Using Data Platforms to See Customers

Customers leave behind valuable breadcrumbs about their interests, needs and intentions across their financial lives.

What’s their current financial health? Are they shopping for a new credit card? Even: Are they considering switching to a competitor?

Unfortunately, this wealth of insights is more-than-likely locked away across a series of legacy, on-site systems, stuck in siloed data warehouses and generally difficult to access due to antiquated reporting systems. Understanding and acting on customer signals has become more important in recent months as customers seek financial partners that understand their unique needs. What does it take for a bank to unlock this treasure trove of data and insights? More often than not, a customer data platform (or CDP) can help banks take an important step in making this a reality and craft a 360-degree view of their customers.

I spoke with Brian Knollenberg, vice president of digital marketing and analytics at Tukwila, Washington-based BECU, about his recent experience of setting up a CDP for one of the country’s largest credit unions in the country. 

The Need for CDP
When Knollenberg joined the $22 billion credit union, he saw that creating a marketing performance dashboard using slow-batch processing across multiple systems took 12 manual hours to produce. As a result, the data stakeholders needed to make key decisions was a week out of date by the time they received it — much less take action on it.

This speed-to-value lag wasn’t limited to just marketing dashboards; it was just one example teams encountered when trying to access timely customer data across legacy systems. His team recognized that the organization needed current data, individualized for each customer, to make timely decisions. They also needed a way to easily syndicate this across critical customer and stakeholder touchpoints. 

Knollenberg also recognized his team’s expertise was better suited to modifying processes rather than building a robust enterprise-grade tool that could ingest and process terabytes of data in near-real time. He needed a solution to transform this data hindrance into an asset, and looked for a partner with direct experience in tackling these challenges to streamline implementation.

CDP Benefits
Implementing a CDP has extended the BECU team’s ability to tackle more difficult data challenges. This included building out performance dashboards that update every 24 hours, personalized customer communications and the ability to modeling member financial health.

This last use case empowers BECU to aggregate a score based on behaviors, transactions, and trends to identify which members could benefit from proactive outreach or help. He said financial health scoring has been extremely helpful during the coronavirus pandemic to identify potential recipients of proactive outreach and assistance. Having this information readily available enables marketing, customer service and even product teams to create bespoke experiences for their members and make informed business decisions — like offering a lower rate card to a member showing large carried balances with an outside card provider.

Lessons Learned
Before tackling any new data program, Knollenberg recommends companies first identify the overall effort versus impact. He finds that while companies often invest ample time and effort into developing comprehensive strategy and goals, they often miss when planning for the execution realities to properly implement them. Spend time scaling up your bank’s execution capabilities, determine how you’ll realistically measure potential impact and test-drive product solutions via a robust proof of concept.

The best financial brands know that putting their customers first will result in returns. Building out a customer data platform for your bank can unlock powerful new insights and opportunities to engage with your customers, if done right. As you start on this journey, make sure to identify what specific use cases are most impactful for your business, and find the right software partner that will work with you to execute it properly. Once unlocked, your bank will be able to service customers at a truly personalized level and drive a greater share of wallet.

Fixing What’s Broken In Bank Product Pitches

There’s a better way to sell pens: Don’t start with the pen.

A classic teaching example for sales hands a shiny new pen to someone with the instruction, “Sell me this pen.” Typically, the student takes the pen and begins to describe it, attempting to use the looks and features of the pen to sell it. The would-be salesperson often struggles to “sell” the pen, because they fail to discover if the person needs a pen to begin with.

This is often how banks sell products and services to their customers. But the search for a solution to this sales dilemma has led to new and advanced ways to sell pens (and everything else) the wrong way.

A better way to sell the pen is to put it in your pocket and, instead, ask the customer questions. The goal is to discover the customer’s needs and help them realize that a pen — the one you happen to have in your pocket — is what will meet their needs.

Artificial intelligence companies and fintech platforms want banks to pay enormous sums of money to help identify products and services for customers. Having given away all manner of financial tools, products and advice, they’re now pursuing bank customers by offering demand and savings deposits, mortgages and loans. Some of the biggest names in technology are joining the fray as well: Facebook, Apple, Alphabet’s Google and Uber Technologies, among others.

