Banks see artificial intelligence in their future, but are slow to invest in it

Most financial firms believe artificial intelligence will have a huge impact on their own business and the overall industry in the next few years. If that’s so, investment and integration need to begin fairly soon. And the reality is, most banks are far from doing so.

Below are five charts that show the current state of AI in U.S. financial institutions; what banks’ AI plans are; and why they’ve been slow to move on them, despite the hype.

No plans
In a Celent survey of banks, the only technologies being used are fraud analysis and risk detection and natural language processing, by 14 percent and 5 percent of respondents, respectively. For all the hype around chatbots, none of the banks have fully deployed one, although 9 percent are running pilots. Celent doesn’t identify which banks participated in the survey but it’s safe to assume those piloting chatbots are among the largest, like Bank of America’s erica as well as Capital One and Chase, who have also reported bot pilots.

Some banks are running pilots with RPA and Natural Language Generation, but most are still just considering different technologies or haven’t made any plans.

Few are investing in AI
Just 9 percent of banks, presumably the same ones that are running pilots and seeing positive results, plan to invest more than 50 percent in AI in the next year than they did in the last one. Another 23 percent of banks indicated they planned to invest more than 25 percent more. Thirty-two percent indicated their investment levels would remain the same, but another 32 percent indicated they’re not investing at all.

“A lot felt it was expensive, a lot of people have a general lack of understanding,” said Stephen Greer, an analyst at Celent and co-author of the AI report. “There’s such a perception and understanding that it will have an impact, but there’s a limited number of institutions doing a lot with it.”

Five percent of banks said they planned to invest less than 25 percent in AI in the coming year than they did in the last.

Expense and security
Fifty-eight percent of banks indicated that AI might be too expensive to implement and deploy. The same percentage listed security as a concern — although 13 percent indicated they weren’t concerned about security at all.

Most striking for Greer was the high percentage (31 percent) of respondents who said ethical considerations weren’t at all a concern. Eliminating bias, abusing AI and displacing people’s jobs all fall under the ethics category — and they’re some of the largest sources of uncertainty for most consumers who don’t work with the technology hands on.

Where does it go?
According to PwC, most firms in banking, capital markets and wealth management say they’ll rely more on human judgment than machine algorithms to inform their biggest decisions.

Further, according to Celent, banks aren’t very optimistic about AI’s applications for their customers. They seem most excited about using it for fraud detection — particularly as fraudulent activity gets more sophisticated.

“I don’t get the sense most of the industry was acutely aware of how [AI] will happen or why it will evolve,” Greer said.

For some AI technologies, it takes time to digest the customer data they need and to have humans teach them how to react appropriately. Over time, the hope is that AI can reduce banks’ cost of serving customers and improve customer interactions. It’s hard to see that in these early stages, when AI is still in the learning stage. However, banks showed they don’t expect AI to handle more than 30 percent of their front or back end operations.


Inside the development of Erica, Bank of America’s AI-powered bot

Brands talk a lot about artificial intelligence and its potential to change the way they interact with customers, but few really understand what exactly that potential is or what it takes to make it real.

However, when Bank of America got a sense of the vision for its AI-enabled “digital assistant,” called erica, it didn’t take the bank long to gather the resources necessary to make her real.

“We realized that to do what we wanted, there would have to be a huge investment of time, energy and resources to make it happen,” said Henry Agusti, digital banking executive. the bank’s digital banking executive. “We committed to doing that very early on — about 9 or 10 months ago.”

The bot is now in the beta testing phase.

Since last fall, Bank of America has pooled together a team of more than 100 people dedicated to building erica, a voice- and chat-driven product designed to help customers manage their financial lives using predictive analytics and cognitive messaging. The “vast majority” of the team are people who were working at B of A before it started the idea of erica, Agusti said, since a lot of the functions designed into the digital assistant will be deeply integrated with a lot of the bank’s existing back-end systems.

Erica is really like a personal banker. Only she takes the relationship to a whole new level of personal; she’ll have all of the customer’s data along with thousands of other machine learning inputs that will give her even more information about the customer. In the near term, customers will be able to ask questions, execute transactions and look at balances.

As erica learns from those transactions, she’ll be able to offer more to customers, like insights and advice; and from there, she can start to give advice more proactively instead of merely reciting the information she has.

