AI’s Impact on Data Management and the Customer Experience

Artificial Intelligence (AI) has transformed the financial services landscape and will continue to have long-term impacts on the banking industry. This technology has already had significant effects on data management, enhancing the way banks handle, analyze and extract insights from vast amounts of data. Bankers that embrace AI technology to increase their data efficiency can tailor customer experiences while bolstering growth strategies.

Banks today have access to extensive data that is complex and time-consuming to analyze. AI-powered software helps bankers achieve quick analysis, pattern recognition and extraction of valuable insights. AI technologies can simplify data operations and manage large-scale datasets more efficiently, overcoming the limitations of traditional data analysis methods and delivering faster insights necessary for sustaining growth.

AI surpasses human analysis capabilities by processing information more quickly and uncovering relationships in data that bankers may miss. Clustering similar data points together to identify groupings within account holder data allows AI technology to identify complex patterns and trends within data. These comprehensive, accurate insights enable bankers to segment customers and create meaningful categories for marketing and cross-selling.

AI systems’ capability for real-time data analysis also provides immediate insights, offering bankers the information they need to better anticipate customer needs. AI models can conduct predictive analysis using historical data to forecast future trends and outcomes. Accessing both current and forward-looking data insights empowers bankers to leverage a more holistic view of their institution and craft a comprehensive analysis to inform their decision-making.

Banks’ ability to leverage data and garner meaningful insights goes hand in hand with driving business growth and customer relationship success. Better data management has profound impacts on the customer experience: it can lead to more personalization capabilities and streamlined processes such as faster loan approvals, account openings and fund transfers.

Effective data collection and analysis ultimately allow bankers to better understand each customer’s needs and financial behavior. This information enables the institution to offer personalized product recommendations, tailored financial advice and customized services that align with each customer’s unique profile. Delivering targeted promotions addressing customers’ needs can create greater opportunities for bankers to strengthen relationships and drive business growth.

Comprehensive data management also ensures bankers and their teams can access detailed records of customer interactions and histories, including any complaints or issues. Having context on each customer empowers support representatives to quickly understand account holders’ needs and deliver relevant solutions based on their financial history. This means that questions or issues can be addressed promptly through single interactions, allowing banks to increase customer satisfaction and better meet expectations.

Account holders want the ability to choose from multiple communication channels when interacting with their bank, whether through online banking, mobile apps or in-person exchanges. Effective data management guarantees a seamless experience across each channel and enables customers to transition between outlets without experiencing disruptions or losing context. Data efficiency also facilitates the deployment of AI-powered virtual assistants equipped with customer backgrounds to address outreach and queries on a 24/7 basis, enhancing the institution’s accessibility and responsiveness.

Some bankers may have concerns that AI-powered technology threatens their roles. AI will not replace bankers — it will augment their capabilities, furthering their efficiency and improving their ability to prioritize higher-value responsibilities requiring their attention and expertise.

Human judgment remains essential for interpreting results and providing customized financial guidance. AI can handle routine tasks, process automation and data analysis, as well as any additional activities entailing little manual intervention. Meanwhile, bankers receive the time they need to focus on addressing complex customer needs, building meaningful relationships with empathy and understanding and planning strategic activities that ultimately support the institution’s long-term success.

AI-powered assistants can take over in providing automated financial advice based on customers’ profiles. However, bankers must leverage those tools to interpret those insights, deliver more comprehensive, tailored financial planning and cultivate stronger customer connections.

Embracing AI also allows bankers to both stay on top of the changing market with real-time data analysis and respond quickly to evolving customer needs with a greater understanding. Banks that stay informed on the needs of their customers and market trends will be better positioned to retain competitive agility and implement innovative financial products and services that have meaningful impacts within the institution and the industry as a whole.

By harnessing the power of AI, bankers can unlock deeper data-driven insights, automate time-consuming tasks, deliver more tailored banking experiences and gain a competitive edge in the fast-paced market.

3 Strategies for Gathering Deposits in a New Era

With interest rates at their highest point in 16 years, financial institutions must revisit their deposit gathering strategies.

The conventional tactics like using rate specials for certificates of deposits and high yield online savings accounts are more expensive and less effective than they once were. And in a world where every customer can instantly withdraw funds for a better offer via a phone app, it’s not enough to simply attract deposits. Financial institutions must be able to retain those deposits with something beyond the best rates. Here are three strategies for banks to attract and retain primary deposit accounts in this challenging operating environment.

