It is time for the banks to embrace Web 2.0 by putting the customer in control of how they receive financial services.
Fifty years ago banks were making their first tentative movements towards automation. Systems were slow and centralised, and banks were heavily oriented towards clerks keeping accurate books of accounts. Half a century later, banks are lean, mean and efficient automated machines. The progress of automation has gradually taken humans out of the process. Is the ultimate ambition to create a completely automated bank?
The process of bank automation has been a naturally occurring evolution through five phases:
Phase One: Automate the Drudge
Phase Two: Reduce Servicing Costs
Phase Three: Empower the Customer
Phase Four: The Customer in Control
Phase Five: The Componentised Bank
Phase One: Automate the Drudge (1950s to 1990s)
Back in the 1950s, banking was a bookkeeping process. Therefore the drudge was automated and operators put cheque details onto punch cards, processed on large mainframe computer systems in batch overnight.
Phase Two: Reduce Servicing Costs (1970s to 2000s)
Once banks had tackled the large volumes of manual bookkeeping, they started to consider technology to reduce the costs of customer servicing. This move led to innovations such as the launch of the ATM and the introduction of call centres, but when these were launched they were not seen so much as service improvements but cost-saving programmes.
Later, the move from centralised machines towards office automation using minicomputers and, later, personal automation using desktop computing, meant that banks found themselves transitioning from automating drudge with a cost-saving focus, to improving Customer service.
Phase Three: Empower the Customer (1990s to now)
Obviously giving customers self-service, via internet banking and, latterly, mobile banking, has lowered cost overheads too. Conversely, these services assist the customer in feeling that they are more in control.
It took the march of technology to get there, where the mixture of personal computing and the internet has put the customer firmly in control. This is one step beyond empowering the customer, as it now challenges the bank to be responsive, not just available.
Phase Four: The Customer in Control (2000s to now)
Until the introduction of broadband and mobile internet, banks were fully in control of how the customer received financial services. The challenge today is that banks are no longer in control of this relationship.
Take the developments of Web 2.0 as illustrated by Facebook, Twitter, social media and social networking, for example. Fifty years ago, the customer's social network was their local community; today, it is their global community through blogs, YouTube and continual life-streaming of views and news.
With this march of new communication, banks have taken a long time to get to grips with these technologies, with very few examples of a Bank 2.0 in this world yet.
By not communicating with customers in the age of Web 2.0 and the customer being in control, banks are missing a trick. Even more fundamental is the change we see happening thanks to the combination of mobile access and the internet.
Phase Five: The Componentised Bank (tomorrow)
Mobile banking has come of age at the end of the 2000s. From Short Message Service (SMS) text messages allowing emerging markets to connect all towns and villages for mobile payments, to pieces of financial functionality deployed as an iPhone or Android app, the mobile device is dramatically redefining the banking offer.
Specifically banks have realised, as we enter the 2010s, that these new mobile devices offer far more than simple mobile access to browse internet pages or access online banking. Thanks to Apple's iPhone and Google's Android mobile operating systems, the mobile internet is now realistic as a branch-in-the-hand 24/7.
In fact, the increasing use of mobile applications in banking portrays the breakdown of banking into components of functionality. The deconstitution of the bank into parts which are then deployed as small but easily usable components means that the bank of tomorrow will be very different.
Chris Skinner is an independent financial commentator and chairman of London-based The Financial Services club (www.thefinansier.com)