“In the next 18 to 24 months, the path is about how much functionality we can give erica,” Agusti said. “We really want to make sure she’s able to help clients and customers execute on a lot of functionalities from day to day. That requires a deep level of [technology] integration.”

It’s a far cry from the rest of the industry: While 85 percent of financial institutions surveyed by Celent agree that AI will have a significant impact on banking in the next three to five years, 32 percent indicated they’re making any direct investment into AI technology. Half of the banks surveyed indicated that the expense of integrating AI is a major concern.

Bank of America declined to give details of its financial investment in AI or in erica.

“It looks like an aggressive timeline, but it we still need to see the finished product. Advanced AI or natural language processing skills take time to learn and mature before they are ready to go live,” said Celent analyst Stephen Greer. “Banks using even the most advanced AI like Watson need time to train it.”

Erica will be available to the bank’s associates in a few months, and in November she’ll offer the ability to provide real-time insights and advice, like flagging a dip in a customer’s FICO score or suggesting payment plans based on changes in subscriptions.

“We teach erica how to deal with one customer request but we’re finding customers are asking for other things we never even imagined,” Agusti said.

The work is as much on the front end as the back end, Agusti said. It’s a common criticism of chatbots and other forms of personal financial management services that they don’t do much more than give customers different entry points to their transactional histories — does anyone really need five ways to check their checking account balances? The same can be said of fintech more broadly — that most new offerings are front-end solutions, but it’s the back-end of banking that needs an upgrade.

Banks surveyed by Celent, however, indicated they aren’t expecting more than 30 percent of their front or back office operations to be handled by AI.

“Erica won’t necessarily create a conversation from scratch. We have to help her understand: when customers say this, here’s what she needs to do. Theres a certain amount of back end work we can do to identify what conversation customers want to have with her and if she’s not prepared to deliver, we need to make sure the right conversation would be in those situations.”

Inside Bank of America’s mobile-financing strategy for small businesses

No matter how easy or even pleasant technology makes everyday tasks, people will always want at least the option to call on human help. That’s the Bank of America perspective.

“They’re complementary, one doesn’t exclude the other,” said Sharon Miller, head of small business banking. “I go online and I’ll research and look at the information, but when it comes to getting the advice, looking for a loan, getting someone to tell me what I need to think about — I want to talk to someone… That’s what the basis of our company is built on. Our people make the difference.”

That’s coming from perhaps one of the most progressive of the major U.S. banks when it comes to digital strategy. It’s been one of the most aggressive in reducing its branch presence, it was among the first to upgrade its ATM fleet with new technology to giving customers greater choice of transaction type (like check cashing, making credit card payments, choosing their preferred denominations when withdrawing cash) and last year it was the first to deploy cardless ATM capability. On mobile it was ahead of the digital game with Touch ID, debit card toggling and fraud alerts to the app.

In another move on Wednesday, it upgraded the app to allow small business customers to apply for a loan or credit line directly from the app, making it a front runner in a market where most banks have yet to perfect their most basic mobile banking strategies for consumers, let alone those for corporate or small business customers, or even make in-branch or online banking functions just as easy to execute on mobile. As part of the app upgrade it’s also giving small business customers a loan product tool that helps them find the right loan for their needs, monthly loan payment calculator and the ability to connect with the bank’s small business specialists through online chat, phone or by scheduling an in-person appointment with a small business banker through their phone.

It’s really just another step toward the bank’s overall vision of making every banking experience the same across channels, according to Miller, by combining technology and customer service.

With 23 million active mobile users, B of A reported a 38 percent increase in sales over mobile over the last year. More than 1.3 million of them are small business clients and the bank says the number of small business customers using the mobile banking app has increased 14 percent in the last year.

“Our technology is there to help us keep up with everything happening in the world and the things consumers are demanding, but no matter how you slice it, there’s a reason we have 4,600 financial centers across the country and 2,000 people dedicated to small business across the country,” Miller said. “Thats the differentiator of us versus fintech or a community bank: we have size and scale to make it relevant, but we also operate in 87 different local markets with people that make local decisions and operate in those local counties.”

