Recapturing the Data That Creates Valuable Customer Interactions

Before the end of 2021, regulators announced that JPMorgan Chase & Co. had agreed to pay $200 million in fines for “widespread” recordkeeping failures. For years, firm employees used their personal devices and accounts to communicate about business with their customers; the bank did not have records of these exchanges. While $200 million is a large fine by any account, does the settlement capture the true cost of being unsure about where firm data resides?

In 2006, Clive Humby coined the phrased “data is the new oil.” Since then, big tech and fintech companies have invested heavily in making it convenient for consumers to share their needs and wants through any channel, anytime — all while generating and accumulating tremendous data sets makes deep customer segmentation and target-of-one advertising possible.

Historically, banks fostered personal relationships with customers through physical conversations in branches. While these interactions were often triggered by a practical need, the accumulated knowledge bankers’ had about their customers, and their subsequent ability to capitalize on the power of small talk, allowed them to identify unmet customer needs with products and services and drive deeper relationships. Fast forward to the present day: Customer visits to branches have dropped to unprecedented levels as they embrace digital banking as their primary way of managing their finances.

But managing personal finances is different from banking. While most bank interactions revolve around checking balances, depositing checks and paying people and bills, the valuable interactions involve open-ended conversations about the desire to be able to buy a first home, planning for retirement or education, and funding large purchases like cars. These needs have not gone away — but the way consumers want to engage with their institution has completely transformed.

Consumers want to engage their banker through channels that are convenient to them, and this includes mobile messaging, SMS, Facebook messenger and WhatsApp. JPMorgan’s bankers may not have been trying to circumvent securities regulations in engaging with customers on their terms. Failing to meet your customers where they are frustrates both customers and bankers. Failing to embrace these digital channels leads to less valuable data the bank can use.

Banking platforms — like digital, payment and core banking — can capture data that provides insight into consumers’ saving and spending behavior, but fails to capture latent needs. Institutions that make it more convenient for customers to ask their personal banker something than Googling it opens up an entirely new data source. Allowing customers to ask open-ended questions augments transactional insight with unprecedented data on forward-looking needs.

In a recent case study, First National Bank of Omaha identified that 65% of customers expressed interest in exploring new products and services: 15% for credit cards, 12% for home loans, 9% for investments, and 7% for auto loans.

If “data is the new oil,” the real value lies is in the finished product, not the raw state. While data is exciting, the true value is in deriving insights. Analyzing conversational data can provide great insight. And banks can unlock even greater value when they analyze unprocessed conversational data in the context of other customer behavior, like spending patterns, propensity to use other engagement channels and socio-demographic changes.

At present, most of this data is owned and guarded by financial processors and is not readily available for banks to access and analyze. As banks extend their digital engagement model, it is imperative they own and can access their data and insights. And as banks increasingly see the benefits of allowing customers to engage with their banker in the same way they talk to their friends, key considerations should include:

  • Conversation aggregation. Is a customer’s conversation with multiple bankers aggregated to a single thread, avoiding data lost through channel switching?
  • Are conversations across channels retained within a dedicated and secure environment?
  • Can conversations transition from one relationship banker to another, avoiding the downfall of employee attrition?
  • Are suitable tools powered by artificial intelligence and other capabilities in place to ensure a real-time view of trending topics and requests?
  • Data access. Is raw conversational data readily available to the bank?

Engaging customers through digital channels presents an exciting opportunity for banks. No longer will data live within the mind of the banker: rather, insight that are derived from both individual and aggregate analysis can become a key driver for both strategic and tactical decisioning.

An Inside Look At One Bank’s Digital Growth Planning

By now, most bank leadership teams understand the importance of offering well-designed digital experiences. What we’ve found is often more elusive is knowing where to start when making a significant investment in digital.

One bank that recently grappled with this was Boston-based Berkshire Hills Bancorp, the $11.6 billion parent company of Berkshire Bank.

Executives wanted to digitally transform the bank and that success would only be achievable if they unified around a core set of goals and built a robust strategic plan for reaching them. This vision allowed teams to work toward individual milestones along the way.

