Legacy Banks and Digital Startups See a Big Opportunity to Move Beyond Simply Storing Money

Shaking up the finance industry, from AI to community building

Luvleen Sidhu, co-founder, president and chief strategy officer at BankMobile, said she started the mobile-only brand as a solution to the massive costs that physical banks devote to customer acquisition. The average bank branch opens one net new checking account per week, equivalent to 52 new accounts every year, said Sidhu.

“That’s a very costly customer-acquisition strategy and it’s subsidized by fees, especially overdraft fees,” she noted. “We’re going after working-class Americans [and] millennials—those living paycheck to paycheck—to give them very affordable banking that leverages technology to make the banking experience as seamless as possible.”

For example, artificial intelligence is built into the BankMobile app to speed up the sign-up process so that customers answer a handful of questions before they’re approved for an account within a few minutes. From there, they can use the app’s camera feature to snap a picture of a bill to pay or apply for a line of credit. The strategy appears to be working: In three years, BankMobile said it has amassed 1.8 million customers with an average age of 27.

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The Future of Banking

Banking is and has been overdue for a makeover. For the most part, the majority of the banking industry is still antiquated but thanks to technological advances in the last couple of years, this is starting to change. I remember not so long ago standing in line for over 20 minutes to open my first bank account and thinking how ridiculous it was to wait so long to give someone else my money. Add to that, how many banks were charging so many fees, and consumers were starting to smarten up and realize that they did not have to accept that—the shift was bound to happen. As we enter into this first quarter of 2018, there are many changes that we will start seeing banks adopt. The following six are my predictions for the future of banking:

Banking is and has been overdue for a makeover #FintechClick To Tweet

The Use of Artificial Intelligence (AI) Will Increase

Artificial Intelligence (AI) will have a major role in banking for both the short-term and long-term. First, we will see AI help banks with fraud mitigation. Today, most fraud is detected through computer patterns that alert a fraud team who would then take the necessary steps to try to prevent or mitigate the threat. Now that technology has made access to money fast and easy, the transaction volume has increased exponentially.

With millions of transactions happening every day, AI will help gather behavior patterns as well as other data to validate a transaction in real-time. AI will also help reduce cost by introducing chatbots that are more sophisticated. These chatbots will analyze a customer’s behavior and add value to the customer by proactively providing solutions that will make their lives easier and preempt any customer service issues.

Lastly, AI will also help banks with operational efficiencies which will allow financial institutions the ability to do more with less.

Banks and Non-Banks Will Form Closer Partnerships

Fintech and banks currently have a myopic relationship. Banks want access to the cutting-edge technology that fintech has and fintech wants the customer base that banks have. This year both Fintech and banks will realize that in order to move the needle forward they are going to have to form partnerships with non-banks.

Traditionally, in order for a company to grow they either needed to expand organically or through the acquisition of another company but by using a leveraged growth strategy, Fintech and banks will see that by partnering with non-banks they can grow with less risk and less money. By tapping into a non-bank’s customer base, it will lower the bank’s cost of acquisition while providing more value for the customer. Banks will also realize that non-banks provide them with valuable data from their customer bases that they can leverage to provide a customized banking experience as well as a source for additional revenue streams.

There Will Be More Competition in the Digital Banking Space

Research has shown for a long time that the banking customer is changing and that there is no longer a need or desire to go into bank branches anymore.

Despite this research, because banks were too invested in their branches, they were reluctant to make the pivot into digital banking. Now that it is becoming evident that the branch-based customer acquisition model is not sufficient, you will see many banks follow suit.

Whether it’s JPMorgan Chase with Finn, or Greenhouse by Wells Fargo, big banks are entering into the digital banking space full force with the hope of attracting young consumers. Then you have digital banks like Ally, USAA and Capital One 360 who truly made a major effort in 2017 to attract millennials by tweaking their product, tone, messaging and branding to make sure they start penetrating that segment. We will continue to see that this year.

Competition doesn’t stop there though. You still have niche financial products like Sofi that focuses on student loans or Stash Invest that focuses on investing, which are playing in the digital banking space. Now that they have acquired so many customers through focusing on a specific segment of the population they now will need to keep those customers by expanding their offering. They also will realize that their acquisition strategy was a good start but not enough to sustain an emotional connection with their customers.