Customers aren’t necessarily getting more savvy, but technology is.

A venture capital firm we work with that invests in fintechs was very clear that most online financial tools are merely marketing devices used to poach customers and grow assets. Often these tools expose a problem in a customer’s existing account and offer an immediate remedy if the customer transfers accounts to them. This isn’t necessarily good for the customer, but can be devasting to a bank.

Pushing product is difficult; providing solutions is far more rewarding — and efficient.

Recently, we met with a regional bank that has over 80 retail branches and offers wealth management as part of their service model. They have only 17 financial advisors to service customers in their home state. They confessed that of only 27% of their wealth management clients have a retirement account with the bank.

Only 27%. How is this possible? Is it because they don’t sell retirement accounts? Or is it because they don’t know their customers? After all, who doesn’t need a retirement account?

Another bank we work with wondered if they should start offering business credit cards. They didn’t understand their customers’ needs well enough to decide what products would address those needs or wants, so they opted to pitch a credit card offered by a vendor.

One of the industry’s largest digital banks confessed to us they are considering adding a human element to their arsenal, seeing a need for a digital/human hybrid approach. They’ve realized that society is moving to digital, but also recognize there is not enough value in digital alone.

The COVID-19 crisis will accelerate the shift to digital. If brick and mortar banks are going to survive, and even thrive, they need a digital component that complements their human element. Throwing money at new technology that pushes products that customers may or may not want or need will only lead to costly and disappointing results.

Banks need tools that develop and deepen customer relationships and make it possible to offer real solutions, as opposed to pushing products they hope will increase revenue.

Accenture recently released a study with five key findings about customer expectations. They are:

  1. They want integrated propositions addressing core needs.
  2. They want a personalized offering.
  3. They are willing to share data with providers in return for better advice and more attractive deals.
  4. They want better integration across physical and digital channels.
  5. Their trust in financial institutions is increasing.

Essentially, customers want personal offerings that serve their core needs and delivered in the medium they choose. Banks that want to grow revenue and increase retention shouldn’t continue to “push the pen.” They should find and offer digital/human hybrid models to help customers self-discover solutions.

Banks Risk Losing Small Businesses Forever

Have you ever been through a breakup you didn’t see coming? Judging by the stories small businesses share about their banks — and the stories that banks tell themselves about those same relationships — it seems the industry is on the verge of needing a pint of ice cream and a good cry.

It might be over between small businesses and banks.

I talk to a lot of bankers, and many tout their banks’ focus on small businesses — the restaurants, hairdressers and other staples that fuel local economies. These bankers pride themselves and their teams on knowing their clients well. If a hard rain floods the local lake, they pick up the phone to call their marina clients to make sure they’re doing OK. It’s special — but in a springtime pockmarked by pandemic, it might not be enough.

The relationships between banks and their small business customers are more strained than banks might realize, according to a January research report sponsored by Autobooks and conducted by Aite Group.

“Less than half (47%) of U.S.-based small businesses believe their primary institution understands their needs,” stated Autobooks, a Detroit-based fintech that provides small business accounting tools, in a release about the research. Aite also found that more than 60% of small businesses have turned to a nonbank provider to meet at least one financial need that their bank can’t fill.

These shortfalls have been ongoing, but changing market conditions caused by the outbreak of COVID-19 could be the final straw for underserved small businesses.

It boils down to this: Banks that haven’t invested in technology are behind the curve when it comes to helping their small business clients weather crises. At the same time, technology companies that are already providing small business customers with products they love now have clear paths to offering financial services that only banks used to be able to provide. Cash management, payments and fast loans will be crucial to the survival of small businesses; technology is going to be the key to saving them.

Nowhere is the importance of technology more crystallized than in the current debate over emergency small business loans. Banks are struggling to keep up with rising loan demand. Complicated applications, slow underwriting and a lack of payment options may convince small business customers to turn to nonbank lenders for fast funding, even if they pay a higher interest rate.

