Future Trends in Banking

MAY 2011

The History of Banking

In 2BC, Babylon recordedloans between monks andmerchants

In the 12th Century,merchant banks wereinvented and included thecreation of checks

In the 19th Century the riseof trade and industry in theU.S. led to the creation ofmerchant banks bypowerbrokers such as J.P.Morgan

In 1959 the first checksorting machines wereinvented based on auniversal agreement ofcheck design

In 1960 the first ATM wasinvented

In 1973 the electronicpayment system wascreated. As a result,telephone banking wasintroduced

The 1990s saw the rise ofthe “Universal Bank”

The 21st Century saw theinflux of various servicesbeing introduced by banksincluding insurance,pensions and money marketfunds

Internet or “online banking”becomes a popularenhanced feature offered bymany banks to itscustomers around 2005

SMS banking is introducedin the late 2000s and mobilebanking takes off in 2010with the advent of both theiPhone and Android

Primary Objectives in Banking

Attracting New Customers Keeping Existing Customers Increasing Revenue Per Customer

Bank Marketing in 2011: Broadcast, OOH, Online, Email, Mobile, Tablet

Amount of dollars spent on advertising by banks in 2010:

• Citibank = $1.6 billion• Bank of America = $1.9 billion*On average most banks are spending 2% of revenue on advertising

• Percentage of this spent on digital = 15%• Percentage Bank of America plans to spend in digital in2011 = 30% (double the amount of 2010)

Bank Marketing in 2011: Social Communities

Several banks arenow moving into theterritory of socialcommunities toconnect withcustomers.However, many areusing caution andnot offeringpromotions. Mostare using theplatforms to launchunique applicationslike a “virtual bank”from ASB in NewZealand or anadvisory board thatdoles out grants forcharities fromChase in New York

Banking in 2011Currently bank customers can use the following

four outlets to carry out banking activities:1. Branch Locations

2. ATMs3. Online4. Mobile

5. Social Communities

Future Banking Trends: Handset Users by 2020

Mobile FinancialServices or “MFS”currentlyaccounts for:

• 150 million usersglobally in 2010

• Projected to be400 millionusers globally by2013

• Estimates arepredicting over 2billion usersglobally by 2020

• 1233% growth inless than 10years time

Future Banking Trends: Emerging Technology

Already we are seeing bankcustomers using newtechnologies to make theirlives more convenient:

• Chase offers a mobile app withcheck scanning for depositsand person-to-person“quickpay”

• Less emphasis on “paperstatements” and moreemphasis on digital-only or“green” electronic technologies

• The ability to reach customerservice via phone, email or SMS24 hours a day is shifting tosocial communities, e.g., Bankof America is using Twitter fordedicated CRM

Future Banking Trends: Mobile Payments and Tracking

Future Banking Trends: Mobile Payments and Tracking

Future Banking Trends: Mobile Payments and Tracking

http://www.youtube.com/watch?v=Lb_Ae4lwxaA

Future Banking Trends: P2P Payments

Bitcoin is a digital currencycreated in 2009.

• It is used by programmers,developers and small businesspersons as a form of “digitalcash”

• Payments can be made P2P withno need for central authoritiesor issuers

• Transactions are based onpublic-key cryptographykeeping users identitiesanonymous

http://www.youtube.com/watch?v=Um63OQz3bjo

Future Banking Trends: Global Money Transfers

New services allow for moneytransfers without the use of abank

• Xoom.com andRevolutionMoneyExchangeallow users to register and wiremoney worldwide by linkingtheir U.S. bank account topayment to foreign companies

• Fees are lower than regularbank wire transfer fees

• Xoom was cited by the WallStreet Journal in 2011 as one ofthe “50 most promisingcompanies”

Future Banking Trends: P2P Lending

Lending money predatesfinancial institutions but in itsmodern form it is a byproduct ofWeb 2.0 technologies

• Zopa.com was the first lendingcompany founded in the UK

• Prosper.com was the firstlending company founded inthe US

• Both networks leverageexisting social networkcommunities to connectpotential lenders to borrowers

• The network acts as a“connector” and is not a“lender”

• Usually offer better rates thancan be offered by traditionalbanks (less than 10%)

Future Banking Trends: Investments and Savings

Move money from a bankchecking or savings account toa hyper-yield interest rateonline bank to save for goalsand large ticket items

• Smartypig.com• Chipin.com• The premise goes against the

credit card mentality of“purchase now, pay later” andreverts back to layawayplanning where the customer“saves now, buys when ready”

• Involves a social amplificationelement to the savings process

• Virtual piggybanks• Requires an existing funding

source

Future Banking Trends: Money Management

Future Banking Trends: The end of cash?

- “The End of Cash” by James Gleick, Published in The New York Times Magazine, 1996

Future Banking Trends: The end of cash?

• The question is not if, it is only of when• Cash has no real value in itself• With digital payment methods, you can always have the right

amount on hand• Forgery is rampant with cash• Mobile money is a viable alternative - every phone is a

payment terminal and every phone has the ability to be apayment processing device

• Virtual money is being used to trade for real goods in gamessuch as ‘World of Warcraft,’ and on communities such as‘Second Life’ and ‘Habbo Hotel.’

• Cash attracts criminals. Rid of cash, help decrease the crimerate around certain activities

• In 2010, the Swedish Parliament became the first officialentity to commence discussions about the timing of theending of cash

• The feeling is it’s wasteful (printing, shipping and destroying)and a health hazard (bacteria)

Future Banking Trends: Alternatives to paper currency aka Digital Cash

Digital Cash is a system that allows aperson to pay for goods or services bytransmitting a number from onecomputer to another. Like the serialnumbers on real dollar bills, thedigital cash numbers are unique. Eachone is issued by a bank thatrepresents a specified sum of realmoney. One of the key features ofdigital cash is that, like real cash, it isanonymous and reusable. That is,when a digital cash amount is sentfrom a buyer to a vendor, there is noway to obtain information about thebuyer. This is one key differencebetween credit cards and digital cash

Future Banking Trends: Complementary Currency

CC’s are usually issued to addressspecific issues or problems. They areuseful for adjusting the public’sspending behavior. The most notablecomplementary currency in usage isthe Toronto dollar. This currency canbe exchanged 1-to-1 from Canadiandollars and be spent at specificmerchants in downtown Toronto.Merchants who accept the dollars arefree to exchange Toronto dollars forCanadian dollars twice a month at therate of 90 cents. The other 10 cents isput into a reserve fund for localcommunity organizations to tap into

Future Banking Trends: Digital Gold Currency

DGC is a form of currency based onounces of gold. Proponents claim itoffers a truly global and borderlessworld currency system, free fromexchange rates and politicalmanipulation. Proponents say thevalue is protected as it is backed bythe gold standard and not atinflationary risk like fiat currencies

Future Banking Trends: Virtual Currency

Virtual currencies exist within avariety of social network gamesincluding World of Warcraft, Farmville,Cyworld, Second Life and Hub Culture.People are spending real money forvirtual goods and services that helpthem express their online personality

http://www.youtube.com/watch?v=l6HjMlCvZoY

Future Banking Trends: Predictions1. Bank tellers will be accessible 24/7 through social communities

2. NFC technology will be on all mobile devices3. The Mobile Phone is the New Wallet

4. Digital Cash will replace physical based on convenience5. Virtual Currency will be used for payment on real goods and

services

Thank You

Contact:Geoffrey S. Colon - Digital StrategistTwitter: @djgeoffegeoffreyscolon@gmail.com+1.917.617.1194http://www.linkedin.com/in/geoffreycolon