In September 2017, Amazon.com’s patent for “1-Click” checkout lapsed. It was a foundational moment in e-commerce. Waves of digital retailers streamlined their purchasing processes. The moment reframed customer expectations. And meeting those expectations became a matter of survival.
Simplifying the checkout process, Amazon chairman and CEO Jeff Bezos believed, would reduce cart abandonment and increase conversion rates — the percentage of shoppers who complete the purchasing process. Cart abandonment is a huge problem in retail, where an estimated 69.5% of digital carts go unclaimed.
Online merchants of books and sweaters aren’t the only businesses that need to care about this; banks do too.
Customer expectations are fluid, flowing from one industry to the next. Amazon and other tech giants set the standard for the digital experience; banks and other companies must now follow it. Customers expect to acquire their new credit card as easily as they can download the latest Taylor Swift album.
Banks may not obsess about cart abandonment and conversion rates to the extent that other e-commerce companies do, but the same concepts apply to making loans and attracting deposits over digital channels. That’s why the principles of modern design are so important. Taking cues from companies like Amazon isn’t just a best practice; increasingly, it’s a matter of success and failure.
The report unpacks mobile bank design: why an attractively designed experience will be critical to growing engagement, and the processes that have guided regional and community banks in creating their respective apps. It includes:
The rise of mobile banking
An overview of key features and functions
How modern design affects usability
Q&A with USAA’s chief design officer
A digital checklist to evaluate a bank’s offerings and approach
The story in the iconic movie, “It’s a Wonderful Life,” is one that a lot of bankers can relate to.
The obvious connection: The protagonist, George Bailey, is a banker. But bankers can also see themselves in the tough choices George faces throughout the movie. Over and over again George must decide between taking the easy way out or doing something that’s more difficult, but which he knows in his heart is right. The banking industry currently finds itself in a similar tricky situation.
After years of new regulations and low interest rates, growth and earnings are hard to come by. To cope, banks have looked inward, focusing on cost-cutting and regulatory compliance, often at the expense of their customers. This frequently manifests itself in the most important discussion there is between a bank and their commercial customers: the negotiation of loan pricing.
Focusing on better pricing means shifting priorities at banks and doing some very difficult work in the immediate future. It’s a hard path to follow, but it’s the right choice; the one George Bailey would make. Banks that elect to take this route must learn to avoid three common mistakes when it comes to pricing loans.
1: Focusing on the Math, But Not the Execution Truly successful pricing has two dimensions: Price setting and price getting.
Price setting is the math of determining what price is appropriate given the structure and risk profile of any particular deal. Most banks do fairly well with this dimension.
Price setting covers everything from the communication of the math from the back of the bank to the front, to the negotiation between borrower and lender. Many banks continue to struggle with this dimension. To make matters worse, when their pricing isn’t working, they always turn to the math to find a solution. The bottom line is that you can’t “out-math” the competition. You have to be better at the price getting aspect, which is all about how you interact with and serve your customers.
2: Opting for “Let Me Check With My Boss” To that end, the first issue banks should focus on is moving the pricing decision closer to the customer. In most loan negotiations, the lender knows the starting point (i.e. the desired outcome) of the deal. However, once the customer pushes back on the pricing, the lender does not know how to reach the target profitability without losing the deal, and has to resort to the classic car salesman line of “Let me check with my boss to see if we can do that.”
Generally, the lender and borrower will discuss a price and structure, and then an analyst will input the deal into a pricing model. The deal is being measured on a pass or fail basis. If the deal fails, the bank must either go back and re-trade everything with the customer, or, more likely, just decide to take less on this deal, and “try to do better next time.” The only fix for this issue is to move the decision closer to the customer. The lender should be measuring against targets, and have the ability to negotiate on the fly while the customer is sitting in front of them.
3: Making It “All About the Rate” Part of that negotiation will, of course, be about interest rate. It is the most visible and contested part of the deal. It is also the “sticker price” from your competitors when borrowers start shopping.
However, the great thing about commercial loans is that all aspects are negotiable, and they all move the needle in terms of risk and profit. Why not make that 60-month balloon a 55-month balloon to remove interest rate risk? Why not add collateral to reduce expected loss and provisions? If the lender can easily see what all of those terms are worth, they can trade any of them for rate.
