Did You Wear Your Bank Today? Wearable Banking

Did you wear your bank today? Wearable banking

August 2016 Wearable banking

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When was the last time you visited a retail Imagine if your bank utilized the ‘wearable branch for the bank you choose to do revolution’ to re-engage with you, foster business with? Based on recent statistics, a stronger relationship and provide our estimate is that it has been a while.1 personalized products outside of physical Let’s face it—we are living in an era where branches. How different could the car the world is becoming increasingly digitized purchasing process be? A wearable device and interconnected across apps, devices could trigger an alert to a bank when and platforms. This digital transformation a potential consumer walks into a car is having a significant impact on the way dealership. The most affordable financing consumers complete their everyday tasks option could automatically be selected and is paving the way for yet another global based on data already possessed by the revolution—one where tasks can be done bank and pushed to a user’s smartphone remotely instead of visiting a bank branch via a push notification. How much less to take care of business. And wearables distressing would home buying be if may be building on this further! While the appraisers could complete the inspection world is still embracing mobile innovation and submit the report on-site and in and determining additional use cases for real-time to the underwriters? While these adoption, wearable technology is building may seem like fictional hypotheticals, upon this foundation to directly embed new technology has made them viable the power of the smartphone on a person. possibilities today. Our article will take Despite the various form factors that a closer look at similar potential use wearables can have—from smartwatches to cases to help banks navigate this wave of augmented-reality glasses to clothing—they transformation while maintaining their provide a less distracting layer that gives a strategic interests and dominance. user constant intelligence about the world around them before they may even know they need it. It can also help businesses engage with customers, perhaps better than ever before.

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Wearables and the information value loop

Being able to pay with just a gesture, instead deliver a differentiated “customer centric” of with cash, credit card or smartphone, experience for their customers. Data-driven Use case: Streamlined requires more than just a gadget on a insights encourage consumers and financial operations wrist—it also requires a shocking amount institutions to make smarter and more The Vuzix M100 Smart Glasses are of data. Not only does the device need to informed decisions. No longer will a commercially available wearables store payment information or authenticate consumer be judged by their demographics that are geared specifically towards a user, but it also may benefit from coupling alone, but also by behavioral trends that enterprise use. Coupling a wearable location data and prior spending habits were not able to be analyzed previously. computer with wireless connectivity, to further minimize the likelihood for a By having up-to-date information on camera and GPS, this wearable has fraudulent transaction. This is an example spending habits, employment or prior the ability to utilize an employee’s of wearables requiring “information bank interactions, institutions will be able surroundings without requiring any everywhere”, which is made possible to better align the services they provide additional effort. While this technology through the suite of technologies—sensors, with a consumer’s actual needs. The ability is currently being tested in industrial communication devices, servers, analytics for a bank to provide customized services settings, a device similar to this can engines and decision-making aids—known based on metrics collected will help drive be utilized by a bank to automatically as the Internet of Things (IoT). These devices the continued success and relevance of that identify and tag objects in real-time. collect data about the world and have the organization. This could have a profound impact for ability to communicate, aggregate and a banking advisor or teller that needs analyze it before enabling informed actions However, the flow of information within to manually determine if a check is fake to be taken. This process can be modeled the value loop can yield bottlenecks that today. with the information value loop (shown inhibit value creation for customers and in Figure 1). companies they choose to transact with. Step-by-step If properly addressed, these bottlenecks 1. A customer walks into a bank and The true value of IoT lies within these will not only allow banks to maximize IoT- presents a check to the Bank Teller actions, which can be driven via data rather generated value, but also gain a strategic for deposit. than assumptions. With information from advantage over competitors, such as 2. The Bank Teller looks at the check other solutions within this framework, financial technology (fintech) companies and then starts searching for wearables can help the banking industry that are looking to capitalize on the same the customer’s account on their opportunity. computer. The smart glasses understood that the Bank Teller is Figure 1: Information value loop2 looking at a check and processes through the beneficiary, amount and Magnetic Ink Character Augmented Act Recognition (MICR) line. behaviour Sensors 3. While the Bank Teller is inputting the transaction details into their computer, the smart glasses determine that the check is fake Magnitude by comparing the routing number Scope Scale Frequency Analyze Create against the Federal Reserve Bank Risk Services database. Security Reliability Accuracy 4. The smart glasses present the Time Augmented Latency Timeliness Bank Teller with a notification that Network intelligence the check should not be accepted. The Bank Teller speaks with the consumer while the smart glasses automatically documents the Aggregate Communicate incident to their account.

