What should online banking improve next?

07 October 2014

After I moved to New York City, I transitioned most of my banking to a new Ally Bank account, which is an online-only bank. The primary reason for doing this was because Ally has no fee for withdrawing from any ATM in the U.S.; a secondary reason was the set of slightly higher interest rates.

As I've continued to use Ally, I've come to really enjoy online-only banking (a competitor that was wholly designed as an online bank is Simple). There are a lot of ways in which it's brought the banking industry into the 21st century, and I'm looking forward to innovations that are sure to come in the near future. There are still some major ways in which online banking can improve, however. I've tried thinking about the situation as if I were a product manager for a generic, existing online bank (most of them have similar feature sets), and here are some major areas of improvement that I can see.

The signup flow

Traditionally to open a bank account, you walk into a brick-and-mortar branch and deal with a representative. You learn about the different types of accounts, fill out some forms, provide some documentation that you're a real person, and make some kind of initial deposit.

The online banking signup process is a bit trickier. The banks already do a decent job with the "educating" aspect - I'm sure a lot of attention has gone into the design of the various pages to communicate the different types of accounts and their varying features as clearly as possible.

Forms can generally be filled out online, and users are now probably used to giving all kinds of sensitive information to various websites. The real problems here are the document verification process and, to a lesser degree, the initial deposit.

Ally Bank deals with gathering physical documents from new users in a clever way. After the user chooses a type of account and fills out the forms, the account is nominally "created". However, an Ally rep will then contact the user within a week in order to gather the necessary documents; the account is considered fully active only after these documents are received by Ally (e.g. by fax, or by scanning).

This works, but is more convoluted than it needs to be. It also introduces an unexpected break in the signup flow, one where users can slip away and never receive their full-fledged accounts (I'd love to see conversion rates at various steps of this signup process!).

A sensible first solution to this problem is to allow users to upload documents as part of the signup flow. The online bank probably knows exactly which kinds of documents will satisfy its needs, so why not give users a chance to scan in and upload attachments to their application? This way, a chunk of users will be able to eliminate the awkward phone call from a rep.

A clunkier way to do it, but one which would probably be more welcoming for new users who are not as comfortable with the idea of an online-only bank, is to allow new users to open the account with reps. These reps could travel to different major towns (schedules posted online in an easily-searchable way, of course) and help interested users sign up for an account the same way they would at a physical branch. This is obviously a step back from the "online only" idea, but could help with the adoption of this new way of interacting with a bank - if a new user feels at all uncomfortable about sending her money off to some online-only entity, then dealing with someone face-to-face when opening the account is a good way to hand-hold the user into the experience.

The rare, but vital, edge cases

Online banking is perfect for someone who lives a fairly simple financial life. The vast majority of my activities consist of depositing paychecks via direct deposit, withdrawing cash at ATMs, and paying bills electronically.

However, there are definitely some edge banking activities which are difficult with online banking. A somewhat trivial example I've found is depositing cash, which is nearly impossible with an online-only bank; this is not a huge use case for a typical user, but might be a blocker for a small business.

But more common examples of these "edge" activities would include things like large money transfers, wire money transfers, and obtaining a mortgage or loan of some kind. These are all activities that occur relatively rarely for the typical user, but probably at least once in life (e.g. when purchasing a house, or paying college tuition). Ally Bank does not even currently offer loans outside of auto financing (which is actually where Ally got its start, as the financing arm for GM).

Transferring a large amount of money or sending a wire transfer with Ally Bank requires contacting a rep over the phone and/or faxing in a form (faxing!). I've never tried obtaining a loan from Ally, but I imagine there's a lot of paperwork that needs to be submitted, both to establish the kind of loan someone is eligible for and to enter into that loan contract.

I've also found that there's a category of activities that are surprisingly blocked in the mobile app experience. This includes, for example, depositing a check for a large amount of money - Ally Bank imposes a limit on the amount you can deposit per day via its mobile app.

There are surely a lot of legal and risk reasons for why online banks currently limit their features. When addressing these kinds of edge activities, online banks should try to make the experience as seamless and convenient as possible for users. For example, any instance of having to fax a document should probably be replaced by an online form. Any instance of requiring additional documents from users should be addressed with the ability to scan and upload said documents. There should not be any unexpected limits on activities depending on whether they are done on the phone, on a computer, or via a representative (e.g. when depositing a large check). And finally, for situations where human intervention is absolutely necessary, there should probably be either a fast-track customer service number that users can call, or the ability to have a customer service rep call the user back.

I believe that one indisputable principle about online banking is that it will not be able to catch up and replace traditional banking until it allows users to do everything they could've done at a traditional bank. If I know that my online bank can't help me in the event of an important but rare life event, such as buying a house, then I will not fully let go of my traditional bank account.

Closing the simplicity-of-use gap in all financial transactions

Part of the appeal of online banking is obviously the simplicity of use. So many functions in life are now being done on the internet via a computer or smartphone, so why not move banking activities out of brick-and-mortar banks as well?

After ameliorating some of the flaws and difficulties with online banking's current user experience, I believe the most exciting area to tackle would be to continue closing the simplicity-of-use gap in all kinds of financial transactions in life.

One area, already being tackled by lots of other startups, is in more convenient forms of payment. If a smartphone app can be my portal to my online bank account, then perhaps it can also function as my debit card. This is already, to some degree, a function addressed by Venmo, so the question might become whether a middle party like Venmo is even necessary. (Update: Apple Pay, announced after I wrote this, obviously also deals with this issue.)

If I can access my bank account via my smartphone to make payments, another logical thing I'd want to do is withdraw money using just my cellphone, thus eliminating the need to carry around an ATM card. Perhaps technology can be developed to allow ATMs to talk directly and securely with my phone. Note that an implicit assumption here is that the need for cash at all is not going to disappear anytime soon!

Imagine also if paying bills became easier, thanks to the power of online banking. Currently, I believe you can pay most bills online, and sometimes banks will be able to read the amount due from certain credit card or utility companies. Some of these bills can be auto-paid, which is a huge boon to convenience. To make bills even simpler to pay, online banks could strive to increase the coverage of its knowledge of when I have new bills pop up, and reduce the paying experience down to 1 button if I can't (or don't want to) pay automatically - a push notification on my phone featuring a "Pay $X Now" button.

Finally, online banking can rise from being a simple-to-use alternative to traditional banking to being an invaluable all-around personal finance tool. This will surely require more data on a user's personal finances, but imagine what would happen if an online bank had the same kind of data as Mint. My online bank account could suddenly become a portal to all my personal finances, and use the data to generate all kinds of smart recommendations that help me manage my finances. Simple already has hints of this goal as a feature with what it calls "automatic budgeting and saving". As personal finances get ever more complicated (especially throwing things like retirement savings into the mix), there is an increasingly valuable opportunity to help users understand their financial situation and make optimal decisions.

Online-only banking is only one of the ways that technology is advancing the traditionally old financial industry. Innovations in personal finance have potentially huge impacts on the economy (take, for example, the invention of credit cards), and I think we're only now scratching the surface of how to integrate our personal finances with the internet.

comments powered by Disqus