As Sunder Kekre tells it, the banking industry is at a critical juncture, learning to transition from what is rapidly becoming an obsolete delivery system dominated by costly brick-and-mortar offices lined with teller windows to a digital world ruled by smartphones.
It's an emerging reality bursting with opportunity and embedded with risks.
To develop the best technology and services to attract customers of the future, Pittsburgh-based PNC Bank teamed up with Carnegie Mellon University some 16 months ago to form the PNC Center for Financial Services Innovation.
Funded with a five-year, $5.5 million commitment from PNC, the collaboration is an effort to understand the changing landscape of banking and how banks of the future can provide services in a way that offers the best value, reliability and convenience for customers, said Mr. Kekre, director of the innovation center project for CMU and professor of operations management at the university's Tepper School of Business.
Key to the effort will be mining social media sites to better understand how customers live, he said.
"Let's say from your Facebook page we figure out you are interested in the Steelers and from your comments, you always go to a particular bar Downtown."
The bank could team up with the bar or other vendors near Heinz Field, delivering targeted game day deals to accountholders who can check their balance on the spot and use their PNC bank card or smartphone to complete the purchase.
"Banks have to be part of the ecosystem," said Mr. Kekre, 63, who's been with CMU since 1984.
He also envisions using the data for predicting customer behavior, such as determining which graduating college students are most likely to apply for car loans.
"If you can target these students, you will have a well-orchestrated strategy," he said. "You don't want to blanket promotions to everyone. You want to target those most likely to grab the offer."
Since the collaboration was launched in January 2013, much of the focus has been on collecting and storing PNC's customer data in a way that ensures it is kept confidential.
Mr. Kekre said his favorite moment so far was when an intense legal review ended and lawyers from both PNC and the university were comfortable enough with security measures to sign off on the project.
"We had to agree to work together in a way that doesn't put the customers' data in jeopardy," he said. "We had to go through a lot of hoops and rigorous scrutiny."
Besides security, another big challenge has been "superimposing" traditional customer information such as age, marital status, household income and place of residence, over the "unstructured" data being culled from social media that researchers want for getting a better view of customers' habits and preferences, said Mr. Kekre. who estimated some 50 CMU faculty and students have worked on the project so far.
Behavioral and analytical researchers from across the university (the innovation center has no dedicated space) have now begun analyzing the data. They hope to present ideas to PNC for potential applications by the summer, he said.
The next step will be to create application prototypes "which will be done more from PNC's side than ours," he said.
One risk of developing new technology is chasing customers away if the process isn't secure.
"If someone gets access to your data, suddenly trust goes out the window and people get scared to use their mobile phones," he said.
For its part, PNC saw the partnership with CMU as a natural one.
"We recognize that innovative ideas will not only come from inside our walls," said David Passavant, 37, who was hired by PNC about 10 months ago to lead the project and head up a new innovation group inside the bank.
"This is a nod to what we view as another great Pittsburgh institution down the street from us. We saw a natural overlap between our business problems and things they are good at: data analysis and technology research."
So what happens at the end of the five-year commitment?
"We can continue if we'd like to and will make the decision at that time," Mr. Passavant said.
Mr. Kekre said his hope is that other companies — "maybe not companies competing with PNC" — would join the effort, leading to the creation of technology incubation facilities to develop and showcase applications in a variety of fields.
"I think this will pave the way for bringing in more companies and more types of transactions," he said.
— Patricia Sabatini: firstname.lastname@example.org or 412-263-3066.
First Published May 13, 2014 11:26 AM