Standards

Value drivers Stages Technologies 4 Wearable banking

Owning the entire value loop vs. stage(s)

While it may appear that financial increasing number of wearables on the banks may find it more advantageous to institutions can benefit most from owning market and numerous communication pursue this type of ‘outside-in’ approach. the entire loop starting with custom-built protocol options to choose from, the Instead of developing costly, in-house sensors to analytical capabilities, unique limiting factor for improving customer capabilities, banks can look to help fill challenges inherent to each stage renders relationships is handling the data itself. these gaps and augment current digital this option impractical. Let’s use the sensors This implies that the Aggregate and Analyze capabilities through partnerships. This that create data as an example. Not only do stages of the information value loop are strategy positions banks for the success banks lack the technical expertise needed of the upmost importance to banks. Since required to serve the rapidly growing to create these devices, but these sensors financial institutions already have deep number of clients with the sophisticated are already incorporated into wearable experience handling and parsing big data, demands for digital functionality and cost devices developed by other players. With they represent prime opportunities for efficiency. For example, fintechs such as numerous companies already invested these organizations. Moven and Prism have developed money in creating and marketing these devices, management services for the Apple Watch® most banks will find it more efficient to Depending on organizational and wrist wearable device. However, since leave these products to companies with infrastructure maturity, banks may choose they lack the large datasets and customer more experience and, instead, focus on the not to own these stages by themselves. reach of traditional banks, they are open stages of the value loop that play to their In order to capitalize on the vast amount to partnerships to help banks take their strengths. of data readily available to banks, it needs innovative products and services to market. to be connected, which requires technical Rather than own an entire value loop from knowledge of mobile architectures and Owning the Aggregate and Analyze stages start to finish, financial institutions will APIs that may exist elsewhere. As a of the information value loop will provide likely find it more effective to own a stage result, banks can either build a robust, banks with the customer insights needed or series of stages across multiple loops. iterative predictive analytics platform to gain a competitive advantage. Partnering In order to do so, banks will need to focus internally or collaborate with existing with wearable manufacturers and fintechs on near-term barriers and concentrate on fintechs that have already made great will enable them to achieve these gains taking advantage of infrastructure already strides developing similar solutions. Given quicker and with less overall risk. adopted as a result of supporting prior the complexity and speed of change mobile deployments. With a constantly affecting the market today, a majority of

Figure 2: Sample ecosystem for wearables in banking

Wearable device manufacturers

Augmented Act behaviour Sensors

Magnitude Scope Scale Frequency Analyze Create Risk Security Reliability Accuracy Time Augmented Latency Timeliness intelligence Network

Traditional banks Aggregate Communicate

Standards

Fintechs

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Challenges of wearable banking

