Traditional banking continues changing as online banking increases in popularity. Here are some ways online banking is taking over the banking industry.
Closing of Bank Branches
Over 4,800 U.S. bank branches closed between 2009 and 2014 because more customers were turning to technology for their banking needs. For example, in September 2015, Citibank Inc. (NYSE: C) shut down its brick-and-mortar locations in Massachusetts, including 17 branches in Boston, and diverted funds to the bank’s technological business. That same year, Bank of America Corp. (NYSE: BAC) closed 129 of its branches because more customers were utilizing online services. In 2016, JPMorgan Chase & Co. (NYSE: JPM) planned to close approximately 300 branches because 19 million of its customers were using mobile applications for banking that year. Similarly, TCF Financial Corp. (NYSE: TCB) closed 33 branches inside Jewel-Osco grocery stores and used the funds to enhance its online banking system. Due to the increased costs of compliance with banking regulations and technological security, maintaining bank branches is becoming less profitable and leading to shutdowns.
New Ways of Banking
In 2016, more customers are expected to bank online or through automated teller machines (ATMs) than at physical bank locations. As a result, banks are putting more money toward connecting customers’ online capabilities with in-person transactions. For example, many bank tellers are using tablets when meeting customers in private offices or in the lobby for more informal and comfortable business transactions. Additionally, many bank branches are adding customer kiosks for online banking or video ATMs that let customers talk with tellers remotely.
The number of banks accepting mobile deposits is expected to increase, as well. With mobile deposits, a customer can take pictures of the front and back of an endorsed check and submit the pictures through the bank’s mobile application. The money is immediately deposited in the customer’s account.
As an added layer of security, chip cards are replacing traditional credit cards. Chip cards have an embedded microchip that codes the customer’s information and makes copying it difficult. Customers will likely use chip cards more often as more merchants purchase software for accepting payments in this way.
Because banks are adding convenience to their customers’ lives, financial institutions may start charging extra fees for services. For example, additional charges for remote check deposits may be assessed. Because online-only banks typically have lower fees than brick-and-mortar banks, online-only banks may see an increase in the number of customers.
Innovations in the Banking Industry
Apple Inc. (NASDAQ: AAPL) is marketing beacon technology to banks with iBeacon. U.S. Bancorp (NYSE: USB) and FirstBank (NASDAQ: FRBA) were among the financial institutions using beacon technology to give their customers a more personalized service. Targeted messages about the bank’s products and services are sent through text messages when customers are near the bank’s lobby. For example, an adult and teenager entering the bank may receive alerts regarding the benefits of securing a car loan, encouraging the customers to speak with a bank representative for further information.
Facial recognition software from companies such as NEC Corp. (TYO: 6701) helps banks identify customers entering their branches. Bank employees are informed of each customer’s identity and which products and services the customer is or is not currently utilizing. Banks such as Wells Fargo & Company (NYSE: WFC) are better equipped for cross-selling and increasing their revenue.
Oxagile is one company marketing two-dimensional (2D) and three-dimensional (3D) augmented reality for banks. Augmented reality combines a cartoon-like picture with a real-life image on a bank customer’s mobile device as a way of increasing customers’ use of the bank’s products and services. For example, a display outside a bank shows a cartoonlike image of a home and the bank’s current interest rates on mortgages. A young couple sees the display, opens the bank’s application on their smartphones, and views details about homes for sale in the area. The couple then walks into the bank for more information about securing a mortgage.
Applications Innovating Banking Services
Apple Pay lets customers pay for in-store purchases by holding their iPhone or Apple Watch near a reader and tapping a button. Apple Pay utilizes near-field communication (NFC) technology and Touch ID fingerprint sensors in the company’s products for securing and completing transactions. Banks such as the American Express Company (NYSE: AXP), Visa Inc. (NYSE: V) and MasterCard Inc. (NYSE: MA) partner with Apple to make mobile payments.
Google Wallet allows mobile payments in-store and online through a NFC system, as well. Google Wallet stores each user’s debit, credit, loyalty or gift card information and lets users send money through Gmail attachments. Because money transferred through Google Wallet is insured by the Federal Deposit Insurance Corp. (FDIC), unlike most applications allowing mobile payments, Google Wallet provides a more secure method for paying through mobile devices.
Venmo LLC is popular with millennials because it allows them to pay their friends through a mobile application. Owned by Braintree Payment Solutions LLC, a unit of PayPal Holdings Inc. (NASDAQ: PYPL), Venmo processes mobile payments through money saved with the company or with debit or credit card accounts linked to the user’s Venmo account. Recipients are paid by their phone number or email address and do not need to have a Venmo account. Sending money typically involves a fee, whereas receiving money is free.