Increasing Customer Engagement to Exceed Expectations

The new normal produced by the pandemic has underpinned the need for change and connection.

One impacted area are the adjustments organizations are making as they rediscover the benefits of connecting with consumers, rather than simply selling them a product. These businesses are on the right track, as one thing is becoming abundantly clear in the wake of Covid-19: This is not the time to solely sell and advertise.

While advertising and selling inevitably play a big role in business operations, companies are often too focused on these two aspects and it doesn’t always pay off. Now is the time to connect, reach and engage with consumers on a deeper level. The coronavirus pandemic and economic fallout has impacted nearly all areas of consumers’ lives, and their interactions and needs from their banks and financial institutions need to change as a result.

Focusing on advertising and selling may work for some organizations, but with growing consumer expectations, this just won’t do for banks. Customers choose banks partially because of their emphasis on customer service and will be annoyed if the institution tries to advertise or sell them a product that doesn’t match their financial needs.

Connection goes beyond having the best catchphrase or the sunniest stock photo. True engagement is driven by identifying customer needs and communicating relevant solutions, peaking their interest and building connections that will last.

Right now, traditional, product-focused promotional efforts and marketing don’t work because people’s daily lives have drastically changed. Their financial situations may have been altered. A more personal approach develops connections and loyalty that will last for years.

It is more important than ever that banks use customer and business intelligence effectively to promote relevant products and services. Some institutions may need to return to their roots and their initial goal: to serve their communities and the people that live in them. This approach may sound simplistic, but it can prove challenging to achieve.

And banks, like their customers, don’t want to merely survive this health crisis, they want to thrive in these unprecedented times. It takes a shift in strategy to do so. “In a matter of weeks, digital and mobile banking technologies went from being a ‘nice to have’ to a ‘must have.’” The pandemic was even the catalyst for tech adoption at some financial institutions. With the help of data-driven communication systems, one-on-one communication is both realistic and accessible. The massive drive for digital solutions allows banks to reassess digital access to products and services. This immediate boost in digital engagement offers a huge opportunity for institutions that are implementing digital marketing plans, perhaps for the first time.

Practically applied, banks need to turn to smart technology to create a clear path to build better customer relationships and return to the longstanding values of one-on-one communication. While this may seem straightforward, using forward-thinking, innovative technology as the way to “get back to their roots” is an approach not previously imagined by many bank executives.

Utilizing a data-driven digital infrastructure allows banks to reach customers personally, uniquely and instantly. Banks need to embrace comprehensive digital outreach to touch people where they are with the services they need most. Customers still need access to financial services, even if they are avoiding branch locations and ATM lines. The solution is simple: Be the bank that communicates what options are easily accessible and available to them. Be the branch that shows that they care. With the help of an intelligent digital experience platform and the right technology, banks can automate the relevant communications, so the right messages reach the right person at the right financial time for them.

The pandemic sparked a much-needed shift: from being overly focused on advertising, selling and pushing products and services to establishing and building better customer relationships, increasing customer engagement as well as gaining consumers’ trust and loyalty for years to come. Returning to your bank’s original mission of serving the community will give you the ability to target consumers at the exact right time in their financial journey – reaching each customer’s specific needs and allowing banks to engage with their customers.

New Research Finds 4 Ways to Improve the Appraisal Experience

Accelerating appraisals has become increasingly important as lenders strive to improve efficiency in today’s high-volume environment.

Appraisals are essential for safe mortgage originations. Covid-19 underlined the potential impact of modernizing appraisal practices, and increased the adoption of digitally enabled appraisal techniques, appraisal and inspection waivers, and collateral analytics.

Banks have numerous opportunities to improve and modernize their appraisal process and provide a better consumer experience, according to recent research sponsored by ServiceLink and its EXOS Technologies division and independently produced by Javelin Strategy & Research. The research highlights several actions that lenders can take to improve their valuation processes, based on the feedback of 1,500 single-family homeowners in March who obtained either a purchase mortgage, refinance mortgage, home equity loan/line of credit for their single-family home, or who sold a single-family home, on or after January 2018.

