The way you bank is about to change.
For most of American life the consumer experience of banking has looked more or less the same. Architecture may have shifted from the 19th Century's heavy stone temples to today's sleek retail spaces, and patrons rarely walk out the door with envelopes full of cash anymore, but the essence has remained. A teller helps customers open their accounts. A bank employee will happily discuss terms for a loan. They'll probably have lousy hours.
Not for much longer.
Thanks to a combination of technological changes and consumer demand, the banking industry is on the edge of a revolution in how it does business. Consumers who pay attention to this shift will be in a position to get much better deals as a result.
The first casualty in this process, say industry experts, will be the branches themselves.
"Consumers [will] gravitate more and more toward the digital arena for their banking needs both online and mobile," said Greg McBride, chief financial analyst for Bankrate. "There'll be continued consolidation of bank branches. They're not going to go away, but what they will be is optimized."
"The branch is going to look a lot different in the sense that it's going to be more of a consultation center and less of a transaction center," McBride continued. "In other words, it will be where people go to talk to their banker, or someone with the bank, about wealth management or their mortgage. Less and less will it be about cashing a check."
The truth is that technology can do most, if not all, of the job that a teller once did. With the ubiquity and security that modern apps and websites have to offer, and with only one-third of transactions conducted in cash anymore, few consumers need a physical interaction. Websites can offer the kind of convenience that no teller could offer short of round-the-clock concierge service, allowing today's consumer to open and manage almost any kind of account from an online interface.
The result will mean more than just convenience. It will open the doors to financial products across the country, allowing consumers to shop for better deals and accounts regardless of physical location. Consumers without a bank nearby, such as many rural or urban residents, will be able to open checking accounts without traveling for miles. Others will be able to comparison shop for better loan terms and deals than the ones offered by their local branch.
Consumers demand the shift to an online model and banks have begun to respond. The future of retail banking will look more like an accountant's or a lawyer's office. Client service will replace customer service, and the purpose of these increasingly consolidated branches will be to provide in-person consultations for loans, wealth management and financial products.
It's not just the layout of banks that are changing either. As transactions move online, consumers should expect their banks to respond to big data. In the same way that Amazon tries to anticipate a shopper's needs based on past purchases, banks will begin trying to build financial profiles out of their new wealth of digital information.
The result, according to members of the industry, will be an increasingly broad array of financial products customized to individual consumers. It will mean a more proactive (some might say pushy) model of banking, but it will also create opportunities for a savvy shopper to find financial products that fit their needs much better than a generic model ever could.
"It has ramifications for better use of data to more precisely anticipate, identify and target customer needs more accurately," said Jerry O'Flanagan, an Executive Vice President with First National Bank of Omaha. "Beyond digital, what's happening in the back office is a transformation of data being driven by machine learning."
"Lots of relevant data pieces can be brought together and brought to bear," he said. "If I know, based on how you use your computer, that you've been looking at real estate sites and you're a customer, that might prompt an offering to get you connected with one of our mortgage brokers."
The success of this new model of banking will depend on how financiers navigate the regulatory landscape.
Digital access has opened up an entirely way of retail banking. Many institutions can contemplate a future completely free of physical locations, seeing no difference between a consumer in Southern California and one in the Michigan Upper Peninsula. Yet such a project would have to contend with the Riegle-Neal Interstate Banking and Branching Efficiency Act, which ties a bank's ability to collect deposits from around the country with its willingness to make credit available to those same communities.
In essence, a consumer bank can't open online checking accounts in upstate Michigan unless it also has the infrastructure to help that population get a mortgage.
Meanwhile, bankers looking at a wealth of new products have their eye on Section 106 of the Bank Holding Company Act Amendments of 1970, otherwise known as the Anti-Tying provision. This law bars a bank from providing or pricing one financial product on the condition that a customer commit to another, unrelated product. For example, a retail bank can't give someone a point off their mortgage on the condition that the borrower take out a credit card from that same institution.
As banks learn more and more about their customers and begin to build new products and packaged offerings, anti-tying laws will become increasingly dangerous. Institutions that can successfully navigate this law will be able to offer new, data-driven services, making mortgage offers to consumers who've just begun looking, or offering financial advice to households that may not even realize they're in trouble yet.
Banks which are not careful, however, can very easily find themselves offering packaged deals that will bring the SEC calling.
Technology is about to change the way retail banking works, as long as they can stay on the right side of the law.