The same scenario is unfolding in the realm of government-backed loans from the Small Business Administration. Until recently, banks were the only institutions that could serve as conduits for the Economic Injury Disaster Loans that help troubled businesses in times of crisis. But big, national fintech lenders were quick to lobby for an expansion of that rule, and they got it. Congressional coronavirus relief gave the U.S. Treasury Department the authority to allow “additional lenders” to make these loans. Congress acquiesced to the change because timing is everything when it comes to small business loans in a crisis.

Half of small businesses only have enough cash on hand to operate for 27 days, and an additional 25% only have enough cash reserves to operate for 13 days without new revenue, according to an oft-cited 2016 survey from JPMorgan Chase & Co. SBA loans made through partner banks typically take several months before the cash is available to borrowers — an untenable timeline for companies with mounting expenses and no revenue. Fintech lenders say they could push emergency loans out in days, potentially saving many businesses from failure but funneling significant volume away from banks.

The loans businesses need to survive today could easily morph into larger relationships with nonbanks tomorrow, as fintechs cross old regulatory moats by securing their own charters and deposit insurance.

So far, 2020 has seen significant fintech advances into banking from Varo Money and LendingClub Corp. But the move that seems to have caused the most hand-wringing among traditional banks is Square’s approval for deposit insurance as part of its Utah industrial loan charter. The payments heavyweight has an established national brand among small businesses, and could divert large amounts of small business clients away from brick-and-mortar banks when it starts offering loans and deposit products in 2021.

Square has provided mission-critical financial services for small businesses since its inception. Many businesses trust their payment products for every transaction they make. Square may have the loyalty it needs to earn the entire banking relationship.

Technology companies like Square aren’t going to pick up the phone to check in on a marina client after the local lake floods. But they are going to provide timely, tuned-in products. In a crisis, that may matter more.

On the Docket of the Biggest Week in Banking

Think back to your days as a student. Who was the teacher that most inspired you? Was it because they challenged your assumptions while also building your confidence?

In a sense, the 1,312 men and women joining me at the Arizona Biltmore in Phoenix for this year’s Acquire or Be Acquired Conference are in for a similar experience, albeit one grounded in practical business strategies as opposed to esoteric academic ideas.

Some of the biggest names in the business, from the most prestigious institutions, will join us over three days to share their thoughts and strategies on a diverse variety of topics — from lending trends to deposit gathering to the competitive environment. They will talk about regulation, technology and building franchise value. And our panelists will explore not just what’s going on now, but what’s likely to come next in the banking industry.

Mergers and acquisitions will take center stage as well. The banking industry has been consolidating for four decades. The number of commercial banks peaked in 1984, at 14,507. It has fallen every year since then, even as the trend toward consolidation continues. To this end, the volume of bank M&A in 2019 increased 5% compared to 2018. 

The merger of equals between BB&T Corp. and SunTrust Banks, to form Truist Financial Corp., was the biggest and most-discussed deal in a decade. But other deals are worth noting too, including marquee combinations within the financial technology space.

In July, Fidelity National Information Services, or FIS, completed its $35 billion acquisition of Worldpay, a massive payment processor. “Scale matters in our rapidly changing industry,” said FIS Chairman and Chief Executive Officer Gary Norcross at the time. Fittingly, Norcross will share the stage with Fifth Third Bancorp Chairman and CEO Greg Carmichael on Day 1 of Acquire or Be Acquired. More recently, Visa announced that it will pay $5 billion to acquire Plaid, which develops application programming interfaces that make it easier for customers and institutions to connect and share data.

Looking back on 2019, the operating environment proved challenging for banks. They’re still basking in the glow of the recent tax breaks, yet they’re fighting against the headwinds of stubbornly low interest rates, elevated compliance costs and stiff competition in the lending markets. Accordingly, I anticipate an increase in M&A activity given these factors, along with stock prices remaining strong and the biggest banks continuing to use their scale to increase efficiency and bolster their product sets.

Beyond these topics, here are three additional issues that I intend to discuss on the first day of the conference:

1. How Saturated Are Banking Services?
This past year, Apple, Google and Facebook announced their entry into financial services. Concomitantly, fintechs like Acorns, Betterment and Dave plan to or have already launched checking accounts, while gig-economy stalwarts Uber Technologies and Lyft added banking features to their service offerings. Given this growing saturation in banking services, we will talk about how regional and local banks are working to boost deposits, build brands and better utilize data.