1. Personalized Approach for Individual Customers
In the age of big data, a personalized approach is not just possible, it’s necessary. Financial institutions should utilize the wealth of information they have on their customers to tailor services and products to individual needs.

  • Understand customers. While this strategy is obvious, its successful execution has been elusive. Too often, these data points are scattered between disparate systems; banks are challenged in reconciling them effectively and in a manner where they can be deployed where and when they’re needed. Financial institutions should be demanding this type of reconciliation from their digital banking vendors, which sit at the intersection of many internal systems, various fintech partners and the bank customer’s primary interaction point with their accounts.
  • Offer tailored products. Use the insights gathered to offer personalized savings plans, customized investment advice or bespoke financial products that encourage customers to maintain and increase deposits. Again, the idea is not original, but the execution is tricky. Making tailored offers at scale should be considered table stakes in modern banking but requires investments in both technology and talent. Simply enabling account holders to view balances on their phone is not enough to build loyalty. Financial institutions should think about how they can replicate the old school relationship banking approach, where a customer feels understood and doesn’t have to navigate bureaucracy and poor technology to get to the products and services they need.

2. Sophisticated Treasury Tools for Businesses
Today’s businesses need more than a simple deposit account. They require comprehensive financial solutions that support their operations, manage risks and foster growth. A growing number of these businesses are using these sophisticated services — often from third parties. Integrating sophisticated treasury tools into business accounts can make these accounts stickier and more attractive for current and prospective customers.

  • Cash management tools. Advanced cash management tools can provide businesses with real-time visibility into their cash flow, enabling them to optimize liquidity. This includes tools for automated receivables, payables and sweep accounts to manage balances across multiple accounts, along with optimizing interest rate options.
  • Risk management tools. Effective risk management tools are essential in helping businesses navigate today’s myriad financial risks. This can include foreign exchange tools to manage currency exposure, interest rate derivatives to handle interest rate fluctuations and fraud detection tools to safeguard against malicious activities.
  • Digital payment solutions. Digital payment solutions can streamline transactions, making daily operations smoother and more efficient. From Automated Clearing House payments to wire transfers, mobile payments and integrated payables, these tools provide flexibility, speed and convenience in handling transactions.

3. Investment in Technology and Innovation
Adopting the above strategies requires banks to make a significant investment in technology and innovation. However, this is a crucial step to stay competitive in the evolving financial landscape.

  • Robust data infrastructure. Invest in a robust data infrastructure to support the implementation of a data-driven personalized approach. This includes advanced data analytics tools and machine learning algorithms that can extract valuable insights from customer data.
  • Advanced treasury tools. Develop and integrate these sophisticated tools into business accounts. This may require investing in fintech partnerships or in-house innovation and offering value-added services beyond traditional banking.
  • Digital platforms. Enhance the user experience, making it easy for individuals to manage their accounts and for businesses to use their treasury tools. This includes intuitive interfaces, real-time updates and seamless integration with other financial systems.

In this era of high interest rates and less sticky deposits, traditional strategies are losing their charm. In order to stay competitive, financial institutions must innovate and personalize their approach to gathering primary deposit accounts. Understanding and catering to the needs of individual customers and businesses will allow financial institutions to attract and retain more deposits and successfully navigate the challenges of this high-rate environment.

Unleashing Seasonality and Purchase Data to Maximize Opportunities

Are you ready to take your sales and marketing strategies to new heights? Banks have a secret weapon available to them, if they can use it: the power of seasonality and purchase data combined with time series analysis.

Unlock the treasure trove of insights hidden within your data that you can use to fuel greater successes. In this article, we will explore how this approach can revolutionize your sales and marketing plans, and how simplicity can drive remarkable results.

Financial institutions are sitting on a gold mine of historical data. Time series analysis means its never been easier to unravel trends and patterns. Examining sales data over time allows executives to gain invaluable insights into product performance and customer behavior. Identify star performers, pinpoint their peak sales periods, and make informed marketing decisions that hit the bull’s-eye. Banks can finally bid farewell to guesswork and embrace the power of data-driven strategies.

Time series analysis can help banks uncover details at the product and branch level. Capitalize on discoveries of which products thrive in specific regions with tailored marketing campaigns that resonate with local customers. Leveraging these granular insights can cement your bank’s reputation as the go-to choice for customers.

