I keep hearing nasty rumors being spread about the imminent demise of our good friend, cash. If only I could find those responsible for spreading these rumors! Believe it or not, I actually think that cash will be hanging around for quite some time. While we all see benefits if it disappeared more quickly, far too much of our economy is based on cash for it to go away completely.
Moving everyone off of cash is going to take generations in my estimation. Just like checks. Let me give you a couple of real-life illustrations.
I just moved to a new neighborhood and tried to send money to the person in charge of collecting for our neighborhood annual holiday event.
I have both his email address and mobile number, and lots of ways to pay electronically. But, no, he just wanted me to give him cash – or something called a "check."
Now, I'm assured by my wife that we do in fact still have a checkbook in the house. But guess what? I reverted to cash. This neighbor is only 53 years old. I know I will convert him to the digital side given enough time and effort, but he isn't going willingly right now.
First, I am teaching him another thing that we take for granted – text messaging.
Another cash stalwart that needs to be solved for? The tooth fairy. Have you ever tried to pay for a tooth with a debit card? I know my 7-year-old daughter doesn't have a smartphone with a card reader.
So, now that we've established that I don't believe we're going to break our paper addiction anytime soon, allow me to share the announcement we just made this morning – an announcement that recognizes the continuing importance of cash, but is still very relevant to the theme today.
In partnership with FIS, City National Bank will soon pilot Cardless Cash Access at our ATMs in Los Angeles, New York City and San Francisco. This is set for January 2014.
With this capability, getting cash at an ATM entirely occurs through a mobile app – with the exception of dispensing the money, of course. A client will enter all the information either ahead of time or if he or she really likes to procrastinate, at the ATM. Then, a QR code is scanned to link the phone transaction to the ATM – and poof! Cash is dispensed.
Skimming at the ATM will no longer be an option, as there is no card and no PIN entry on the machine. With no credentials stored on the client's phone and nothing but a single button press on the ATM, the security and convenience of getting cash at an ATM is about to get the disruption treatment.
It also happens to close a major gap in the transition from plastic to digital wallets – one that has to be closed unless cash truly goes away.
And since this isn't going to happen soon, bridging that gap is an exciting step for us.
Part of the excitement comes from the fact that we will be the first California bank to offer Cardless Cash Access – and the first in three of our major markets: Los Angeles, New York City and here in the Greater Bay Area.
Being first with mobile technology may seem like a bold step for an institution known primarily for private banking and business banking. However, City National has compiled a strong record in deploying technology that meets the needs of clients and earns their loyalty.
This forward-thinking approach, moreover, will not surprise any of you in today's audience who heard our CEO, Russell Goldsmith, talk about mobile banking at BayPay Forum's event in Los Angeles last spring or on CNBC's "Mad Money with Jim Cramer," or during our quarterly earnings calls. For Russell, technology is a pre-eminent focus, and he keeps pushing us forward every day.
What I'd like to do for the next few minutes is use today's announcement as a point of departure for shedding light on how a bank like City National thinks about technology and makes decisions on how to deploy it.
Collaboration between bankers and payment technology professionals aimed at enhancing the quality of their clients' financial lives has increased in recent years. I suspect that insights into how bankers think about things may be of value to you.
Announcements like the one we made today always occur in a context. In this case, the context encompasses City National's business philosophy, our service orientation and our understanding of client expectations.
Let's start with some basic facts. With $27 billion in assets, City National is the largest bank headquartered in Los Angeles. We have 77 banking offices serving Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta.
City National is known as one of the nation's premier private and business banks. We were created to serve entrepreneurs, professionals, their businesses and their families. That remains our primary dedication today, nearly six decades after our founding. We provide our clients with a wide array of credit, banking and investment solutions.
Wealth management is a major focus for us. City National manages or administers $59 billion of client assets, and we've been recognized by Barron's magazine as one of the nation's top wealth managers for the past 13 years in a row.
In terms of industries, entertainment and real estate have historically attracted a great deal of attention from us. The technology sector has become an important vertical market for us, as well. We have dedicated Technology and Venture Capital bankers in L.A., New York, the Greater Bay Area and Boston – four of the top emerging technology markets in the world.