We recently spoke with Lucia Bellomia, EVP and head of retail banking and CIO Jason White. They gave us an inside look at what went into developing the Berkshire BEST plan for transformation, and the factors they believe will lead to their successful digital growth.

The Berkshire leadership team started by recognizing that if the plan was going to truly transform the entire bank, they needed to gather input and feedback from every department. “Executives spoke to stakeholders in every department to what milestones the bank would need to hit and what it would take to achieve those goals”, says Bellomia. They also formed groups specifically to achieve some of the components of that milestone.

Involving this many additional stakeholders extended the strategic planning phase — In Berkshire’s case, it took three months of meetings. But White felt the time spent laying a foundation of transparency and open communication will help the bank execute and fulfill the objective of the transformation.

Without some clearly defined pillars outlining your main goals, the whole process of starting the institution’s digital plan can feel chaotic and messy. White suggests that banks first investigate what it means for their institution to digitally transform, and then define the core strategic pillars from there.

Berkshire’s three core pillars were: optimize, digitize and enhance. These pillars support efforts to improve the customer experience, deliver profitable growth, enhance stakeholder value, and strengthen their community impact. Taking the time to first define core pillars that support a larger strategic plan helped Berkshire Bank recognize even greater opportunities. Rather than simply adding new digital services to their banking stack, they realized they could facilitate the evolution of their entire bank.

With the plan announced and in place, Berkshire launched into the execution phase of its transformation. Here, they were met with new challenges that required thoughtful commitments from leadership and investments in project infrastructure. One impactful early investment was developing a transformation office that was responsible for measuring, monitoring and communicating the success of the plan. Executives and sponsors worked with the office to define both date and monetary milestones.

A dedicated internal resource focused on project management helped Berkshire communicate the progress made toward each milestone through regular meetings, tracked and updated key performance indicators, and other updates.

Equally important to the success of Berkshire’s transformation plan was its commitment to scrutinizing each investment and vendor to ensure the right fit and an acceptable return on investment for the bank. The bank is a “low-code” development team with limited resources and used achievable digital goals to identify and select vendors to digitize, according to the bank’s plan.

As part of its transformation plan, the bank extended its existing fintech relationship to include digital banking platforms for consumer and small business customers. This allows the bank to innovate and digitize at an accelerated pace, without having to grow internal developer resources.

Ultimately, institutions like Berkshire Bank are realizing that developing a successful plan for digital transformation that works for both internal stakeholders and customers requires a rethinking of the way executive teams gather feedback, address challenges across departments, and monitor the success of a project.

Should You Invest in a Venture Fund?

Community banks needing to innovate are hoping they can gain an edge — and valuable exposure — by investing in venture capital funds focused on early-stage financial technology companies.

Investing directly or indirectly in fintechs is a new undertaking for many community banks that may lack the expertise or bandwidth to take this next step toward innovation. VC funds give small banks a way to learn about emerging technologies, connect with new potential partners and even capture some of the financial upside of the investment. But is this opportunity right for all banks?

The investments can jump start “a virtuous circle” of improvements and returns, Anton Schutz, president at Mendon Capital Advisors Corp., argues in the second quarter issue of Bank Director magazine. Schutz is one of the partners behind Mendon Ventures’ BankTech Fund, which has about 40 banks invested as limited partners, according to S&P Global Market Intelligence.

If there is a return, it might not appear solely as a line item on the bank’s balance sheet, in other words. A bank that implements the technology from a fintech following a fund introduction might become more effective or productive or secure over time. The impact of these funds on bank innovation could be less of a transformation and more of an evolution — if the investments play out as predicted.

But these bets still carry drawbacks and risks. Venture capital dollars have flocked to the fintech space, pushing up valuations. In 2021, $1 out of every $5 in venture capital investments went to the fintech space, making up 21% of all investments, according to CB Insight’s Global State of Venture report for 2021. Participating in a VC fund might distract management teams from their existing digital transformation plan, and the investments could fail to produce attractive returns — or even record a loss.

Bank Director has created the following discussion guide for boards at institutions that are exploring whether to invest in venture capital funds. This list of questions is by no means exhaustive; directors and executives should engage with external resources for specific concerns and strategies that are appropriate for their bank.