Listening to what takes place in those conversations, as well as feedback from online channels and customer surveys, has been “the key” to B of A’s digital success, Miller said when asked about how the bank came to identify the new feature as a need among its small business customers.

“We aren’t based on one product or one service, we start with the client and the difference between us and a fintech is our ability to have that local conversation,” she said. “We want to have the conversation that cant be replaced by just a product.”

She mentioned the forthcoming launch of its digital assistant erica later this year, which will provide a voice simulation to help clients with their banking. Still, not even erica can replace the value of a human banker for B of A. Banking is, after all, about people — and people are all different in their needs, preferences and capabilities.

Sometimes consumers need things individually that a small business owner doesn’t, and vice versa, Miller said, but all small business owners are also consumers, and she wants to make their banking experience seamless no matter what hat they’re wearing.

“Small business clients have different priorities. They could be starting a business, growing it, transitioning… All of those stages require different skill sets. They’re partnering with us to have that thoughtful discussion and get the right solution. Nothing just fits perfectly. Everyones different.”

What war on cash? ATMs are the distributed bank of the future

As a technology, the automated teller machine has been around the block. In the U.S., Chemical Bank debuted the ATM in 1969 in Rockville Center, New York. That first machine, also known as a Docuteller, disbursed cash when customers inserted a specially coded card. Almost 50 years later, as financial institutions work to transition customers to bank outside of expensive branches, the ATM is beginning to look a lot sexier.

In an effort to shift the service burden away from tellers, some of the largest U.S. banks like Chase and Bank America are undergoing significant upgrades to their ATM networks. New ATMs, some of which include cardless access and video chat, are able to provide around 90 percent of the services tellers can provide from within a bank. ATM activity continues to rise — Chase now sees more transactions from ATMs than tellers.

Banks are to growing their ATM networks outside their branches, too. According to a recent study conducted by RBR on the global ATM market, in 2015, there were more ATMs located away from bank branches than located within. 51 percent of automated teller machines in the global market are disconnected from the physical real estate of banks, giving banks a smaller but broader distributed presence within their target markets.

“It’s all about access and convenience in our click-and-mortar world,” Cardtronics’ CMO Tom Pierce told Kiosk Marketplace. “And that bodes well for retail ATM deployers, because we are the convenient access to cash that consumers demand as part of their omnichannel lifestyle.”

Replacing tellers and branches with ATMs can lower costs and if placed in high-traffic areas, see enough surcharge and interchange fees to be run at a profit. In rural areas that are hard for retail banks to service, ATMs serve an important role in financial inclusion for customers who would otherwise go unbanked.

Distributed ATM networks give banks added visibility within their communities, even as some banks shutter local branches. It’s possible that for more communities, in just a few years, the modern teller machine will be the only physical banking presence around. Instead of making customers come to branches, ATMs bring the branches to the customer.

“As independent ATM deployers expand their fleets, more and more retail centers, transport hubs and other non-branch locations will host ATMs,” said RBR’s Rowan Berridge. “Coupled with increasing off-site deployment by banks, in the future it will be even easier for customers to find a convenient ATM away from branches.”



Accountingtech firm Expensify launches AI-powered personal assistant

Credit card issuers have access to a whole lot of big data about their customers. “I’ve talked to card issuers who’ve said we have so much data now, about what our customers buy, how much they pay, where we spend — we don’t even need credit bureau data about these customers anymore,” Gerri Detweiler, head of market innovation at Nav, told Tradestreaming.

And while it’s not surprising that credit card companies know all about their customers’ habits and preferences, what might not be quite as well-known is that accountingtech companies have an impressive dataset on their customers as well. “Through credit card import, we know exactly how much you like Thai food over sandwiches, or where you like to get Thai food, and how long it’s been since you had Thai food,” explained David Barrett, founder and CEO of Expensify. “We know not just where you work but who you work with and who you work for.”

The company, which has Uber and Yahoo among the 25,000 companies from around the world registered on its platform, enables users to upload pictures of business expense receipts to its platform instead of saving them up. These receipts are then automatically analyzed, associated within the right account in the business’ ledger system, checked for fraud and accuracy metrics, and only if there is something amiss are they sent for human review. More exciting for users, perhaps, is the fact that the money arrives in their account the very next day.