1. Implement digital mortgage strategies that streamline appraisal workflows. One of the most-compelling opportunities to make appraisals more efficient is at the very onset of the process: scheduling the appointment. Scheduling can be complicated by the number of parties involved in an on-site inspection, including a lender, appraiser, AMC, borrower and real estate agent. Today, two-thirds of consumers schedule their appointments over the phone. This process is inefficient, especially for large lenders and their service providers, and lacks the consistency of digital alternatives.

Lenders that offer digital appraisal scheduling capabilities provide a more-predictable and consistent service experience, and reduce the back-and-forth required to coordinate schedules among appraisers, borrowers, real estate agents and home sellers. Given younger consumers’ tendency to eschew phone calls in favor of digital interactions, it’s essential that the industry embraces multiple channels to communicate, so borrowers can interact with lenders and AMCs on their own terms.

2. Increase transparency in the appraisal process. Even after an appointment is scheduled, consumers typically receive limited details about the appraiser, what to expect during the appointment and how the appraisal factors into the overall mortgage process. For example, 61% of consumers received the appraiser’s contact information before the appointment; while only 20% were provided with the appraiser’s photo and 9% were told what type of car they will drive. Providing borrowers with more information about the appraisal appointment bolsters their confidence; information gaps can contribute to a less-satisfying experience. Nearly 20% of consumers said they were not confident or only somewhat confident about their appointment, while over 30% said the same about the names of the appraiser and AMC.

3. Focus on efficiency. Overall, 38% of consumers said the duration of the overall appraisal process contributed to a longer mortgage origination process; delays among purchase mortgage and home equity borrowers were even higher.

For example, about two-thirds of appraisal appointments required the consumer to wait for the appraiser to arrive within an hours­long window or even an entire day, as opposed to giving the consumer an exact time when the appointment will take place. Given this challenge, lenders and appraisal professionals that offer more-precise appointment scheduling can improve the consumer experiences and streamline the origination process.

4. Implement processes and technology that support innovative approaches to property inspections and valuations. Covid-19 highlighted the opportunity banks have to adopt valuation products that sit between fully automated valuations and traditional appraisals, such as valuation methods that combine third-party market data and consumer-provided photos and video of subject properties. This approach still relies on a human appraiser to analyze market data and subject-property

This concept is gaining traction in the mortgage industry. In the future, it’s conceivable the approach could be expanded with the use of artificial intelligence and virtual reality technologies.

No matter the method an appraiser uses to determine a property’s value, the collateral valuations process is fundamentally an exercise in collecting and analyzing data. Partnering with an innovative AMC allows lenders to take advantage of new techniques for completing this critical market function. You can view the full white paper here.

The Role Analytics Play in Today’s Digital Environment

Banks have an increasing opportunity to employ and leverage analytics as customers continue to seek increased digital engagement. Combining data, analytics, and decision management tools together enriches executive insights, quantifies risk and opportunity, and makes decision‑making repeatable and consistently executed.

Analytics, and the broad, umbrella phrase automated intelligence can be confusing; there are many different subfields of the phrases. AI is the ability of a computer to do tasks that are regularly performed by humans. This includes expert models that take domain knowledge and automate decisions to replicate the decisions the expert would have made, but without human intervention. Machine learning models extract hidden patterns and rules from large datasets, making decisions based purely on the information reflected in the data.

Financial institutions can use this technology to better understand their data, get more value out of the information they already have and make predictions about consumer behaviors based on the data.

For example, having identified the needs of two consumers, digital marketing analytics can identify the consumer with the greater propensity-to-purchase or which consumer has the more-complex needs to determine resources allocation. These consumers may present equal opportunity, or they may vary by a factor or two. It’s also important to employ analytic tools that extend beyond determining probability to recommending actions based on results. For example, a customer could submit necessary credit information that is sufficient for a lender to receive an instant decision recommendation, increasing customer satisfaction by reducing wait time.

