For most of the last century, a bank was a physical place: an imposing, neoclassical building with a solidity that was intended to convey the security of the bills and coins within. Customers visited a particular branch to make withdrawals and deposits, using paper tools like deposit slips, checkbooks, and passbooks. The introduction, since the 1980s, of the ATM, online banking, and mobile banking has changed not just the process of banking but also the idea of what a bank is.
For many consumers, even a traditional bank has become a virtual entity, accessed more frequently through a network of ATMs, a website, and a mobile app rather than through a branch. According to the Wall Street Journal, U.S. banks closed more than 2,000 branches in 2012, bring the total number of branches to its lowest point since 2007.
Having grown accustomed to interacting with a bank electronically, some consumers are moving beyond traditional banks entirely, to prepaid debit cards, web-based banks, or a hybrid like Kasasa, a website that partners with community banks and credit unions. The New York Times recently reported on the startup Simple, which combines an online checking account and mobile app with free budget analysis. (The Times notes that customers' funds are actually held by a federally insured bank.)
Amy Brady, the chief information officer at Key Bank, a regional bank based in Cleveland, says that at the beginning of her career in financial services, "it was all about people and paper": banks' focus was on personal interactions with customers and the processing of paper records. Now, she says, "it's all people and technology": the method of interaction has changed, but the key is still forming and maintaining relationships with customers.
Q: How has technology changed our understanding of what a bank is?
Amy Brady: When I started in banking, or financial services, it was all about people and paper. Everything was around how you interacted with your client, and then how you processed paper. Today it’s all people and technology. That’s all that the business is, whether it be how the clients interact with the bank—it’s totally changed. So people’s personal preferences have changed from going into a physical facility where they felt the need to see a personal banker or see a teller, to where they’re very comfortable with alternative channels. They’re not even really alternative channels anymore. They’re mainstream, whether it be the phone or their iPad or their computer or the ATMs.
So that’s changed, and then on the corporate side it’s also changed because corporations used to have to go down to a facility to get cash or transact. Now they can do all of that from their office. They do their payroll from their offices. They do their deposits from their offices. So it’s really changed the whole interaction model and how people think about banking.
It’s made banking be 24 hours a day, right, where it used to be nine to four, nine to five. So it’s changed that dynamic.
The other thing that has changed is the amount of data. The amount of data and the speed at which we use data, because of the technology, has dramatically altered the way we view our responsibilities as financial institutions to deliver services to our clients, and also really the security that we need to provide our clients around all of that data that we hold. So it’s really a phenomenal amount of change.
I think what’s really happened over the past probably five years which has really accelerated the pace of change—10, 15 years ago you really had to educate people how to use new technologies, and sometimes in a way almost teach them—I don’t want to say coerce, but really, really teach them—why the technology was better than the old way of doing it. Now technologies have become so mainstream, clients are actually demanding more. So for us as institutions we have to kind of keep up with them.
Q: How has technology redefined the competitive landscape?
Brady: It’s introduced different expectations. But it’s also introduced different competitors. So you think about what people in the industry like to call non-traditional competitors—PayPal is an example. They’re very mainstream today. So I think it has changed the definition of how you do payments, or who you think of as your local bank. It doesn’t have to be the branch on the corner anymore. You can go online and shop whatever service you need, anywhere on the globe really, but of course nationally or regionally. So I think it really has changed the consumer’s definition of what a bank is, and commercially it’s changed the definition of what a financial institution is and who can provide the services for that client.
Q: How do banks think about when to adopt new technologies?
Brady: If you think about the mega-banks, the trillionaire banks, if you will, the top five or so, those banks tend to be able to invest more on leading-edge kind of technologies and placing some bets on what clients will adopt and leverage, and so they can place multiple bets. When you get to the regional-sized banks, probably more fast followers and really watching what our clients need and then quickly assuming those technologies to enable the client. And then you have the community banks or more credit union-sized banks that quite frankly that’s a challenge for them. So how do you invest in the technologies that are emerging? How do you balance all those investments? I think that you have to balance the risk, you have to balance the adoption and what your clients want, and then you have to balance that with the strategy of the company.
I think the true story of what it’ll be 10 years from now and 20 years from now is still to be written. And I don’t think—people will not be out of the equation, because again, money is still—it’s very personal. And so it’s how do you leverage that technology to deliver a differentiated experience that I think will prove which institutions ultimately survive and thrive in the United States.