Keeping Deposits for the Long Term

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Promotional interest rates can help raise deposits in the near term, but yield-seeking customers won’t necessarily stick around for long, says Slaven Bilac, CEO at Agent IQ. Community banks that have long thought about banking as a relationship-driven business can tap into that mindset for holding onto deposits. But the tools banks adopt to meet customer needs more efficiently should also maintain a human touch.

Topics discussed include:

  • Promotional Rates’ Impact
  • Measuring Loyalty, Engagement
  • Person-to-Person Support

The Digital Customer Experience

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The digital customer experience is a critical component to staying competitive today. Bank customers are consumers first, and their expectations are being shaped by tech companies like Apple and Uber, says Brian O’Neill, chief client officer at Numerated. To improve the digital experience for customers and boost customer loyalty and retention, bankers should focus on creating experiences that make it easier for customers to manage their financial lives, by making payments or applying for loans.

Topics discussed include: 

  • The Competitive Landscape 
  • Measuring Customer Satisfaction
  • Simplifying Financial Transactions 

Using Your ‘Why’ to Navigate Change Successfully

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Investing in change is expensive. Besides the financial aspect, change can drain a financial institution’s resources and severely impact internal processes. The reality is that change is often necessary to continue providing the best experience for both customers and employees. Bankers must invest time, effort and money into selecting the technology partners that will solve a crucial pain point in their organization.

Step 1: Identify Your Common Force
There are four common forces that prompt a bank to invest in a new partner or technology. Depending on which force is driving the decision for change, executives need to prioritize different factors when evaluating potential vendors.

When systems change: When banks change one major technology — whether a core, payment vendor or online banking solution — it has a ripple effect across their other technologies, relationships and processes. Banks often use this opportunity to change or update their other technology partners to create a more cohesive end-user experience that integrates with the new system. They have to ensure that their vendors can handle that new system.

When there is an urgent need: Banks that have a vendor relationship that does not work well with their own internal workflow can be another force for change. This dysfunction can ultimately result in the bankers being forced to step in and help complete responsibilities because the vendor isn’t able to meet expectations. Instead of gaining resources and offering the best end-user experience, the bank focuses its time and effort on putting out fires.

When a solution is under review: New leaders or new managers can be an impetus for change, as they seek to understand their vendors better, evaluate their value and look for where they have efficiencies and where they do not. What benefits do different vendors bring the bank in simplifying and decreasing manual operations? Is this vendor improving efficiency so that end users have the desired experience? This force is more proactive and prompted by an evaluation where the opportunity for change is not a mandatory given. This review of vendors is important for financial institutions to do because it could uncover issues that have yet to reach a pain point level and can still be addressed.

When a vendor impacts the institution’s reputation: Occasionally, banks do not receive the high-quality experience they expect from their vendor and seek change to maintain their reputation. The end product does not feel competitive or has caused errors for its customers, which hurts brand perception and loyalty. Like the previous force, changing vendors before things escalate gives the bank much more power and flexibility to choose the best partner in a timeline that works for them.

Step 2: Ask the Right Questions
Bankers must evaluate their vendors based on their current common force. They must first identify why they need to change. What are they trying to solve? Then, they can leverage that pain point to develop questions for potential new partners based on the root issue impacting their situation.

Questions like, “How do you integrate with our vendors?” or “What does our daily engagement look like?” or “How do you guarantee your process?” can help executives evaluate vendors more efficiently.

Vendors want to avoid viewing themselves as replaceable. The truth is, there is a lot of competition out there, and not a lot of difference between solution offerings. Bankers need to know what to ask to get a solution that meets their needs and addresses their deeper concerns.

Peeling back the onion that is a bank’s current workflow might cause tears, but that is the only way executives can solve vendor issues that impact the institution’s transformation, improve the end-user experience and continue to stay competitive.

What’s Possible for Community Banks Through Fintech Partnerships

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Banks can accelerate their digital transformations by partnering with innovating firms that were built to tackle issues banks have previously found difficult to address. APIs, cloud platforms and artificial intelligence have opened new opportunities for banks to compete and offer innovative digital experiences. Here, we offer concrete examples of what’s possible through successful fintech partnerships and examine key regulatory considerations.