Let me return to City National's key client categories: successful entrepreneurs and professionals with a million or more in investible assets and their businesses – the "sweet spot," as we like to call it.
If we think in stereotypes, we might assume these high-net-worth individuals represent an older demographic. And if we assume an older demographic, we might also assume a high degree of resistance to the adoption of new technologies.
But stereotyped thinking often leads to mistakes.
In fact, in our own experience, age is not the only predictor of an affinity for technology and a willingness to adopt it.
Now, age can matter. The world is rightly impressed with the high-tech ways of Millennials. Yes, younger people own smartphones in greater numbers than older people and use them more intensively. But there is evidence that affluence at any age promotes an interest in personal technology generally and mobile banking in particular.
A Federal Reserve study conducted earlier this year showed that consumers in the 18-to-29 age group are substantially more likely to use mobile banking services than any other age group.
However, the same study also showed that people with annual incomes in excess of $100,000 use mobile banking more than any other income group. Perhaps the Millennials' approach to the digital life is somehow contagious.
The Pew Research Center, which has studied this generation closely, has a humorous feature on its site. They call it "How Millennial Are You? The Quiz." Answer 14 questions to determine how "Millennial" you are on a scale from zero to 100. You can also find out how you stack up against others your age.
Here is how I scored – problem is, I don't know if I should feel good about this or not. My age doesn't fit the category, but apparently I can play a Millennial convincingly. Probably a good thing given my career choice.
This result – and more importantly our own data – reinforce for me that generational affiliation is not the only marker for a high-tech mindset and way of life. Affluence is a powerful predictor in this regard. And it makes perfect sense:
- High-net-worth individuals –especially entrepreneurs and professionals – are busy, time-starved people and personal technology offers busy, time-starved people some very significant advantages.
We check messages and pay bills while waiting for a train or in line at the coffee shop. We deposit one of those mysterious checks in less than two minutes and without travelling anywhere.
This is certainly the view we at City National take of the entrepreneurs and professionals at the core of our clientele. The external research I've cited tallies well with what we know from our experience with our clients and our own internal research. At City National, we have a client base with a strong interest in personal technology. Yes, they are an affluent group and, yes, they expect a high-touch approach to customer service. But it needs to be enhanced by technology, as well.
As to self-service, many of our clients appreciate it most when it springs from a pocket-sized device that provides immediacy, efficiency and ease of use.
Our numbers prove that point. City National's mobile-banking adoption rate is among the highest in the industry.
Because we've long taken such considerations to heart, tech-minded prospective clients coming to City National will find much to like, including robust online banking. Our mobile banking program supports both Android and iOS and includes bill pay, remote deposit capture and, soon, cardless cash.
We offer clients the convenience of accessing accounts wherever they are and whenever they have the need to check recent activity, complete account transfers or pay a bill.
For our business clients with complex accounting packages, we have even made it possible to integrate directly with us via our real-time API set. This is called our EASI Link service, and it is an integrated real-time banking gateway between the client's accounting software and our banking systems. I call this real-time access without having to actually interact with our own UI the "invisible channel."
Why take clients out of the flow of doing their business when we don't need to? Why force a transaction to be recorded once in the accounting software and then rekeyed again in the banking software?
And if clients do visit our newest branches, they won't see counters. Instead, they will find a technology showcase that features interactive touch displays and user-friendly tablets. They won't see tellers – instead they'll see bankers multi-tasking with their Microsoft Surface devices for both sales and service.
What's next for banking technology and digital products and services? Where do we take it from here? Where and in what direction do we at City National see digital moving in the future?
What needs to be said first of all is that the stakes are very high. We are acutely aware of the crushing power that comes with the frantic pace of technological change and the revolution in consumer expectations to which it has given rise. Every industry in the world is under assault from new disruptive technologies and the furious energy that has revolutionized the music industry, battered newspapers and bookstores, and altered so many more businesses.
Not only is banking not immune, but it is beginning to look more and more like our hour of transformation is already here. When survival may hinge on evolving vs. resisting. We can't just jump at all the shiny things though. Here are a few things we must consider as we choose our adaptations.
- Is it strategic AND is it cost-effective?
- Does it drive client loyalty?
