Sunday, March 4, 2012

Future of Banking: Top trends that will drive the change

It is too clichéd to use the term “change is the only constant”, but nowhere is this truer than in the field of technology. In this 2-part article, I bring to you some recent technological developments in the field of banking that will change the way we do our banking forever: 

1. Biometric ATMs: If my fingerprint or iris scan is enough to identify me, do I need a plastic card? A bank in Turkey has rolled out 2400 biometric ATMs across the country. Japan already has a huge network of such ATMs operational, all of them based on the “finger vein” technology of Hitachi. Under this technology, rays of light pass through your fingers and capture pattern of the veins. The pattern is image processed using a special algorithm and digital data is generated. Pattern readers installed at ATMs read customer’s vein pattern and by comparing it with what is already present with the bank, a customer is identified. Hitachi claims finger vein technology is more reliable than using fingerprints, since the veins are inside the body and hence completely tamperproof. 

And if ATMs can have vein readers, will POS Terminals (those ubiquitous swipe machines where they swipe your credit card) be far behind? Plastic cards may soon be history. 

2. The "Pingit": You can now send money to anyone using only his mobile number, no need to know the account number! A common database, operated by a central body such as a Clearing House, will hold a “mapping” of the customer’s phone number to the account number. A simple mobile phone app will allow users to transfer money from their bank accounts to another just by entering the recipient’s phone number or selecting the name from address book. Payment instruction will be routed to this common database which will identify the account number to be credited. This development will substantially reduce the need to carry cash, even more than what the advent plastic cards did. (“Pingit” here is actually the brand name of such a service launched by Barclays in the U.K, others may launch it with a different name).

3. The e-Wallet: A “digital” wallet, stores all the data about your credit cards, prepaid cards etc digitally, which you can access online or through your mobile phone. When you shop, you just tap the phone on the wallet “reader” installed with the merchant and the transaction is authenticated automatically. The communication between your phone and the merchant’s reader happens over an electro magnetic field (somewhat akin to Bluetooth). 

To use the e-wallet online, once you have selected the items you want to buy and move to the payment options, just sign-in into your e-wallet account and the transaction is completed instantly using credit card data mapped within the wallet. Digital wallets are considered safer than leather wallets and credit cards, which can be stolen and misused. Banks will soon stop issuing physical cards completely, since only the data on the card is required, not the physical card itself. If the same data can be stored on your mobile phone, do you need a plastic card?

4. The Social Networking bank: Last year, Facebook got 15% of its $ 3.7 billion revenues from Payments business. It has already got ‘money transmitter’ licenses in 15 U.S. states, and is applying for more. This way, it is directly competing with Banks and money transfer companies like Western Union in the remittance business. In India, ICICI Bank allows customers to perform transactions like checking your account balance, generate statement and order cheque books through Facebook. Social Networking sites will give serious competition to Banks for certain types of services in the future, as it will not be necessary to visit the bank website to operate your account!

5. The end of Cheque Book: Europe has already done away with cheque books. Even in the rest of the world, cheque book usage is declining. And with the payment revolution brought about by the mobile phone hitting the banking world like a Tsunami, cheque books will soon be a thing of the past.

6. Bank Account portability: Regulators have been talking about Account Number Portability (“change your bank without changing your account number”) for a long time, but it is difficult to introduce and expensive to implement. Thankfully, with the cheque books gone, account numbers will die too! Or atleast, the way we see them today.   

A central body, such as a Clearing House will hold the “mapping” of a customer’s old account number to the new account number, and any mandate to debit or credit the old account (such as direct debit / credits, ECS mandates, RTGS, NEFT transfers, standing instructions and all sort of Electronic Fund Transfers whichever way they are done) will be automatically routed to the new account. Changing your bank will then become completely hassle free, reducing bank account to a commodity.

(To be continued…….)

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