1. How does venture capital investing fit into our innovation strategy?
How do we approach innovation and fintech partnerships in general? How would a fund help us innovate? Do we expect the fund to direct our innovation, or do we have a clear strategy and idea of what we need?

2. What are we trying to change?
What pain points does our institution need to solve through technology? What solutions or fintech partners have we explored on our own? Do we need help meeting potential partners from a VC fund, or can we do it through other avenues, such as partnering with an accelerator or attending conferences?

3. What fund or funds should we invest in?
What venture capital funds are raising capital from community bank investors? Who leads and advises those funds? What is their approach to due diligence? Do they have nonbank or big bank investors? What companies have they invested in, and are those companies aligned with our values? What is the capital commitment to join a fund? Should we join multiple funds?

4. What is our risk tolerance?
What other ways could we use this capital, and what would the return on investment be? How important are financial returns? What is our risk tolerance for financial losses? Is our due diligence approach sufficient, or do we need some assistance?

5. What is our bandwidth and level of commitment?
What do we want to get out of our participation in a fund? Who from our bank will participate in fund calls, meetings or conferences? Would the bank use a product from an invested fintech, and if so, who would oversee that implantation or collaboration with the fintech? Do bank employees have the bandwidth and skills to take advantage of projects or collaborations that come from the fund?

Busting Community Bank Credit Card Myths

Credit card programs continue to be among the most significant opportunities for the nation’s largest banks; is the same true for community banks?

After a slowdown in 2020, credit card applications grew back to pre-pandemic levels in 2021. It is projected that credit cards will experience strong growth in 2022, particularly in small business and commercial segments. While a few community banks recognize the business opportunity in credit cards, according to Federal Deposit Insurance Corp. reports, over 83% do not own any credit card assets on their books.

The potential rewards of issuing credit cards are huge. Customers who have more financial products with their bank show improved retention, with more activity across the products, leading to higher profitability. It can help community banks serve their local community and improve their customers’ financial health. And community banks can realize a high return on assets (ROA) from their credit card program.

Despite these benefits, community bank executives hold back their institutions from issuing credit cards due to several myths and misconceptions about the space. Credit card issuing is no easy task — but with available technology and servicing innovations makes it possible to bust these myths.

Myth 1: The Upfront Investment is Too High
While it would be a significant investment for a financial institution to put together a credit card program from scratch, there is no need to do that. A bank can leverage capabilities built and offered by companies who offer credit cards as a service. In fact, community banks need to make little to no upfront investment to add innovative solutions to their offerings.

Myth 2: Customers are Well Served by Agent Banks
In the past, many community banks opted to work with an agent bank to offer credit cards because it was the only option available. But participating in an agent bank referral program meant they essentially lost their customer relationship to the issuing bank. Additionally, the community banks cannot make their own credit decisions or access the credit card data for their own customers in this model. Alternative options means that banks should consider whether to start or continue their agent bank credit card offering, and how it could affect their franchise in the long run.

Myth 3: Credit Card Programs are Too Risky
A handful of community banks have chosen to issue subprime credit cards with high fees and interest rates — and indeed have higher risk. However, sub-prime lending is not the focus of vast majority of community banks. Relationship lending is key; credit cards are a great product to deepen the relationships with customers. Relationship-based credit card portfolios tend to have lower credit losses compared to national credit card programs, particularly in economic downturns. This can provide comfort to conservative bankers that still want to serve their customers.

Myth 4: Credit Card Programs are Unprofitable
This could not be further from the truth. The average ROA ratio overall for banks increased from 0.72% in 2020 to 1.23% in 2021, according to the Federal Deposit Insurance Corp.; credit cards could be five times more profitable. In fact, business credit cards and commercial cards tend to achieve an ROA of 8% or higher. Commercial cards, in particular, are in high demand and expected to grow faster due to digital payment trends that the pandemic accelerated among businesses. Virtual cards provide significant benefits to businesses; in turn, they increase spend volume and lead to higher interchange and lower risk to the bank.

Myth 5: Managing Credit Cards is Complex, Time-Consuming and Expensive
Banks can bust this myth by partnering with a organizations that specialize in modern technology and program management of credit cards. There is technology available across all card management disciplines, including origination, credit decision making, processing, sales/servicing interfaces, detailed reporting, integrated rewards, marketing and risk management. Partners can provide expertise on policies and procedures that banks will require for the program. Community banks can launch and own credit card programs in 120 days or less with innovative turnkey solutions — no new hires required.