2. Who Are the Gatekeepers of Customer Relationships?
Looking beyond the news of Alphabet’s Google’s checking account or Apple’s now-ubiquitous credit card, we see a reframing of banking by mainstream technology titans. This is a key trend that should concern bank executives —namely, technology companies becoming the gatekeepers for access to basic banking services over time.

3. Why a Clear Digital Strategy Is an Absolute Must
Customer acquisition and retention through digital channels in a world full of mobile apps is the future of financial services. In the U.S., there are over 10,000 banks and credit unions competing against each other, along with hundreds of well-funded start-ups, for customer loyalty. Clearly, having a defined digital strategy is a must.

For those joining us at the Arizona Biltmore, you’re in for an invaluable experience. It’s a chance to network with your peers and hear from the leaders of  innovative and elite institutions.

Can’t make it? We intend to share updates from the conference via BankDirector.com and over social media platforms, including Twitter and LinkedIn, where we’ll be using the hashtag #AOBA20.

Getting a Return on Relationship Profitability


profitability-7-8-19.pngHow profitable are your bank’s commercial relationships?

That may seem like a strange question, given that banks are in the relationship business. But relationship profitability is a complex issue that many banks struggle to master. A bank’s ability to accurately measure the profitability of its relationships may determine whether it’s a market leader or a stagnant institution just trying to survive. In my experience, the market leaders use the right profitability metrics, measure it at the right time and distribute that information to the right people.

Should Your Bank Use ROE or ROA? Yes.
Many banks use return on assets, or ROA, to measure their portfolio’s overall profitability. It’s a great way to compare a bank’s performance relative to others, but it can disguise credit issues hidden within the portfolio. To address that concern, the best-performing banks combine an ROA review with a more precise discussion on return on equity, or ROE. While ROA gives executives a view from above, ROE helps banks understand the value, and risk, associated with each deal.

ROA and ROE both begin with the same numerator: net income. But the denominator for ROA is the average balance; ROE considers the equity, or capital that is employed by the loan.

If your bank applies an average equity position to every booked loan, then this approach may not be for you. But banks that strive to apply a true risk-based approach that allocates more capital for riskier deals and less capital for stronger credits should consider how they could use this approach to help them calculate relationship profitability.

Take a $500,000 interest-only loan that will generate $5,000 of net income. The ROA on this deal will be 1 percent [$5,000 of net income divided by the $500,000 average balance]. The interest-only repayment helps simplify the outstanding balance discussion and replicates the same principles in amortizing deals.

You can assume there is a personal guarantee that can be added. It’s not enough to change the risk rating of the deal, but that additional coverage is always desirable. The addition of the guarantee does not reduce the outstanding balance, so the ROA calculation remains unchanged. The math says there is no value that comes from adding the additional protection.

That changes when a bank uses ROE.

Let’s say a bank initially allocated $50,000 of capital to support this deal, generating a 10 percent ROE [$5,000 of net income divided by the $50,000 capital].

The new guarantee changes the potential loss given default. A $1,000 reduction in the capital required to support this deal, because of the guarantee, increases ROE 20 basis points, to 10.20 percent [$5,000 of net income divided by the $49,000 of capital]. The additional guarantee reduced risk and improved returns on equity.

The ROA calculation is unchanged by a reduction in risk; ROE paints a more accurate picture of the deal’s profitability.

The Case for Strategic Value
Assume your bank won that deal and three years have now passed. When calculating that relationship’s profitability, knowing what you’ve earned to-date has a purpose; however, your competitors care only about what that deal looks like today and if they can win away that customer and all those future payments.

That’s why the best-performing banks consider what’s in front of them to lose, not what has been earned up to this point. This is called the relationship’s “strategic value.” It’s the value your competition understands.

When assessing a relationship’s strategic value, banks may identify vulnerable deals that they preemptively reprice on terms that are more favorable to the customer. That sounds heretical, but if your bank’s not making that offer, rest assured your competitors will.

The Right Information, to the Right People, at the Right Time
Once your bank has decided how it will measure profitability, you then need to consider who should get that information—and when. Banks often have good discussions about pricing tactics during exception request reviews, but by then the terms of the deal are usually set. It can be difficult to go back to ask for more.