  • Enhancing Customer Experience. Collaborating with fintech firms can give banks access to cutting-edge technology, enabling seamless digital experiences and personalized services for customers. SF Fire Credit Union in San Francisco partnered with Bay Area fintech Finalytics.ai to create personalized digital experiences. Josephine Chew, chief marketing officer at SF Fire, shared the credit union’s challenge in competing with 132 other financial services organizations in the Bay Area. The platform allowed the credit union to personalize the experience within their website to target specific personas. Josephine noted that the personalization that comes from the platform has resulted in an “application completion rate…five and half times better” than without it.
  • Accelerating Innovation. The agility of fintech startups allows community banks to implement new solutions quickly, reducing the time needed to bring innovative products and services to market. When $568.2 million The Cooperative Bank partnered with Carefull after recognizing the growing vulnerability of its elderly customers to scams. Carefull’s platform uses advanced AI technology to scrutinize transactions and banking activity to detect changes that could indicate potential scams or errors and alerts the customer and/or their designated financial caregiver. Peter Lee, CIO of the Roslindale, Massachusetts-based bank, notes that “TCB was not alone when we discovered a lack of digital tools to protect our most vulnerable customers — our aging community.”
  • Expanding Product Offerings. Partnerships with fintech firms enable community banks to integrate third-party solutions, offering a more comprehensive range of financial products. We hear from community and regional banks that a challenge they have is how to do relationship banking, which underpins their strategy, in the age of digital. Iowa-based American State Bank partnered with fintech The Postage to build and strengthen relationships with customers and families ahead of major life transitions. Tamra Van Kalsbeek, American State’s digital banking officer, “sees The Postage as a way the bank cares for its customers while gathering deposits and connecting with different family members. It also allows the bank to attract business without competing on price,” according to the piece.

EPAM’s own Chris Tapley, vice president of financial services consulting, is quick to point out that “regional and community banks are nearing a crucial inflection point. They can either forge the necessary fintech partnerships to deliver the services and experiences customers demand, and thereby optimize for growth, or they risk potentially exposing themselves to acquisition from larger, more established players in the market.”

While the opportunities for benefits from banking and fintech partnerships are huge, we cannot forget that regulators are increasingly focusing on risk mitigation and potential client impacts. The latest U.S. regulatory actions include:

  • Recently, U.S. federal banking regulators issued final guidance to help banks manage risks associated with their third-party relationships. The guidance supersedes existing guidance from the individual regulators. The impetus of the updated interagency guidance is the growing number of relationships with fintech firms. While the guidance is general for all third-party relationships, it reflects an understanding of arrangements that go beyond the traditional vendor relationship. The guidance is arranged along a third-party relationship life cycle, from planning and due diligence through monitoring and termination.
  • On Aug. 8, the Federal Reserve announced the creation of novel activities supervision program. The program will focus on novel activities related to crypto-assets, distributed ledger technology (DLT) and complex, technology-driven partnerships with nonbanks to deliver financial services to customers.

The announcement defines complex technology-driven partnerships as partnerships “where a nonbank serves as a provider of banking products and services to end customers, usually involving technologies like application programming interfaces (APIs) that provide automated access to the bank’s infrastructure.” The novel activities supervision program will be risk-based and applies to all banking organizations, including those with assets of $10 billion or less.

The program consists of heightened examinations leveraging existing regulatory agencies and processes, based on the level of engagement in novel activities. Organizations that fall under these reviews will receive a notice from the Fed.

Banks will want to make sure that their fintech partners are well-versed in the guidance and this newly announced program to ensure that they understand how to navigate compliance and risk management rules that banks put forward.

Community and regional banks have a tremendous opportunity to transform their digital futures through fintech partnerships. The path to digital success may present challenges, but community banks have a way to revolutionize their offerings and secure a prosperous future in the digital era.

Showing Up for Small and Medium Business Customers

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For many small and midsized business (SMB) owners, navigating finances feels overwhelming amid inflationary and recessionary threats and uncertainty spurred by high profile bank collapses. Their customers are increasingly demanding digital services, which puts the financial burden on these businesses to acquire data-driven technology to satisfy customers and gain market share — without breaking their budget.