Considering the past challenges and perceptions about credit cards, it is no surprise that these misconceptions persist. But the future of credit cards for community banks is bright. Community banks armed with knowledge and foresight will be positioned for success in credit cards. Help from the right expertise will allow them to enhance their customer experiences while enjoying high profitability in the long run.

Defending Your Bank Against Cybercrime

Fraudsters always look for the path of least resistance.

Recently, the most vulnerable targets have been government funded pandemic relief programs. According to recent research from several academics, 15% of Paycheck Protection Program loans were fraudulent in the 18 months leading to August 2021, totaling $76 billion. And the U.S. Department of Labor reported $87 billion in unemployment benefit scams during that same period.

As Covid-19 relief programs wind down, fraudsters are redirecting their focus from government-backed programs to bank customers and employees. The latter half of 2021 saw an uptick in traditional types of cybercrime: identity fraud, ransomware, social engineering and money laundering. So, what can a bank do to keep itself safe?

Arm employees and customers with knowledge.
Share resources and stories to help employees and customers understand the risk of cybercrime, defend their devices and detect suspicious activity. Employees are the first line of defense; it only takes one breach to compromise an institution. Provide training programs to educate staff about the different types of financial crimes and detection mechanisms. In addition, take steps to heighten customers’ awareness of fraud trends through campaigns and educational programs. For example, it is important that employees and customers know how to verify host files and certificates, determine the difference between  valid and scam websites, store confidential information and private data on their devices and set-up their devices on different network servers to minimize damage in case of an attack.

Build financial crime programs.
Investing in fraud, anti-money laundering and cybersecurity tools without a long-term strategic plan is a futile and expensive proposition. It’s common for organizations to have strategic initiatives for digital delivery channels and customer experience, but lack a financial crimes strategy. Many financial institutions do not realize they need one until it is too late: they suffer a large loss that could have been prevented. Banks should first identify, evaluate and classify assets and risks and then build a program as part of the long-term business strategy rather than a disconnected component. This approach helps to recognize an institution’s vulnerabilities and launch the most effective defensive strategy.

Invest in modern defense technologies.
Encryptions, patching software, firewalls, multi-factor authentication and real-time monitoring systems are all part of the complex, multifaceted defense that mitigates the risk of an attack. There’s not a single solution that can do it all. For instance, early breach detection mechanisms act as a strong defense, sending alerts and implementing backup and recovery programs in the event of an attack. Artificial intelligence and machine learning technologies can go on the offense, analyzing customer behavior, tracking transactions and reporting on deviations from usual behavior in real-time. Adding workflows to automated alerts allows accountholders to be involved with challenging transactions, reducing the risk for errors down the line. The foundation of any security program is continuous monitoring and evaluation of vulnerabilities, defense technologies and risk plans.

Test your incident response plan.
It is vital to test the resiliency of plans with simulated fraud or cybersecurity attacks. Don’t underestimate the chaos that a breach will cause. Everyone at the bank, from directors and the C-suite to the branch managers, must understand and be comfortable with their role in mitigating loss.

Banks spend plenty of resources building sticky customer relationships, but fraud immediately breaks that bond. A research paper by Carnegie Mellon University found that 37% of customers leave their financial institution after experiencing fraud. When a customer account is compromised, the user needs to completely modify the information on that account, including direct deposits and utility payments. The lack of trust in their financial institution, coupled with the need to rebuild their account from scratch, pushes customers to shop for another institution.

As new technologies emerge and the financial services industry becomes increasingly digitalized, the risk of financial fraud also grows. Fraudsters are constantly evolving their strategies to take advantage of new vulnerabilities. To keep safe, banks need a top-down management approach that focuses on education, long-term defense programs, modern technologies and continuous testing. Customers expect a high level of security and fraud protection from their financial institution; if they don’t get it, they will look elsewhere. In order to grow and retain their customer base, banks need to have an upper hand in the war on bank fraud.