Adding time intervals to your analysis can reveal the trends behind product sales trends within specific time bands. Consider individual retirement accounts, or IRAs. Through careful examination, you may discover that IRAs sell exceptionally well in March and April. However, filtering for IRA sales in the past 12 months could unveil a surprising twist: They also experienced strong sales in November, December, and April. The reasons behind these seasonal variations are crucial. Perhaps it’s the lure of tax season or year-end financial planning. This insight allows the bank to strategically align its marketing efforts and seize every opportunity that arises.

Simplicity in Driving Sales
As seasoned directors, you understand the complexities that come with running a bank. But here’s the secret: Driving sales doesn’t always require complex analysis. Sometimes, the simplest measurements and analysis can lead to extraordinary results. Harnessing readily available data and applying basic time series analysis techniques is a way to uncover powerful insights that drive your bank’s growth. Track sales volumes over specific time periods, identify customer behavior patterns and monitor product performance during peak seasons. Armed with these simple, yet impactful insights, you’ll be equipped to make strategic decisions that propel your bank forward.

To compliment the powerful insights derived from seasonality and purchase data, your institution should consider a CRM platform. Imagine having a complete 360-degree view of your customers, understanding their preferences, purchase patterns and engagement history. You would now have the knowledge to unlock the full potential of your bank’s sales and marketing strategies. By harnessing seasonality, purchasing data through time series analysis and the addition of CRM, you can gain unprecedented insights that set you apart from the competition. Embrace the power of data-driven decision-making and watch as your bank thrives in a rapidly evolving landscape. Remember, sometimes simplicity is the key to greatness.

Does Your Board Need More Cyber Expertise?

Despite continued and growing anxiety around cybersecurity, boards have long struggled to understand the intricacies of the bank’s security efforts. Instead, they have often left it to the technology and security experts within the institution. But with increased scrutiny from regulators, a shift toward proactive oversight at the board level may be in the works.

According to Bank Director’s 2023 Risk Survey, 89% of bank executives and board members reported in January that their institution conducted a cybersecurity assessment in 2021-22. In response to that assessment, 46% said that the board had increased or planned to increase its oversight of cybersecurity moving forward.

Ideally, that could have the board taking an active oversight role by asking pointed questions about the threats facing the organization and how it would respond in various scenarios. In order to do that, boards could look to add cybersecurity experts to their membership.

For public banks, a requirement to make known the cybersecurity expertise on the board is expected to go into effect soon. The Securities and Exchange Commission announced last year that public companies would need to disclose which board members have cybersecurity expertise, with details about the director’s prior work experience and relevant background information, such as certifications or other experience. The SEC adds that cyber expertise on the board doesn’t decrease the responsibilities or liabilities of the remaining directors. The proposed rules, which also include expectations around disclosing cyber incidents, were first expected to go into effect in April 2023.

The demand for cyber expertise in the boardroom “will eventually trickle down to all community banks,” predicts Joe Oleksak, a partner focused on cybersecurity at the business advisory firm Plante Moran. “Very few [people] have that very specific cybersecurity experience,” he continues. “It’s often confused with technology experience.”

Last year, Bank Director’s 2022 Governance Best Practices Survey found 72% of directors and CEOs indicating a need for more board-level training about cybersecurity. The previous year, 45% reported that at least one board member had cyber expertise.

Often, bank boards seek cyber expertise by adding new directors with that particular skill set; other times, a board member may take ownership over the space and learn how to oversee it. Both approaches come with significant hurdles. An existing board member may not have the extra time required to become the board’s de facto cyber expert. An in-demand outsider may not be willing to financially commit to the bank; board members are typically subject to ownership requirements.

Boards rely on information from the bank’s executives as part of the deliberation process. It’s common for directors to trust the chief technology officer, chief security officer or the chief information security officer to provide updates on cyber threats and tactics. But understanding the incentives and expertise of the executive would ensure that directors understand the value of the information they receive, says Craig Sanders, a partner of the accounting firm Moss Adams, which sponsored the Risk Survey.

Boards leaning on their CSO, for instance, need to understand that these officers solely focus on broad defense of the institution, which includes both physical and digital protection of the bank. The CISO, on the other hand, homes in on securing data. Meanwhile, the CTO should have a broad understanding of cybersecurity, but likely will not be able to dig into the weeds as they’re primarily focused on the bank’s technology.

A third party can help fill in the gaps for the board.

“If you have someone coming in that has seen hundreds of institutions, then you get a better lens,” says Sanders. An outside advisor can educate directors about common security threats based on what’s happening at other institutions. A third party can also provide an external point of view.

