From tellers to coffee shops — how new tech is changing banks

Cover Art Erka Inciong with Freepik

Words by

BusinessWorld Special Features Writer

Thanks to emerging technologies like artificial intelligence, Blockchain, Internet of Things (IoT), and cloud computing, the banking industry is entering a period of rapid change.

That means building better platforms, whether online, mobile, or brick-and-mortar. Don’t be surprised if tomorrow’s banking branch looks more like a third-wave coffee shop than a teller office.

According to Likhit Wagle, IBM’s general manager for Global Banking and Financial Markets for Asia Pacific, banks are going to have to embrace those changes if they want to survivethe fourth industrial revolution.

Most of the banks around the world have now recognized that fintechs are engines for innovation

Fintechs, once feared as disruptors of the banking industry, are quickly becoming leading partners in innovation.

“I think the banks are recognizing that if you’re looking for something that’s truly innovative, whether it’s in peer to peer lending, payments, or wealth management, that is actually going to come from the fintechs that are very focused on those narrow solutions,” he said.

Mr. Wagle emphasized that collaborating with fintechs may grant banks increased flexibility to adapt to emerging trends and challenges. He stopped short of suggesting the acquisition of such firms, as they may run the risk of obtaining technology which could quickly become “dated”.

Platform companies could bring about a ‘Kodak’ moment for banks that fall behind the curve

Mr. Wagle said that if banks don’t respond to the pressure being placed on them by platform companies like Alibaba or Tencent, they could see their returns halved within the next few years.

“In the extreme situation, they could see this being a Kodak moment for them,” he said. “Their business could disappear because it could get picked up by one of these platform companies.”

The Chinese tech giants have begun to introduce ‘substantial’ financial services like Alipay in addition to their online marketplace platforms, disrupting a market that was once exclusive to lenders. By offering a broad range of instant services to consumers, from groceries and food delivery to bills payments, platform companies may box out banks in this sector completely.

Mr. Wagle noted that the banking industry can prevent this in three ways: by upgrading digital capabilities to provide customers with extreme convenience; offering services that go beyond banking, such as outfitting agents with AI-assistants that augment their product-selling in real time; and reducing costs with efficiency-boosting tech powered by AI and cloud-computing.

Bank branches may soon look like coffee shops

People looking to make large transactions will always feel safer consulting humans and not screens, so the idea of face-to-face banking will not be going away anytime soon. But that doesn’t meant that banks won’t be fundamentally changing their customer-facing outlets in the near future.

“You will increasingly start to see branches set up so that they will have a more advisory purpose,” Mr. Wagle said. “You will start to see branches set up in ways not dissimilar to retail stores, where there will be different techniques being used in order to attract customers.”

He cited Tangerine, a direct bank based out of Canada, as an example. Primarily a digital bank, Tangerine operates a network of direct cafes for its contact points.

“All of the branches look like coffee shops,” he said. “People go in there, they read the newspaper, they have a cup of coffee, and they can talk to somebody if they want to talk to them about financial services.”

Moreover, these informal banks won’t need in-house experts to provide clients expert advice. They can just stream it.

Mr. Wagle described how more progressive banks today have digital conference rooms where clients sit in front of life-size screens connecting them with an expert streaming in from a central location.

Artificial intelligence and cloud technology could change banking as we know it

Leveraging on the wealth of consumer data available to banks, artificial intelligence may prove to be a powerful tool to enhance the banking industry’s efficiency while reducing operating costs.

“AI is absolutely amazing in terms of operational effectiveness,” Mr. Wagle said. He explained that AI could augment existing customer engagement channels to improve the speed and accuracy of an employee’s performance.

“This can reduce call center costs by 60%. And it’s not by firing those people, it’s by making those people a lot more effective than they were before,” he said.

Artificial intelligence can also be used to improve cross-selling and offer ancillary products to clients, which can be tailor-fit to the needs of a consumer through data analytics.

Cloud computing, meanwhile, could also cut as much as 40% of information technology costs for banks while also improving security and efficiency.

These changes are going to happen very soon

Though optimistic about the country’s future, Mr. Wagle warned that the Philippine banking industry should begin implementing these changes if it stands any chance of keeping up with global trends.

“It has to happen very fast,” he said. “If that doesn’t happen, then the Philippines is going to be miles behind everybody else, which I don’t expect to happen.”

“You should look at the ingredients,” he said. “You’ve got a rapidly growing economy. You’ve got an economy that’s growing at about 6.5% to 7% per annum. You’ve got the highest social media internet usage in the world. You’ve got tremendous incidence of smart phones. You’ve got all the ingredients for this to take place.

“What you really need is for the government and for the regulators to be very progressive about this agenda, and they will be because they will see that it drives prosperity,” he said.