Which would you rather have: a $2 cup of coffee today, or $8.64 more in retirement savings 30 years from now?
It’s the sort of question Dan Ariely can ponder for hours. A professor at the Massachusetts Institute of Technology’s Media Lab, Ariely is part of a newly formed group of faculty that will comprise the Center for Future Banking. Last month, the group received up to $25 million in funding from Bank of America to explore how people make decisions about their money, and how technology can shape and assist in these choices.
Ariely uses the example of retirement savings to illustrate one goal of the program: to help people make rational decisions by understanding their own sometimes irrational impulses and how they make choices.
In the example above, compounding interest would more than quadruple a $2 deposit in a retirement-savings account over three decades, assuming a 5 percent interest rate. But it’s hard for many people to understand what that extra money would represent when all they want right now is a caffeine boost.
“It’s clear what you’re giving up now, but unclear what you’re getting in the future,” Ariely says.
To help consumers make those judgments, Ariely envisions budgeting tools such as credit card accounts that would allow users to set spending limits with serious consequences if they spend too much. Cross the line and the system might fire off an angry e-mail to your spouse or donate cash to a political party you oppose. He says he has suggested the idea to other banks for years but received little interest until now.
Executives at Bank of America in Charlotte, N.C., say it’s too soon to know exactly what new products might come out of the center’s work, which they will fund at between $3 million and $5 million a year.
But Anne Finucane, the bank’s head of global marketing and corporate affairs, said staying ahead of technology trends is crucial for the institution, which is the largest retail bank, with 55 million households as customers.
“The role of technology is critical to us,” she said. “Fifteen years ago it would have been hard to imagine people would pay their bills online or that we would sell 25 percent of our products online.”
The challenge is figuring out what consumers want next. Forecasting the future of banking can be as amorphous as it sounds, and the field is littered with false starts. For instance, near the elevators at the Media Lab a map marks the location of the office of the MasterCard Future of Transactions Lab, a vestige of a $5.6 million grant the institution received from the big payment network in 2000 to start a program that would study “the new social and economic order” emerging with new payment systems. That effort later was shut down in a round of MasterCard budget cutting, however, faculty say.
Still, the Media Lab remains perhaps MIT’s most famous gizmo originator, where a Segway-riding visitor draws no stares and faculty have wired up everything from wearable computers to cellphones embedded in talking toy squirrels.
The banking project came about after a Media Lab student had an internship last year in Bank of America’s quantitative analysis group in Charlotte, getting executives there interested in the lab’s work, such as a conference it hosted last year called “h2.0,” for human 2.0. The conference focused on “neural-digital interfaces” such as those that would allow disabled people to move mechanical limbs through electrical impulses from their brains.
Speakers included several faculty now involved with the Center for Future Banking, including Deb Roy, who develops software for machines to communicate in human-like ways, and Rosalind Picard, who studies sensors and systems that respond to human emotions.
Another attendee was Bank of America executive Jeff Carter, who now plans to move from Charlotte to Boston to become the bank’s lead executive for interacting with the center.
In an interview last week, Carter mentioned several “workstreams” the bank hopes the MIT researchers will examine. One issue is what he calls the “cloud of information” of financial advice surrounding consumers. A problem for banks, he said, is how to make sense of the problems and opportunities surrounding the growth of mobile devices that keep track of their location, raising many tricky privacy issues.
That’s where the bank could benefit from work like that of Media Lab professor Alex “Sandy” Pentland, a specialist in mobile information systems. In his office in the center of MIT’s campus, he speaks about the chance to create “a new deal on data” in which consumers would gain a much greater understanding of the privacy tradeoffs they make when their devices broadcast their location to computer networks - to get better prices at the supermarket, for example.
“Mobile systems in particular suffer from the danger of false expectations” among their users, Pentland said.
One unexpected study area is an online game created by a student and Roy, who’s also the banking center’s director. Known as the Restaurant Game, it invites users to control on-screen figures, called avatars, in a restaurant where they play the part either of a waitress or of a patron with $50 to spend on a meal.
While the activity seems banal, the goal is to gather enough data from two-player games to design artificial intelligence software that could take orders from a single player - a remarkably complicated task, Roy says, given the unpredictability of human beings.
Work like this could feed into a much broader set of services both for customers and for banks, including Bank of America and any others he can sign up as sponsors. Anything that can improve their customer service would be a competitive advantage, he said, in an industry whose scale often makes institutions seem impersonal.
“The last time you needed to call your bank, did you look forward to it? Probably not,” Roy said.