Crafting a Modern Customer Service Strategy

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Customers increasingly demand immediacy and accountability in their service interactions, whether that means ordering a pair of shoes from Amazon.com or a pizza from Domino’s Pizza.

Financial institutions are not immune to this standard; as customer expectations evolve, so too must banks’ approach to customer service. To retain relevance and customer loyalty, bank executives must prioritize the digitalization and personalization of customer service. If institutions are not working towards this transformation, they’re already behind.

Leveraging capabilities like digital customer service can enhance the customer and employee experience while diminishing the risk of complacency — strengthening a bank’s overall competitive position.

Many banks still employ a phone-centric approach to customer support, which can be inefficient and cumbersome for all involved. Even though bank transactions are frequently initiated or occur on digital devices, customers are often required to dial into a contact center when they encounter issues or have questions. Recent research from Bankmycell found 81% of millennials experience anxiety when making a phone call. But this dislike for phone calls isn’t unique to younger generations; a study by Provision Living found that baby boomers made even fewer phone calls than millennials do on their smartphones.

The customer service bar is set by the likes of Apple, Netflix and Meta Platform’s Facebook: companies that facilitate seamless, uninterrupted interactions with as little friction as possible. It’s time for bankers to be able to meet customers in the digital domain and empower them with choice on how to communicate, whether it’s through chat, video or voice. Such an approach boosts the customer experience and fosters long-term loyalty.

Digital customer service can improve the employee experience as well. The customer service agent role has traditionally been one of low satisfaction and high churn, which is especially concerning as the country continues to experience the Great Resignation. Digital customer service allows frontline agents to join a digital interaction in progress on the customer’s own screen, eliminating the risk of miscommunication and expediting resolution time. Such technology even allows agents to guide customers in how to solve the issue themselves next time. As a result, agents shift from customer care representatives to become a teacher or coach, instilling confidence in users to solve future issues through digital self-service. Digitalized customer service and a seamless on-screen experience allows agents to complete tasks with greater speed and efficiency — while making the role itself more enjoyable and fulfilling.

Complacency is both a common barrier and a looming threat for bank executives; many keep legacy processes and strategies in place because of comfort and fear of change. But the failure to innovate can be a death knell for banks when it comes to keeping up with competitors. And technology continues to shorten the innovation cycle — making complacency that much more dangerous.

Financial institutions are at the vanguard of innovation in the consumer-driven market; experiences are the key differentiator. Customer service, and how customer-facing employees work, are experiencing dramatic digital transformation. As a result, financial institutions must examine, reconsider and frequently adapt to new technologies as they emerge.

The banks that recognize the urgency of modernizing customer service and act accordingly will benefit from a competitive advantage for years to come. Those that fail to act risk falling behind competitors and face significant customer attrition.

How to Keep Existing Customers Happy

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Many consumers already have an established relationship with a trusted bank that provides familiarity and a sense of reliability. If they find value in the bank’s financial support, they tend to stick around.

That makes existing customers essential to a bank’s future growth. However, in today’s landscape, many financial institutions focus on acquiring new customers, rather than satisfying the needs of their existing customer base. Data shows that although existing customers make up 65% of a company’s business, 44% of companies focus on customer acquisition, while only 16% focus on retention.

While acquiring new customers is vital to the growth of a financial institution, it is crucial that the existing customers are not left behind. Nurturing these relationships can produce significant benefits for an organization; but those who struggle to manage what is in house already will only compound the issues when adding new customers.

While acquiring customers is important to growing portfolios, loyal customers generate more revenue every year they stay at a bank. New customers might be more cautious about purchasing new products until they are comfortable with the financial institution. Existing clients who are already familiar with the bank, and trust and value their products, tend to buy more over time. This plays out in other sectors as well: Existing customers are 50% more likely to try new products and spend 31% more, on average, compared to new customers, according to research cited by Forbes.

Existing customers are also less costly as they require less marketing efforts, which frees up resources, time, and costs. New customer acquisition costs have increased by almost 50% in the past five years, which means the cost of acquiring a new customer is about seven times that of maintaining an existing relationship.

Additionally, loyal customers act as mini marketers, referring others to their trusted institution and increasing profit margins without the bank having to advertise. According to data, 77% of customers would recommend a brand to a friend after a single positive experience. This word-of-mouth communication supplements bank marketing efforts, freeing up resources for the customer acquisition process.

So how can banks improve their customer retention rate?

