the coming super-network. Banks will need to tread
cautiously are — Capital One is the only bank so far on the Amazon Echo.
9. Rise of the Robots (and APIs)
I would use this for #9: “More automation and personalization. Banking as a platform,” one
respondent wrote. This could mean more chatbots and artificial intelligence accelerating the
onboarding process, but it also refers to API ecosystems being built on top of bank systems. To
many in banking, this implies giving away the customer experience to fintech startups and the
tech giants, but perhaps it will just mean enhancing the customer experience by tying in one’s
finances to services and systems that are already used and loved. Plus chatbots. Lots and lots of
chatty little chatbots.

10. Lower Costs and Less Money in Financial Services (Plus a Lot Lot More)
And then there was this assessment of the current state of banking (estimated reading time 5
minutes):
“Overall, a sad landscape continues. Linear extrapolation suggests it looks like today. The rate of
change is actually quite slow. Hopefully, we will see at least an acceleration in the pace, but it
won’t be dramatically different. Some consolidation in the industry is essential. Excess capacity
makes this look like the steel industry of 40 years ago, [and that] must be dealt with. National
champions are not a winning idea. Returns on capital will not improve without consolidation.
Less and less money will be spent on financial services, overall. Each client segment will be
pushing on fees, so only interest rate rises provide any solace [to bank financial results].

“Technology can help, but perhaps greatest assistance would be to lower the costs and risks of
transition in the consolidation process. Most of the new ideas in technology are being driven by
gee whiz attitudes and consequently will have limited impact by 2020. The absolute amount of
risk sloshing around in the markets will hopefully be decreasing with greater transparency and a
more constructive role by investors. Some investors will awaken and stop putting more money
into a contracting industry, and realize they ultimately wear most of the risk at the end of the day.
That is the ultimate sword to drive change. That should also drive greater separation and walls
that regulators want to protect Main Street from Wall Street. Retail customers will be marginally
better off as fees decline and some services improve through faster payments and easier access to
credit. Retail investors will not change dramatically, and the big wire houses will still be in a
strong position. [The] impact of roboadvisors will be on the fringe, not mainstream. Corporate
customers will face a different situation, since interest rates will ideally rise by then. Leverage
will need to decrease. More transparency on bond and loan covenants will ideally be well
underway. Perhaps some greater standardization in practices. [It will be] curious to see what
happens with the volume of stock buybacks. In markets like US those have been a significant
source of liquidity.

“Companies have to find new avenues for capital investment to grow if they are to survive in
slow growth economies. [There] could be less M&A activity, and few private companies going
public. M&A in financial services could be a boom. Problems with insurance companies could
also be a boon to activity for the banks. Buy-side continues to become more self-sufficient and
undergoes consolidation. Active management will continue to be under attack. Economic growth
and attendant improvements in returns are likely to be minimal, so generating alpha becomes
a rara avis. How many beta factories can be reasonably supported? Not many. New hybrid firms
will further emerge that have characteristics of both sides. This is probably the greatest source of
innovation. These firms won’t trade the same way and they will want voluminous amounts of
data to support investment decisions. They will likely impact how securities are issued, as well
as how they are traded. Frictional costs should continue to decrease along with transparency
increasing. Risks will be flowing around with this shuffle. Will the absolute amount of risk
diminish or just get worn by different parties? We won’t have the answer by then, unless the
major institutional investors finally wake up and understand how badly they are being damaged.
“Back offices at most firms will still be hazmat areas. Given that transition times to new
platforms or new technologies are generally measured in 3+ years, simple math suggests they
still look like the aftermath of a volcanic eruption. A few firms will be ahead of the curve, but it
won’t be the big ones. The talent pool will continue to erode as absolute levels of compensation
diminishes and other opportunities outside of banking start to look more attractive. A lower
grade talent pool in the face of these challenges is pretty scary. Who’s left to lead a reformation?
The clients and investors!”
What do you think banking will be like in five years?
To learn more about banking innovation

5 Advantages of Focusing on Mobile Banking

Banks are fully aware of the society evolution and its impact on the way people are banking.
They should adapt their offers in order to match new expectations and digital changes. While
digital transformation is growing increasingly fast, banks should reconstruct themselves and go
further, especially in the mobile banking industry. A survey by Statista shows that the number of
smartphone users reached 2.32 billion in 2017 and is expected to pass 2.87 billion by 2020. This
leads to the mobile banking expansion and will make the customer bank relationship really
challenging.
Mobile penetration in reliance on its implied simplicity, immediacy, transparency, autonomy,
and personalization is one of the main triggers that drive mobile banking industry. We will
provide insight into why mobile banking has become a key focus for the banking industry.

