A look at the history of retail banking technology—and where it’s going.
By Elizabeth Judd ■ Illustrations by Miles Donovan
Almost all advances in retail banking within the past century or two owe their existence to a leap forward in technology. Think about the ATM, which amazed the world when it appeared in a London suburb in the 1960s. Or mobile point-of-sale devices, which allow micro-vendors to turn hobbies into going concerns. ■ “Technology is everything,” says George Bassous, CEO and CTO for Affirmative Technologies, a payments technology provider based in Palm Harbor, Fla. He identifies real-time payments as the latest technological innovation poised to shake up retail banking—and the whole commercial sector. And yet a paradigm shift of this magnitude relies on a chain of smaller advances, ranging from improved core processing to tokenization and ever-more-reliable network security. ■ Staying abreast of the latest technologies is a “huge challenge,” because, “for most bankers, technology isn’t their primary job,” says Mike Brent, vice president, marketing at FiNet, a payment processing solutions provider in Boardman, Ohio. ■ The timeline on the next few pages captures some of the upheavals bankers have already encountered—and hints at even more seismic changes to come. “Within the last five years, we’ve seen an influx of new technology such as we’ve never seen before,” says Brent. “And the advances are going to continue to come quickly.”
1836 ▼ Pneumatic capsule transportation
With the invention of a pneumatic capsule system for transporting objects through tubes in 1836, Scottish engineer and inventor William Murdoch spawned a new technology in search of an application. Pneumatic capsules were first used for transmitting telegrams, but when the automobile age dawned, American banks embraced the invention so customers could withdraw money and make deposits without leaving their cars. Arguably, drive-up teller windows were the beginning of a shift in branch design that accelerated after the arrival of cash automation technologies, says Anthony Burnett, customer experience director for Level5, a custom design-build and construction company for banks and credit unions. Gone are the days when all of the customer-facing people in a bank branch “interact with the customer across three feet of mahogany,” he says.
1950 ▼ The credit card
In 1950, Diners Club introduced the first universal credit card, a portable payment solution that could be used at numerous member establishments. FiNet’s Brent points out that it was not until payments became integrated for merchants at the back end, allowing the tracking of everything from inventory to total sales, that popular venues like McDonalds and Starbucks began accepting plastic for small purchases. In 2005, Richard Jaros and Monique Steadman of Capital One Financial Corp. filed a patent for instant issuance technology; today, banks with this technology can print cards for customers immediately.
1967 ▲ The ATM
UK megabank Barclays installed the first ATM in a London suburb on June 27, 1967. Two years later, Chemical Bank unveiled the first ATM in the US at a branch in Rockville Centre, N.Y. “On Sept. 2,” proclaimed a Chemical Bank ad, “our bank will open at 9:00 and never close again.” Stuart Cook, CTO of Buzz Points, an Austin, Texas-based incentivized engagement and revenue platform for community financial institutions, calls the ATM the start of “the quiet revolution of customer experience.” According to Cook, “the humble ATM…was really the synthesis of several emerging innovations,” including computer displays, magnetic stripe cards, algorithms that link an encrypted PIN with a customer’s accounts and networks that interlink a bank account to ATMs across the world. “These network standards were the foundations of the rails that enable the payments ecosystem we know today,” he says. Over time, ATMs have continued to advance. Think of ITMs (interactive teller machines), which launched in 2013 and made it possible for customers to talk with a remote teller via video monitor.
1973 ▼ FTP (file transfer protocol)
Introduced by computer scientist J.C.R. Licklider in 1973, the US Defense Department’s Advanced Research Projects Agency Network (ARPANET) is often credited with providing a vision of how computers could be networked together. Bassous notes that in the early days of the ACH network, “Customers would drive over with a floppy disk or a tape with the ACH information.” The internet, of course, has rendered that an archaic approach. Bassous says the rise of cloud computing and APIs (application programming interfaces), both results of ARPANET’s work, means real-time payment (RTP) processing is now within community bankers’ grasp.
1976 ▼ Jack Henry’s “green screen” core processor
Founded in 1976, Jack Henry is retiring its iconic green screen terminals on Dec. 31, 2019, to be replaced by a modern user interface called SilverLake Xperience. “Banking is moving into the 21st century with graphical user interfaces,” says Stacey Zengel, president of Jack Henry Banking. Training new employees is easier on the newer, more intuitive interfaces, which “help the banks gain efficiencies,” he says. Zengel explains that because new bank branches are typically smaller and staffed by fewer people, “they need a single sign-on or no sign-on interface that employees can quickly get into and serve the customer’s complex needs.”
1980 ▲ Electronic cash counters
Such counters were first introduced in Great Britain in 1980 and made bank tellers’ jobs easier. Today, some banks maintain self-serve coin counters in their lobbies so customers can see just how much money that shoebox on their dresser contains. In 1997, cash recyclers appeared on the scene. Level5’s Burnett is convinced that the new approach to branch design was spurred by these secure vaults or safes that accept cash, authenticate its value, and store and dispense it. Once large vaults became unnecessary, banks no longer needed massive physical footprints. “Cash recycling technology made it possible for banks to not have to deliver service to customers across a teller line,” says Burnett. He notes that bankers are using the freedom afforded by cash automation to spend less time counting money and more time building relationships with customers.
1989 ▲ Tablet computers
Released by GRiD Systems in 1989 and manufactured by Samsung, GRiDPad was considered the first commercially successful tablet computer. Zengel points out that tablets have transformed retail banking by allowing bank employees to move within and even beyond the branch. “Instead of waiting in a line for the teller to become available, the teller might come to the door, greet a customer, sit on the couch with them and serve their needs from a mobile tablet as opposed to a tethered device,” he says. In the good old days, bankers took notes from customers on cocktail napkins, but now they can take the bank to customers, whether that’s on a sofa in a branch or at the customer’s business.