Implementing a wearable banking strategy Communicate stage: Data security and Use case: Wearable ATM should not be a race to follow a trend as fraud prevention withdrawals they may have with ‘mobile-first’. Instead, In order for wearables to support desired The Nymi Band is a wearable the decision should be made based on a bank objectives, these devices must wristband that can track a user’s business objective to provide services to store a certain level of sensitive financial unique electrocardiogram (ECG) to customers in a way that was not imaginable information. In addition, depending on deliver continuous authentication with other, more mature platforms. the specific wearable device, streams experiences. In August 2015, Nymi, of data may be constantly collected TD and MasterCard announced that In order to predict, recognize and act on it and transmitted over-the-air. This could the first biometrically authenticated in real-time poses numerous challenges. potentially pose a security threat, which wearable payment took place using Below are the most notable ones organized would require banks to ensure the a user’s heartbeat.3 Thinking ahead, by each stage within the value loop. safeguard of the types of information being similar technology can be used to shared. For example, fraudsters could accurately identify a customer and Create stage: Extension of mobile vs. seek to intercept sensitive information streamline the authentication process wearable-centric experiences to steal a customer’s identity or, even when they withdraw money from an Since technologies within wearable devices worse, manipulate markets. Banks should ATM. can appear to be a natural progression make security a key consideration while from those within other mobile devices, the determining the wearables to support and Step-by-step method of interaction differs significantly. developing a wearable banking strategy. 1. A customer wearing a device that For example, there are capabilities unique can track their unique ECG walks to wearables, such as the collection of Aggregate and analyze stages: Fintech up to their local ATM machine to location-based data, which other mobile competition withdraw money. devices do not possess. On the flip side, While banks can partner with fintechs to 2. The customer inserts their debit there are several limitations to wearables accelerate their advances into wearables, card to withdraw money. However, as well. With very small displays (or none at they may pose an increasing threat as their because the customer has opted-in all), wearables may be limited in how data capabilities also begin to advance. This is to securer payments, they must is displayed. In addition, wearables are in addition to the growing challenge they tap their wearable device against designed for seconds of interaction at a are receiving from non-bank entities to a special sensor on the ATM time. As a result, simply porting an existing aggressively push digital innovations to take machine. app to a wearable device may not be just on traditional banking functions. Amazon, 3. The ATM machine confirms that the a missed opportunity to do something for example, is now offering loans to its unique ECG belongs to the owner truly revolutionary, but a strategy that is merchants to fund inventory requirements. of the inserted debit card and ineffective. Alibaba, which started off as an online prompts the customer with the merchant for volume-based items, is now various services available. It is imperative to determine the type of the world’s largest payment provider.3 4. The customer selects ‘Withdrawal’, experience a bank would like for their enters the amount they would like consumers to have via their wearable However, if banks do not form partnerships to withdraw and picks up the cash. devices. For example, banks should likely with fintechs, these lean organizations could The transaction is completed as focus on personalization centered on continue to grow into functions traditionally soon as the money is removed the essence of such a device being ‘a held by banks, potentially cutting out from the machine. part of’ their customers. A smart, jacket, financial institutions out of the market. in partnership between Lyle & Scott While regulatory pressures may make this and Barclays contains a payment chip unlikely in the short-term, banks will need to embedded in the cuff of a sleeve, which take immediate action to quickly innovate, allows the user to complete transactions prioritize and support new platforms in stores without the need for carrying a without ceding control to other players in wallet. the IoT ecosystem. Moreover, banks should assess the feasibility of partnering with organizations that do not pose a threat to their core business, but supply sufficient resources to expedite the innovation and go-to-market timeline.