So while Expensify might not know as much as a credit card company does about its users, the accountingtech company’s vast database of virtual receipts does give it an ample amount of insight into their users’ lives. It was this rich data set that enabled it to launch Concierge, the platform’s built-in AI virtual assistant, in September 2016. Concierge is Expensify’s move from being a more passive receptacle of information to a proactive force in their users’ lifestyle choices — and payments.

“Our approach to AI is really about leveraging this tremendous insight that we have about the customerand then reaching out to the customer with the best possible anticipation of what their needs are,” said Barrett.

Other accountingtechs have had the same idea. Toronto-based Wave, for example, leverages the data it has on SMB customers to connect them with cash before they reach a cashflow crunch. “Wave holds all of your financial information,” said Rob Maurin, vice president of communications at Wave, told Tradestreaming. “It knows your bank balances, we know who you have invoiced, how much, when they’re due, we know how long we take to pay, [we have] all of these insights on finance and cashflow.”

Unlike Wave, Expensify hopes to grow its AI into a fully-fledged personal assistant, with the predictive capabilities to make customers’ choices simple and fast. The plan is for Concierge to be able to book flights, order Ubers, make restaurant reservations — all based on business expense receipts uploaded to the platform, or even the user’s digital calendar. At present, the virtual assistant is able to do users’ expense reports, take care of their receipts, and export things to their accounting package.

Accountingtech obviously isn’t the only branch of finance looking into predictive personal assistants. Like credit card companies and accountants, banks also have access to an extensive amount of their customers’ spending data, and they’re starting to leverage it. Bank of America, for example, recently launched chatbot Erica, who is supposed to help customers cultivate better money habits through AI, predictive analytics, and cognitive messages.

Concierge raises some interesting questions for Expensify, including the privacy of customer data, and whether service firms will pay-to-play for customers’ travel needs. As far as privacy is concerned, Barrett believes that Expensify is well within acceptable boundaries. “It’s fundamentally the customer’s data, we’re just leveraging the customer’s data to give them the best options.” Nor does he think that Expensify’s revenue model, which currently consists of companies paying nine dollars per user per month, will grow to include payments from restaurants or hotels that want to be first on Concierge’s list of recommendations

“Our business model is more like Amazon Prime than it is like iTunes,” said Barrett. “iTunes tries to nickel and dime you — we just want those nine dollars a month, and we’re just going to offer you more and more value to convince you to pay us that nine bucks a month.”

Bank of America keeps it simple addressing customer needs

Strip away all the fintech and marketing jargon, and banking is still a pretty simple business. If you ask Bank of America’s Thong Nguyen, he’d probably agree with that.

The president of retail banking and co-head of the bank’s consumer division believes that customers have three basic needs. First, they require things to be simple. There’s no need to overly complicate things. Next, they want their bank to be there when they need it. That means in good times and bad. Lastly, customers want to understand what’s in the banking relationship for them. They want their financial institution to clearly and continuously define its value.

In spite of all the new technology and aggressive marketing surrounding banking, Nguyen thinks customer needs have remained pretty consistent, even if the expression of them has evolved. “These needs haven’t changed all that much, but what they mean has changed,” said Nguyen during a keynote address at the Money 20/20 conference in Las Vegas last week.

Those changing needs have prompted Bank of America to launch some new products and services. The bank recently introduced Erica, a chatbot that, sitting inside the firm’s core banking app, employs AI to help answer customer questions and proactively help them make better decisions. The firm’s Merrill Lynch division also announced it will be launching a roboadvisor.

Making payments digital

Encouraging customers to embrace digital payments is a focal point for Nguyen. Bank of America’s retail banking head said that for his firm, cash and checks make up only about 10 percent of transactions, yet they account for 40 percent of spend and 50 percent of costs.

There’s an opportunity there and that’s the rationale behind the bank’s recently-inked partnership with digital P2P payments provider, Zelle. “We need an interface to be simple and easy to use, it has to be safe, and it has to reward people for their relationship with the bank,” Nguyen said. He expects full rollout of the Zelle experience to happen in December.

