One constantly hears about how technology is going to revolutionise the banking environment. It is busy happening at a phenomenal rate and almost every day there seems to be something new in this regard.
Apps are becoming part and parcel of how banks are trying to navigate clients to transact, suggesting that the reliance on physical brick-and-mortar branches will become less of an economically viable channel.
Artificial intelligence is also becoming so integrated in the modus operandi of how banks do what they do that it enables them to identify the behavioural patterns of consumers sooner, to more accurately predict future purchasing decisions.
At the heart of this approach is the notion that banks want to become pre-emptive rather than reactive to the needs of consumers by offering banking solutions before they ask for them.
This is indeed fascinating – the idea that we, as a society, have become so “predictable” that the application of technology, in its various guises, is able to basically tell us what we need before we realise we need it.
My initial gut feeling towards this is one of intrusion, suggesting that, as a human being, I am more complex than what this simplified caricature of me may suggest. (To be honest, it is nothing new as it is at the heart of the science behind advertising and marketing – to convince that there is a need.) There is, however, a more pervasive dynamic at play when the current technology- and information-driven status quo is factored in, and that is the jostling for the personal data of consumers.
There is no doubt that institutions wanting to enter the so-called fourth industrial revolution and have a winning chance of competing successfully, want your personal data. And banks are at the forefront of this. What a bank does is collect, store and disseminate proprietary client information. They profit from using it, on the one hand, to increase revenue through identifying cross-selling opportunities, and on the other to reduce costs by identifying and mitigating potential risk.
What the advent of the information age and, in particular, the rise of so-called fintech firms have done is make banks realise how badly they have in the past utilised the data they have on clients.
Ponder this for a moment: your bank knows where you work, what your monthly income is, where you do your grocery shopping, how much your fuel costs are, where your children go to school … and I can carry on. The ease with which one can be “profiled” is unprecedented. I raise these issues for two reasons.
First, at the risk of sounding facetious, it suggests that what clients are may become nothing more than binary code in a database; second, the potential impact that new players such as Discovery Bank (the world’s first so-called “behavioural bank”) can make in SA could be a game-changer.
These may sound contradictory, but that is exactly my point. The former suggests a bank-client relationship defined by algorithms and the subsequent allocation into suitable market segments with banking solutions to boot – it is cold and clinical.
The latter suggests a pervasive financial services offering that captures the essence of what your personal data says about you – it is holistic and personal.
The reality is that the future of banking will be a combination of both: using your personal information to extract all it possibly says about you and then using this digital profile to offer you bespoke financial (as opposed to banking-only) solutions.
The challenge for banks will be to maintain the trust they have with their clients, and this is not easy given the intrusive nature that the profiling suggests.
Dr Johan Coetzee (MCBI) is senior lecturer: banking and finance, at the department of economics and finance, University of the Free State