Be proactive. Banks have more than enough data they can use to anticipate the needs of existing customers. Those that see this data as an opportunity can gain a more holistic view into their existing client base and unlock opportunities that boost retention rates. For instance, lenders can use data like relative active credit lines, income, spending patterns and life stages to cultivate a premium user experience through personalized offers that are guaranteed and readily available. A proactive approach eliminates the potential of an existing customer being rejected for a loan — which happens 21% of the time — and allows them to shop with confidence.

Promote financial wellness. Having this insight into customers also allows banks to boost retention rates through financial wellness programs that help equip them with opportunities to enjoy financial competency and stability. Did they move to a new state? Did they have a baby? Do they have a child going off to college? Banks can acknowledge these milestones in their customers’ financial lives and tailor communication and relevant recommendations that show their support, create long-lasting and trusting relationships, and help the bank become top of wallet when the customer purchases a product or service.

Put the customer in the driver’s seat. Banks can present existing customers with a menu of products and services immediately after they log onto their online banking portal. Customers can weigh a range of attractive capabilities and select what they want, rather than receive a single product that was offered to tens of thousands of prospects with hopes they are in the market. This removes the fear of rejection and confusion that can occur when applying through a traditional lending solution.

Be a true lending center. If banks want to distinguish their online and mobile banking platform as more than a place to make transfers and check balances, they must provide branch and call center staff with the tools to evolve into a true lending center for customers. Existing customers should be able to find support and guidance inside their online banking accounts, apply for and receive appropriate products, make deposits, and so much more from the palm of their hand.

To remain a standard in their communities, banks must recognize the true value behind customer retention. This can help banks not only secure a prime spot in its customers’ financial lives but grow loan portfolio, boost engagement and gain or retain a strong competitive edge.

Key Considerations for Measuring Customer Loyalty

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Retail banking has particularly been affected by the shift to the digital delivery of products and services, given its sheer magnitude and importance.

The global coronavirus pandemic significantly accelerated banks’ adoption of digital channels and led to critical behavioral changes for customers. Banks now need to determine which shifts are here to stay and which could revert, to some degree, to pre-pandemic levels.

Strategic Resource Management conducted a detailed survey in July 2021 that offers a snapshot of customer attitudes at a particularly interesting moment in time. Sixteen months of dealing with Covid-19’s realities had created a degree of equilibrium; thoughts of a return to “normal life” had begun to enter the conversation. This cross-section provides a view into the likely permanence of customer mindsets, helping financial institutions better understand customers’ perceptions of, and feelings toward, the institutions with which they bank.

Several noteworthy takeaways:

  • US financial institutions performed well in loyalty and engagement, though credit unions performed the best. Although the roughly 5,000 credit unions in the United States comprise a small number of overall banking assets (8% based on June 30, 2021, data from the credit union and banking regulators), its member ranks remain exceptionally loyal and engaged. While some community banks enjoyed similarly high ratings, other institutions should take note of credit unions’ success and consider following some of their tactics.
  • Charlotte, North Carolina-based Truist Financial Corp. ranked very high for customer perceptions of care, value for money and understanding customer needs. The product of a 2019 merger between BB&T Corp. and SunTrust Banks, the $541.2 billion bank embarked on a significant brand awareness campaign that emphasized financial wellness and a holistic level of care for the customer’s financial life. While the largest banks often excel in terms of resources and digital tools, they are frequently viewed as more transactional. Truist does not fit this stereotype – its customer ratings demonstrate that they place great importance on emotional connection, similar to credit unions and community banks.
  • Chime ranked poorly on engagement and loyalty. While other digital brands lagged in this area, Chime ranked at the bottom of both dimensions. It has done an excellent job of building market awareness and initial enrollments but has fallen short converting new customers into more meaningful relationships. The company faced backlash last summer following reports that it suddenly closed several customer accounts. Few respondents treat Chime as their primary transaction account; the absence of a branch network may be a contributing factor. But the company could still shift public perception. By teaming with a brick-and-mortar presence — mimicking PayPal Holding’s approach in partnering with Discover Financial Services to achieve point-of-sale ubiquity — Chime might overcome concerns about access. 
  • Great service remains the biggest factor behind customer loyalty. When asked for their top reason for choosing and staying with a given institution, great service led the pack. It outpolled product quality, ease of use and personal recommendations. Beyond that, subtle yet interesting differences emerged. Location, value for money and loyalty programs moved up the pecking order when customers decided to stay with a provider. The order of “reputation and trust” and “doing what they say” swapped positions — arguably because customers can now assess an institution’s behavior firsthand rather than relying on reputation. This may also explain why brand values gained prominence in the research.