Challenges ahead

As customer behavior changes, Nguyen does see some challenges ahead for financial institutions. First, the shift from ownership to the sharing economy will require financial institutions to change their models as well. “A bank would have to move from helping finance specific purchases to connecting people to the whole sharing ecosystem,” he said. Secondly, identity management is a growing concern. It’s becoming increasingly important to effectively manage the dozens of passwords we maintain. Customers trust banks to keep their money safe, so Nguyen believes there are opportunities for banks to offer identity management products as well.

The top five most popular fintech baby names

Money 20/20 2016 has been a great reminder of the innovation that incumbents are driving. From payments to payments to payments (and some other things), banks are partnering, acquiring, and even going it solo to reach faster, simpler, and safer user experiences. 

But one of the foremost payment and fintech events of the year has also served as a reminder of some of the great baby names that incumbents’ fintech innovation has offered up this year. Below is Tradestreaming’s top pick.

Girls’ Names

Erica: Bank of America is heading into the bank chatbot arena armed with Erica. The bank announced the launch of its virtual assistant, who will use a blend of AI, predictive analytics, and cognitive messaging to help customers manage their money, at Money 20/20 2016. For parents who want their daughters to be “smarter than a robot” and to “ha[ve] your back and [look] out for you” – to quote Michelle Moore, head of digital banking for Bank of America – Erica is a good choice.

Zelle: Big banks’ answer to Venmo was clearXchange. Launched in March 2016, clearXchange was supposed to change incumbents’ luck in the real-time P2P payment department. Maybe clearXchange wasn’t sexy enough a name? In any case, incumbents are looking to change their luck once more by rechristening clearXchange as Zelle. For parents that value speed, persistence, and couldn’t quite bring themselves to call their child ‘Elsa’, Zelle’s the way to go.

Boys’ Names

Marcus: In October 2016, Goldman Sachs launched Marcus, an online consumer lending platform for customers trying to pay down credit card debt. Named after one of the GS founders, the jury is still out as to whether this product is something to get excited about. Still, this is an offering from a powerful player, and online lending is on the rise.

Luvo: The Royal Bank of Scotland introduced AI chatbot Luvo in September 2016. Built using IBM’s cutting-edge Watson Conversation tool, the bot is meant to answer customer queries and connect them to the information they need. While Luvo may not be as advanced as Erica (yet), it does sound slightly more Italian.

ZEO: Launched by TCF Bank in May 2016, ZEO is a suite of financial services, which include cash checking, savings account, money transfer, bill payment, and money order. “ZEO ensures [that customers] can complete all of their transactions at a branch in a simple, quick way,” Geoff Thomas, managing director of customer segments and alternative channels for TCF, told Tradestreaming. Unlike other names on this list, ZEO has the added appeal of being all-caps. Also works as a girl’s name.

Some of the 2016 banktech names that did not make it onto the list:

Chase Pay, FastFlexSM, Thought Factory, IMT, clearXchange

Prison payments: An old system incarcerating financial choice

Earlier this month, J.P.Morgan was forced to pay over $400,000 to former prisoners for charging high fees on prison-issued debit cards. The suit and payout shined some light on the shady payments world that prisoners and their families are forced to deal with daily. As the financial industry experiences a renaissance of growing transparency and lower fees that comes with more competition, the captive market consisting of roughly 2.3 million U.S. prisoners has seen its rates get worse with technological advances.

The JPM case had to do with release debit cards, stored value cards issued to prisoners when they’re discharged, loaded with the cash they brought with them into jail. Digitizing prisoner money may stymie theft, but ends up being complicated and expensive when used in practice. Regarding JPM, ex-convicts were charged $10 for withdrawals at teller windows and $2 non-network ATM fees

This isn’t the only release debit card company facing a lawsuit. The Human Rights Defense Center, a 501(c)(3) that advocates human rights for U.S. prisoners, is currently litigating a class action lawsuit against Numi, another release debit card provider with high fees.

The leader of the case is Danica Brown, who was arrested protesting the shooting death of Michael Brown, and experienced Numi’s high fees in the brief time she was held. After being moved from a local police station to a justice center, Brown found herself stranded at 2:30 A.M. without her wallet, cellphone or keys — just 30 bucks on a prepaid debit card. Brown was eventually acquitted of all charges, but the Numi transaction history reports she paid 22% of her funds to fees.

Alex Friedmann, associate director of HRDC, says the issue with Numi is that inmates are forced to use debit cards, allowing service providers to charge whatever they want.