While there are countless ways banks can benefit from implementing analytics, there are eight specific areas where analytics has the most impact:

  • Measuring the degree of risk by evaluating credit, customer fraud and attrition;
  • Measuring the likelihood or probability of consumer behaviors and desires;
  • Improving customer engagement by increasing the relevance of engagement content as well as reaching out to customers earlier in the process;
  • Providing insight into the success or failure in the form of marketing, customer and operational key performance indicator;
  • Detecting and measuring opportunity in terms of customer acquisition, revenue expansion and resource/priority allocation;
  • Optimizing pricing;
  • Improving decisions based on credit, campaign, alerts or routing escalation; and
  • Determining intervention or corrective next action to reduce abandonment.

Each of these capabilities has numerous applications. In a digital economy, the entire customer journey and sales cycle becomes digitally concentrated. This includes using personal financial goal planning, market segmentation, customer relationship management data and website digital sensory to detect opportunities based on consumer intent, fulfillment, obtaining customer self‑reported feedback, attrition monitoring and numerous engagement methods like education or offers. Using analytics adds considerable value to each of these processes — it drives some of them completely. Actionable analytics are key. They drive outcomes based on expert models and data analysis, to scale, to a large set of consumers without increasing the need for additional employees.

Looking at actual business cases will underline the benefits of analytics in relation to propensity‑to‑purchase (PTP), email campaigns and website issue detection. When two different customers visit a bank’s website, the bank can use analytics to detect and measure each user’s navigation for probable interest and intent for new products based on time on page, depth of navigation and frequency signals within a given timeframe. If one person visits a general product page and only stays for 15 seconds, that person has a lower PTP than the other visitor who navigates to specific product and pricing information and remains there for 40 seconds.

The bank can route probable leads to either human‑based or automated engagement plans, based on aggregated data, segmentation, product intent, and in the case of an existing customer, current products owned.

A recent college graduate may be interested in debt management solutions, whereas a more-established empty nester may be in the market for wealth management and retirement planning. Based on user preferences and opportunity cost, these customers can be properly engaged with offers, education and helpful tools through email campaigns, texts, third‑party marketing or branch or contact center personnel.

In today’s banking environment, financial institutions must find new ways to increase efficiency, improve business processes and scale to consumer volume. Analytics support financial institutions in forecasting, risk management and sales by providing data points that help them increase performance, predict outcomes and better solve business issues.

Enhancing Risk & Compliance

Financial institutions increasingly seek to use technology to efficiently and effectively mitigate risk and comply with regulations. Bank leaders will need the right solutions to meet these objectives, given the amount of data to make sense of as organizations include risk as part of their decision-making process. Microsoft’s Sandeep Mangaraj explains how banks should explore these issues with Emily McCormick, Bank Director’s vice president of research. They discuss:

  • How Risk Management is Evolving
  • Adopting AI Solutions
  • Planning for the Future

How Open Finance Fuels the Money Experience and Drives Growth

If one idea encapsulates a significant trend in the current business environment, it’s “openness.”

Society is placing a greater value on transparency and “open” approaches. Even Microsoft Corp., the long-time defender of closed software, under the leadership of CEO Satya Nadella, has proclaimed they are “all in open source.” One industry where being open is of particular importance is banking and finance.

Open banking is the structured sharing of data through an application programming interface, or APIs. These APIs allow data to move freely from financial institutions to third-party consumer finance applications. Customers initiate and consent to data sharing, establishing a secure way to grant access and extract financial information from the financial institution.

Open finance, on the other hand, is a broader term. It extends open banking to include customer data access for a range of services beyond the banking industry — to retail stores, hotels, airlines, car apps and much more.

Open finance is popular in Europe and is now gaining momentum in the United States. The goal, similar to open banking, is to enhance the way consumers in all industries interact with money. There are numerous far-reaching benefits of the open finance movement, both for consumers and organizations.

Consumers receive fast access to apps and services. Opening up data access allows someone to sign on and share their data with popular third-party apps (such as Netflix or Amazon.com) so they don’t have to re-enter their information every time. Taking it a step further, a stream of innovative applications such as fraud monitoring, automated savings, accelerated mortgage reduction and more are possible once access to financial information is opened up.

Greater security and control. With currently available technology, financial institutions, can leverage API connections to allow account access or facilitate money movement for their customers. This control provides a sense of autonomy and security for consumers and bankers alike, creating an improved and secure money experience. Banking APIs also impact business models, and most significantly, allow banks to adapt to changes in the marketplace.