Use Cases, Best Practices For Working With Fintechs

Bank leadership teams often come under pressure to quickly establish new fintech relationships in response to current market and competitive trends.

The rewards of these increasingly popular collaborations can be substantial, but so can the associated risks. To balance these risks and rewards, bank boards and senior executives should understand the typical use-case scenarios that make such collaborations appealing, as well as the critical success factors that make them work.

Like any partnership, a successful bank-fintech collaboration begins with recognizing that each partner has something the other needs. For fintechs, that “something” is generally access to payment rails and the broader financial system — and in some cases, direct funding and access to a bank’s customer base. For banks, such partnerships can make it possible to implement advanced technological capabilities that would be impractical or cost-prohibitive to develop internally.

At a high level, bank-fintech partnerships generally fall into two broad categories:

1. Customer-facing collaborations. Among the more common use cases in this category are new digital interfaces, such as banking-as-a-service platforms and targeted online offerings such as deposit services, lending or credit products, and personal and commercial financial management tools.

In some collaborations, banks install software developed by fintech to automate or otherwise enhance their interactions with customers. In others, banks allow fintech partners to interact directly with bank customers using their own brand to provide specialized services such as payment processing or peer-to-peer transactions. In all such relationships, banks must be alert to the heightened third-party risks — including reputational risk — that result when a fintech partner is perceived as an extension of the bank. The bank also maintains ultimate accountability for consumer protection, financial crimes compliance and other similar issues that could expose it to significant harm.

2. Infrastructure and operational collaborations. In these partnerships, banks work with fintechs to streamline internal processes, enhance regulatory monitoring or compliance systems, or develop other technical infrastructure to upgrade core platforms or support systems such as customer onboarding tools. In addition to improving operational efficiency and accuracy, such partnerships also can enable banks to expand their product offerings and improve the customer experience.

Although each situation is unique, successful bank-fintech partnerships generally share some important attributes, including:

  • Strategic and cultural alignment. Each organization enters the collaboration for its own reasons, but the partnership’s business plan must support both parties’ strategic objectives. It’s necessary that both parties have a compatible cultural fit and complementary views of how the collaboration will create value and produce positive customer outcomes. They must clearly define the roles and contributions and be willing to engage in significant transparency and data sharing on compatible technology platforms.
  • Operational capacity, resilience and compatibility. Both parties’ back-office systems must have sufficient capacity to handle the increased data capture and data processing demands they will face. Bank systems typically incorporate strict controls; fintech processes often are more flexible. This disparity can present additional risks to the bank, particularly in high-volume transactions. Common shortcomings include inadequate capacity to handle customer inquiries, disputes, error resolution and complaints. As a leading bank’s chief operating officer noted at a recent Bank Director FinXTech event, improper handling of Regulation E errors in a banking-as-a-service relationship is one of the quickest ways to put a bank’s charter at risk.
  • Integrated risk management and compliance. Although the chartered bank in a bank-fintech partnership inevitably carries the larger share of the regulatory compliance risk, both organizations should be deliberate in embedding risk management and compliance considerations into their new workflows and processes. A centralized governance, risk, and compliance platform can be of immense value in this effort. Banks should be particularly vigilant regarding information security, data privacy, consumer protection, financial crimes compliance and dispute or complaints management.

Proceed Cautiously
Banks should guard against rushing into bank-fintech relationships merely to pursue the newest trend or product offering. Rather, boards and senior executives should require that any relationship begins with a clear definition of the specific issues the partnership will address or the strategic objective it will achieve. In addition, as regulators outlined in recent guidance regarding bank and fintech partnerships, the proposed collaboration should be subject to the full range of due diligence controls that would apply to any third-party relationship.

Successful fintech collaborations can help banks expand their product offerings in support of long-term growth objectives and meet customers’ growing expectations for innovative and responsive new services.

Is Your Digital Banking Sign Always On?

You’ve already heard the promises: The digital revolution is here, and it’s ushering in a new era of profitability, velocity and efficiency.

Or is it?

While you’ve likely seen your bank’s technology budget grow over the last few years, it may be harder to see how that spending translated into gains in business share, customer satisfaction or the bank’s bottom line. You may be hearing from frontline employees that operations feel more fractured than ever before. What’s wrong with this picture?