- Does it enhance our reputation with key constituencies?
- Does it, at the same time, promise a sufficient return on investment?
- Does it provide value to our clients or our communities?
- Will it position us to evolve more readily?
As today's announcement suggests, we at City National recognize the need to continue to help evolve the digital transaction space. The threat of disintermediation by standing still is real. While many of our capabilities harness the power of real-time data flow, such as our EASI Link service, in general transactions are still too slow. We have to change that – our clients will insist.
We need to acknowledge that other industries have deployed real-time technology with considerable success. The movement of goods, for instance – how they're shipped, tracked and delivered – has been greatly transformed, with the result that both customer service has been improved and business costs have been reduced. If the movement of goods can be transformed this way, why not the movement of money?
A more narrowly stated question asks, "What can banks do to bring more and more payment activity into the real-time orbit?" I see significant potential in the "credit push" payment model – in other words, payments that enter the system from the sender's bank. When money is moved by the party that has it, the processes of bounce-protection and authentication are easier.
As people in this room know very well, there are already quite a few products and systems out there that are credible candidates for the job. I'm not risking much by suggesting that systems that provide global access to deposit accounts – and do it without requiring archaic representations of money – are now pretty practical and will do much to facilitate real-time debits, credits and enhanced transaction information in a far more secure manner than exists today.
In fact, the allure of "real-time" is not about one kind of data or one transaction category. What about the power of Big Data to connect and relevantly integrate us into people's lives, wherever they are? For instance, can banks, with real-time information and correct geo-location, give clients smart choices at the point of sale?
Let's try on a hypothetical example. Suppose a client of ours buys some luggage at a local retailer. The client is presented with three choices for a purchase method.
- Choice No. 1: The client's instruction "Put it on my bill" is verified by the retailer's voice authentication system and the amount is added to the client's account.
- Choice No. 2: The client pays with his or her phone.
- Choice No. 3: The client pays with cash.
Note: There is no check-writing option – in my hypothetical world, checks have been banished.
Now, when the client uses our City National Bank-powered card, phone or watch, our anti-fraud systems give an immediate green light. That's because the phone could see the client's eyes when the client was tapping and matched it to an eye print on file. No passwords needed!
Next, we send the client a message on his or her device reinforcing that we have purchase protection and providing a value-added offer our data suggest the client would appreciate.
But wait, there's more courtesy of Big Data. Our analytics system sees that the client bought new luggage and infers that the client will be using the phone to make payments at travel destinations within a month. We might adjust our risk scoring accordingly and make additional relevant offers to the client such as bonus reward points for booking tickets and lodging with our card.
Does this last bit warm your heart or make you uneasy? I think just about everyone will acknowledge that, with Big Data, we need to strike a careful balance in this new world. The right opt-in, opt-out opportunities will have to be given thoughtful consideration. And it will be very important for banks to continue in their present role as protectors of client interests and information.
We house an astounding amount of data about our clients, and we cannot put that at risk. However, our clients will want us to curate and use that data to help them make the best financial decisions possible without compromising their privacy.
Banks are and will remain central to the transaction ecosystem. Even the evolution of virtual currencies like Bitcoin doesn't change this. In fact, they only prove the case.
Banks are being asked to secure USB sticks with an astounding amount of wealth in Bitcoins in our physical vaults. Anyone else see the irony of that? Taking a virtual currency and basically converting it to physical form and then physically storing it in a bank's vault. But what happens when those same clients start to demand that we provide real-time access to those physically secured, but virtual funds they have locked up in the bank's vault? Do you think they might appreciate the convenience of using those funds in the real world, but knowing that they are still secure and protected?
A final word, one that concerns partnership. We've been very fortunate in the partners that we've had on the Cardless Cash Access initiative that we've announced today. I want to thank them and compliment FIS, Diebold and Paydiant.
I also want to thank this room full of very smart and talented people. Your thought leadership is helping to power the next innovations, disruptions and building blocks of Tomorrow's Transactions. I know that the payments technological revolution has only just begun. We at City National have a lot more work to do. We're going to continue to need partners to do it. I'm looking forward very much to the prospect of engaging with and collaborating in the future with many of you who are here today.