17 Hottest Trends That Will Drive Banking in 2014

The business of putting together lists of top this-and-that at the end of the year has simply gotten out of hand. No media outlet took the list thing to greater heights than Time, which published the “Top 10 Everything of 2013,” which include 54 lists of, well, everything. We found particular joy reviewing the Top 10 Space Moments of 2013.

Not surprisingly, there has been a raft of fintech top-this-and-thats for 2013, such as this one, or this one, or this one.

We decided to ignore them all.

Instead, in creating our top 17 trends for 2014 we consciously decided to not consider other lists, but instead think about the coming year in a vacuum. We wanted to tune out the conventional wisdom to our unconventional list of trends and, importantly, ideas. In some cases, they mirror what others have said. In other cases, they do not. But in all cases, we hope they cause you to think – and to innovate. Innovation, after all, is what we are all about. Good luck in the forthcoming year.

–the editors

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1. The Need for Speed. For most banks, the technology menu is relatively complete. Online? Check. Mobile? Check. Omnichannel? Sort of. But when we look out to the horizon, we think that all this technology is going to advance based on time – facilitating speedier branch meetings, allowing for real-time payments, providing for faster security alerts and resolution, creating more responsive pricing and product recommendations. Look at RDC. RDC grew exponentially in 2013 because it offers speedier deposits. In other words, speed will rule. And that means one thing for bankers: core banking better be up to the task.

2. Mobile, Still. Back in ancient fintech times (meaning: a few years ago), the overriding directive was simply to get mobile. That directive is only more acute today. A new study sponsored by Fico, for example, found that nearly 8 out of every 10 consumers want “more banking interactions via mobile.” Yes, “more” interactions – which means that consumers are well aware that banks could provide more and better mobile services, even though many banks have relatively robust mobile apps. The bottom line: ignore mobile at your own risk.

3. All in Omnichannel. As Fernando Lamas, er, Billy Crystal famously said, “it is better to look good, than to feel good, darlings.” While the state of desilo-ing  remains embarrassingly poor at many FIs, presenting a holistic, omnichannel digital face is decidedly easier, and that makes it a driving trend for 2014. If you can make your bank look “marvelous” across multiple digital channels at relatively little expense, why not do it?

4. Innovation Infrastructure. Here’s a test: Does your bank have a chief innovation officer? If your answer was “yes,” answer this question: Does your bank’s chief innovation officer have any material effect on earnings and/or operations? It is highly likely that your answer to that is “no” (and if it isn’t, it is highly likely that you are kidding yourself). The plain truth is that the wide majority of banks do not have the infrastructure and protocols in place to pursue an innovation strategy, which should include internal and external innovation through startup partnership, investment and co-development. There are some exceptions to this rule (US Bank comes to mind), however, for most banks 2014 will again be a building year for innovation infrastructure. We just hope 2015, 2016 and 2017 won’t be building years, too.

5. Concierge Service. The advent of Obamacare in 2014 will advance a trend that started to percolate a couple of years ago – concierge services. Concierge services will hit banking in 2014. When we are talking about concierge services, we are decidedly not talking about home visits by private bankers to clients with at least $50 million of deposits. Rather, this is concierge services for the many: scheduled branch visits, customized offers, premium customer service telephone numbers, more robust rewards programs. Heck, American Express has become more of a ticket agent than a payments company in many ways. Your bank, too, will become more of a concierge service than a bucket for deposits in 2014 – or it should.

6. Neobanking. Trust is the only factor standing in the way of alternative banking becoming embraced by the mainstream of consumers. The technology today allows for crowd banking on every level, especially from a risk management standpoint. Prosper mitigates your lending risk and offers pretty fantastic borrower execution, for example. Crowd commercial funding is on the verge of a tipping point. (Heck, on the corporate side over here at BI we’re considering it.) But trust – that’s a sticking point, when money is involved. We believe 2014 will be the year when trust in neobanking expands. Three proof points: First, as has been mentioned elsewhere, LendingClub looks poised to execute its initial public offering this year, which will put P2P financial services in the spotlight. Second, ventures like Kickstarter continue to gain momentum. Kickstarter, for example, attracted 3 million people (from 214 countries, including from the continent of Antarctica) to pledge a total of $480 million for projects in 2013. That’s $480 million that did not go through traditional commercial lending channels. Third, Mercuri Systems Inc is working on a P2P ATM machine. Such an ATM machine (launch date unknown) would establish a physical presence for P2P, and that, we believe, would enhance the trust factor, too.

7. The Idea Desert. We finished 2013 with a nagging realization: the innovation spark seems to have dimmed in financial services. This unsettling feeling was fostered by one too many startups with too-narrow a focus and one too many banks failing to come through on innovation promises, or maybe it was just the bitcoin rabble that convinced us that good ideas seem to be waning in fintech. We would argue that the last truly innovative fintech idea was most likely Stripe’s in 2010 – and its model has been co-opted by numerous other startups in the years since. Sadly, we don’t see any signs of a new outburst of fintech ideas in 2014, particularly since the major fintech providers seem to have stepped up their R&D noticeably.