The best-positioned banks use technology systems that can provide easily digestible profitability data to their relationship managers in a timely fashion. Relationship managers receive these insights as they negotiate the terms of the deal, not after they’ve asked for an exception.

Arming relationship managers with a clear understanding of both the loan and relationship profitability allows them to better price, and win, a deal that provides genuine value for the bank.

Then you can start answering other questions, like “What’s the secret to your bank’s success?”

Redefining the Meaning of a Customer Relationship


relationship-3-12-18.pngFor most people, brick and mortar branches have become remnants of prior generations of banking. In the digital age of mobile deposits and non-financial, non-regulated companies like PayPal there is little incentive to walk into a local branch—particularly for millennials. This presents an anomaly in the community banking model. Community banks are built upon relationships, so how can the banks survive in an era so acutely inclined towards, and defined by, technology seemingly designed to eliminate “traditional” relationships?

The solution is to redefine the term “traditional” relationship. While customers may not want to walk into a branch to deposit a check, they still want information and advice. Just because a millennial does not want to deposit a check in person does not mean that he or she will not need to sit with a representative for guidance when applying for their first home loan. Using customer segmentation and understanding where there are opportunities to build relationships provides an opportunity to overcome the imminent threat of technology.

If information and advice are the keys to building relationships, it becomes imperative that bank employees are fully trained and knowledgeable. It is crucial that community banks spend time hiring the right people for the right position and then train and promote from within. Employees must fully understand, represent and communicate a brand. That brand must be clearly defined by executive management and communicated down the chain of command. It is incumbent upon the leaders of the organization to first set an example and then ask their employees to follow suit. Some of the most successful community bank CEOs can recognize their customers by name when they walk into a branch. These are not the biggest clients of the bank, but they are probably the most loyal because of the quality of the relationship.

The focus needs to switch from products and transactions towards specific relationships with specific customer segments. Customer-centric banking strategies will improve the chances of survival for community banks. Those that are not able to adapt will be eclipsed by the recent revival of de novos or will be acquired by institutions that are embracing this customer-centric approach. A customer-centric approach is critical to drive value whether pursuing organic growth or M&A. For banks evaluating an acquisition, there are additional considerations that need to be addressed prior to entering into a transaction, in order to safeguard the customer relationships that the bank has built and ensure that the deal enhances the bank’s brand and business model, while also building value.

If you are one of the survivors and are engaged in an acquisition, what does all of this mean for you?

  1. FinPro Capital Advisors Inc. advocates having strict M&A principals and parameters when evaluating the metrics of a deal, which will vary from bank to bank. This concept extends to culture and branding as well. A good deal on paper does not necessarily translate to a successful resultant entity. If a transaction will dilute your franchise, disrupt your culture or business model, or in any way undermine the brand and customer base you have built, do not pursue it.
  2. Signing a definitive agreement is not the same thing as closing a transaction. Integration begins as soon as the ink dries on the contract. Planning should have occurred well in advance. Management needs to focus on employee, customer and investor reception of the deal, along with regulatory approvals and strategic planning. A poorly executed integration can provide an inauspicious start culturally and can increase merger costs substantially.
  3. Retain the best talent from each institution and take the time to ensure that the employees are in the right position. Roles are not set in stone and an acquisition provides the perfect opportunity to re-position the bank’s staffing structure. This includes implementing management succession and talent management plans for the new entity. Develop an organizational structure for the future, not just for today.
  4. Communicate effectively throughout the entire process. Be transparent and be honest. Bolster relationships and foster enthusiasm in the new entity from day one. Corporate culture is one of the most difficult attributes to quantify but it is palpable and can either energize every person in the company or rapidly become toxic and disruptive.

For all banks, the brand and culture that you build will directly impact your customer base and define the banking relationships you create. To build meaningful relationships with your customers, banks must first build meaningful relationships within the organization. In so doing, banks will be able to redefine their model by focusing on relationships instead of transactions, customers instead of products, and eliminate isolated divisions to create integrated organizations. The traditional banking model may be dead but banks with strong leadership and corporate culture will recognize the new paradigm and enact change to evolve accordingly.