Attracting and retaining customers is instrumental to a financial institution’s relevance. It’s what ultimately fuels its success. Banks must determine why customers partner with organizations, why they stay with them and why they leave. Taking this into consideration and keeping a close pulse on what behavioral changes are permanent will help financial institutions form stickier, longer-lasting customer relationships.

Scaling Quality Customer Service in the Pandemic Era

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Since February 2020, the pandemic has reshaped everyone’s daily reality, creating a perfect storm of financial challenges.

In early March 2020, the economy was thriving. Six weeks later, over 30 million U.S. workers had filed for unemployment. The pandemic has exacerbated already–crushing consumer debt loads. At the end of the first quarter, nearly 11% of the $1.54 trillion student loan debt was over 90 days past due. Emergency lending programs like the Small Business Administration’s Paycheck Protection Program have not been renewed.  

Guiding consumers, especially millennials and Gen Z, to financial wellness is critical to the future of financial institutions. These demographics bring long-term value to banks, given their combined spending power of over $3 trillion.

But the banking support system is straining under incredible demand from millions of consumers, and it feels broken for many. Consumers are scrambling for help from their banks; their banks are failing them. With hold times ranging from 20 minutes to three hours, compared with an average of 41 seconds in normal times, customers are having an increasingly aggravating experience. And website content isn’t helping either. Often too generic or laced with confusing jargon like “forbearance,” customers can’t get advice that is relevant to their unique situation and  make good financial choices.

All this comes at a time of restricted branch access. Gone are the days when customers could easily walk into their local branch for product advice. Afraid of coronavirus exposure, most consumers have gone digital. Moreover, many branches are closed, reduced hours or use appointments due to the pandemic. No wonder digital has become an urgent imperative.

How can community banks scale high-quality service and advice cost-effectively in the pandemic era and beyond? The answer lies in a new breed of technology, pioneered by digital engagement automation, powered by artificial intelligence and knowledge. Here is what you can do with it.

Deliver smarter digital services. AI-automated digital self-service enables banks to deliver service to more customers, while lowering costs. For example, next-gen chatbots are often just as effective as human assistance for solving a broad range of basic banking queries, such as bill payments, money transfers and disputed charges. The average cost per agent call could be as high as $35; an AI-powered chatbot session costs only a few pennies, according to industry analysts.

Provide instant access to help. The next generation of chatbots go beyond “meet and greet” and can solve customer issues through AI and knowledge-guided conversations. This capability takes more load off the contact center. Chatbots can walk customers through a dialog to best understand their situation and deliver the most relevant guidance and financial health tips. Where needed, they transition the conversation to human agents with all the context, captured from the self-service conversation for a seamless experience.

Satisfy digital natives. Enhancing digital services is also critical to attracting and keeping younger, digital-native customers. Millennials and Gen Z prefer to use digital touchpoints for service. But in the pandemic era, older consumers have also jumped on the bandwagon due to contact risk.

Many of blue-chip companies have scaled customer service and engagement effectively with digital engagement automation. A leading financial services company implemented our virtual assistant chatbot, which answers customer questions while looking for opportunities to sell premium advice, offered by human advisors. These advisors use our chat and co-browse solution to answer customer questions and help them fill forms collaboratively. The chatbot successfully resolved over 50% of incoming service queries.

The client then deployed the capability for their IT helpdesk, where it resolved 81% of the inquiries. Since then the client has rolled out additional domain-specific virtual assistants for other functional groups. Together, these virtual assistants processed over 2 million interactions in the last 12 months.

The economic road ahead will be rocky, and financial institutions cannot afford to lose customers. Digital engagement automation with AI and knowledge can help scale up customer service without sacrificing quality. So why not get going?

Reducing Contact Center Hold Times to Improve Service

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The continuing coronavirus pandemic is pushing banks to think even more productively about how they can help their customers.

American workers are increasingly concerned about their ability to stay current on credit card and mortgage payments as workplaces continue to close and more jobs are lost amid Covid-19 uncertainty. What products and services can banks offer customers to offset their financial burden and address or alleviate their worries? Plainly, there’s never been a better opportunity for banks to focus on deepening their relationship with the customer.

Today’s bank looks a bit different than the bank of six months ago. Six months ago, customers willingly moved in and out of bank branches, offering many touch points with which the bank could engage with them and vice versa. Now, branch foot traffic is declining significantly, and the contact center has become the dominant human touchpoint.

