Some people would argue that until recently, the last big banking innovation was the introduction of the ATM. But this really isn’t accurate. There have been plenty of digital innovations in banking in the last 50 years. In this post, we’ll take a look at some of the most significant.
Candy bars and cash: the first ATMs (1960s)
There’s no doubt that the invention of the ATM was a crucial moment in banking. It coincided with the 1960’s - a time when a broad segment of the population sensed that ‘the times were a-changin’ and were more willing to trust unfamiliar technologies. A Scottish inventor in 1967 named John Shepherd-Barron had his own Archimedes-style ‘Eureka’ moment in his bathtub. If vending machines could dispense chocolate bars, why couldn’t they dispense cash? Barclays Bank in London loved the idea, and Shepherd-Barron’s first ATM was installed in a Barclays branch not long afterward. There were no plastic cards: the first ATM used paper vouchers printed with machine-readable radioactive ink.
Abacus to FABACUS: the move to computers (1960s - 1980s)
In 1964, the then-Bank of New South Wales announced it would purchase its first-ever computer for the sum of £1 million. That’s about $26 million in today’s dollars. The computer centralised the bank’s trading accounts by replacing the machine accounting operations used in each individual branch. The GE225, or FABACUS (First Australian Bank’s Accounting Computer Used in Sydney), was the size of three wardrobes and had 20 kilobytes of core memory. The rationale for the purchase was to make processes more efficient in order to re-focus on customer service.
The digital tide proved unstoppable. Banks started to invest heavily in computer technology to automate manual processing. By the 1970s, the first electronic payment systems for both international and domestic transactions were developed. The international SWIFT payment network was established in 1973 and domestic payment systems were developed around the world by banks working with governments.
Online banking from home...(1980s - 2000s)
The term 'online' became popular in the late 1980s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. Online banking was first introduced in New York in 1983 and arrived almost simultaneously in the UK. Benefits for banks included:
- Diminished transaction costs
- Easier integration and bundling of services
- Interactive marketing capabilities
It took widespread adoption of electronic commerce, based on trailblazing companies such as Amazon and eBay, for paying for items online to really catch on. Customer use grew slowly. At Bank of America, for example, it took ten years to acquire two million e-banking customers. But after the Y2K scare proved unfounded, a significant cultural change took place. In 2001, Bank of America became the first to top three million online banking customers.
or from anywhere: mobile banking (2000 - 2017)
The advent of wireless technology and the smartphone heralded the era of mobile banking. Mobile banking, via apps and browsers, is available on a 24-hour basis. For the first time, customers could obtain account balances, pay bills, transfer funds transfer and buy financial products from a device in their pocket. Mobile banking further reduced the cost of handling transactions. It also had particular appeal to millennials. who want mobile, on-demand banking with personalised, 24/7 service. Research shows most millennials would rather do banking on a mobile device than in person.
Banking in an era of disruptive technology (2017 - ??)
Disruptive technologies like open banking and blockchain signal that digitisation is no longer just about efficiency. It’s about adding value to customers’ lives. Open banking gives third-party developers secure access to real-time customer data from participating banks. This enables customers to manage a variety of financial products and services from different institutions with a single application. It will be used to access traditional banking products but also for entertainment, travel, hospitality, retail and a host of other services.
For banks, it will be essential to use data analytics to deliver highly personalised customer experiences. These will be at multiple interaction-points such as:
- Bank branches
- Mobile banking applications
They will take place via multiple channels including texting, the bank website, chatbots and the phone. For decades, the main game in using digital technology in banking has been process efficiency. This was usually better for the banks than for the consumer. Early adoption of disruptive technology will help banks seamlessly manage the change to data-driven personalised customer service and stay relevant and efficient in this exciting era. To find out more, download the white paper: Digital Platform Trends 2017: Banking on a digital future.