Innovation Spotlight: Citizens Bank of Edmond


citizens-bank.png

Castilla-Jill.pngJill Castilla, President, CEO and Vice Chairman
Citizens Bank of Edmond is a $252 million asset community bank with a rich history spanning 116 years. In 2009, the bank transformed its operations by making critical investments in technology instead of branches. At the helm of this resurgence is Jill Castilla, president, CEO and vice chairman, and also a fourth generation leader and banker at Citizens Bank of Edmond. Castilla is known as an active user of social media, turning critics into brand advocates by staying transparent about changes at the bank and consistently engaging the community for its feedback.

What technology does Citizens Bank of Edmond utilize that youwouldn’t expect at a small community bank?
We strive to be at the forefront of technology to ensure that the bank is relevant today and is positioned to be relevant 116 years from now. We’ve embraced the concept of remote banking: our retail team uses secure Wi-Fi to connect remotely to TellerCapture (a system that enables the imaging and posting of checks at the teller window) and our cash recycler. In 2013, we developed an interactive teller at our ATMs, making us the first bank in Oklahoma to deploy this technology.

One of the biggest changes under your leadership was reducingthe number of branches in the community to just one core branch. As you were conceptualizing this renovation, what technological improvements were a priority?What type of research did you undertake?
We knew we wanted to make Citizens Bank comfortable, approachable and accessible with all of our staff located on the first floor. We also invested in technology infrastructure to handle mobile workstations and utilize a range of products including highly advanced touchscreen kiosks. The bank has collaborative workspaces that allow our team to work easily together in groups or for the community to gather informally. We provide public Wi-Fi for our customers and secure Wi-Fi for our team. Inspiration for our newly renovated lobby sprung from visits to numerous progressive banks across the country as well as hospitality industries, such as hotels and restaurants.

One-third of your bank is owned by the employees. How does that ownership help drive the innovation strategy?
It’s the entrepreneurial spirit. Our team knows that to remain independent for another 116 years we have to stay relevant to our customers and team members. Rewards for employment at Citizens Bank reach far beyond a paycheck—it’s building a legacy that’s accomplished through having premier products, services and customer relationships. It’s about standing the test of time, and improving and maintaining a high level of efficiency in everything we do. Ownership increases peer accountability, and the way we have collaborative work stations allows for the sharpening of the saw. Ideas don’t result from a bureaucratic process, but from teams collaborating to be the best for our customers, shareholders and community.

Reflections on Fintech at Bank Director’s Acquire or Be Acquired Conference


AOBA-finxtech.png

I spent the first part of last week in Phoenix at the Bank Director Acquire or Be Acquired (AOBA) conference and as always I came away feeling like I knew more about industry conditions and expectations than I did when I got on the plane. If you are a bank executive, you should probably be there every year and may want to consider taking your team on a rotating basis every year. If you serve the industry in some way, you must be there as well. If you are, like me, a serious bank stock investor, you need to be there at least once every few years to stay on top of how bankers feel about their industry and how they plan to grow their banks.

The mood this year was much more upbeat than last year. All the concerns about low interest rates, regulatory costs and other potential headwinds have been blown away by a blast of post-election enthusiasm. Bankers were almost giddy in anticipation of higher rates, a stronger economy and possible regulatory relief. Everyone I talked with during my three-day stay was upbeat and enthusiastic about the future of banking.

There has also been a tremendous change in bankers’ view of fintech of late. Fintech companies have often been viewed as the enemy of smaller banks, and I have talked with many community bankers who are legitimately concerned about their ability to keep up with the new high-tech world. One older gentleman told me at Bank Director’s Growing the Bank conference last May in Dallas that if this was where the industry was going, he would just retire as there was no way he could compete with the upstart fintech companies.

Over the course of the last year, however, a different reality has begun to set in. Fintech companies have discovered that the regulators and bankers were not ready to concede their traditional turf and consumers still like to conduct business within the highly regulated, insured-deposit world of traditional banking. Banks have begun to realize that instead of relying on their traditional practices, much of what fintech companies are doing could make them more efficient and enable them to offer services that attract new customers and make those relationships stickier.

