Analysis

Did you wear your bank today?

Wearable banking

We are living in an era where the world is becoming increasingly digitized and interconnected across apps, devices, and platforms. This digital transformation is having a significant impact on the way consumers complete their everyday tasks and is paving the way for yet another global revolution—one where tasks can be done remotely instead of visiting a bank branch to take care of business.

Wearables and the information value loop

While the world is still embracing mobile innovation and determining additional use cases for adoption, wearable technology is building upon this foundation to directly embed the power of the smartphone on a person.

Being able to pay with just a gesture, instead of with cash, credit card or smartphone, requires more than just a gadget on a wrist—it also requires a shocking amount of data. Not only does the device need to store payment information or authenticate a user, but it also may benefit from coupling location data and prior spending habits to further minimize the likelihood of a fraudulent transaction. This is an example of wearables requiring "information everywhere", which is made possible through the suite of technologies—sensors, communication devices, servers, analytics engines, and decision-making aids—known as the Internet of Things (IoT). These devices collect data about the world and have the ability to communicate, aggregate, and analyze it before enabling informed actions to be taken.

Owning the entire value loop vs. stage(s)

Rather than own an entire value loop from start to finish, financial institutions will likely find it more effective to own a stage or series of stages across multiple loops. In order to do so, banks will need to focus on near-term barriers and concentrate on taking advantage of infrastructure already adopted as a result of supporting prior mobile deployments. With a constantly increasing number of wearables on the market and numerous communication protocol options to choose from, the limiting factor for improving customer relationships is handling the data itself. This implies that the aggregate and analyze stages of the information value loop are of the utmost importance to banks. Since financial institutions already have deep experience handling and parsing big data, they represent prime opportunities for these organizations.

Owning the aggregate and analyze stages of the information value loop will provide banks with the customer insights needed to gain a competitive advantage. Partnering with wearable manufacturers and fintechs will enable them to achieve these gains quicker and with less overall risk.

Challenges of wearable banking

Implementing a wearable banking strategy should not be a race to follow a trend. Instead, the decision should be made based on a business objective to provide services to customers in a way that was not imaginable with other, more mature platforms. In order to predict, recognize, and act on it in real-time poses numerous challenges.

Create stage: Extension of mobile vs. wearable-centric experiences – Since technologies within wearable devices can appear to be a natural progression from those within other mobile devices, the method of interaction differs significantly. For example, there are capabilities unique to wearables, such as the collection of location-based data, which other mobile devices do not possess. On the flip side, there are several limitations to wearables as well. With very small displays (or none at all), wearables may be limited in how data is displayed. In addition, wearables are designed for seconds of interaction at a time. As a result, simply porting an existing app to a wearable device may not be just a missed opportunity to do something truly revolutionary, but a strategy that is ineffective.

Communicate stage: Data security and fraud prevention – In order for wearables to support desired bank objectives, these devices must store a certain level of sensitive financial information. In addition, depending on the specific wearable device, streams of data may be constantly collected and transmitted over-the-air. This could potentially pose a security threat, which would require banks to ensure the safeguard of the types of information being shared. For example, fraudsters could seek to intercept sensitive information to steal a customer's identity or, even worse, manipulate markets. Banks should make security a key consideration while determining the wearables to support and developing a wearable banking strategy.

Aggregate and analyze stages: Fintech competition – While banks can partner with fintechs to accelerate their advances into wearables, they may pose an increasing threat as their capabilities also begin to advance. This is in addition to the growing challenge they are receiving from non-bank entities to aggressively push digital innovations to take on traditional banking functions. Some online retailers, for example, are now offering loans to their merchants to fund inventory requirements.

Aggregate stage: Data integration and analytical complexity – Legacy core banking systems are typically comprised of multiple data warehouses and various transactional systems that yield high total cost of ownership. In addition, as banks look to offer new services and integrate with different devices, these systems require a constant need for integration and interoperability. Moreover, regulatory and compliance pressures require that financial transactions and customer data be tracked on an unprecedented scale. Banks will need to focus on implementing solutions that communicate with legacy systems as an interim solution, while actively engage in the development of an operating model and nimble infrastructure for more effective data access, management, and delivery in the long-term.

Act stage: Unified view of data – While consumer intelligence will lead to new opportunities, banks must offer their customers with an integrated and seamless banking experience. Specifically, customers expect that when one line of business captures data, it is shared throughout the organization so that it does not need to be provided multiple times. As a result, banks should focus on creating process flows that keep a customer's digital journey in mind, while tracking how the organization will deliver value at every interaction point. Creating a seamless experience to deliver a superior customer experience will be crucial for the long-term success of the financial institution.

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