Your digital experience may be suffering from a chronic case of squeaky-wheel choices as competing objectives elbow for access to finite budget dollars and project resources. Improving online and mobile offerings may come at the cost of enhancing digital lending capabilities. Operational efficiencies — a grab bag that can include any number of disparate automation tools intended to reduce cost and improve productivity — may take dollars away from compliance and risk management. You’re not building your digital business from scratch; you’re methodically replacing and upgrading components across your technology stack. But as long as you still have static data siloes and bifurcated systems in your operational mix, your digital service will collide with stopping points that interfere with a smooth user experience.

Bank transaction supply chains are likely the result of decades-old decisions and solutions so entrenched within the operation that it feels inevitable. Reimagining the end-to-end solution requires a fresh look at some previous assumptions and a fresh look at the ecosystem of fintech partners. Executives need to determine if their providers and partners are willing to collaborate to identify and address digital stopping points.

One of the most revealing questions banks can ask their providers is about their own investment strategy. How much are they putting back into the development of their own solutions? Small, ongoing investments mean that your partners are spending money on things that don’t sustainably deliver benefits to your bank. It also means they aren’t looking ahead to solve the next round of technology challenges. If their CEOs aren’t actively positioning their solutions for future viability, then you may have found the weak links in your own supply chain.

The customers your bank is trying to reach want speed, ease of use and mobile enablement in everything they do, whether it’s one-touch shopping on Zappos or depositing a check into their savings account. While these requirements have defined consumer preferences in retail segments for years, they arguably define consumer preferences in every segment following the quick adaptations the industry made in digital banking in response to Covid-19.

The dream of 24/7/365 banking requires a precise definition of digital: always on. Not “mostly on” until your bank needs a compliance update. Not “pretty much on” until you need to manually advance the loan in the loan origination software or collect physical signature cards. Interconnected services are critical to the always-on digital experience.

Your digital offer should take its inspiration from innovative disrupters outside of the financial industry, like Uber Technologies and Netflix that rewrote the delivery and service aspects of their products with interconnected, cloud-based systems. Your bank needs to be able to deliver to customers, regardless of whether someone is sitting at your service desk. Static and bifurcated systems are, by definition, unconnected, and need human intervention for updates to keep you in business.

As your bank continues to invest in technologies to deliver digital banking, make sure you focus on the end game for your customers. Digital must be as reliable as turning on a light switch. Interconnected, cloud-based systems from partners who are looking forward with you will help you get there more quickly — and with fewer headaches.

FinXTech’s Need to Know: Direct Deposits

For many banks, direct deposit information is the key that turns a new account into a long-term successful primary relationship.

Direct deposit is a conduit to a customer’s life — and their information. Customers tend to use the account that receives their income; accounts without these recurring deposits risk sitting idly.

However, most customers don’t actively think about their direct deposit account. It’s not table stakes after they open the account; it doesn’t make or break their banking experience. But for banks, it’s crucial they get customers to switch. Research from Harland Clarke and Javelin Strategy & Research in 2017 found that 81% of bank customers who received a paycheck used direct deposit; of those customers, 91% used only one financial institution for it.

Banks with technology that makes it easier for customers to switch their direct deposit over when opening a new account have an edge in the fight for primacy.

Some of the financial technology companies that offer this type of solution — Atomic FI, Argyle, Pinwheel and ClickSWITCH, among others — can embed it directly into a bank’s digital banking interface. Customers have a self-servicing option, and bankers can use the tool on the back end. And, when opening a new bank account, it can automatically prompt customers to switch over their direct deposit as part of the account setup.

There is room for banks to improve in this area. Harland Clarke and Javelin also noted that out of those that opened a checking account between 2016 and 2017, only 70% recalled being asked to switch over their direct deposit enrollment.

Application programming interfaces (APIs) facilitate the actual switching of accounts. The APIs, which function as passageways between software systems that enable data exchanges, can also be used to verify income and employment data, which can help the bank identify other products the customer might qualify for.

In addition, some fintechs also offer a service called “paycheck linked lending,” which allows bank customers to pay their loans directly from their paycheck before it’s deposited into their account.