The shift in demand means that some banks are struggling to efficiently answer basic customer service queries, let alone deal with unique and complex scenarios. Many institutions are offering the most basic customer experience at best. At worst, they are offering a terrible experience, with customers complaining of hold times lasting hours during Covid-19’s onset.

This is a problem for banks for many reasons. Customers don’t want to sit on hold for an extended period (if at all) for nearly anything, especially to get an answer to a simple question. And most of the questions are in fact simple. Our call driver data shows that approximately 70% of customer service queries are basic or transactional: routine requests for information and actions on an existing customer account. Not surprisingly, the most common requests are account access issues — typically a password reset or login confusion.

The next largest group, making up 25% of all requests, are complex. These are customer specific problems or special cases that require detailed attention and assistance to resolve. In these circumstances, the customer often has already attempted other digital methods of finding the answer before reaching for live help. These situations offer the opportunity to provide personal service with a warm human touch, cementing customer loyalty to the institution. This is where customer experience reputations are made and where customer service agents can really shine.

But customers with routine requests are forced to sit on hold when they don’t want to, and those with complex requests who need to speak with an agent can’t do so efficiently because agents are stuck servicing routine requests, according to our recent data report. Banks can solve this problem in two ways: they could hire more customer service agents to reduce wait times or they can automate certain functions using AI.

Handling transactional queries with a conversational chatbot offers the highest value to the customer and to the bank. Instead of hiring more agents, banks can free up the time of existing agents by offloading routine tasks. Contact center agents can focus on more complex or high-value problems, supporting more consumers with the same resources. A large bank reported that their AI chatbot halves the average handling time for customer inquiries, saving customers an average of 12 minutes per chat when handled by the bot.

To get started, banks shouldn’t look at conversational banking as a niche channel but as an important part of their overall customer experience strategy. Consumers no longer decide where to bank based on whether there’s a branch nearby. Banks need to look deeper, creating meaningful engagement with their customers. Excellent customer service is the baseline.

What Banks Can Learn About Customers from 50,000 Chatbot Searches

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Covid-19 has increased usage of digital banking services and tools, including live chat, video chat and chatbots.

While live chat and video chat offer a one-to-one conversation directly with your customers, chatbots provide 24-hour service, instant answers and the ability to scale without the need for human intervention. Relatively new channel to the banking world, the promise of chatbots seems endless: answering every question and automating related tasks, quickly and efficiently. How can banks best leverage the promise of this opportunities to better and more efficiently serve customers?

To truly answer that question, we need to understand how customers interact with chatbots, how that varies from known digital behavior, like search and navigation, and how can those insights be turned into reality.

So we decided to analyze more than 50,000 banking chatbot interactions. What we uncovered revealed some very interesting insights about customer behavior and what it will take to make that promise a reality.

It turns out that customers interactions with chatbots are very similar to human interactions:

  • They typically typed 11.24 words, on average, compared to with 1.4 words typed into a banking website search bar. Chatbot interactions are conversational. Customers ask questions like “Can I Have My Stimulus Debit Card Balance Deposited to My Account” or making statements like “I need to change my address.”
  • Almost 94% of questions asked were completely unique. While customers may ask the same type of question — “What is my routing number?” versus “What is your routing number?” versus “What is the routing number” —how they phrase the question is almost always unique.
  • A fifth of all interactions started with “I need,” “I want” or “I am” — another indication of the conversational approach that bank customers take with chatbots. Unlike a search function, where typically they would use shorter phrases like “refinance” or “refinance car,” they make statements or ask questions: “I am looking to refinance my auto loan” or “I want to refinance my auto loan.”
  • Fifteen percent of interactions included the word “how.” This is another indication that customers ask chatbots questions or looking for help completing tasks like “How do you use Zelle?” or “How does a home equity loan work?”
  • Fourteen percent of all interactions began with “Hi,” “Hey” or “Hello.” And who said that bots don’t have feelings?

Chatbot adoption and usage will only continue to grow. Like all newer channels, it will require fine-tuning along the way, using insights and analysis to effectively interpret what customers are looking for, and deliver back relevant responses that point them in the right direction.

This starts with analytics and data. As data sets grow with more usage, they will reveal insights on how customers interact with chatbots, what they are looking to do and how that changes over time. This will feed the data set used to power the chatbot’s AI — both natural language processing (the ability to interpret what the customer is asking or looking for) as well as the sentiment analysis (whether the customer is happy or frustrated). Analysis will be required to learn and understand the nuances of what customers are asking when presented with phrases like this actual query from our dataset: “Hi. What is the safest way to prove documents of account balance when applying to living in an apartment complex?” Banks and/or the chatbot vendors will need to monitor the training the chatbot, including recognizing customer frustration and offering up logical next steps — like “It looks like you’re frustrated, can we transfer you to an agent?” as needed.