1998 ▼ PayPal
Established as Confinity in 1998, PayPal earned praise as a user-friendly money transfer service. On the heels of PayPal came other person-to-person (p2p) payment innovations like Venmo, Popmoney and Zelle. Greg Bloh, CEO of TransCard in Chattanooga, Tenn., describes the arrival of PayPal as a watershed event. He contends that PayPal and then Venmo succeeded because they “took advantage of an account system that wasn’t working for the consumer.” He has found that products soar “when they really focus on the user experience and facilitate that experience in an easier fashion from end to end.” The advent of RTP will bring further improvements in the speed and ease of p2p transfers.
2004 ▼ Digital check clearing
With the Check Clearing for the 21st Century (Check 21) Act of 2004, a check recipient could make a digital copy of a check and then process that check electronically. Jack Henry’s Zengel points out that check imaging “eliminated a lot of paper and put a lot of couriers out of business. He says digital checks were the beginning of a chain of innovations that made payments timelier. “We’re becoming more of a real-time society,” he says. “We’ve been expanding our retail capabilities so there are more payment options, and they’re faster and easier. And we’ll continue to press that, because that’s what’s expected in the world today.”
2007 ▲ The iPhone
Steve Jobs unveiled the iPhone at the Macworld convention on Jan. 9, 2007, and the first iPhone was released to the public five-and-a-half months later. Apple Inc. would eventually move into mobile payments: On Sept. 9, 2014, Apple Pay was launched, allowing payments to be accepted at the point of sale from stored and encrypted payment card information on mobile devices.
2009 ▲ Bitcoin
The convergence of digital currency bitcoin, the explosion of social media and the global financial crisis of 2007-2009 spurred people to question norms, according to Travis D. Dulaney, CEO of Push Payments in Fort Lauderdale, Fla. “[These events] made people think outside the box,” he says. “They realized the status quo isn’t going to work anymore.”
2010 ▼ Mobile point-of-sale devices
Brent says that in 2010, when his company began offering its first mobile point-of-sale devices, FiNet finally had “a bright and shiny example of what’s out there in terms of integrated payments.” These devices, which can be plugged into mobile phones or iPads, allowed very small companies, from fruit growers at farmers’ markets to craftspeople at trade shows, to begin accepting noncash payments. What’s more, mobile point-of-sale devices were integrated with cloud-based systems and could help merchants in innumerable ways—from tracking inventory to gathering business intelligence. “That’s where our industry has really changed,” says Brent. “Payments are not necessarily a stand-alone piece anymore. They’re a component of a much bigger piece of the entire operations for retail and business-to-business.”
2011 ▼ Facial recognition technology
The Panamanian government first installed face recognition systems in 2011 to reduce illicit activity in Tocumen International Airport. Stephen Joseph, business development manager, banking and finance, for market leader in network video Axis Communications, Inc., notes that video analytics are becoming a focus for banks seeking to enhance security. Video analytics are in use at retail branches to measure foot traffic and to recognize license plates at drive-through teller stations, he says. He also notes that some financial institutions are using 360-degree-view cameras and facial detection solutions “for advance detection of potential threats.”
2015 ▲ The 2015 EMV chip shift
FiNet’s Brent says EMV chips make cards far more secure because the information transmitted is encrypted and tokenized. Additional security is critical as payments become more integrated, he notes.
Web-based compliance dashboards
Early this fall, Affirmative Technologies went live with its first banking customer for ACH Insight, a dashboard that lets bankers use graphs and other features to manage and monitor risk, perform compliance reporting and identify anomalies and suspicious patterns. “Now there are beautiful dashboards with compliance reporting, all in one place, that a banker can use for risk management and compliance,” says Bassous. He calls these dashboards “a game-changer” because they promote transparency; bankers can even give regulators or auditors access to these systems so they can pull the information for themselves. In this arena, affordability is key. As banking dashboards now cost hundreds of dollars rather than hundreds of thousands, they are becoming affordable for banks of all sizes.
User-friendly onboarding apps
The dilemma for many community banks keen to expand is the tremendous expense of building physical branches, says Dave Mitchell, president of NYMBUS, a core banking modernization company based in Miami Beach, Fla. “What you need,” he says, is “a slick, sexy sizzle with an onboarding app.” Mitchell points out that community banks enjoy “the local affinity and trust” to sign on new clients over the internet, but what they historically lacked was an app that could onboard quickly (in three minutes, not 30) and a core powerful enough to handle multiple banking products from a single dashboard. “Onboarding is sophisticated now,” Mitchell notes. “Because of KYC [Know Your Customer], you have to run an algorithm to know who that new customer is. You should have an onboarding product that’s the exact same experience as if you walked into a bank.”
Real-time movement of money
Recommendations this year by the Fed’s Faster Payments Task Force provided a launchpad for real-time payments in the US (see page 78), something residents of other countries have been enjoying for a while now. American financial technology companies are eager to get started. “My mission is to help digitize the banking world and the payments world to move toward the instantaneous movement of funds. What will that do? It eliminates the monetary risk in the process right now,” says Push Payment’s Dulaney. One Push Payment service, he notes, “allows merchants to be paid immediately after they batch out on a credit card receipt at the end of the day. What we’re doing is digitizing ACH, but the next wave will be about the real-time movement of both money and data.”
Elizabeth Judd is a writer in Maryland.