MIT, BofA doing some banking research

MIT Media Lab and Bank of America announced today that they would embark on a five-year mission to seek out new ways to engage financial services customers and uncover the future of banking. The bank will commit $3-5 million annually to the new Center for Future Banking.

I applaud this effort. First, any institution that is committing funds to the future when there is so much uncertainty about the present is doing what a leader should be doing. Secondly, patronizing a university that has worked so hard to make its courseware available to anyone who wants to learn isn't just doing something good for their own company, they're helping all of us.

Here are some of the questions they will be posing:

“How can every customer be empowered with the knowledge and tools to take better control of their financial futures?”

“How will banking interactions evolve as a customer’s physical and virtual worlds become completely intertwined?”

“How will social networks and mobile platforms transform customers’ banking experiences, making it easier, more convenient, and better integrated with their daily lives?”

Now, for those of you who don't have a few million to spend on illuminating the future, let me make a few predictions about what this new partnership will uncover:

-- back when money was minted into little slivers of precious metal, banking was about counting and keeping deposits safe. Today, it's about information. While banks have done a decent job of giving customers anywhere access to account information, they have done little or nothing to provide other financial information that is critical to the financial well-being of their customers. That will have to change.

-- the bank checking account isn't really a service. At least it's not a service most consumers are eager to purchase. It's not like you're offering them a speedy alternative to fishing cash out of their pockets. We're not using cash anymore. Consumers just need it so their employer has a place to dump their paychecks electronically and so they can get a debit card to buy groceries to feed the kids. Remember that when you're coming up with new account-related fees and hope that the nation's largest employers don't go back to the "company store" model and just offer employees debit cards instead of making HR do all those direct deposits into your mainframes.

-- the ATM is the new branch and the branch is no longer the place people want to do business. Take everything to the hand held device. And about those credit cards, get rid of them. You can use the phone for that, too. In the future, people will expect their bank to travel with them. Get on board.

-- social media websites will be important for institutions that hope to build relationships with customers who believe their banks only see them as account numbers. This will require institutions to provide much more information to their customers and advance experts that customers can believe in and trust, as opposed to brands that are becoming more difficult to define for customers.

-- the metrics banks use to measure customer interactions and overall success will change. Non-traditional competitors will force institutions to market real services to customers who no longer see banks as the only source for the financial services they require. Instead of share-of-wallet (how much of the customer's assets the bank can charge fees against), banks will determine what percentage of the customer's financial success can be attributed to its efforts (share of net worth?). Instead of lifetime value of the customer, it will be lifetime value to the customer.

-- consumers in the future will need a range of on demand services that allows them to make better decisions about their finances where ever they happen to be. If the bank of the future hopes to hold onto the information about the consumer's financial accounts (and that's really all we're talking about now, information about assets and some custodial services), then it will have to begin offering services that actually help its customers make better use of their assets. While the wizards at MIT's media lab will doubtless come up with much better ideas than these, some early iterations might include

• a service that displays the cost of a similar product at other nearby retailers based on a camera phone snapshot
• real time information on the value of a customer's certificate of deposit and 3 places those funds could be sent at the touch of a button for a higher return
• online dashboards that help customers configure incoming electronic payroll deposits to meet savings and investment goals
• an online community of experts that can answer tough financial questions anytime the consumer logs on

I'm looking forward to what they come up with.