Where is banking going in ten years?

There have been a lot of changes in banking in the past few years. Some changes are subtle, but some create a new paradigm, such as the advent of Mobile Banking. Mobile Banking has the potential to be bigger than Online Banking was at its introduction. Why? There is a much larger installed base of mobile smart phones today, 1.5 billion worldwide, than there were PC’s in 1997 when Online Banking went live. Mobile Banking acceptance by younger adults is off the charts. They do not fear using their phones for banking purposes and welcome the convenience Mobile Banking promises them.

So, what are some of the big changes we will see coming in the near future? For starters, it is a foregone conclusion that paper checks are going away. With the proliferation of online bill pay systems, there is very little need for consumers to sit at the old desk and write out checks once or twice a month. You won’t have to lick any of those nasty bill envelopes anymore! Yuck.

Today, it takes me five minutes to pay 7 bills. No stamps, no envelopes, no calculators. Just me, my bills and my PC and my bills are paid in 24-48 hours mostly. It is very easy even for beginners.

Another change will be the new EMV or EuroPay MasterCard/Visa. This is the new “chipped” cards that many have been talking about. Simply put, EMV (sometimes referred to as chip-and-PIN, or chip-and-signature) is the most recent advancement in a global initiative to combat fraud and protect sensitive payment data on cards. A cardholder's confidential data is more secure on a chip-enabled payment card than on a magnetic stripe (magstripe) card, as the EMV card supports dynamic authentication, while the current mag-stripe card does not (the data is static). Consequently, data from a traditional magstripe card can be easily copied (skimmed) with a simple and inexpensive card reading device – enabling criminals to reproduce counterfeit cards. Chip (EMV) technology is effective in combating counterfeit fraud with its dynamic authentication capabilities (dynamic values exist within the chip itself that, when verified by the point-of-sale device, ensure the authenticity of the card). The one thing that  cannot be copied  is the chip in the card. (A  lot of people are saying that if we had EMV cards, the Target data breach would not have happened. Incorrect. The EMV cards would not have protected anyone from Target’s failed attempts at data security on their systems.)

We still see a lot of paper loan applications around today. More and more, financial institutions are moving to paperless processes. Your application is online and all the loan underwriting will be done on line. You will sign with your electronic signature. Do you need to have paper copies of disclosures in your files at home? No, not if you can access them on your phone, tablet or PC whenever you wish. You can save a digital file of your documents on the security of your home computer if needed.

Teller roles are changing and that means that your bank will change as well over time. Some credit unions have installed video Tellers over the past few years. There is one CU that is currently experimenting with a holographic Teller. Tellers are now being trained to offer advice and show you how to use the latest technology, whether it’s online banking, a mobile application, or digital documents; the role of the teller is not what it used to be.

Consider that there is already a lot of automation in banking. Automatic Teller Machines, ATM’s, have become ubiquitous in our banks, convenience stores, airports, and even gas stations. Many of today’s ATM’s will give you a copy of the check you deposited for your records. Credit unions have really changed the paradigm of the ATM as they “share” their ATM’s; meaning that if I bank at Meriwest Credit Union, I can go to virtually any other CU’s ATM, nationwide, and make a deposit to my account at Meriwest. Credit unions have offered shared ATM’s for many years.

Other forms of automation are cash and coin counters. Certain new ATM’s are being equipped with cash counters in them. You deposit the cash in the slot and the machine counts and verifies your deposit. In most of our branches, we offer our members a coin counter. They can dump their accumulated coins in the machine; it counts them and gives them a receipt. Today we take that receipt to a teller who will deposit the amount in our checking account. In the near future, the coin counter will be connected to the financial institution and deposit the coin directly to your account. That is, if coins are still around.

It may be unbelievable, but actual physical money will make an exit from our lives. The dollars and coins with which we grew up will no longer be necessary to make transactions. All of our money will be digitally managed. Today, unless we physically use cash, most of our transactions are now digitally managed.

Your employer pays you by Direct Deposit. You go online and pay your bills with online bill pay. You get a check in the mail for a rebate. You use your Smart Phone to take a photograph of the check and use Remote Deposit Capture to deposit it in your checking account. Your financial institution never has a physical copy of the check, only digital. You walk to the deli and buy a sandwich and a soda with your debit card. We drive across a bridge and “beep,” our bridge tolls are paid automatically from our checking account. We can pay our taxes electronically and receive our refunds in the same manner.

I think it is easy to see the future is now and these changes are coming faster than we think.

***

Our next Free Financial Workshop:

Car Buying 101

Saturday, June 14, 2014 at 10 AM

Learn how to plan, select, and make your deal for your next new or used car. We will cover research, financing, and explain how to save hundreds of dollars on vehicle warranties.

Location: Meriwest Credit Union Main Office

5615 Chesbro Ave.

San Jose CA 95123

Electronic Money – The World has Changed

There once was a time that “Cash was King.” It was acceptable in any transaction up to any amount. When buying a car back in the day, someone might take more than ten thousand dollars with them to pay for the transaction. Paying debts with large amounts of cash was not uncommon. In the 1940’s and 1950’s, there were only three ways to pay for something; cash, check, or a wire transfer. The popularity of charge cards had not begun.

In the 1960’s charge cards or credit cards became a normal part of our financial world. Now we had a fourth way of paying for our wants and needs; a credit card. “Buy now and pay later” was the motto of many back then. It was a popular option for those with limited cash, as credit cards allowed them to purchase expensive items and pay for them at a modest interest rate over time. Credit cards changed the way we looked at cash. Cash dollars were no longer a necessity in a transaction.

The 1970’s and the introduction of the ATM was what really set us on the path to electronic money. An ATM made it possible for someone from out of town to get cash from their account without having to write a check and show several forms of ID to get it cashed. They could go to the ATM of the nearest bank and, for a small fee, access their account and get up to several hundred dollars from their account. They did not have to go to the ATM of their bank. Banks would exchange the money electronically between them to settle the transaction.

After the ATM card, came the ubiquitous debit card. The debit card was originally created by a Frenchman, Roland Moreno, in 1974. EFT/POS (Electronic Funds Transfer/Point of Sales System) or the debit card system as it is popularly referred to, changed how we all exchange money for goods and services. Suddenly, if we had the cash in our account, we could pay for any item if the merchant accepted EFT. Cash money was no longer a required part of monetary transactions. In 2011, only 27% of transactions were of the cash type and it is expected to drop to 23% by 2017. Another number that is expected to drop is the use of paper checks for payments; only 7% of transactions in 2011 involved a paper check.

There are convenience stores and other markets that are refusing cash and moving to 100% EFT transactions. Considering that merchants must pay a small fee for each transaction, why are we going to 100% EFT?

For years, checks were the way we paid for things when we did not have the cash readily available. That system worked just fine but it had pitfalls. What were the dangers of accepting a check?

·         It took several days for a check to clear. Prior to electronic check clearing in the late 80’s, it took even local checks seven days to properly clear. An out of state check would take two weeks !

·         We never knew if the money to pay the check would be available on the date the check cleared.

·         Once the check “Bounced” back to us, it would take a couple of days to get the check back to us. Taking time away from recovering on the bad check.

Checks could be stolen, duplicated, or altered. If a merchant took a bad check, the merchant paid for it and took a loss. With electronic transactions, particularly with PIN style transactions where the accountholder must enter their PIN code in order to complete a sale, it gives the merchant much more confidence that the person processing their transaction is not a fraud. Electronic transactions reduce the amount of fraud losses for merchants.

In a few years, paper checks will be a thing of the past!

Happy Holidays to everyone! Stay safe this season.