Lastly, you have neobanks like Moven, GoBank, Simple and Varo who will continue to flourish and grow, but will be threatened by giants like Amazon, Google and Apple. If and when they enter the digital banking space, it will be cause for much alarm. Because these juggernauts have such deep-pockets and access to so much customer data, they can truly disrupt the banking space if they can get through most of the regulatory hurdles that exist today.

Neobanks like Moven, GoBank, Simple and Varo who will continue to flourish and grow, but will be threatened by giants like Amazon, Google and Apple #FintechClick To Tweet

Cybersecurity will Get an Upgrade

After the highly publicized and damaging Equifax security breach that affected approximate 145 million Americans, we will surely see a modernization and upgrade of cybersecurity.

Because banks need all of your sensitive and personal information in order to do business with you, they are also a perfect target for hackers and fraudsters who are relentless in their pursuit to defraud anyone they can get their hands on. With the Equifax breach affecting so many people, lawmakers are diligently working to stop these types of breaches from happening again by proposing charging hefty fines to companies that are victims of a breach. With this knowledge, banks will double down on their security initiatives and spend a good amount of resources modernizing their IT infrastructure to thwart off sophisticated hackers.

Banks will also raise their security standards when working with third party vendors to assure that threats don’t exist externally.

Blockchain will be Explored More to Create Efficiency

Blockchain, which is the technology that powers Bitcoin and other cryptocurrencies will garner major attention this year.

Banks will continue to explore how they can use the blockchain technology to streamline operational processes and cut costs. They will also explore how the technology can make them more competitive with fintech companies. Because of the speed and security of the blockchain, banks will leverage this technology to create and enhance new business models.

Right now, blockchain, for most is just this idea of what can happen but banks will really hone down on the technology to find tangible ways to use it to solve problems within their current infrastructure. We will also see increased partnerships with banks and regulators as both try to navigate how to use this technology in the highly-regulated banking business.

Lastly, there will be a race by banks to come up with blockchain-based solutions that will solve specific problems in financial services that can be adopted by other banks. One example of this is the fact that Bank of America has already filed over 20 blockchain patents with more to come.

Cryptocurrency will be More Prevalent

Lastly, we will see cryptocurrency become more prevalent and accepted more by merchants. Banks will also follow suit and figure out how and if cryptocurrency is a viable investment option.

While we will continue to see a lot of fluctuation in the cryptocurrency prices, banks will now realize that this is not just a fad but something that will be with us long-term.

Luvleen Sidhu is Co-Founder, President and Chief Strategy Officer at BankMobile, a completely digital bank, offering an entirely fee-free checking account, aimed at helping the underbanked, millennials and middle-income Americans have an affordable, effortless and financially empowering banking experience. She is also a member of the BankMobile Board of Directors and Director and Founder of the BankMobile Foundation. Sidhu, along with her father Jay Sidhu, co-authored, “Why Can’t Banks Be As Easy As Uber?: BankMobile And The Real Future Of Banking,” which reached #1 International Amazon Best Seller-status and landed the authors on Amazon’s Top 100 Authors list in Business and Money in less than 24 hours.  She has also been recognized in the industry for her accomplishments. She was named CEO Connection’s 2017 Mid-Market Young Leader and one of its 2017 Most Influential Women of the MidMarket; one of Bank Innovation’s top innovators worldwide in June 2017, 2016 and 2015; and ‘Most Innovative Woman in Banking – Greater New York’ and ‘Best Women Owned Financial Services Company – New York’ in Corporate America’s 2016 American Businesswoman Elite Awards, among others. Sidhu has been featured regularly in the media including on CNBC, Bloomberg Radio, Yahoo Finance, Fox News Radio and in The Wall Street Journal, Forbes.com, American Banker, Crain’s New York, FoxNews.com, among others. She is also a national and international speaker at industry conferences and at undergraduate and graduate programs, where she encourages financial innovation and entrepreneurship. Sidhu holds a Master of Business Administration from The Wharton School at the University of Pennsylvania and a Bachelor of Arts Degree in Government from Harvard College.

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We don’t need to stay in the student market’: How BankMobile wants to grow its offering and replicate its model