It has become apparent to many of the bankers I chatted with that fintech is not a revolution but an extension of changes that has been going on for years. Drive through bank branches and ATMs were also thought to be revolutionary developments when they were introduced, and today they are considered standard must-have items for any bank branch. Mobile banking is just another step along the evolutionary scale. More customers today interact with their mobile devices than through traditional means like branch visits, phone calls and ATM transactions. That’s not going to change, and bankers are adjusting.

Chris Nichols of CenterState Bank spoke in a breakout session about using fintech to improve the bottom line. He pointed out that if you used the traditional banking approach based on in-branch transactions it cost about $390 per customer per year to service your clients. Using the same cash required to build a branch and spending it to improve the bank’s mobile offering could bring the annual cost per customer down to just $20 a year. Processing a customer deposit costs the average bank about $2 if done in a branch and just $0.20 if done via a mobile phone. Nichols also suggested that acquiring a C&I loan customer could be as high as $14,200 when done via traditional banking methods, but the expense drops to just $3,060 if the transaction is done on a mobile platform.

The proper use of fintech, according to Nichols’ presentation, should also allow banks to lower their efficiency ratio and increase their returns on assets and equity. That is the kind of news that gets bank CEOs and boards excited about expanding the use of technology even if they still carry flip phones and use AOL for home internet.

While you can expect to see partnerships between bankers and fintech companies expanding in the future, bankers will use the technology that reduces costs or creates more revenue streams. They will offer the mobile payment and deposit services customers demand today. The litmus test for technology is, “Does it make or save me money or dramatically improve my customer relationship?” If the answer to these questions is no, then banks will pass on even the most exciting and innovative fintech ideas. They are bankers, after all, not tech gurus.

Getting Big Value out of Big Data


big-data.png

If my bank calls me, I brace for bad news. It shouldn’t be that way.

Banks are considered leaders in data analytics-most have been at it a long time, have a lot of data and know a lot about their customers. But some banks aren’t actually doing a great job of translating data analytics into better customer service and smarter relationship development, or even taking advantage of opportunities to monetize data.

My bank has more data about me-salary, mortgage, purchases, FICO score, family birthdays, how much I spend and save, where I vacation, live and work-than any other single entity, and certainly enough to make some great proactive suggestions. But I never get that call offering special services for my kid who’s going off to college.

A great banking relationship should be about delighting the customer. More and more, that means using analytics to anticipate customer needs, flag (and fix) patterns that precede complaints, and deliver experiences that exceed customer expectations. Banks should consider watching and learning from my social, location and digital interactions: As the wheels of my plane touch down in Hawaii, a coupon for my favorite local restaurant should pop up in my mobile wallet app. Many customers now expect this level of anticipation of their interests–enabled by data analytics-and if you can’t deliver it, loyalty may not keep them with you. Banks that up the ante on data analytics will be able to attract and keep customers. Banks that don’t step up likely won’t be able to compete with innovators and retailers that consistently deliver personalization.

Many banks are also missing a huge opportunity to monetize data. No one likes receiving unsolicited offers that miss the mark, but when information is targeted and presented appropriately, it can be something customers actually appreciate knowing about. Banks have the opportunity to deliver a privacy-compliant data feed to retailers, to enable targeted marketing and higher customer satisfaction.

The great news is that analytics technology is good and getting better. Advances in distributed data architecture, in-memory processing, machine learning, visualization, natural language processing and cognitive analytics can help banks gain and deliver personalized, granular insights.

Cognitive computing-training computers with machine learning and process automation techniques to enhance human decision making-can analyze massive datasets in a variety of data types, including numbers, text, images and speech. Tasks traditionally performed only by humans can now be accomplished with less direct involvement, such as evaluating credit risks, fraud detection, loan application processing, collateral lien search or making real-time recommendations. For example, the CFPB, OCC, Fed, and FRBNY have required larger institutions to data mine complaints to check for any high-risk incidents that were not escalated properly. Using advanced machine learning techniques, including speech and text analytics, banks can now search for regulatory terms and consumer protection requirements to identify regulatory risks and look for patterns in complaint escalation. Cognitive solutions can also help customers develop sound financial habits through their bank’s mobile app. Clinc’s Finie is a voice-enabled digital assistant that can check spending against budgets and habits, transfer money between accounts and retrieve historical statements.