Some, however, hesitate in suggesting that a board should seek to add a cyber expert to its membership. “It’s going to taint your board or what the purpose of your board is,” says Joshua Sitta, co-founder and CISO at the cybersecurity advisor Sittadel. “I think you’re going to have a voice driving [the board] toward risk management.”

Sitta explains that those focused on cybersecurity will push for more security. But a board’s role is oversight, governance and providing a sounding board to executive management to keep the bank safe, sound and growing. Having cyber talent at the board level could discourage growth opportunities for fear that any new initiative could pressure security efforts.

Banks should ensure they’re protected against large breaches of critical data, says Sitta, but should avoid complete protection that has them investing to prevent every breach or fraud alert, no matter how insignificant. Understanding what’s a reasonable concern is important for the board to grasp. But cybersecurity experts within the company or advising the board should simply “inform” the board, according to Sitta. With that information, the board can then assess whether the bank has the risk appetite to add a debated service or investment.

Many boards, though, might not have a full awareness of the level of attacks the bank faces. In Bank Director’s 2022 Risk Survey, conducted last year, board members and executives were asked if their bank experienced a data breach or ransomware attack in 2020-21, with 93% noting that they had not. This could indicate that board members and top executives aren’t fully aware of the threats their bank faces on a daily basis, or that they could weather a threat soon.

“They get into a false sense [of security],” says Sanders. “Everyone is going to have some kind of disclosure. Assessing the program and making changes once a year probably isn’t sufficient.”

While 71% of respondents in last year’s Risk Survey said their board was apprised of deficiencies in the bank’s cybersecurity risk program, less than half — 42% — reported that their board reviewed detailed metrics or scorecards that outlined cyber incidents, and 35% used data and relevant metrics to facilitate strategic decisions and monitor cyber risk.

The lack of awareness of a threat or breach could give the board a sense of ease. But this could hold the bank back from making the shifts needed to protect from the largest attacks. Further, a board that remains unaware of the true rates of incidents could underestimate the imperative to build or adjust a cyber response.

Another factor that boards must consider is how they have long prioritized cybersecurity.

“A lot of smaller organizations view cybersecurity as a cost center,” says Oleksak. The 2023 Risk Survey found that banks budget a median $250,000 for cybersecurity, ranging from $125,000 reported for the smallest institutions to $3 million for banks above $10 billion in assets. “It’s like insurance. You understand that it’s not a revenue generation center, [but] ignoring it can significantly affect the organization.”

Bank Director’s 2023 Risk Survey, sponsored by Moss Adams, surveyed 212 independent directors, CEOs, chief risk officers and other senior executives of U.S. banks below $100 billion in assets to gauge their concerns and explore several key risk areas, including interest rate risk, credit and cybersecurity. Members of the Bank Services Program have exclusive access to the complete results of the survey, which was conducted in January 2023.

Bank Director’s 2022 Governance Best Practices Survey, sponsored by Bryan Cave Leighton Paisner, surveyed 234 independent directors and CEOs of U.S. banks below $100 billion in assets to explore governance practices, board culture, committee structure and ESG oversight. The survey was conducted in February and March 2022

Risk issues like these will be covered during Bank Director’s Bank Audit & Risk Conference in Chicago, June 12-14, 2023.

Loan Automation Benefits for Community Banks

Why would a prospective borrower choose a community bank with loan applications that still use paper forms, printed records and a branch visit to begin the application process, when they can select one that has an online loan application system that takes minutes? In today’s digital-first world, clients’ increasing expectations are putting pressure on banks to deliver a simple, clear and responsive experience.

Business loan automation can help with digital transformation efforts, allowing a bank to scale within its preferred risk. It can increase application growth, increase speed to funding, decrease decision time and lower default risk.

Automation puts a digital infrastructure around the loan origination process, where humans set the rules and the software handles the heavy lifting. Its ability to start small and expand means it can adapt to meet the unique needs of each financial institution.

At a high level, loan automation software works to:

  • Analyze customer-submitted data. The customer submits required information, such as files and documents necessary to the application process, via a secure digital portal.
  • Analyze third-party data. Through application programming interfaces, or APIs, the software communicates to third-party data sources, such as banks and credit bureaus, to obtain cash flow information, tax returns, verification of identity, business and personal credit scores and more.
  • Analyze risk with machine learning. The software analyzes and processes the gathered data and generates a risk score. This saves a bank employee from having to comb through mountains of data.
  • Make intelligent, rules-based decisions. The software passes all the data through a decision-making engine based on a bank-defined credit policy and credit risk appetite. The digital lending software makes credit decisions in real time.