“It’s like going to the teller at the bank and asking for $100, but the teller says you need to pay $10 to get your hundred,” said Friedmann. “You would normally say ‘you’re out of your mind, I’m going to a different bank.’ But in this case, you can’t go to a different bank.”

Fees for prisoner financial and communication services aren’t exclusive to release debit cards. In the digital age, private companies have entered into prisons and profited by providing financial and communication services to prisoners. But the private companies aren’t the only ones who profit. Prisons take a commission on most services provided in jails. Commissions then need to be factored into pricing, leading to rates that are higher than normal.

The HRDC and mainstream media sources have done a good job revealing the exorbitant fees that plague prisoners and their families. It’s not uncommon for a prisoner to pay an interstate phone rate of $1.15 a minute with a 48 percent commission kickbacked to prisons.

JPay, the 800 pound gorilla of prison money transfers, exemplifies the consequences of for profit prisons. JPay facilitates money transfers into most state prisons to be used for things like commissary items. On transactions between $20 and $40, families of prisoners have to pay between 17 and 39 percent fees for online and phone transfers, netting prisons a $0.50 commission on each transfer.

According to Friedmann, prisoners’ families usually don’t have the financial ability to send larger transfers to take advantage of a sliding fee schedule and end up transferring $20 to $40 at a time.

“Prisoners’ families tend to be somewhat impoverished, and can’t send a bunch of money at a time,” he said. “They have to break fund transfers up into smaller amounts when available, and those smaller amounts incur a larger percentage fee.”

JPay does offer free transfer services through money orders from Western Union or MoneyGram. Although the firm claims funds are transferred quickly, the HRDC has evidence of the opposite. In 2014, the HRDC sent eight checks to various prisoners. It took between 8 and 18 days for cash to be received, significantly longer than the seven days JPay claims it takes to process money orders.

Although much attention has been given to the high fees that prisoners and their families deal with, fees aren’t the real issue, just symptoms of a systemic illness. Companies like JPay and Numi fit the bill of fintech upstart; they took a market that was large and archaic, utilized technological advances, and created a business out of nothing.

But really they’re just putting lipstick on a pig, disguising old school business practices as fintech upstarts with catchy marketing slogans and putting a bunch of lower case e’s in front of their products. For customers to see the real changes that has come with the digital age, markets need competition. The lack of competition stifles innovation and leads to what we have in prisons today: An old system masquerading as innovative fintech.

And JPay isn’t even the most egregious of violators. At least they had to win bids with state prisons for their business. On the federal level, Bank of America has an agreement with the U.S. Treasury to provide financial services to prison inmates. J.P.Morgan provides release debit cards to the federal system. The deal had no bid process and has been amended 22 times since it was signed in 2000.

Financial details are vague, as both JPM and BofA have declined to release their fee schedules. The only document available is a redacted contract between the Department of Treasury and BofA. Some reports put the minimum annual payout of $18 million for BofA.

$50 gets you $100 that the first deal put together between the U.S. Treasury and BofA took place at an upscale restaurant in Manhattan. The lack of a selection process other than ‘Hey, our granddads went to college together, so I might as well throw $18 million your way’ is everything that the new world of finance is trying to change.

While monopoly contracts and high fees may upset people, capitalism is still our system of choice. The founding beliefs of ‘Murica still pulse through our veins: baseball, apple pie, and the idea that if you can figure out a niche to create a new service, you can charge whatever the hell you want. Free markets, laissez faire, and the invisible hand of the marketplace will always be preferred to increased regulation.

But regulation is there for situations like prisons, to protect customers who can’t protect themselves from price gouging and high fees associated with captive markets, where monopolies need to be broken and allow fintech innovators to come in and do what they do best: give new options to under-optioned markets.

Phone companies are the farthest ahead in terms of reform. The Federal Communications Commission put into effect caps on phone rates in prisons last year, and after a year long legal battle that included counter suits and stays, finalized new rate caps were issued earlier this month.

Regulating and reforming the prison payment system is a complex equation with multiple variables. Taking commissions straight out of prisons might be an answer, but the ramifications of the financial loss to the system are difficult to predict. Without these streams of revenues, prisons could end up increasing margins on other items, like commissary, to make up for the loss of commission fees.

