Mobile First: Banking Innovation in the Age of the Smartphone

During the early design stages of the original iPhone, Apple had narrowed down the user interface to three options; a traditional screen and physical keyboard, a click wheel-centered design (similar to the original iPod), and a new touchscreen concept. After a heated internal debate, Apple settled on the touchscreen design—a single, large interface that could ‘morph’ from a display to a soft keyboard to accommodate different input requirements.

This decision ended up having an enormous impact on the entire consumer electronics industry. The capacitive touchscreen, popularized by Apple, is now the dominant user interface in the global mobile phone market—a market expected to top $300 billion this year. In fact, the touchscreen has officially driven the original click wheel user interface into extinction, with Apple recently dropping this iPod model from their product lineup.

What Apple learned is that solving a problem within a difficult set of constraints can sometimes force you to develop solutions that are more innovative, and broadly useful, than anything you would have ordinarily created.

This is the same lesson that today’s financial institutions are starting to learn thanks to the demand for mobile banking.

Mobile Banking Arms Race

Conducting a financial transaction on a mobile device—either a simple balance transfer or something more complex such as opening a checking account—comes with certain expectations. Today’s consumers demand mobile experiences that are easy, instant, and personalized to their unique preferences and goals. When those expectations go unmet, consumers of all ages have shown a surprisingly strong tendency to attrite. In fact, according to a recent survey from AlixPartners, 60% of mobile device owners who switched primary banks reported mobile banking capabilities as important or extremely important in their decision (up from 48% in 2013).

It’s not surprising the improvement of digital banking capabilities currently sits at the top of nearly every bank’s priority list. Whether it’s through internal staffing, corporate acquisitions, or major technology upgrades, the financial industry has become engulfed in a mobile banking arms race.

Mobile-First Innovation

An unintended, yet welcome, consequence is that many of these mobile investments are paying dividends in areas that financial institutions did not originally intend. Just as Apple discovered with the touchscreen, leading banks are finding that the solutions they are developing for mobile-specific challenges are actually superior to the legacy processes and technologies currently in place in their other channels.

Take ID verification as an example. Traditionally, FIs’ approach to verifying a consumer’s identity relied on a bank employee looking a consumer in the face and comparing it to the picture on their ID. This is a tremendous advantage for banks when it comes to confirming that the consumer is who they say they are because, put simply, most potential fraudsters don’t have the patience or chutzpah to stroll into the branch with a high-quality fake ID. Because banks have been able to rely on verifying customers in person, their processes are incapable of supporting the faceless customer interactions taking place in the mobile channel.

This has caused banks to revamp their traditional processes and rollout more rigorous, data-driven approaches for confirming a consumer’s identity on a mobile device. In many cases, these approaches can eventually supplant the legacy branch processes as well.

For example, a top-5 bank recently built a deposit account opening process for their mobile channel. The bank chose to use a combination of different demographic and public record data sources combined with predictive scoring models to identify fraudulent applications. This approach proved effective for their mobile channel and vastly superior to the approach they had been using in the branch—a bank employee manually looking the consumer up in the white pages.

An Opportunity for Reinvention

It’s tempting to see the emergence of mobile and the reshaping of consumers’ expectations in a negative light—as a trend that banks are being forced to respond to. That’s a perfectly rational response, but it is also shortsighted. Yes, delivering the experiences that today’s mobile-empowered customers demand will require banks to rethink old assumptions and reinvent many of the legacy processes and technologies that they take for granted. However, as Apple already discovered, solving mobile-specific challenges can yield valuable innovations for the entire organization.