Power and Scale
Automated loan origination is meant to operate based on the bank’s existing lending process — just as any bank employee would. But the software can process more data points, process applications faster, and do it at scale.

Community banks that don’t have the budget to hire a large workforce can augment their existing workforce with loan automation software, leveling the playing field with larger competitors. Automated, rules-based lending platforms can provide the following benefits for community banks:

  • Efficiency: Streamline every step of the process and eliminate manual processes. This allows banks to service a higher volume of borrowers without the need to hire additional staff.
  • Accuracy: Optimize the application processing for accuracy, since the software uses the specific rules set up by the bank. This reduces human error in the process.
  • Consistency: Loan decisions are consistent and predictable, based on the bank’s underwriting policies and risk appetite.
  • Compliance: The software can automatically collect and store necessary documents in accordance with the bank’s record retention policies.
  • Customer service: A digital platform gives both banks and borrowers a place to upload all necessary documents and communicate back and forth. Banks can leverage this platform for ongoing relationship management while allowing customers to complete their applications when and where they choose.
  • Customer experience: A digital application means customers don’t need to print anything out or make unnecessary trips to a local branch, and they receive a loan decision faster.

The bank has the power and scale to automate its business loan decisions without increasing risk — a true win-win for the bank and its customers.

Automation Versus Partial Automation
The reality is not all banks will opt to shift their traditional loan application process to a full digitization overnight. These things take time, buy-in and a lot of due diligence before selecting an appropriate banking platform for an institution.

Executives should keep in mind that they can still use loan automation software to facilitate a bank’s digital transformation at their own pace. For example, a bank can start by partially automating certain loan workflows before having them reviewed and approved by a human employee. Banks can get comfortable with the software, test it in a live environment and gather the necessary data to feel confident before automating additional parts of the loan origination workflow.

This piece was originally published in the second quarter 2023 issue of Bank Director magazine.

Digital Banking: Being Best in Class and Driving Profit

Forward-thinking financial institutions have been focused on digital transformation to compete with megabanks and fintechs. They’re funding development to actively shaping user expectations for what a digital banking experience can offer. By 2028, the global digital banking market size is estimated to surpass $10.3 trillion.

Yet, many banks without deep pockets or partners and limited technology resources are relying on their core technology provider for a turnkey platform — a “bank-in-a-box” that includes bundled services like payments, loan origination and digital banking. The biggest threat remains for those institutions that decide to maintain the status quo with a less-than-impressive digital banking platform or ineffective home-brewed solution.

Consumers expect a seamless digital experience to help them manage their finances and achieve their financial goals. A recent study found that consumers’ trust in digital banking is shifting away from their preferred financial institution. If account holders aren’t convinced that their preferred bank provides the best digital security and privacy, reliability, feature breadth, and ease of use, they’re willing to leave. It’s clear that digital banking can make or break a bank’s future.

What is the ideal digital banking experience that account holders want? Banks should keep these best-in-class components in mind as they search for the right partners and technology for their digital banking transformation.

  1. Data-driven insights. Bank executives must find ways to execute on internal transaction data to deepen user relationships and build profitability and institutional loyalty.
  2. Seamless user experience. Now more than ever, it’s important that banks understand what attractive features will improve digital banking experiences for their users.
  3. Continuous software delivery. Best practices for continuous software delivery is to find a partner offering a single code source, rather than multiple.
  4. Investments in API and SDKs. Vendors that can seamlessly integrate application programming interfaces, or APIs, into digital banking help banks leverage the latest industry leading technology and maintain a competitive advantage.
  5. Cloud-forward thinking. Banks can leverage the cloud to enhance features, security and user experiences while improving uptime, performance and quality.
  6. Modern security strategies. When financial institutions and digital banking providers band together and treat cybersecurity as a shared responsibility, security issues can pose less of a threat.

Financial institutions may need to consider replacing legacy technologies and embracing artificial intelligence tools. This means taking advantage of transaction data flowing through the core to uncover important insights about account holders’ needs based on their behaviors and spending patterns, and using it to optimize the digital experience. This kind of thinking results in transforming digital banking — moving from a cost center into a revenue center, all rooted in data.

In the past, marketing campaigns focused on products that just needed to be sold. They were delivered from the top down, funneling to all users regardless of their personal needs. That strategy changed when big data, artificial intelligence and machine learning gave marketers the ability to target tailored messages to the ideal recipient. Aligning data insights and marketing automation means banks can deliver experiences that are compelling, timely and relevant to account holders.