The analytics and data will also provide the map of the information that needs to be developed and updated to deliver answers that customers need. Given that 93.8% of questions that customers ask are unique, having the right knowledge will be critical. Sometimes this might be a simple answer (“What is my routing number?”) and sometimes it might require decision trees that offer options (understanding if an auto loan is for a new or used vehicle to get the customer one step closer to conversion).

Banks have a great opportunity to make chatbots the 24/7 tool that improves customer experience, reduces support costs and drives digital adoption. But it will take a commitment to the analysis and ongoing optimization of knowledge to truly become a reality. 

Next time you start you interact with a chatbot, start with hello — I’ve heard they appreciate it!

Exploring Customer Service in the Pandemic Age

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Banks across the country are grappling with the right approach to branch banking as the Covid-19 pandemic lingers.

Management concerns surrounding logistics and safety must give way to longer-term considerations aimed squarely at the bottom line. Executives need to contemplate the future of their branch operations and  business model, incorporating the guidance that large-scale pandemics may persist in some shape or form in the future. Read on to explore key considerations relating to the long-term implication of pandemics on customer service delivery.

Will customers ever come back into our branches? How will that impact our bank?
Branch visits have irrevocably changed. A recent study asked consumers to rank their preference of seven different banking channels, before, during and post-pandemic. Six months after the start of the pandemic, branch banking has settled into sixth place. The study predicts “a rapid decrease in the importance of the physical branch as customers become more habituated to the use of digital, which is a behavior that will linger long term.”

Jimmy Ton, senior vice president and director of digital channels at Irvine, California-based First Foundation Bank, agrees. “For those who adopted digital services during this time, they’ll probably stick with them. It takes 60 days to form a habit and people have been reconditioned during the pandemic. There’s no reason to believe they will abandon these services,” said Ton.

Novantas highlights another concern. “The branch network’s competitive advantage for sales has been eliminated overnight, possibly forever. Although sales were already shifting away from branches, they will now need to be even more digital.”

Banks must prepare for a permanent, significant reduction of branch visits. They should discuss this impact on their business models and what changes, internally and customer-facing, will need to occur.

Highly personalized service is our hallmark. How can we possibly digitize that?
Many banks have long leveraged high-touch customer service as a differentiator when competing with national banks. This was often delivered through branch networks and sales teams — until now.

Bankers have witnessed pandemic-induced migration to digital channels. But this is no time to celebrate;  J. D. Power shows overall satisfaction has declined as customers transition from branch to digital channels. That’s because banks have so far been unable to replicate the personalized nature of in-branch experiences digitally.

But it can be done.

Think of it this way: branch staff can glance at a screen filled with information about the customer sitting in front of them to personalize the conversation. That same data can be used to craft a personalized conversation, delivered via email or text message instead. Both methods communicate to the customer that you know who they are, and can offer ways to help them.

Digital engagement platforms offering deep personalization delivered via individualized websites, text messages, video and online chats exist today. They deliver a positive, digital experience with minimal effort, even for data-challenged banks.

“A significant chunk of interactions can move to digital. A great parallel is what we saw happen with telehealth, moving routine physical in-person appointments to virtual ones,” said John Philpott, a partner at FINTOP Capital. “It’s a great example of how professional conversations can be digital; banks can absolutely do the same.”

Banks should plan to shift all or a significant portion of sales and service delivery away from their branch networks and to digital engagement and sales platforms that are ideally powered by insightful data to hyper-personalize the experience.

Strategically speaking, what else should we consider?
With branch-based account opening limited and most banks flush with cash, the pressure for new deposits has lessened. Now is an opportune time to focus on the existing customer base to minimize attrition and boost profitability of those relationships.

Ted Brown, CEO of Digital Onboarding, founded the company based on the idea that opening a new account does not mean you’ve established a relationship.

“[The ] number of new checking accounts is the wrong metric to obsess over,” Brown said. “Are your customers fully utilizing the products and services they’ve signed up for? Are they turning to your bank to satisfy additional needs? Starting with Day One, successful onboarding — and continuous engagement thereafter — increases product usage, cross-sell success and ultimately drives profits.”

Zeroing in on customer engagement and retention, instead of new customer growth, may be a smart, strategic and profitable move in the current environment. Responsible bank leadership must contemplate what changes and investments they will need to make to stay relevant with customers post-COVID 19.