Can banks deliver this to their small business customers without losing the personal service they love? Absolutely! It starts with banks examining their technology stack and scrutinizing how they show up for SMB clients.

There are 33 million small and medium businesses, according to the U.S. Chamber of Commerce. But only about 33% of these businesses feel like their primary financial institution understands and appreciates them, according to data published in Forbes; the Federal Reserve found that fewer than half say their credit needs are being met.

“While this isn’t a new opportunity, it is growing, thanks in part to big banks capturing clients and then underserving their needs,” said Ryan Sorrels, Chief Operating Officer at Nymbus.

In a time of financial uncertainty, client-centric banks are examining their current tech offerings and ramping up ways to partner in their success. Is your financial institution ready to tackle these best practices?

Invest in Tech Tools to Fuel SMB Success
Recent data indicates that 41% of SMBs are looking to use digital banking services. They need the infrastructure for their customers to buy from and engage with them digitally; at the same time, they have to acquire tech to make data-driven marketing and business decisions. Banks can relieve the pressure on both ends for SMBs. Banks with a tech stack tailored for SMB needs can partner in their success by helping to grow their market share and revenue, which increases their deposits and transactions.

Locality Bank, based in Fort Lauderdale, Florida, is an example of a community bank that delivers digital banking solutions for local businesses. Through their online tools, Locality Bank gives South Florida businesses options to open accounts, communicate with the banking team and manage cash flow in one place.

“We’ve taken a fresh approach to community banking that has been underserved for far too long,” explained Locality Bank Cofounder and COO/CTO Corey LeBlanc. “The technology we have in place enables us to be hyper-focused and adjust on the fly to best serve our customers.”

Dallas-based Comerica Bank is another institution that leverages its tech stack to help SMBs gather industry-specific market data. Through its free online tool, SizeUp by Comerica, SMB owners can get insights like local consumer spending data and how they rank against competitors.

“We are dedicated to helping small businesses reach their goals,” said Omar Salah, Comerica Bank’s director of small business banking. “This resource has the ability to make a significant impact on the growth trajectory of small businesses and aspiring entrepreneurs across the country.”

Advocate for Stability and Growth
In an uncertain economy, SMB owners need reassurance that their banks are in their corner and financially sound. The Harris Poll reports that about 25% SMBs have considered moving their accounts to a different bank in the wake of the SVB and Signature Bank collapses.

Is your bank feeling this strain? Think about how your institution can show up as an advocate to fuel SMB owners’ confidence in growth steps in an uncertain economy.

Citizens Bank of Edmond is a great example of this. Having served its Edmond, Oklahoma community for 120 years, launching SMB growth opportunities such as a coworking space, extended bank lobby hours and the first “bankerless” bank in their market, which offers on-demand rolled coin machines and deposits — a much-needed service for local restaurants, bars and cafes.

“While [Silicon Valley Bank] had over 90% in uninsured deposits, Citizens Bank of Edmond has just 9%,” said Jill Castilla, CEO of Citizens Bank of Edmond. “Our bank has on-balance-sheet liquidity to meet every cent of our uninsured depositor balances.”

Small businesses with strong banking relationships experience better loan terms and higher credit availability. Just as the local coffee house knows your order before you get to the counter, community banks have a history of knowing what their customers need to thrive.

Now is the time to lean into your bank’s legacy of transparency, stability and customer-centric communication. And at the end of the day, helping small business owners find their path builds confidence in your bank’s role as a reliable long-term partner.

Advancing Toward Operational Excellence Faster

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In a perfect world, every banking organization would achieve operational excellence.

Unfortunately, the time-consuming realities of day-to-day operations can get in the way of working toward long-term goals. Pushing through those perceived boundaries will position your company to face whatever challenges arise in the form of competition, regulation changes or market pressures.

The industry-wide desire to attain operational excellence doesn’t yet matching the effort needed to get there. An overwhelming majority of banking CEOs — 74% — reported that continuing to quickly drive digital transformation is critical to staying ahead of the competition, according to a 2022 survey by KPMG. But 46% say they have paused or reduced this vital undertaking. This presents an opportunity for those who resolve to prioritize digitization to actually lead in their space.