Pairing insights and marketing automation with a digital banking platform allows banks to target their account holders with personalized engagements and cross-sell marketing offers that appear within the banking platform and other digital channels. Banks can generate a 70% return on initiatives targeting existing customers, versus 10% when targeting new customers, according to PwC. “In a time where every bank is focused on revenue growth in a constrained and competitive environment, making smart choices with limited resources can provide a fast track to higher-margin growth,” PwC states.

Banks can use data to drive revenue through the digital banking channel through a number of real-world, practical applications, including:

  • Onboarding programs.
  • Self-service account opening.
  • Product cross-sell and upsell.
  • Competitive takeaway.
  • Communications and servicing opportunities.
  • Product utilization.
  • Transitioning retail accounts into business accounts.

Digital banking is mission critical to banks. Catalyzing this platform with data insights and marketing automation creates an engaging channel for deeper customer relations, ultimately transforming the digital banking investment into a profit center.

Steps for Managing and Leveraging Data

Does your institution rely on manual processes to handle data?

Institutions today generate vast amounts of data that come in different forms: transactional data such as deposit activity or loan disbursements, and non-transactional data such as web activity or file maintenance logs. When employees handle data manually, through mouse and keyboard, it puts your institution at risk for inefficient reporting, security threats and, perhaps most importantly, becoming obsolete to your customers.

Take a look at how data is moved through your organization. Exploring targeted improvements can result in actionable, timely insights and enhanced strategic decision-making.

First, focus on areas that may have the biggest impact, such as a process that consumes outsized amounts of time, staff and other resources.

What manual processes exist in your institution’s day-to-day business operations? Can board reporting be streamlined? Do directors and executives have access to meaningful, current data? Or should the institution explore a process that makes new opportunities possible, like improving data analytics to learn more about customer engagement?

Build Your Data Strategy
Crawl — The first step toward effectively managing data is to take stock of what your bank currently has. Most institutions depend on their core and ancillary systems to handle the same information. Various inputs go into moving identical data, like customer or payment information, from one system to another — a process that often involves spreadsheets. The issue of siloed information grows more prominent as institutions expand their footprint or product offering and adopt new software applications.

It’s helpful for directors and executives to ask themselves the following questions to take stock:

  • What is our current data strategy?
  • Does our data strategy align with our broader institution strategy?
  • Have we identified pain points or areas of opportunity for automation?
  • Where does our data reside?
  • What is missing?
  • In a perfect world, what systems and processes would we have?

Depending on complexity, it is likely a portion of the bank’s strategy will look at how to integrate disparate systems. While integration is an excellent start, it is only a means to an end in executing your bank’s broader digital strategy.

Prioritize ROI Efforts and Execute
Walk — Now that the bank has developed a plan to increase its return on investment, it is time to execute. What does that look like? Executives should think through things like:

  • If I could improve only one aspect of my data, what would that be?
  • What technical skills are my team lacking to execute the strategy?
  • Where should I start: build in-house or work with a third party?
  • Are there specific dashboards or reports that would be transformational for day-to-day business operations and strategic planning?
  • What digital solutions do our customers want and need?

Enable Self-Service Reporting
Run — The end goal of any bank’s data strategy is to help decision-makers make informed choices backed by evidence and objectivity, rather than guesswork and bias.

Innovative institutions have tools that make reporting accessible to all decision makers. In addition to being able to interact with data from multiple systems, those tools provide employees with dashboards that highlight key metrics and update in real time, generating the pulse of organizational performance.

With the combination of self-service reporting and data-driven dashboards, leaders have the means to answer tough questions, solve intractable challenges and understand their institution in new ways. It’s a transformative capability — and the end goal of any effort to better manage data.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment, or tax advice or opinion provided by CliftonLarsonAllen LLP (CliftonLarsonAllen) to the reader.

Redefining Primary Relationships

Ask 100 bankers to define what it means to be the primary financial institution for a consumer, and you’ll likely get 100 different answers. Ask 100 consultants to bankers what being the primary FI entails, and you’ll probably get 100 more answers.

Ask 100 consumers how they define which FI is their primary one, and you’re apt to get just a few answers. The most frequent answers will be: where my paycheck is deposited, or what I use to pay my bills.

At StrategyCorps, we talk to a lot of bankers about being the primary FI for a customer or member. We call this primacy. We talk about what they’re doing to lockdown primary relationships to keep from losing them, and what’s being done with non-primary customers to win them over and make them financially productive.