Viewing the COVID-19 Crisis From a New Vantage Point

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Fintech companies have a unique vantage point from which to view the COVID-19 crisis.

Technology leaders are working long hours to help banks go remote, fill in customer service gaps and meet unprecedented loan demand. They’re providing millions of dollars in free services, and rapidly releasing new products. They’re talking to bankers all day, every day, and many of them are former bankers themselves.

Bank Director crowdsourced insights about banks’ pandemic-fueled tech initiatives from 30 fintech companies and distilled their viewpoints into five observations that can help banks sort through the digital demands they face today.

“Nice to Have” Technology Is Now “Must Have”
Online account opening, digital banking, financial wellness and customer service are garnering fresh attention as a result of the COVID-19 crisis.

Before the pandemic, these areas were thought of as “nice to have,” but they weren’t at the top of any bank’s tech expenditure list. COVID changed that.

Account opening and digital banking are essential when branch lobbies are closed, and customers are looking to their banks for advice in ways they never have before in times of widespread uncertainty.

These new demands have created a unique opportunity to push technology initiatives forward. Ben Morales, who had a 24-year tenure in banking before founding personal loan fintech QCash, observed that bank leaders shouldn’t “waste an emergency. Now is the time to push bank boards to invest.”

Bank boards are already talking about COVID as a potential inflection point for tech adoption, says Jon Rigsby, a former banker who co-founded and now is the CEO of Hawthorn River Lending. He notes that this moment is different from past crises. “In my 27-year banking career, I’ve never seen bankers change so fast. It was quite phenomenal.”

Customer Service, Financial Wellness Are Taking Center Stage
Consumers are increasingly seeking guidance from their banks, inundating call centers. As a result, communication and financial wellness tools are getting their moment in the sun.

Boston-based fintech Micronotes has witnessed exponential growth in demand for their product that helps banks initiate conversations with their customers digitally. Micronotes introduced a new program that’s purpose built for pandemic in mid-March. The Goodwill Program helps banks proactively communicate with their customers around issues like relief assistance and the Small Business Administration’s Paycheck Protection Program (PPP). Inbound interest in the firm from banks was nearly eight-times higher two weeks after the program launched, compared to the two weeks prior to launch, Micronotes reports.

Banks already equipped with digital communication tools are seeing an uptick in usage. Kasisto, a New York-based fintech, reported that several clients have seen a 20% to 30% increase in the use of KAI, a virtual assistant that can converse with customers and lessen the burden on call centers.

Financial wellness initiatives are also seeing liftoff. Happy Money, a personal loan fintech that uses financial and psychometric data to predict a borrower’s willingness to repay a loan, launched a free financial stress relief product for its bank partners’ customers. And SavvyMoney, a fintech that provides credit information to borrowers alongside pre-qualified loan offers, is seeing an influx of inquiries from banks that “understand the need to provide their customers with tools so they can better manage their money during uncertain financial times,” says CEO JB Orecchia.

Due Diligence Can Move Faster, When It Has To
Several fintechs have noted that banks are speeding up their vendor due diligence processes immensely — but not by relaxing standards.

Vendor onboarding programs can sometimes stretch to fill an entire year, according to Rishi Khosla, CEO of London-based digital bank OakNorth, but they don’t have to. OakNorth developed its own credit underwriting and monitoring solution, and recently spun out a technology company by the same name to provide the tools to banks outside of the U.K.

Khosla has a unique perspective given his dual roles as both a banker and technologist. He says some banks have created “unbelievable processes” that, when cut down, actually only amount to 10 to 20 hours of work. In this environment, he says, a commercial bank partner can get 20 hours of work done within days. They’re in “war mode,” so they can take a dramatically different approach, but with no less rigor.

“It’s not like they’re taking shortcuts. They’re going through all the right processes,” he says. “It’s just they’re doing it in a very efficient, streamlined manner without the bureaucracy.”

Approach Existing Partners First
Banks now wanting to adopt new technology may find themselves at the end of a long waitlist as fintechs are inundated with new demand. Fintech providers are prioritizing implementations for existing customers first — just as most banks prioritize existing borrowers for PPP loans.

To get the technology they need fast, some banks are getting creative in rejiggering the tech they do have to meet immediate needs.

Matt Johnner, a bank board member and the president of construction lending fintech BankLabs, got a call from a bank client a few days after the rollout of PPP loans. The bank wanted to customize the BankLabs construction loan automation tool to process PPP loans. Johnner says the bank “called because they know our software is customizable … and that we go live in 1 hour.”