According to Friedmann, regulation is the only option out of the monopoly contracts that exist in prisons. The issue that organizations like the HRDC run into is that governmental bodies are the same people benefiting from monopoly contracts, making the battle even tougher. Lobbying for improved financial conditions for prisoners is also a tough sell, because the issue just isn’t on the radar screen of most decision makers.

“Most federal officials that enter into monopoly contracts, or lawmakers that restrict what goes on in prisons don’t care much about the life and well being of prisoners. That’s the reality of the situation,” concluded Friedmann.

5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletter .[/alert]

  1. More banks sign up for SWIFT nascent payment tech initiative (PYMNTS)
  2. DTCC wants to coordinate industry activity on distributed ledger tech (Finextra)
  3. Why bank fintech accelerators are destined to die (American Banker)
  4. Is VC the right money for fintech? (TechCrunch)
  5. What Bank of America’s race to cardless ATMs says about the future of banking (Tradestreaming)

What Bank of America’s race to cardless ATMs says about the future of banking

bank branch closures

It started on Monday when JPMorgan Chase announced it would be introducing card-free ATMs this year. The first generation of these new ATMs, according to a bank spokesperson, will give customers the ability to access the machine via an access code found on their Chase mobile app.

Not to be outdone, Bank of America countered today that they, too, would be rolling out a series of new ATMs that enable clients of the bank to use their phones to withdraw cash or complete other tasks using their cellphones instead of their bank cards.

The bank, according to CNBC, acknowledged the initiative to introduce cardless ATMs in the US with an initial pilot program in Northern California and a few other big cities with a broader launch expected for later in 2016.

War on cash? ATM growth and usage

Total Global Volume of Cash Withdrawals (billions), 2010-2020
Source: Global ATM Market and Forecasts to 2020

For the most part, this is part of larger upgrade cycle underway at most banks around the world. With the exception of China, which according to the Global ATM Market and Forecasts to 2020, grew its domestic ATM footprint by 18% in 2016, most mature economies are seeing flat growth to contraction in their number of ATMs.

But the growth of ATM machines is just part of the picture — while the number of machines may be stabilizing, they’re being used more frequently. ATM usage is seeing a pickup as global ATM cash withdrawal volumes grew by 7% in 2014 with a total of 92 billion withdrawals made. By most measures, with all the talk of bitcoin, blockchain, and other cryptocurrencies, demand for cash is ostensibly strong and in fact, growing.

That’s a far cry from the commentary coming out of Davos as world and business leaders converged on the city situated in the Swiss Alps to talk about the future. Deutsche Bank CEO, John Cryan forecasted the demise of cash by the end of this decade. “Cash I think in ten years time probably won’t (exist). There is no need for it, it is terribly inefficient and expensive,” he said in a group dedicated to discussing fintech.

Banks of the (near) future

The introduction of new ATM technologies at Bank of America and Chase appears to come at the expense of physical branches. Bank of America is on an ATM upgrade cycle as it pares back its own brick-and-mortar locations. Bank of America grew its ATM network by 1% in 2015 to 16038 while its retail locations were scaled back 2.65% to under 4800 in the same time period. Smarter ATMs with more consumer-focused technology enable banks to deliver high quality service with fewer in-person tellers. Indeed, Chase now does more transactions each month via ATMs than with tellers.

Growth in the ATM business is happening amidst the background of an industry merger of two of the largest players in the ATM industry. Diebold’s revenues are expected to just about double after it closes the transaction to acquire its German competitor, Wincor Nixdorf. The deal is valued at $2 billion and is the largest in Diebold’s 156-year history. But the acquisition is more than just about creating a global war chest, according to Diebold’s CEO, Andy Mattes. He explained to Fortune that the new ATMs his company is developing are no longer “cash and dash” machines. Instead, they’re able to “connect the physical worlds of cash with the digital worlds of cash”. ATMs, like the kinds that Chase and Bank America are rolling out, are able to conduct 90% of the jobs traditionally done by tellers.

That resonates well with banks’ younger clientele who are digital natives and comfortable using their smartphones for most financial transactions. And surprisingly, of all demographic groups in the US, millennials actually have the highest usage of cash. So, while the future may or may not be cashless, the present is definitely cardless.


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