On June 5, as Apple held its annual event in San Jose to announce new products and software, the New York office of Solstice hosted a viewing party.

The digital innovation firm had invited over some of its financial services clients to watch the Worldwide Developers Conference livestream and make note of what they found most interesting. A brainstorming session with Solstice employees followed.

This gathering has become an annual tradition, according to Jared Johnson, a principal digital strategist at Solstice who attended the meeting. It reflects the extent to which banks and credit card companies have come to depend on Silicon Valley in order to serve their customers. (Solstice holds a similar gathering for GoogleIO, the parallel event of another Silicon Valley titan known for its mobile operating system.)

The shift to mobile has largely been a boon to financial providers, allowing them to engage with customers in more locations and at a lower cost than is possible through physical branches alone. But it can also be a double-edged sword.

When Apple or Google releases a new version of its operating system, banks are forced to respond by updating their own mobile apps—running just to stay in place. After all, says Johnson, 80% of users update their operating system within the first month after a new version is made available.

And when one of these tech titans introduces a major new feature—such as Apple plans to do by providing developers with machine learning APIs as part of the iOS 11 operating system in September—then banks really have their work cut out for them. Lumbering cruiseliners have to act like speedboats.

The more popular mobile banking becomes, the less choice banks have: They can either stay on the cutting edge or lose market share to companies that do. Forward-thinking institutions have responded by making their digital teams more nimble and responsive to trends.

Alex Carriles, the head of mobile and online banking at BBVA Compass.
Buckle up
"Banks shouldn't be afraid of change, because that is going to be the only constant," says Alex Carriles, the head of mobile and online banking at BBVA Compass.

One of these is Citigroup. The megabank has retooled in the decade since the financial crisis, closing branches and pouring resources into its digital channels.

"We are maniacal about serving digital customers in ways they demand, and in new ways they don't expect," said Alice Milligan, the chief customer and digital experience officer of Citi's global cards business. "This requires us to stay at the cutting edge of device and operating system developments in the industry."

Citi was one of the first banks to offer an app for the Apple Watch, announcing the app before the smartwatch had even hit the market. Milligan says her team is currently exploring integrations with Siri, Apple's voice-controlled personal assistant.

There is rarely enough manpower to do everything, so banks have to learn to prioritize such high-value integrations despite their backlog.

"OK, we're going to move this feature down [the list] and we're going to get the Siri kit in," said Johnson, imitating a digital team leader.

Old-school software development won't do.

"It used to be that you would write a series of specifications and business requirements, they would go into technical and legal and compliance review, and after six months of everybody reviewing that stuff it would go to the developers, and then another six months later they would give you something, which perhaps by then is completely irrelevant," said Alex Carriles, the head of mobile and online banking at BBVA Compass.

BBVA now employs nimble, integrated teams of software developers, lawyers, engineers and others in order to speed up the development process, Carriles said. On average, BBVA now releases a new version of its app for iOS and for Android every month.

At first customers wondered why the updates were so frequent, but they soon realized it led to "a richer set of features, things they really wanted," Carriles said. "Sometimes it could be small improvements, sometimes it could be big improvements, sometimes it could be just bug fixes."

Today, some 40% of BBVA's customers are mobile-only.

The advantage of being first to capitalize on a new feature of the latest operating system can be tremendous. Johnson once asked a Fortune 500 executive how he prioritized innovations, and was told, "We can spend millions on a TV ad or we can be a first mover on an iOS feature."

Ashish Toshniwal, CEO of the mobile app developer Y Media Labs, notes that iOS 11 could have implications for mobile bill pay—a "sticky" feature for most banks. Once a customer has added several bills to his account, he typically won't want to repeat the process at another bank. But it can be hard to get customers to use the feature, because the setup process—plugging in all the information for each bill—is troublesome.

Apple's new version of iOS, however, will offer QR code scanning as a native feature of its camera app, allowing users potentially to point their smartphone camera at an AT&T bill with a QR code, say, and prepopulate the bill pay screen with the necessary information.

Consequently, Toshniwal, whose Silicon Valley-based company works with Apple, PayPal and American Express, predicts that QR codes—readable, until now, only with certain third-party apps—will soon become mainstream.

As he talked about iOS 11, BBVA's Carriles provided a rare glimpse of what his people are working on.

Thanks to the natural-language processing that Apple has built into its new operating system, BBVA is actively developing a "completely different way to navigate through the app," he said.

Today, users navigate through menus, forcing them to hunt around for particular functions. Many people remain unaware of the full capabilities of the app. Carriles thinks the solution might be a "single command line" like that of Google's search engine, or perhaps a voice interface that allows a user to give Siri commands. Millennials, he noted, tend to type swiftly on their phones and may prefer tapping out terse instructions to speaking aloud.

"I think that is going to be a big shift in interfaces, once you can have an intelligent interpretation of what the user wants or needs to do," Carriles said.

Such a drastic overhaul of the bank's app isn't easy. But standing still isn't an option.

"Banks shouldn't be afraid of change, because that is going to be the only constant," said Carriles.

Craig Federighi, senior vice president of software engineering at Apple Inc., speaks during the Apple Worldwide Developers Conference (WWDC) in San Jose, California, U.S., on Monday, June 5, 2017. The conference aims to inspire developers from around the world to turn their passions into the next great innovations and apps that customers use every day across iPhone, iPad, Apple Watch, Apple TV and Mac. Photographer: David Paul Morris/Bloomberg
Apple's annual Worldwide Developers Conference last month. Bankers gathered in New York watched the livestream with interest. Bloomberg

Sometimes banks do have to resist the urge to keep up with the Joneses. Carriles recalls when Google added facial recognition software to its Android operating system. Suddenly, users could unlock their phones using only their physical appearance.

BBVA still hasn't taken advantage of this capability for its own app, out of concern that facial recognition is a less secure means of authenticating one's identity for payments and other transactions.

"The level of security it offers is not the same as, for example, a fingerprint," Carriles said.

The lesson, he says, is that Apple, Google and Amazon are always going to introduce cool new features. But that doesn't mean financial institutions should throw caution to the wind in adopting them.

In other words, technologists will be technologists. But banks, with their regulatory burden and responsibility for people's financial well-being, still have to be banks.

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