Because of the exponential rise in digital demand, a bank’s success with technology during the pandemic has been based largely on what they had in place before the outbreak, according to many fintechs.

“Some banks are innovating through this and are thinking near and long term, especially those that have made good investments in digital banking and have a solid foundation to build out from,” explains Derik Sutton, VP of product and experience for small business solution Autobooks. “The most common response we get [from banks] is ‘We wish we had done this sooner.’”

Resist the Urge to Slash-and-Burn
There are typically three ways that banks respond in crisis, according to Joe Zeibert, who started his banking career as an intern at Bank of America Corp. in summer 2008. He recently joined pricing and analytics platform Nomis as managing director of global lending solutions after an 11-year career in banking, and believes history can be a useful indicator here.

“Similar to the financial crisis, we see some banks rushing to innovate who will be ahead of the curve when they get out of the downturn. Others are playing wait and see, and then others are slashing tech and innovation budgets to cut costs wherever they can,” says Zeibert. According to him, the more innovative banks came out of the last crisis better off than their peers that cut tech spending. “They came out of the downturn with a 5-year innovation lead over their competitors — a gap that is almost impossible to close,” he says. Banks now should resist the urge to slash and burn and, instead, focus on investing in technology that will help them emerge from the crisis stronger.

Most technology companies are reporting an influx of inbound interest from banks, and strong momentum on current projects. Fintechs appear to be rising to the occasion, and one sentiment they all seem to share is that it’s their time to give back; to help banks and, as a result, the nation, weather this crisis together.

*All of the companies mentioned in this article are offering new products, expedited implementations or free services to banks during COVID-19. To learn more about them, you can access their profiles in Bank Director’s FinXTech Connect platform.

The Most Important Question in Banking Right Now

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banking-2-15-19.pngTo understand the seismic shifts underway in the banking industry today, it’s helpful to look back at what a different industry went through in the 1980s—the industry for computer memory chips.

The story of Intel Corp. through that period is particularly insightful.

Intel was founded in 1968.

Within four years, it emerged as one of the leading manufacturers of semiconductor memory chips in the world.

Then something changed.

Heightened competition from Japanese chip manufacturers dramatically shrank the profits Intel earned from producing memory chips.

The competition was so intense that Intel effectively abandoned its bread-and-butter memory chip business in favor of the relatively new field of microprocessors.

It’s like McDonald’s switching from hamburgers to tacos.

In the words of Intel’s CEO at the time, Andy Grove, the industry had reached a strategic inflection point.

“[A] strategic inflection point is a time in the life of a business when its fundamentals are about to change,” Grove later wrote his book, “Only the Paranoid Survive.”

“That change can mean an opportunity to rise to new heights,” Grove continued. “But it may just as likely signal the beginning of the end.”

The parallels to the banking industry today are obvious.

Over the past decade, as attention has been focused on the recovery from the financial crisis, there’s been a fundamental shift in the way banks operate.

To make a deposit a decade ago, a customer had to visit an ATM or walk into a branch. Nowadays, three quarters of deposit transactions at Bank of America, one of the biggest retail banks in the country, are completed digitally.

The implications of this are huge.

Convenience and service quality are no longer defined by the number and location of branches. Now, they’re a function of the design and functionality of a bank’s website and mobile app.

This shift is reflected in J.D. Power’s 2019 Retail Banking Advice Study, a survey of customer satisfaction with advice and account-opening processes at regional and national banks.

Overall customer satisfaction with advice provided by banks increased in the survey compared to the prior year. Yet, advice delivered digitally (via website or mobile app) had the largest satisfaction point gain over the prior year, with the most profound improvement among consumers under 40 years old.

It’s this change in customers’ definition of convenience and service quality that has enabled the biggest banks over the past few years to begin growing deposits organically, as opposed to through acquisitions, for the first time since the consolidation cycle began in earnest nearly four decades ago.

And as we discussed in our latest issue of Bank Director magazine, the new definition of convenience has also altered the growth strategy of these same big banks.

If they want to expand into a new geographic market today, they don’t do so by buying a bunch of branches. They do so, instead, by opening up a few de novo locations and then supplementing those branches with aggressive marketing campaigns tied to their digital banking offerings.

It’s a massive shift. But is it a strategic inflection point along the same lines as that faced by Intel in the 1980s?

Put another way, has the debut and adoption of digital banking changed the fundamental competitive dynamics of banking? Or is digital banking just another distribution channel, along the lines of phone banking, drive-through windows or ATMs?