Advanced analytics also enable more engaging customer experiences that reflect each customer’s profile, habits and situation in that moment, so when a client reviews investing forums for impacts of geopolitical events, a wealth manager can deliver a personalized scenario risk analysis from the investment office. The message could also include an option to request a meeting with a financial advisor. For banks, it’s time to make the crucial shift from insight into action, using cross-channel analytics to drive new messaging and behavioral analytics to deliver targeted offers and in-bank personalization. Luckily, the technology is there to help you take it to the next level.

To harness the full potential of data and analytics at scale, banks will likely have to invest in sustained programs that are truly embedded in business processes and culture-industrialized analytics that are woven into the DNA of the organization. It requires a serious commitment to the vision of insight-driven customer service, business strategy and risk management, as well as a serious investment in talent, data management, analytics and infrastructure for repeatable results and scale. Executing well has the potential to achieve remarkable gains in customer satisfaction, cross selling, complaint reduction and efficiency, all key levers for becoming a more efficient, nimble and profitable bank.

On Your Mark….Loans Approved!


lending-10-7.png

Scene 1: Adam approaches a reputed bank in his city to get a quick loan to expand his restaurant. A month later, he is still waiting for a green light.

Adam tries his luck with a marketplace lender, and his application is cleared in minutes. The money is wired to his account in no time at all.

Scene 2: Stacy approaches her bank to get a loan to expand her digital marketing firm. She needs cash quickly. Although she is currently a customer of the bank, her loan application review process takes time.

She instead applies for a loan online with an alternative lender. Her application is processed and approved, and the money is wired to her account in the shortest possible time.

Here’s a wakeup call for the banking industry: Customer loyalty, which banks have relied on for so long, is now decidedly elusive.

Banks are getting hit by a triple whammy. First, increased regulations have made loan processing more complex, resulting in higher costs and reduced margins to originate loans. Second, banks’ legacy systems and manual processes lead to delays in loan processing and constrain banks from meeting the expectations of today’s connected consumers. Finally, digital disruption by alternative and marketplace lenders is putting pressure on banks, as customers now have other choices.

Coping with Increased Regulations
Regulatory oversight is increasing, be it recent guidance from the Office of the Comptroller of the Currency on prudent risk management for commercial real estate lending, or the upcoming current expected credit loss (CECL) model from the Financial Accounting Standards Board. How can banks cope with this new normal? By automating the loan origination process, banks can ensure that they are fully compliant, and at the same time improve their efficiency in originating the loan by cutting down on paper-intensive and manual steps. Banks should consider investing in loan origination software that not only meets current regulations but is also agile and flexible to incorporate future regulatory changes.

Improving the Origination Process
Legacy systems go by that name for a reason. They are built on old technology. These systems are expensive to maintain and hard to modify. Commercial loans contribute significantly to a bank’s business. Yet, due to outdated legacy technology, the loan origination process is largely manual, requiring duplicate data entry at multiple steps. To solve this, banks should consider investing in loan origination software that seamlessly integrates multiple disparate systems, such as document generation, spreading and credit bureaus. By doing this, banks can significantly cut down the time it takes to originate a loan, and meet the expectations of their customers.

Commercial loan origination software can help a bank streamline its commercial lending business. Here’s how:

  • The software seamlessly integrates with legacy and external systems.
  • It serves as a single application window to cater to multiple business lines, such as CRE loans, commercial & industrial loans, small business loans and leases.
  • It automates the commercial lending lifecycle from origination to disbursement to servicing, making processes paperless in an automated workflow environment with minimal manual intervention.
  • Loan requests are captured from multiple channels.
  • Credit scoring and underwriting of loans is efficient, due to seamless integration with third-party credit bureaus.
  • Automating and centralizing business rules allows quicker lending decisions.
  • Effective tracking and analysis of the loan process means the bank can better comply with regulations.

Imagine loan officers spending significantly less time reviewing loans. The end result is a more efficient process for the bank and, more importantly, happy customers.