In today’s world, customer expectations have changed. They are used to being able to get what they want, when they want it. They expect the same from their bank, and this is the best way to provide that. Give your lenders the ability to custom build financing for their customers in a responsive way, and you will earn the higher returns that you seek.
Just like in the movie, “It’s a Wonderful Life,” your tough choice will lead to a happy ending for everyone involved.
There is unprecedented change afoot in the banking industry. Technology is rapidly evolving and it’s changing consumer expectations about how banks should be serving them.
The ubiquity of mobile devices and tablets has changed the banking business forever. An example of how quickly technology is transforming our lives can be seen in your own board room. Two years ago, boards used printed materials for meetings. Now, almost all my clients are using tablets to access board meeting materials.
Community banks, in particular, have been slower to embrace technology as a means to interact with and serve customers. In doing so, they risk becoming obsolete. Directors and boards will need to stay on top of this sea change and work with senior management to address it.
Below are some key issues for directors and boards of community banks to consider and discuss with senior management.
Customer Loss Versus Investment Return
The debate inside community bank boardrooms about offering the latest customer-focused technology applications often hinges on whether there is an adequate return on investment (ROI). That, no doubt, is a legitimate question, given the current economic climate and the industry’s profit profile. But the debate needs to go beyond whether the expense is prudent or even if these new tools can actually connect consumers to the bank in faster, more immediate ways.
More to the point, if a bank isn’t already actively working out how to offer these solutions, it may become marginalized by only offering products and services that have become commodities.
The traditional banking products—credit, savings and payments—are necessary ones. But what those products look like and how we interact with our customers is going to change drastically and will be radically different from the services offered today. When trying to recently describe how a passbook worked to my children, I realized that the days are soon coming when it will be just as difficult to describe the concept of a checkbook.
Bank boards will need to engage in active discussions about how and when to offer the new tools customers are demanding, whether those products be remote deposit capture, person-to-person payments, mobile check deposit, “picture pay’’ for bill paying, and remote re-loading of pre-paid cards. Fundamental to survival in our rapidly changing industry is the ability of community banks to leverage their existing strong customer connection in an age when visits increasingly are digital.
Deciding on a course of action, of course, will require careful thought and a solid plan, but it is critical to understand that it would be a costly mistake to wait until these new technologies can cost justify themselves. Customers will simply find another bank that offers what they want.
Evaluate Bank Branch Strategies
Directors and boards also need to assess how these new technology offerings may impact bank branch strategies, where ROI often is a huge consideration. Offerings like remote deposit capture and mobile check deposit can reduce branch traffic as customers no longer need to visit a branch to conduct tasks now enabled by technology. This presents an opportunity to evaluate whether or not real estate and staff expenses can be reduced and offset the costs of technology implementation.
Other technologies such as virtual customer service—where a customer interacts with a service representative based in a remote location via a kiosk that is physically located in a branch—also are impacting branch staffing needs.
Realize Benefits of New Capabilities
Rolling out these new technological capabilities for consumers also can provide hidden benefits. Data generated by the use of these technologies can be harnessed so that community banks can generate actionable insights. For example, a community bank can monitor how frequently a customer remotely re-loads a prepaid card along with the amounts being loaded. If the amount reaches a certain threshold, the bank might consider offering this customer a checking/debit account or another product.
Directors and boards need to know if their community banks have the ability to collect and analyze this data in a meaningful way. If not, community banks can either build in-house capabilities or use external providers.
Take the Road Less Traveled
Community banks that continue to turn a blind eye towards new technology may be on the cusp of irrelevance.
The challenge will require a wholesale shift in the way a community bank conducts business. The issue revolves around how the bank’s board and the bank’s management behave— how the organization goes about the business of banking.
Our industry must heed the hard lessons learned from other industries—such as the print media and music distribution—that failed to adjust to new technological advances that eradicated their long-held business models overnight.
The model that defined our industry for generations has now been turned on its head. The road to transforming your community bank won’t be short. But, it’s a road that must be taken.