Banks Used To Be Pioneers And Leaders – What Happened?

Karen McDermott

Back in January 1977, New York City got hit with a major blizzard. Seventeen inches of snow fell, closing banks for days. Banks had launched automatic teller machines (ATMs) sporadically since the 1960s and they hadn’t been a huge success. Customer feedback was clear: they didn’t like the “soullessness” of machines. They wanted to interact with a human. Money is personal, after all. But when there’s 17 inches of snow on the ground, the banks are closed for days, and you need to buy stuff, that all changes.

Citi was one of the first financial institutions to heavily invest in ATM technology, to the tune of $160 million. During the storm, use of Citi’s ATM machines increased 20%. The bank promoted the value of 24/7 convenience with “The Citi Never Sleeps” advertising with people trudging through the snow to get to their ATM machines in New York – and it never looked back.

By 1981, Citi’s market share of New York deposits had doubled. The $160 million investment in technology (which the bank initially balked at) paid off and changed the way people interacted with their banks forever. Almost every bank in the country followed and bank automation was launched.

ATM technology was basically forced on the customer until they realized its value through necessity. Face-to-face became face-to-interface. Today, customers have adopted technology as a way of life and it’s no longer necessary for banks to sell them on the convenience, speed, and ease of transacting.

Then comes the Internet…

After the introduction of ATMs, not much happened until around 2000, when institutions like Chase Bank launched online banking. That was almost 20 years ago. Back then, I headed up Internet advertising (now called digital marketing) in the online marketing group at Chase. Banks heavily invested in technology and focused on being first in line to offer customers the ability to transact and manage their finances digitally.

Our team at Chase was very tech savvy and focused. We were Trekkie tech geeks armed with Palm Pilots and Blackberrys (it was cool at the time). Once again, customers were not asking for online banking and had to be encouraged to adopt it. Adoption was relatively slow for the first decade.

Then 2008 and the financial crisis happened. To say this was a big deal is an understatement. Yes, banks took their eye off the ball, and their technology investment dollars off the table. When Wall Street giants like the Bear Stearns and Lehman Brothers go under, and the world appears to be imploding, priorities change – survival becomes the only focus.

The changing tide: digital innovation and enablement

Eight years later, the banks are passing their fitness tests with flying colors. Capitalized and motivated to continue the momentum, they are seriously focused on not only catching up to fintechs but surpassing them. Smart investments in technology are underway, enabling banks to take their lead back. Unlike in the past, when the banks drove the technology to the customer (like with ATMs and online banking), mobile banking demand has been driven by the customer, and the banks have needed to react.

The 2016 Digital Banking Summit, which is hosted by American Banker, revealed much of the strategy being deployed by the banks to catch up and compete. Everything from collaborating with fintech startups (and even other banks, which was formerly unheard of) to fintech acquisitions and the building of innovation labs was discussed.

Shortly after the conference, American Banker published an article, How Banks Could Regain Ground from Fintechs, which reflected on how fintechs are influencing traditional banks. In the article, author Penny Crosman says, “Bank of America also has a $3 billion annual innovation budget, some of which goes to fintech startups, and it mentors them through several programs, including its own innovation lab and one in which it partners with Accenture and 15 other large banks.”

Don’t count the traditional financial institutions out yet. If history is any indication of how they will react to the digital revolution, my money is on the banks (pun intended).

For more insight on how digital technology is affecting the financial industry, see Why Fintech Will Not Kill Banking.


Karen McDermott

About Karen McDermott

Karen McDermott is Global Head of Financial Services Industries Marketing and Communications at SAP, responsible for driving the growth of SAP's value proposition as a technology provider, trusted business partner, and thought leader for the financial services industry.