Banks may have just got to grips with online and mobile banking, but advances in wearable technology provide a glimpse of customer interaction in future.
As high street lenders increase their reliance on digital services, a range of devices - from smartwatches to wristbands and even Google Glass-style eyewear - could offer quicker and easier ways to check account balances or provide alerts and loyalty rewards. Most significantly perhaps, the ability to make payments via wearable devices using mobile wallets such as Apple Pay - and, potentially, Samsung's own offering announced this week at Mobile World Congress - means banks can play a greater role in financial management and purchasing decisions.
"Wearables are going to be part of the future of banking, and not too long from now," says Clayton Locke, chief technology officer of Intelligent Environments, a British firm which built one of the first banking apps for the popular Pebble smartwatch.
"It is about making banking and payments more convenient for the user. It won't be for everyone, but there will be enough people out there who will be wearing an Apple Watch that will want to have their financial information on their wrist."
The hype around the technology may not have translated into sales so far - just 720,000 Android Wear watches were shipped during 2014. However, industry watchers predict the imminent launch of Apple’s Watch device will spur wider adoption, with some estimates that more than 40 million smart devices will ship in total during 2015.
Daryl Wilkinson, group head of digital development at the UK’s largest building society, Nationwide, believes that developing apps for wearables can help banks meet customers' fast-evolving demand for digital interactions.
“There is a small but growing expectation that companies can offer these wearable devices and value added services on top of them,” he says.
“Not everyone wants to go to the branch, and not everyone wants to log on to internet banking. Some people will want to get a quick statement or balance on their smartwatch, and many people want to pay for things on their watch or a band as well.
“If we didn’t respond to this, we would probably be lacking in that modernity area that some new or existing customers might demand from us.”
Early trials - Google Glass, Oculus Rift and smartwatches
Despite the technology being in its infancy, a diverse range of applications and services are already being created by banks across the world. However, most of the wearables development coming out of banks’ innovation labs have been experimental, as much a marketing tool as a viable customer proposition.
A number of lenders, such as Spain’s La Caixa and Banco Sabadell, have trialled apps for Google's on-hold Glass project - providing augmented reality branch location, for instance. At the more future-gazing end of the spectrum, Wells Fargo has toyed with more exotic virtual reality proof-of-concepts using Oculus Rift.
Other innovations have included the use of wearables for authentication purposes with the Royal Bank of Canada’s partnership with startup Nymi, trialling its heartbeat monitoring wristband to authenticate contactless payments. The new Apple Watch is also expected to have similar biometric authentication, which should allay some customer fears around security.
Early incarnations of smartwatch banking apps that have been launched to customers - such as those from Nationwide, Australia’s St George’s Bank and Canada’s ScotiaBank - have tended to be aimed at more simple actions such as checking account balances.
Most of these wearable apps build on the existing functionality of mobile banking apps, aimed at creating a more efficient method of interaction and authentication.
“It is really about thinking about quick glance-able moments and what it is that customers might be looking for at that particular moment,” says Oliwia Berdak, Forrester Research analyst for European consumer financial services sector.
“On a mobile you can easily sit down and review your account or spending on the bus – with a smartwatch it is really on the go, something that is instantaneous.”
Nationwide’s Android Wear app, for instance, is essentially an extension to its mobile app, allowing users to access the building society’s Quick Balance feature from their wrist, either by scrolling through to the app or speaking into the device, as well as the ability to move small amounts of money between a user’s accounts.
There is plenty of potential to expand on the capabilities of early wearables apps, says Nationwide’s Wilkinson, and the building society is already planning to add functionality around payments and transactions in future.
“It might mean transferring information to your watch so you can receive a loyalty reward when you are at a retailer,” he says.
“Imagine you are walking through the high street and your watch flashes up that you have a reward to redeem worth £10 at a coffee shop or restaurant– that is really useful. What it allows the organisation to do is to demonstrate that you really do know that customer, and you really are trying to be on their side and offer them something a little bit different."
Further down the line, this could mean integrating other data sources, such as location and previous spending habits, to warn a customer before making a large purchase that they could miss a savings goals, or become overdrawn due to bill payments coming out of an account at a later date.
More advanced functionality such as this is described by Forrester’s Berdak as the “holy grail” for banks, as far as wearables are concerned. But reaching this level of sophistication is not easy, and those tied to legacy infrastructure will find it difficult to manage data in such sophisticated ways in the short term.
“To get to the next level, which is really about context-aware services, is an entirely different story,” she says. “That will require integration between back-end systems and also maybe predictive analytics which analyse the customer’s context; where they are located, the weather, are they active on social media.
“All of these different elements which could come together to let the banks know what the customer is doing are going to be really, really important.But I would say many banks are struggling with that at the moment.”
Banks should start developing - whether they buy into wearables or not
Despite the growing interest in wearables - with a host of new devices being announced at Mobile World Congress this week - doubts remain over how widely the technology will be adopted. This is leading to many banks taking a 'wait and see' approach to developing and launching services.
Battery life and connectivity remain significant challenges, for example, while device makers are yet to convince sceptics that they can shed the geeky image and persuade the average consumer to don the technology on a daily basis. This means that few believe that wearables will have the same stellar growth as mobile devices - which quickly became popular for bank customers.
However, Berdak says that banks that are unconvinced by the current crop of wearable devices will still benefit from creating low-cost prototypes however, trialling a few technologies and preparing for when adoption surges.
“Banks would be silly not to try and engage with this technology early on,” she says. “They do not have to have final apps already launched in the marketplace, but they definitely should be thinking about what they want to do in this space, building some proof-of-concepts and creating some early stage plans.”
This is not only because of an expectation that customer adoption will pick up, she says, but also because banks will often need to build up a skill base – such as gathering expertise in more modern programming languages - as well as getting the right teams and developing best practices. This can build experience in creating a range of digital propositions.
It can also help to partner with third-party companies. For Nationwide, this meant working with global services provider IBM at one of its Innovation Centres to quickly build the app.
However, collaboration with smaller fintech startups could also benefit users, providing a shortcut to accessing the skills that can take time to develop in-house.
“It is very frequently the small startups that are more agile and have better up-to-date skills in this area,” says Berdak.
“That is why a number of banks actually don’t always try to build up that talent internally but try to work with partners and startups that can bring those skills at a much lower cost, because if you don’t know that something is going to stay there then you don’t want to invest in just one person who specialises in that.”
Security must be top priority
Another consideration for banks is around security. Although there is the potential benefit around the use of biometrics for more accurate authentication, recent PwC survey showed that 82 percent of respondents were worried about the security of these new devices.
“Financial and personal data might be exposed due to the new form factor and a lack of expertise from banks, vendors and users,” says Gartner analyst Stessa B Cohen, warning that such concerns could slow adoption of wearable banking apps.
“As they have had to do with mobile devices, CIOs must develop wearable apps that build customer trust and also add security mechanisms to other channels, including mobile and online banking.”
Nationwide’s Wilkinson says that security must be a top priority when creating apps. “Every conversation starts with ‘can we do this securely’,” he says. However, he points out that most banks will already have experience of this from developing software for smartphones.
“It is the same process as with mobile – you ensure that you work with the manufacturers of the device to understand it, and then you have the experts both on our side and the manufacturer’s in a conversation to understand the capabilities and the risk.”
He adds: “Banks are very well matured in identifying potential risks and how they might go about doing so, and then assessing them with independence. We apply the same rigour and the same processes when we are innovating one new devices – be it a smartwatch or a mobile device.”
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