Will technology make smaller banking institutions obsolete?

Many banks are devoting more financial resources to mobile technology and this scenario is not expected to slow down in the near future. Most financial institutions see innovative technology as a cost-effective way to offer more convenience to consumers, gain a more loyal customer base and attract new demographics.

While these points may be true, some expert say that the quickening pace of new technology may have a negative impact on smaller brick-and-mortar institutions in the future, as they struggle to keep pace with new innovations. Currently, online and mobile users can avoid trips to the bank and still complete basic transactions, such as transferring funds, inquiring into a balance and making bill payments. Some banks also allow mobile users to deposit checks through remote capture features that allow them to simply text a front and back image of the check to the institution.

It’s true that mobile and online features have positive benefits for financial institutions in the way of attracting customers and lowering costs. However, analysts say that those smaller institutions that pride themselves on developing personal relationships with consumers and fail to adopt new technology may run the risk of becoming obsolete in the future, according to CNN. Many banks are already laboring under new regulatory requirements that may strain their finances and others are losing customers as a result of fees and other banking costs.

In an increasingly fast-paced world where consumers have several options and can conduct all their banking needs at the push of a button, financial institutions that lack the resources to keep pace with new innovations may lose customers. Few analysts believe banks will ever become obsolete because consumers will continue to need loans, and many individuals do not participate in online and mobile banking. However, as consumers demand more services from institutions, competition among banks is likely to heat up and those who fail to offer an array of services may be at risk.

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‘Smartphonatics’ to drive mobile banking and payment demand

Some consumers are more likely to use their smartphones as electronic wallets than others, but adoption of these payment methods is still slow. However, a new global study reveals that an emerging demographic may help fuel the adoption of electronic wallets and encourage more banks to expand their mobile banking and payment services.

The study, conducted jointly by ACI Worldwide and the Aite Group, examined the habits of a new demographic, which they have labeled “smartphonatics.” This is defined as an individual who changes his or her payment, financial and shopping behaviors after acquiring a smartphone. According to the study results, 80 percent of smartphonatics have used their smartphones for mobile banking, as opposed to only one-third of regular smartphone users. In addition, roughly 70 percent of smartphonatics use their device for mobile payments, compared to less than 25 percent of non-smartphonatics.

The study’s analysts say that the new behavior of this growing demographic is having a direct effect on their shopping and banking needs, which is likely to drive greater demand for expanded services.

Despite a stronger drive for new mobile banking and payment services, the study’s authors concluded that a need for traditional financial services still exists. There remains a large segment of the United States that has not yet warmed to mobile banking for several reasons, ranging from a lack of knowledge about how the services work to concerns over whether their information will be secure. In addition, a large percentage of the population continue to use regular mobile devices and have not yet purchased a smartphone.

However, consumers who use smartphones for banking purposes will now want more variety and options that give them full control and ownership of their financial transactions and how they are managed.

“Consumers expect to shop and transact anywhere, at anytime making mobile the hottest area of opportunity for financial institutions, processors and retailers today,” said Ralph Dangelmaier, ACI Worldwide global markets and services president. “These organizations need to plan strategically for mobile as part of their overall channel strategy, alongside ATMs, POS, branch and online banking. The most successful companies are leveraging their existing banking and payments systems to implement innovative mobile services. That way, they can cut down costs and time to market for new mobile ventures.”

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Payment technology changes consumer perceptions of money

Many consumers who are still wary of electronic wallets, but want to explore new convenient ways of paying for items are utilizing new payment technologies that do not require them to input their personal financial information.

Experts say that these new types of payment technology are becoming popular among demographics that are concerned about their privacy, do not want to rack up credit card bills or do not have access to traditional credit accounts, such as teenagers. For example, a recently developed payment program, called Openbucks, allows consumers to pay online with gift cards, according to the San Jose Mercury News.

For example, consumers who enjoy shopping online, but do not want to put their personal financial information through a website, purchase the Openbucks gift card at participating retailers, such as Subway or CVS. When they decide to make an online purchase later on, they can simply enter the code on the back of the card at the checkout page and their transaction is quickly completed. This product differs from prepaid and gift cards because there are no reload fees, usage fees or additional charges. Instead, they can purchase the card for $50 and have $50 to spend. In addition, the cards afford consumers more convenience because they may pay online by inputting a simple code, rather than a long account number.

“It’s great for teens who might not have credit cards, or people who want to stay confidential and not spread their credit card information all over the Internet, or people who are concerned about online safety,” Marc Rochman told the news source.

These types of programs may be a new breakthrough for the underbanked segment that utilize smartphone apps and technology, but still do not want to engage in traditional banking products. A recent Federal Reserve Board study revealed underbanked individuals are more likely to own smartphones and utilize mobile payment features than banked consumers. According to the results, 91 percent of underbanked consumers have mobile phones and 57 percent have smartphones, as opposed to 87 percent of banked consumers who have mobile phones and 44 percent have smartphones.

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Mobile technology impacts business relationships with customers

Online shopping, mobile banking and electronic wallets have changed retailers’ and banks relationships with customers. As consumers can more conveniently and expediently shop from home or with their mobile devices, many businesses are losing face time and more personal interactions with their customer base.

However, experts say there are various ways that businesses can still maintain close and meaningful ties to its customers by using mobile technology to its advantage. Businesses can develop new platforms for contacting and engaging with customers, according to Bank and Technology Systems.

For example, banks and retailers who are behind on developing apps and mobile payment systems can increase customer retention and acquisition by offering new features to consumers. In addition, many banks are also creating online chat systems that allow consumers to stay connected with their financial institutions.

Businesses can also retain customers and maintain their reputation for quality by ensuring their mobile and online platforms are easy to navigate, have simple payment systems and function efficiently, the news source explains. Frequent problems accessing and utilizing these features can make customers frustrated and dampen their experience with a business. Spending more resources on knowledgeable IT engineers and programs can lead to more profitability over time as a company’s customer base grows.

Security is of the utmost importance to customers who provide their financial and personal information online. For this reason, banks and retailers should have several security safeguards in place, and develop a quick response program in the event of a data breach or fraud. Keeping customers informed of these safeguards can help build and maintain trust.

Mobile technology and payments are expected to rise significantly in the next few years, and businesses who maintain focus on their customer service channels are expected to come out on top when it comes to drawing in and retaining new consumers.

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