Operational excellence isn’t merely a goal that banks reach and check off the to-do list. It’s a mindset that requires dedication to continuous improvement to meet key objectives:

  • A consistently excellent customer experience.
  • Positioning for agility in response to market conditions.
  • A culture that emphasizes employee confidence and job satisfaction.
  • Financial stability and growth.

Assuming the occupants of the C-suite are on board and have identified and agreed on the key performance indicators of success, the logical question is: Now what?

  1. Empower employees to share their experiences and best practices for their jobs. Ask them to identify silos, point out where staff is putting in the most effort for the least amount of return, and isolate pain points that emerge as they respond to customer inquiries.
  2. Develop or augment the organization’s knowledge management (KM) system. Employee input is helpful at this stage to reveal and deal with duplications and omissions.
  3. Translate the information to an all-in-one, cloud-based KM software solution. Undoubtedly, the KM software experts have seen it all before and are more than happy to lead a collaboration with a bank on this essential step.
  4. Implement the software. Once live, it’s an ongoing process; commit to making necessary revisions and updates.

Bank executives often cite budget concerns as a barrier to improvement. But the price tag for not moving toward operational excellence is much higher: loss of market share due to flagging competitiveness, more customer churn and a higher rate of staff attrition. For banks, tolerating the status quo here is like continuing to dust the furniture while the roof leaks water in every room.

Time spent on training also chews up precious staff hours; the best KM software solution can help with that. It can double as a scenario-based training program that helps reduce onboarding time and brings employees to proficiency faster, using real, on-the-job situations.

You might also want to consider adding an element of intelligent automation, or IA, you’re your internal processes. Often confused with artificial intelligence, or AI, IA helps by assuming responsibility for predictable, routine tasks — making employees available to accomplish more high-value work.

AI isn’t likely to replace all human agents, but various apps are already capable of handling duties, including streamlining processes and dealing with what might otherwise become piles of paperwork. Advancing toward operational excellence is simply paramount for a banking organization so it can position itself for the long run in the competitive industry. Happy clients stick around, as do cheerful employees — all of which contribute to a bigger bottom line. Aiming for perfection ultimately saves time and effort, by working smarter, not harder, in this imperfect world.

Are You Giving Customers What They Value?

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How often do your bankers give customers exactly what they ask for — instead of what they really need?

Most bank executives say meeting customer needs and providing excellent customer service is their top priority. But that doesn’t necessarily translate into a customer-focused mindset in practice.

As changing external factors and heightened competition create new pressures on banks to expand their market share and find new paths to growth, a product-centric mindset that is mostly focused on selling businesses loans or lines of credit isn’t enough. Business leaders have myriad needs and are looking for trusted, personalized advice on everything from reducing their operating costs and minimizing fraud to improving cash flow. They’re not interested in listening to product pitches; they want help making smart decisions for their businesses.

But bankers can’t make these recommendations and create value that matters to their customers until they understand the situation. Just like physicians, bankers need to diagnose before they can prescribe. And for many of your employees, this will require not just new skills but a mindset shift as well.

Beyond the Product Lens
Bankers often struggle to deliver a consistent, holistic experience for customers across channels because they run up against a powerful mental barrier: an aversion to being viewed as “selling.” One bank employee told us that the word sales “makes me buckle at the knees.”

This negative association with selling surfaces in a number of ways, from a reluctance to call customers to a lack of commitment to activities that could increase the bank’s wallet share. Bankers may know they should be able to do more business with certain accounts or that they “need to knock on more new doors,” but they don’t do the things that will make a difference. Instead, they have a conversation or send an email, run through all the products and leave it at that.

Many bankers have personal relationships with the business owners they work with; the last thing they want to do is badger them into buying something. The question is, why do they equate sales with product pushing?

The answer is simple: Many banks haven’t moved beyond a product-focused lens. Metrics such as number of products per customer aren’t driven by what the customer needs, they’re simply goals the banker needs to hit.