PROVIDING VARIETY OF PRODUCTS AND SERVICES WITH OPEN APIS

Implemented API technology allows to package bank business assets and data, making them
accessible both inside and outside the organizations. A public API can be used to allow third
parties to access their data or services in a controlled environment. It means that limited software
functionality is exposed, while the rest of the application remains protected.

Key takeaways:

 Connecting customers to other services within the banking ecosystem and vice-versa may
be endless with open APIs.
 An accurate, up-to-date information on finances can be given due to the real-time access
to bank data.
  Gaining the ability to provide differentiated products and well-taken services.

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Enhancing customer experience with Augmented Reality.

Augmented reality helps to combine computer-generated sensory and physical reality in order to
transform customer experience by integrating mobile banking into everyday interactions.
Visually appealing AR applications can enhance the customer experience by providing location-
based offers, ATM locators, talking to a relationship manager, doing a property search, making
payments, etc.

Key takeaways:

 Using immersive data visualization and location-based services can help to provide
enhanced and personalized customer services.
 Developing AR applications in the banking industry provides easy accounts accessing
and faster payments.
 Traditional brick-and-mortar branches may be replaced with virtual branches and
advisors in order to save time and efforts.
MITIGATING THE RISKS OF IDENTITY THEFT AND FRAUD
As global financial activity becomes digital, many banks utilize new technologies to develop
next-generation identification controls. It helps to combat fraud, to make transactions more
secure, etc. Biometric authentication methods that use unique biological or behavioral traits such
as face, eye and voice can be captured with sensors that are available on every smartphone. It
enhances client’s identity verification, provides added security and reduces risks better than
traditional security systems.
Key takeaways:

 Providing better security to the customers leads to their trust levels improvement.
 Biometric methods can be widely used internally to mitigate the risks of identity theft and
fraud.
 Exploring multi-factor biometrics for authentication will help in facing future challenges
and provide better safeguards for data.
ARTIFICIAL INTELLIGENCE IN A MOBILE BANKING INDUSTRY
Data availability, open-source software, cloud computing and fast processing speeds lead to the
widespread adoption of AI in the mobile banking industry. Financial organizations can stay
relevant in today’s market with AI significant technology due to the new technical capabilities
and contextual mobile services.

Key takeaways:

 AI can help customers to plan out the budget by providing more personalized advice
chatbots.
 Transactions and bills can be automated that leads to eliminating the manual data entry.
 Users can stay within the budget of their current balance by setting the reminders.
EFFICIENCY AND PRODUCTIVITY WITH ROBOTIC PROCESS AUTOMATION
Robotic Process Automation (RPA) software can help banking industry to offer services such as
mobile banking in the most efficient and cost-effective way. It provides additional resources to
various areas of the customer life cycle, specifically loan processing, payments, operations, etc.
RPA software helps to coordinate activities among existing mobile banking applications, to
utilize existing business rules and logic, to reduce manual processes, to handle repetitive
processes seamlessly with higher efficiency and accuracy levels.

Key takeaways:

 Implementing RPA leads to achieving productivity that enables greater capacity and
flexibility.
 Robotic process automation helps to increase efficiency, to exclude mistakes, to free up
your employees in order to find more fulfilling roles within the financial organizations.
 Round-the-clock virtual resources availability helps to handle operations/processes with
higher volumes.
DRAWING A LINE
Considering the opportunities offered by digital technologies, they can be used in the future of
mobile banking. The reality is that a minimal physical presence is still well received by
customers and most banks know they should rethink their traditional branch model. Financial
organizations are trying to evolve and introduce new technologies to make mobile banking more
user-friendly and efficient. But the strategies that drive innovation cannot be introduced
immediately. Mobile app concept, key features and functionality should be well thought out in
order to implement a successful digital solution and achieve strong business growth in the
financial industry.

This story was submitted by DDI Development and does not constitute the views or opinions of
Upwork.

Reference: The 12th International Conference on Mobile Systems and Pervasive Computing
(MobiSPC 2015) An Analysis of Features and Tendencies in Mobile Banking Apps Gianni
Fenua,∗ , Pier Luigi Paua aDepartment of Computer Science, University of Cagliari, Via
Ospedale 72, 09124 Cagliari, Italy

. Mobile banking - near future of banking Gentiana Gjino1+ , Orkida Ilollari (Findiku) 2++ 1, 2
Raiffeisen Bank, Albania

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