There’s no way to know for sure, says Don MacDonald, the former chief marketing officer of Intel, who currently holds the same position at MX, a fintech company helping banks, credit unions, and developers better leverage their customer data.

In MacDonald’s estimation, true strategic inflection points are caused by changes on multiple fronts.

In the banking industry, for instance, the fronts would include regulation, technology, customer expectations and competition.

Viewed through this lens, it seems reasonable to think that banking has indeed passed such a threshold.

On the regulatory front, for the first time ever, a handful of banks don’t have a choice but to focus on organic deposit growth—once the exclusive province of community and regional banks—as the three largest retail banks each hold more than 10 percent of domestic deposits and are thus prohibited from growing through acquisition.

Furthermore, regulators are making it easier for firms outside the industry—namely, fintechs—to compete directly against banks, with the Office of the Comptroller of the Currency’s fintech charter being the most obvious example.

Technology has changed, too, with customers now using their computers and smartphones to complete deposits and apply for mortgages, negating the need to walk into a branch.

And customer expectations have been radically transformed, as evidenced by the latest J.D. Power survey revealing a preference toward digital banking advice over personal advice.

To be clear, whether a true strategic inflection point is here or not doesn’t absolve banks of their traditional duty to make good loans and provide excellent customer service. But it does mean the rules of the game have changed.

Why Soccer And Restaurant Reviews Are Becoming Part of Digital Banking

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fintech-9-27-18.pngFor years banks have looked to fintechs to make their digital offerings more convenient, an area where legacy core systems have been slow to develop. That remains a primary goal for some institutions that have been slower to adopt modern digital capabilities.

Banks attending Finovate Fall Sept. 24-26 in New York City were looking for fintech partners that could help them bolster their main value proposition: deep customer relationships and personalized customer service. Several companies are serving up unique capabilities such as providing restaurant recommendations or basing savings goals on how well your favorite soccer team performs.

Dan Latimore, senior vice president of banking at the research firm Celent, tweeted that customer experience was the leading topic of discussion at this year’s fintech-heavy U.S. conference, but it’s not just the conveniences of a robust mobile app that banks are rolling out. Some banks are working with fintechs to build unusual but highly personalized capabilities in their digital experience to drive human interaction and improve the quality of their customer relationships.

Three unique examples of bringing the bank and its customers closer together involve recommendations from the bank through its fintech partner.

Tinkoff Bank – Tinkoff Bank, a branchless Russian bank with $278 billion in assets according to its most recent disclosure, bills itself as a “digital ecosystem of financial and lifestyle products.” The bank’s mobile app goes beyond traditional banking services to provide things like restaurant recommendations, user tips and troubleshooting advice. Tinkoff engages its user base of about 7 million customers through stories that are similar to those used in popular social media apps like Instagram.

Meniga – This London-based fintech’s transaction categorization engine helps banks personalize their digital channels. Meniga presented at the conference with client Tangerine Bank, a Canadian direct bank and subsidiary of Toronto-based Scotiabank with $38 billion in total assets. The bank’s app recommends personalized savings goals.

For example, Tangerine’s app will notice if a user is a fan of a particular soccer team based on their purchasing history. The app can then automate a savings challenge for the user that will move money from their checking account to savings every time the team scores a goal.

Bond.AI – One of several chatbots in attendance at Finovate, Bond brands itself as an “empathy engine” that understands the context of financial data. In addition to answering basic banking inquiries, Bond proactively recommends behaviors users should take and products that fit their lifestyle.

Meniga and Bond.AI were both awarded Best in Show by conference attendees. They represent an emerging focus on understanding a customer’s lifestyle through transaction data and then making helpful recommendations to them based on that information, which are often described as artificial intelligence or machine learning. This is the latest stage in the innovation of fintech capabilities, which began by making the bank’s digital experience more convenient and friendly to mobile users.

These capabilities have been popular topics at national conferences, including Bank Director’s FinXTech Summit, held in May at The Phoenician in Phoenix, Arizona.

There’s no doubt that the challenges of partnering with fintechs was a much different proposition than when fintech firms were stood up some 10 years ago. Now, more than a decade into some fintech life cycles, the firms have matured.

Fintechs have learned to work within the regulatory framework, core system capabilities and other legacy issues banks have long been familiar with. Banks, on the other hand, have become more open to partnership with smaller, nimble tech companies.

The technology banks need to engage customers on a meaningful level has arrived. Fintechs have established themselves as viable business partners. Consumers are demanding more convenient digital experiences and many banks are progressing in meeting those demands, but those who don’t continue to lose ground in being able to grow or remain competitive.