With few exceptions, most community and regional banks do not have a quantitative measurement or definition of primacy. It’s still very much rooted in a banker’s intuition or past experience, rather than a data-driven approach to determine precisely which customers are primary and which aren’t.

The Math
In our 20-plus years studying and analyzing retail checking relationships, products and pricing strategies, we have developed a database of well over 1 billion data performance points from hundreds of financial institutions.

We have found through this analytical approach a metric that holds true with nearly every FI we analyze, regardless of size or operating area location. Here it is: If the banking activity of a customer on a householded basis isn’t generating annually at least $350 in revenue, that household doesn’t consider your organization their primary FI.

Like clockwork, we find that when household revenue is less than $350, the banking relationship effectively nosedives. This typically is the case for 35% of all consumer checking accounts.

More specifically, we find this 35% of total checking account relationships represent slightly less than 2.1% of total relationship dollars and generate only 3.7% of revenue.

Address the Gap
Those customers are not engaged in a mutually beneficial relationship with their FI. They aren’t doing enough banking activities to generate enough revenue to cover the cost to manage and maintain their relationship. Many of those customers are primarily engaged at another FI and need a more compelling reason to bank with your FI than is currently being provided.

A major advantage of knowing specifically who does not consider your bank a primary FI is that you can develop product, pricing, communication and business development campaigns to move them closer to generating at least $350 in revenue. If you don’t, those 35% of relationships will continue to drag down financial performance. And this financial drag can be sizeable — conservatively speaking about $204 a year per relationship.

Do the math: If you have 20,000 checking relationships, 7,000 will be non-primary with a deficit of $204 per relationship. This equates to an annual loss of $1.43 million.

Build Profitability
Another major advantage of knowing precisely the amount of primary relationships at your institution is that knowledge provides great insight for a game plan to lock the relationship down even further with enhanced product offers, preferred pricing, elevated levels of customer service or, in some cases, a thank you. Doing one or more of those things diminishes the chances they’ll consider an offer from a competitor.

In today’s ultra-competitive marketplace, smart bankers realize a data-based definition of primacy in their retail checking base is necessary to make timely decisions. Banks that do so can better protect and grow primary relationships, and fix and grow the non-primary ones. By doing both, they optimize the performance and growth of their retail checking base and don’t leave the financial performance of their checking accounts to guesswork.

Winning Customer Loyalty During Trying Economic Times

Bank leaders are preparing for an economic downshift; if done well, this can be a time to support customers’ financial health and improve long-term relationships. Proactive counsel, guidance and timely services can turn economic hardships into stronger financial foundations that benefit a bank’s bottom line.

That’s because consumers are facing the perfect storm of cash flow difficulty: Covid-related interventions have petered out, only to be replaced by a rise in the costs of goods, fuel and interest rates. Consumers cannot keep up with the pace of inflation; as of September 2022, 63% of Americans reported living paycheck to paycheck in order to make ends meet, and 43% expected to add to their debt in the next six months.

Economic hard times can give bank customers a sense of shame, discouragement and alienation. They may choose to ignore their financial troubles and debt and disengage with their financial institutions. Bankers can interrupt this pattern with more transparent and proactive best practices. They can provide support and education, in real time, that consumers need to be financially healthy.

Upwards of 80% of consumers prefer to receive money-related insights from more traditional sources such as banks, but only 14% believe their financial institution delivers such guidance. This needs to change. Banks have the unique advantage of owning the data and relationships necessary to proactively develop deep and meaningful experiences that support customers in hard times. They can use this data to maintain and protect customer relationships, rather than risk losing them to a competitor or fintech.

The first step for banks is to focus on customers’ needs, then educate them on helpful tools, best practices and how they can avoid missteps, such as products with predatory interest rates. While banks can’t control inflation, they can be a valuable partner for their customers.

Customers feel at ease when the guesswork is taken out of banking. Bankers need to eliminate the black box of uncertainty. For instance, a bank can analyze internal and external data streams, such as customer information from their loan database and the credit bureaus, to generate personalized pre-approved offers unique to its specific risk tolerance and portfolio. Such offers can include everything from home equity to auto loans, turning lending on its head from an application to a shopping cart scenario.

Banks should also consider out-of-the-box financial services and alternative offerings that can meet the evolving needs consumers face in 2023. For instance, if a consumer has a home equity surplus, the bank could suggest that they access this untapped equity in their homes for any pressing needs. The bank may offer to help a consumer with loan consolidation, or a better interest rate based on an improved credit score. Offering specific, personalized rates and services takes the mystery and chance of failure out of financial services. Banks can empower borrowers with knowledge of their unique opportunities — helping them make smart financial decisions while increasing their wallet share and gaining trust that lasts for a lifetime.