But the banks and bankers that are successfully growing and building loyal customer bases approach selling as a higher level of service. Instead of thinking they’re intruding or bothering the customer, these bankers operate by the mantra, “If I can make a difference, then I have an obligation to help.” As a result, they ask good, relevant questions and help the customer make purchasing decisions that are in the customer’s best interests.

Differentiating the Experience
Especially in times of economic uncertainty, bankers need to feel equipped to talk to customers about their businesses and concerns, probing deeper to understand what is most important to them and what will create the most value for them. Often, customers don’t know what they need until they’ve had the chance to talk it through. While it’s natural to be excited about sharing a new product, the real value bankers add for customers is by creating a space for that conversation and serving as true partners and consultants.

As customers engage in more face-to-face interactions, bankers have to make those experiences count. When they have the opportunity to talk with customers, they need to not only help with the immediate problem, but also find out what other issues they might be able to assist with.

This means your bank needs to have a common language across the institution, so customers have a seamless, consultative experience at every touch point. Customers aren’t receiving the best service if their banker doesn’t understand where they are, what’s next and how the bank can help achieve their goals. Everyone in the bank needs to understand this. Invest in developing your people and ensure managers know how to use positive coaching to reinforce this mindset shift.

Whether it’s in commercial or retail banking, your customers have pain points and questions. Your bank’s job is caring enough to ask. Commit to doing the right thing for your customers. Your bankers will have greater purpose in what they do, and they’ll consistently be able to create more value — for their customers and for the bank.

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

Tailoring Payments for Small Business Clients

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Financial service firms tend to focus their products and services on large companies, ignoring the small and medium-sized businesses (SMBs) that make up 99.9% of all businesses in the US.

These businesses are significant players in the economy, driving growth and operating across all industries. While their impact is huge, the financial needs of SMBs are different from big businesses. There is a growing demand for financial institutions to deliver customized and cost-effective digital solutions for these businesses and their customers. A financial institution that succeeds in meeting SMB needs will increase customer retention, attract new clients and strengthen their reputation.

Many financial institutions serve SMB customers through business banking, savings accounts or business loans. Partnering with a vendor to offer payment processing solutions is a low-risk way that banks can provide added value for their business customers, without incurring additional costs. A payment solutions partner can provide end-to-end service — from sales to account management — while the financial institution focuses on its core business. When a customer has multiple services from one institution, that relationship elevates from a transactional one to a trusted, long-term partnership.

Additionally, a merchant services partner may enhance a financial institution’s reputation in areas such as digital technology or diversity, equity and inclusion (DEI). For example, a financial institution may highlight its own interest in supporting diverse businesses by choosing a merchant services processor with similar values, attracting new clients seeking a more progressive approach.

One of the biggest challenges faced by SMBs is keeping up with rapid technological changes to meet their own customers’ demands. This is especially true in the payment space, where many customers prefer contactless payment methods. Contactless transactions in the U.S. increased by 150% between 2019 and 2020 and is only expected to grow. Customers want convenience, speed, and choice when they buy. Even as a consumer or business client of an SMB, they are still used to the level of service they get from large companies. Barriers at the checkout level can impact customer satisfaction and loyalty. SMBs risk losing clients if there is an easier way to do business just down the street or on a competitor’s website. Customers may also expect merchants to accept mobile wallets, offer buy now, pay later or point-of-sale lending options and accept cryptocurrency as payment. Unfortunately, SMBs often lack the resources — such as capital, infrastructure, technology and staff — to offer the latest payment options to their customers and run their operations in the most efficient manner.

But a payment partnership allows banks to offer a slew of services to help business customers optimize their time, save money and improve customer satisfaction. For example, SMBs can benefit from an all-in-one, point-of-sale system that accepts multiple payment types, such as contactless, and includes features such as digital invoicing, inventory management, online ordering, gift cards, staffing, reporting and more. It can also give business customers access to real-time payments, seven days a week, that can improve their cash flow efficiency and avoid cash-flow lags — a major concern for many SMBs.

Small and medium businesses represent an untapped market for many financial institutions. If a financial institution starts to offer tailored payment solutions and services that help SMBs overcome their unique challenges, they can unlock significant, new opportunities in the small business segment.