This week we are reporting from the BAI Retail Delivery show in chilly Chicago. Winter is here! Traditional banks are once again being challenged by a new group of upstart virtual banks with a twist, mobile-only. Technology has enabled new entrants to try to destabilize banking. At BAI, we saw plenty of evidence of banks going down this path. It will be interesting to see if these mobile-only banks can succeed where others have failed.
Virtual banking has been around since the mid 90’s. Security First National Bank launched the first bank accessed exclusively through the Internet in US markets. Now there is a new twist on this theme, with the launch of “mobile-only” banks. Imagine a branchless bank offered on a national level throughout the US, targeting young and old alike. Imagine opening an account on your smartphone by taking a picture of your drivers license and funding it by taking a picture of a check. Almost no data entry and all completed in minutes with very little effort. Today, this is all a reality. Mobile technology has enabled this to happen. The proliferation of smartphones and tablets, a powerful camera, really cool native mobile apps and innovative bankers have made this happen. Customers now receive an unprecedented level of virtual service from their smartphones or tablets. Because there is no need to walk into a branch and no more hassle, these virtual banks are poised to take the market by storm.
With the promise of very low fees and increased convenience for the customer, both businesses and consumers are being targeted by these new virtual brands. The banks behind the brands will be able to aggregate deposits at a high level and break beyond the geographic boundaries of branch-based banking. These mobile-only offerings allow banks to ultimately lower service costs and run a deposit account at a very high margin. Product variety can also be increased from offering lines of credit when you open the accounts, to high-interest baring savings offerings and complex lending solutions for personal credit lines and eventually mortgages. Customers are signing up in droves, attracted by diverse offerings that solve their need for convenience and low fees. Establishing a new brand is not always necessary. Community-based banks can launch a virtual offering to extend their reach to both existing customers close by their branch network and new customers who are further afield.
At a time when banking is ripe for innovation and growth, its future is being shaped by mobile-only virtual offerings. Also, banks need tools to lower costs and increase margins. In an environment where regulation runs rampant, virtual banking addresses tough regulations and increases banks’ abilities to manage and mitigate risk. The security behind virtual banks is paramount, and the advent of new technologies allows them to secure the environment like never before. From biometrics like Touch ID on an iPhone to advanced device-recognition solutions, security is becoming more customer friendly and ultimately extends protection to everyone.
In the coming year, virtual banking will take North America by storm. A win for banking and a win for the consumer, virtual banking led by these new forms of mobile solutions, is poised to transform banking as we know it.