8. Europe’s Resurgence.  Officially, the European Union came out of its most recent recession in the first quarter of 2013. Unofficially, banking has been a mess in Europe since 2008. Simply put, European bankers are more creative than US bankers, for many reasons. Banking innovation needs Europe, and it will get it again in 2014.

9. Image Banking. You might have noticed something called remote deposit capture (RDC) in 2013. We must all give props to Mitek Systems for revolutionizing the most painful of banking chores: the lowly check deposit. Now, we are not going to wade into the question of whether perpetuating checks is good or bad for banking. More importantly, RDC revealed that banking could – and should – be executed by image. With QR codes at the ready, we see image banking as becoming a major channel for financial services in 2014 and beyond. Call it the banking cure for thick fingers.

10. Predictive Banking. Data and analytics are delivering detailed accounts of what customers are doing, have done in the past, and will do in the future. Banks have the potential to offer customers not just the product or loan they need today, but one they might need next year. If FIs can work with other key holders of customer data such as mobile carriers, both businesses and retail customers will find in their bank a helpful source of guidance and timely advice. But there is always the creep factor of knowing too much to temper efforts in this direction. Will customers overcome this in the wake of the NSA scandal and everything Google and Facebook are doing with customer data? We will start to find out in 2014.

11. Selling Wholesale. Companies like Standard Treasury are making it a simple matter for banking services to be whitelabeled for non-financial companies. A small retailer might want to offer loans at the point of sale, or allow customers, say a husband and wife, to transfer money between store cards. Some fintech enthusiasts look forward to the day when banks are “dumb pipes” that facilitate transactions, but banks like The Bancorp offer whitelabeled services and certainly don’t look so dumb.

12. Shopping Around. Banks are moving closer to the moment of purchase, both using transaction data to offer deals and rewards before a purchase, to offering feedback on the customer’s financial health immediately following a purchase. US Bank (of course) is taking this deeper by offering items for sale within the online banking platform, via a partnership with Monitise. Capital One Financial Corp., in partnership with startup PushPoint, can push offers to users that chance to walk past a certain store or restaurant. In 2014, banks that don’t put mobile first will miss these opportunities.

13. Internet of Things. Customers love to bank on their mobile phones, and “mobile” is already taking on a new meaning with wearable devices like smartwatches and Google Glass. Wearables can even monitor your health, which has implications for your health and life insurance providers, among others.  Nest has begun connecting devices in the home, most famously its thermostat, and modern security systems are also internet-enabled. The internet will soon connect even more devices in the home in ways that have implications for financial services. The electric meter might warn the bill is going to be high this month. The refrigerator might say that the milk carton is empty and order another. We expect to see this smart fridge technology implemented first in hotel minibars.

14. Better BYOD. Bringing your own device (BYOD) to the office was a no-no at financial institutions for some time. The challenge of securing multiple operating systems that moved in an out of protected areas is certainly a daunting challenge, but it’s one that more and more banks are now facing. This opening up, being tested now by Wells Fargo, is a sign of the sophistication of banks’ infosec teams and vendors, the ever-increasing importance of mobile devices as a business tool, and of course, the impossibility of keeping employees from tinkering with their smartphones for eight whole hours.

15. Bitcoin Bonanza, Still. Fintech watchers may be forgiven for feeling some bitcoin fatigue by now, but all it takes is a look at Github to see that startup activity around bitcoins is en fuego. The excitement might still be tied to speculation now, but bitcoins have a strong use case as a platform for international currency exchange. Forex is ripe for disruption. Transactions are expensive and time-consuming. Online currency exchanges can handle a plethora of  currencies, including virtual currencies, and exchange them via peer-to-peer transfer.  Bitcoin isn’t going away. It may not become the “global currency” in 2014 that some evangelists dream of, but it is part of a set of solutions that solve an actual problem.

16. The Digital Divide. Wells Fargo & Co. has at least 700 employees who are involved with innovation, even peripherally, and nearly 5,800 engaged with product development. How can a small bank compete with that? The truth is, it can’t — and it won’t. This year that divide between the bank innovation haves and have-nots will widen. We are now on Year 5 of the innovation wave in banking, and the intervening years have shown the big banks to be far more adroit at incorporating innovation into their practices. Citigroup, for example, has a global, multi-division venture arm that should be the envy of every venture capital firm. Bank of America Corp. certainly is farther along in innovation than many. Only JPMorgan Chase trails among the Big Four banks — it is still working out its innovation strategy, despite its  high-profile RDC program. You want to know where innovation will happen in 2014? Check the bank’s balance sheet. The bigger that is, the greater the innovation push — and that spells trouble for smaller financial institutions.

17. SOHO So-Higher. We took notice recently when David Gerbino, an assistant vice president at Sterling National Bank, wrote that the Small Office / Home Office (SOHO) Banking will grow in importance to bankers in 2014. Gerbino wrote, “I am predicting that the SOHO market will begin to get the attention it deserves from banks. Barlow Research predicts that the market potential revenue from fees and deposits in the SOHO segment is $36.2 billion. No other segment has this potential.” While we won’t make a judgment about the numbers, we will agree that the SOHO banking market should expand in 2014, particularly as the economy continues to improve.

Learn more about what’s next in banking at Bank Innovation 2014 on March 3-4 in Seattle. Request an invitation here.