Newer digital startup banks — or neobanks — may have these types of tools built into their infrastructure. But for many smaller or community banks, the act of switching direct deposits is still a highly manual task that falls primarily on the customers, which could deter them from making the switch.

Here are five benefits a bank could experience by implementing a direct deposit switching tool:

  1. Capture more customer data. As customers switch their direct deposit, banks have an opportunity to collect more income and employment data to use in marketing campaigns and fraud detection.
  2. Automate manual tasks for both the customer and bank. APIs handle the account switch once the customer gives them permission to do so.
  3. Cater to customers in the gig economy workforce. Customers can switch one or multiple direct deposits to your bank, or split their paychecks to go to multiple accounts.
  4. Cut the time it takes to switch direct deposit accounts. APIs can conduct changes and verify data in real time — no paper forms involved. Atomic FI claims that its switches can take effect within a customer’s current or next pay cycle.
  5. Create stickier relationships with new and existing customers. Capturing direct deposits jumpstarts account activity and longevity with customers. If a customer considers your bank their primary financial institution, they may be more likely to turn to the bank for other services.

Q2 Software, the digital banking provider that acquired ClickSWITCH in April 2021, has an online ROI calculator to demonstrate the potential growth banks could see in adding a direct deposit switching tool.

It’s never been easier to open a new bank account. But newly opened accounts don’t promise a source of activity and recurring deposits. If your bank has never incorporated direct deposit as a key step in the customer acquisition process, now may be the time to reconsider.

Argyle and ClickSWITCH are included in FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email finxtech@bankdirector.com.

3 Ways Customer Data Benefits Financial Services

The financial service sector has seen sweeping changes in the past few years, due in large part to breakthroughs in technology and adaptations made in response to the pandemic, and banks are under a tremendous amount of pressure to cater to customers whose wants and expectations are dramatically different from before.

For financial firms to succeed, they must embrace digital transformation and set their strategy based on analyzing and using the mass of data at their fingertips. This data can help them in three crucial ways.

1. Gaining a deeper understanding of clients to cater to their needs

Banks, more so than other companies, have enormous datasets to wrangle. Every swipe someone makes with their debit or credit card is a piece of transactional data for financial companies — not to mention engagement with banking apps, calls to service centers and visits to branches. If banks are able to organize the data properly, they can understand their customers, predict their needs, personalize interactions and more.

No matter if you’re a boutique bank, or a large well-known brand — the key to success is customer loyalty, and that can be fostered by a positive experience. Customers expect their banks to predict their needs and tailor their interactions. With legible customer data, banks can identify and predict trends in customer behavior and create personalized approaches. Historically, banks have been more product-centric, for example focused on pushing credit cards or specific types of accounts. To build value, firms should move toward customer-centricity and concentrate on building brand value. This extra effort will result in happier customers, skyrocketing loyalty and retention, higher engagement and conversion rates and a more substantial return on investment.

2. Connecting with customers at pivotal life moments

Financial services is a lifecycle-based sector. To effectively serve customers, banks must understand what products and services will be of use to their clients at what stage in their lives. Customers don’t make big financial decisions when their banks want them to, but rather when pivotal life moments happen, such as marriage, moving out of state, or purchasing a home. By examining their data, banks can look at different indicators like customer engagements with other products or spending patterns, to anticipate important life events and prepare a product or offer for them in the right time frame.

3. Building a stronger business

If banks can form a complete view of their services based on customers’ usage and transaction data, they can discover where they fall short and how they can improve their business across multiple dimensions. There are many use cases that fall under the data and analytics category: Brands can develop new products and services, have better risk management capabilities and save money with more efficient internal operations. Using data even extends to financial investments: Brands can predict how the market may move and decide which companies or stocks to invest in.

Unlocking the potential of customer data in financial services depends on having a solid foundation of customer data. With that in place, banks can make informed decisions to drive adoption, increase revenue and boost customer satisfaction. But first, they must collect, clean, combine and analyze internal and external data from a variety of different sources. Without the right tools and guidance, this can be quite difficult, and often trips banks up; this is where a customer data platform (CDP) comes in.

A good CDP will help a bank make sense of messy data and turn it into valuable insights, allowing financial service companies to fuel their marketing efforts, cut back on costs and serve their customers better.