More than three in four Americans feel anxious about their financial situation. Banks must take this time to rethink the value they provide to customers. Those that prioritize personal, healthy financial guidance in 2023 will become trusted advisors and solidify relationships that last. 

Proactively Managing Credit Reporting Data

The mandate that credit furnishers, like banks, provide accurate account data to credit reporting agencies can be overwhelming.

This information is disclosed in files that follow the standard electronic data reporting format called Metro 2®. To manage this tremendous task, banks should proactively focus on maintaining accurate Metro 2® records, which should mitigate any potential harm to consumers.

In addition to protecting consumers, accurate furnishing helps banks avoid unwanted regulatory scrutiny from increased consumer complaints and credit reporting disputes. Regulation V requires that furnishers establish and implement reasonable written documentation regarding the accuracy and integrity of consumer information furnished to consumer reporting companies (CRCs). In fact, the CFPB’s Supervisory Highlights in Spring 2022 cites this violation: “In reviews of credit card furnishers, examiners found furnishers’ policies and procedures had failed to specify how particular data fields, such as the date of first delinquency, should be populated when furnishing information about credit card accounts.”

It’s the responsibility of credit data furnishers to ensure accurate furnishing to CRCs, including that which is generated by third-party processors. Banks need a clear understanding of how well their systems of record map to their Metro 2® files and the ability to generate the right documentation to back them up.

As a senior executive in consumer reporting operations, I have my clients focus on three foundational data furnishing accuracy and control activities. First, we conduct a deep review of the Metro 2® furnishing file that is submitted to CRCs. Then we develop a detailed data mapping and conversion document to examine the system of record code that produces the file. Finally, we examine the organization’s upstream operational processes to identify trigger events and data that affect that file.

Four Areas to Examine Metro 2® Files for Accuracy
Banks should proactively focus on improving furnishing accuracy in four areas: the system of record’s limitations for compliant reporting, the internal logic in the system of record that inadvertently causes inaccuracies, inconsistencies among correlated fields and missing or inaccurate values in the fields. To avoid inaccuracies and potential regulatory red flags, review the activities below. Remember that these also apply to data generated by your third-party processors.

1. Examine your system for limitations that may hinder data compliance, including:

    • Inability to generate certain Metro 2® file segments.
    • Limited capture / storage of information (for example, 6 months versus 7 years).
    • Reporting of delinquent accounts greater than 7 years beyond the date of first delinquency.
    • Consolidation of data elements into one field requiring manual parsing (surname, first name, middle name)
    • Missing logic required to report Metro 2® fields (such as reporting spaces instead of the appropriate generation Code)
    • Not flagging required Metro 2® fields as mandatory (like a Social Security number).

2. Review logic that could result in inaccurate reporting, including:

    • Inaccurately counting days past due for account status assignment.
    • Lacking logic to report “last good payment” date after a payment reversal due to non-sufficient funds.
    • Mass overwriting of dates (such as date of account information).
    • Missing best practice controls (like if account is current and in bankruptcy, the date of first delinquency should not be blank).
    • Reporting the most recent actual payment amount value, rather than totaling all payments receiving during the reporting period.

3. Address inconsistencies among correlated fields, including:

  • Failure to update all relevant downstream data elements when manually overriding Metro 2® fields (such as account status).
  • Inaccurate or incomplete reporting when an account is closed (like date closed is not populated, current balance is greater than $0).
  • Inconsistent date progression (like if the date of account information is a date later than the timestamp of the file).
  • Inappropriate representation of Metro 2® fields related to account status (such as payment rating is not populated when required or payment history profile does not reflect the prior month’s account status).

4. Resolve missing and inaccurate field values, including:

  • Invalid assignment of portfolio type and/or account type values
  • Inaccurate values furnished for special comment code, ECOA, consumer information indicator and compliance condition code fields.
  • Ensure data accuracy now and for the future.

Now that you understand how to avoid the issues that can harm your consumers, drive credit disputes and draw regulatory scrutiny, take immediate steps to understand exactly how your data is mapping to Metro 2®. If your bank is struggling with capacity or expertise or is new to credit data furnishing, find a trusted expert to help implement both a proven technology data mapping solution as well as the knowledgeable operational support needed to execute it.