Will mobile apps make brick-and-mortar banks obsolete?

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More financial institutions are beefing up their mobile channels to provide more variety and convenience to existing customers and boost customer acquisition figures. However, some industry analysts say that this strategy may backfire and only quicken the pace at which brick-and-mortar banks become less utilized by consumers.

Analysts say there are several features – ranging from basic to more complex – offered by mobile apps that make the need to visit a branch less pressing. For example, many apps provide financial assistance programs that allow users to balance their checkbooks, monitor their balances and establish a budget. These actions were previously accomplished in a branch or online, but now individuals have the flexibility to manage their finances on the run, according to the Huffington Post.

There are also now several types of financial transactions eliminate the need to visit a branch or an ATM in a financial institution’s network. For example, consumers can check balances, transfer funds and deposit checks via their smartphones. While remote check capture is still in the development stages, many consumers who are shopping for a new bank are factoring this option into their decisions.

Many industry professionals have dismissed claims that mobile technology will altogether replace banks in the future. Consumers may continue to need brick-and-mortar facilities to apply for mortgages, withdraw cash, make cash deposits and open an account with a financial institution. While studies show that the U.S. is becoming a more cashless society, few experts are confident that cash will ever truly be replaced as millions of Americans are hesitant to jump on the mobile banking bandwagon. However, recent reports from national institutions, such as Bank of America, reveal that many banks are scaling back services and employing more automated systems.

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Will technology make smaller banking institutions obsolete?

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Many banks are devoting more financial resources to mobile technology and this scenario is not expected to slow down in the near future. Most financial institutions see innovative technology as a cost-effective way to offer more convenience to consumers, gain a more loyal customer base and attract new demographics.

While these points may be true, some expert say that the quickening pace of new technology may have a negative impact on smaller brick-and-mortar institutions in the future, as they struggle to keep pace with new innovations. Currently, online and mobile users can avoid trips to the bank and still complete basic transactions, such as transferring funds, inquiring into a balance and making bill payments. Some banks also allow mobile users to deposit checks through remote capture features that allow them to simply text a front and back image of the check to the institution.

It’s true that mobile and online features have positive benefits for financial institutions in the way of attracting customers and lowering costs. However, analysts say that those smaller institutions that pride themselves on developing personal relationships with consumers and fail to adopt new technology may run the risk of becoming obsolete in the future, according to CNN. Many banks are already laboring under new regulatory requirements that may strain their finances and others are losing customers as a result of fees and other banking costs.

In an increasingly fast-paced world where consumers have several options and can conduct all their banking needs at the push of a button, financial institutions that lack the resources to keep pace with new innovations may lose customers. Few analysts believe banks will ever become obsolete because consumers will continue to need loans, and many individuals do not participate in online and mobile banking. However, as consumers demand more services from institutions, competition among banks is likely to heat up and those who fail to offer an array of services may be at risk.

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Banks urged to facilitate ‘digital financial lifestyle’ of consumers

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More financial institutions and consumers alike are choosing to ‘go paperless’ and focus on digital platforms to send correspondence, manage financial accounts and engage in financial transactions. The benefit for banks is lower costs for drafting and mailing bank statements and notifications. Many consumers are going paperless as a way to reduce their carbon footprint and avoid the clutter of several statements and bills that they can view online.

A new survey released by Javelin Strategy and Research shows that the banks that continue to facilitate consumers’ “digital financial lifestyle” are more likely to boost customer loyalty and achieve their paperless initiatives. However, in order to accomplish these goals, banks cannot simply displace paper, but must create something better than paper, Bank Systems and Technology reports.

The Javelin study highlighted seven core areas that banks will need to improve on in order to fully realize their paperless initiatives. According to the study, banks must recognize that 1) customers are always “on,” or have full access to their accounts, 2) interactions will be in real time, 3) there will be transparency, 4) the customer decides how they want to receive information, 5) information will be integrated, 6) interaction will be secure and 7) the relationship with the bank will help fulfill the customer’s goals, BankTech reports.

Javelin senior analyst Mark Schwanhausser says that while banks have made significant strides in achieving some of these factors, they have yet to fully realize each aspect of this plan, BankTech reports. However, once banks are able to hit these seven points, they may be in a position to build a stronger relationship with consumers as not only a service provider, but as an advisor.

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Payment technology changes consumer perceptions of money

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Many consumers who are still wary of electronic wallets, but want to explore new convenient ways of paying for items are utilizing new payment technologies that do not require them to input their personal financial information.

Experts say that these new types of payment technology are becoming popular among demographics that are concerned about their privacy, do not want to rack up credit card bills or do not have access to traditional credit accounts, such as teenagers. For example, a recently developed payment program, called Openbucks, allows consumers to pay online with gift cards, according to the San Jose Mercury News.

For example, consumers who enjoy shopping online, but do not want to put their personal financial information through a website, purchase the Openbucks gift card at participating retailers, such as Subway or CVS. When they decide to make an online purchase later on, they can simply enter the code on the back of the card at the checkout page and their transaction is quickly completed. This product differs from prepaid and gift cards because there are no reload fees, usage fees or additional charges. Instead, they can purchase the card for $50 and have $50 to spend. In addition, the cards afford consumers more convenience because they may pay online by inputting a simple code, rather than a long account number.

“It’s great for teens who might not have credit cards, or people who want to stay confidential and not spread their credit card information all over the Internet, or people who are concerned about online safety,” Marc Rochman told the news source.

These types of programs may be a new breakthrough for the underbanked segment that utilize smartphone apps and technology, but still do not want to engage in traditional banking products. A recent Federal Reserve Board study revealed underbanked individuals are more likely to own smartphones and utilize mobile payment features than banked consumers. According to the results, 91 percent of underbanked consumers have mobile phones and 57 percent have smartphones, as opposed to 87 percent of banked consumers who have mobile phones and 44 percent have smartphones.

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