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Aggregate stage: Data integration and analytical complexity Use case: Proactive event Legacy core banking systems are typically monitoring comprised of multiple data warehouses Lark is a personal fitness coach that and various transactional systems that enables users to record their fitness yield high total cost of ownership. In and food intake through a one-on- addition, as banks look to offer new one chat. Instead of manually logging services and integrate with different workouts, Lark utilizes sensors and devices, these systems require a constant conversations to motivate users to live need for integration and interoperability. a healthy life. Utilizing a similar concept, Additionally, regulatory and compliance could banks provide a 24x7 financial pressures require that financial transactions concierge to their customers that is and customer data be tracked on an familiar with their whereabouts and unprecedented scale.4 Banks will need can attend to all trivial tasks? to focus on implementing solutions that communicate with legacy systems as an Step-by-step interim solution, while actively engage in the 1. A customer lands in Paris for their development of an operating model and vacation without informing their nimble infrastructure for more effective bank that they will be abroad for data access, management and delivery in the next few weeks. the long-term. 2. The customer’s wearable device realizes that the customer is Act stage: Unified view of data leaving the airport and pushes the While consumer intelligence will lead to following message to them: “How new opportunities, banks must offer their was your flight to Paris? How long customers with an integrated and seamless do you plan to stay in Paris?” banking experience. Specifically, customers 3. The customer responds, “It was expect that when one Line of Business great. I’m leaving on 9/9.” The (LOB) captures data, it is shared throughout wearable displays a message the organization so that it does not need stating that a travel notification is to be provided multiple times. As a result, set up on the customer’s account banks should focus on creating process and wishes them a safe and fun flows that keeps a customer’s digital journey trip. in mind, while tracking how the organization 4. Upon arriving at a boutique will deliver value at every interaction point. designer store, the wearable asks, Creating a seamless experience to deliver a “Would you like me to increase your superior customer experience will be crucial spending allowance on general for the long-term success of the financial merchandise?” institution. 5. The customer realizes that they may go over the current limit and responds, “Yes, please increase my daily limit to $3,000.” 6. As the customer boards their flight back home, the wearable device displays a message stating the travel notification is removed and the spending allowance has been reset to the original limit. The wearable then wishes the customer a safe flight home!

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Call to action

Financial institutions that strive and a single point-of-sale transaction may not succeed to maintain the pace with IoT lead to much insight about a customer, a trends will be at an information advantage, series of transactions and their associated creating effective, timely and cost-efficient information could lead to a significant downstream opportunities. Although a amount of customer intelligence. Banks typical customer and bank interaction need to position themselves to leverage this ends after leaving a branch or logging intelligence so they can capitalize on this out of an online account page, the flow of opportunity by providing personalized and information persists to create value. While targeted services to their customers.

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References

1. A recent study by the Federal Deposit Insurance Corporation showed a 45% decrease in teller transactions per bank branch from 1992 to 2013. This corresponded to a nearly 5% decline in the number of branches since 2009. The full study is available here: https://www.fdic.gov/bank/analytical/quarterly/2015_vol9_1/FDIC_4Q2014_v9n1_BrickAndMortar.pdf

2. Deloitte Review, Issue 17, 2015, “The more things change: Value creation, value capture, and the Internet of Things,” Raynor, Michael E., and Cotteleer, Mark J. http://dupress.com/articles/value-creation-value-capture-internet-of-things/

3. Market Wired, August 11, 2015, “Nymi, TD and MasterCard Announce World’s First Biometrically Authenticated Wearable Payment Using Your Heartbeat,” http://www.marketwired.com/press-release/nymi-td-mastercard- announce-worlds-first-biometrically-authenticated-wearable-payment-nyse-ma-2046600.htm

4. Deloitte, “Digital Transaction Banking—Opportunities and Challenges” http://www2.deloitte.com/au/en/pages/financial-services/articles/digital-transaction-banking-opportunities- challenges.html

5. InformationWeek, “Top Challenges Facing Bank CIOs Over the Next Year” http://www.banktech.com/channels/top-challenges-facing-bank-cios-over-the-next-year/d/d-id/1296624

“Did you wear you bank today? Wearable banking” is an independent publication and has not been authorized, sponsored, or otherwise approved by Apple Inc.

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Contacts

Eric Piscini Adrien Monvoisin Principal Manager Deloitte Consulting LLP Deloitte Consulting LLP [email protected] [email protected] +1 678 477 5092 +1 510 725 9550

Joe Mariani Mayank Singhal Lead Market Insights Analyst Senior Consultant Deloitte Services LP Deloitte Consulting LLP [email protected] [email protected] +1 240 731 1985 +1 678 200 9927

Brandon Yang Ishita Singh Manager Consultant Deloitte Consulting LLP Deloitte Consulting LLP [email protected] [email protected] +1 310 210 5569 +1 215 200 6242

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