The Next 5 Years in Banking Is Plumbing

Of the 1,400-plus people wandering the halls of the JW Marriott Desert Ridge Resort and Spa in Phoenix last week during Bank Director’s Acquire or Be Acquired Conference, more than half wore ties and suit jackets. Roughly a quarter sported sneakers and hoodies.

Bankers mingled with fintech entrepreneurs in sessions on bank mergers and growth, followed by workshops and discussions with titles such as “Curating the Right Digital Experience for Your Customers.” It’s an embodiment of the current environment: Banks are looking to an increasing array of financial technology companies to help them meet strategic goals like efficiency and improved customer experience online and on a mobile device.

Investors are pouring money into the fintech sector right now, a spigot that is fueling competition for banks as well as producing better technology that banks can buy. Last year, venture capitalists invested $8.7 billion on digital banking, credit card, personal finance and lending applications, more than double the amount the prior year, according to Crunchbase.

At the conference, venture fund managers filtered through the crowd looking for bankers willing to plunk down money for funds devoted to start-up fintech companies. Many of them have found willing investors, even among community banks. In Bank Director’s 2021 Technology Survey, 12% of respondents said they had invested directly in technology companies and 9% said they had invested in venture funds in the sector. Nearly half said they had partnered with a technology company to come up with a specific solution for their bank.

It turned out that an M&A conference goes hand in glove with technology. More than half of all banks looking to acquire in Bank Director’s 2022 Bank M&A Survey said they were doing so to gain scale so they would have the money to put into technology and other investments.

“The light bulb has gone off,” said Jerry Plush, vice chairman and CEO of $7.6 billion Amerant Bancorp in Coral Gables, Florida, speaking at the conference for fintech companies one floor above, called FinXTech Transactions. Directors and officers know they need to be involved in technology partnerships, he said.

Even longtime bank investors acknowledge the shifting outlook for banks: John Eggemeyer, founder and managing principal of Castle Creek Capital, told the crowd that the next five years in banking is going to be about “plumbing.”

However, cobbling together ancient pipes with new cloud-based storage systems and application programming interfaces has proven to be a challenge. Banks are struggling to find the skilled employees who can ensure that the new fintech software they’ve just bought lives up to the sales promises.

Steve Williams, founder and CEO of Cornerstone Advisors, said in an interview that many banks lack the talent to ensure a return on investment for new bank-fintech partnerships. The employee inside a bank who can execute on a successful partnership isn’t usually the head of information technology, who is tasked with keeping the bank’s systems running and handling a core conversion after an acquisition. Engaging in a relationship with a new fintech company is similar to hiring a personal trainer. “They’re not going to just deliver you a new body,” Williams said. “You have to do the work.”

He cited banks such as Fairmont, West Virginia-based MVB Financial Corp. and Everett, Washington-based Coastal Financial Corp. for hiring the staff needed to make fintech partnerships work.

Eric Corrigan, senior managing director at Commerce Street Capital, said banks should consider whether their chief technology officer sits on the executive team, or hooks up the computers. “Rethink the people who you’re hiring,” he said.

Jo Jagadish, an executive vice president at TD Bank who spoke at the conference, has a few years of experience with bank/fintech partnerships. Prior to joining TD Bank USA in April 2020, she was head of new product development and fintech partnerships with JPMorgan Chase & Co. “You can’t do your job and a fintech partnership on the side,” she said in an interview. “Be focused and targeted.”

Jagadish thought banks will focus the next five years on plumbing but also improving the customer experience. Banks shouldn’t wait for the plumbing to be upgraded before tackling the user experience, she said.

Cornerstone’s Williams, however, thought the work of redoing a bank’s infrastructure is going to take longer than five years. “It’s going to be a slog,” he said. “The rest of your careers depends on your competency in plumbing.”

Plumbing may not sound like exciting work, but many of the bankers and board members at the conference were happy to talk about it. Charles Potts, executive vice president and chief innovation officer for the Independent Community Bankers of America, said that fintech companies and their software can put community banks on par with the biggest banks and competitor fintechs on the planet. Nowadays, community banks can leverage their advantage in terms of personal relationships and compete on the technology. All they have to do is try.