But security is critical when “opening up data” to the world. When we launched our open finance platform, MX Open, we ensured that financial institutions would be able to help protect their user’s financial data. Security needs to be at the heart of any successful open finance strategy, so that  financial institutions, third-party financial apps and other companies can create more personalized money experiences that give customers greater access and control.

Easier connection of services, apps, cores and systems. Establishing a secure, end-to-end mechanism for sharing data not dependent on credential sharing allows banks and fintech companies can connect to many, many more services — resulting in even more services and offerings for users. Data connectivity APIs exist for that purpose: to empower organizations beyond the constraints of legacy systems, connecting financial institutions with new services, apps, cores and systems.

As a company focused on the financial services space, we recognize that data should be open to everyone. This movement of opening up — from open-source, to open banking to open finance — can only help bankers and boards maintain the advocacy-focused approach they desire in serving their customers, while increasing control over their roadmap to innovate faster and deliver the right tools and products to the right customers.

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

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!

Five Ways PPP Accelerates Commercial Lending Digitization

The Small Business Administration’s Paycheck Protection Program challenged over 5,000 U.S. banks to serve commercial loan clients remotely with extremely quick turnaround time: three to 10 days from application to funding. Many banks turned to the internet to accept and process the tsunami of applications received, with a number of banks standing up online loan applications in just several days. In fact, PPP banks processed 25 times more loan applications in 10 days than the SBA had processed in all of 2019. In this first phase of PPP, spanning April 3 to 16, banks approved 1.6 million applications and distributed $342 billion of loan proceeds.

At banks that stood up an online platform quickly, client needs drove innovation. As institutions continue down this innovation track, there are five key technology areas demonstrated by PPP that can provide immediate value to a commercial lending business.

Document Management: Speed, Security, Decreased Risk
PPP online applications typically provided a secure document upload feature for clients to submit the required payroll documentation. This feature provided speed and security to clients, as well as organization for lenders. Digitized documents in a centrally located repository allowed appropriate bank staff easy access with automatic archival. Ultimately, such an online document management “vault” populated by the client will continue to improve bank efficiency while decreasing risk.

Electronic Signatures: Speed, Organization, Audit Trail
Without the ability to do in-person closings or wait for “wet signature” documents to be delivered, PPP applications leveraged electronic signature services like DocuSign or AdobeSign. These services provided speed and security as well as a detailed audit trail. Fairly inexpensive relative to the value provided, the electronic signature movement has hit all industries working remotely during COVID-19 and is clearly here to stay.

Covenant Tickler Management: Organization, Efficiency, Compliance
Tracking covenants for commercial loans has always been a balance between managing an existing book of business while also generating loan growth. Once banks digitize borrower information, however, it becomes much easier to create ticklers and automate tracking management. Automation can allow banker administrative time to be turned toward more client-focused activities, especially when integrated with a document management system and electronic signatures. While many banks have already pursued covenant tickler systems, PPP’s forgiveness period is pushing banks into more technology-enabled loan monitoring overall.

Straight-Through Processing: Efficiency, Accuracy, Cost Saves
Banks can gain significant efficiencies from straight-through processing, when data is captured digitally at application. Full straight-through processing is certainly not a standard in commercial lending; however, PPP showed lenders that small components of automation can provide major efficiency gains. Banks that built APIs or used “bots” to connect to SBA’s eTran system for PPP loan approval processed at a much greater volume overall. In traditional commercial lending, it is possible for data elements to flow from an online application through underwriting to final entry in the core system. Such straight-through processing is becoming easier through open banking, spelling the future in terms of efficiency and cost savings.

Process Optimization: Efficiency, Cost Saves
PPP banks monitored applications and approvals on a daily and weekly basis. Having applications in a dynamic online system allowed for good internal and external reporting on the success of the high-profile program. However, such monitoring also highlighted problems and bottlenecks in a bank’s approval process — bandwidth, staffing, external vendors and even SBA systems were all potential limiters. Technology-enabled application and underwriting allows all elements of the loan approval process to be analyzed for efficiency. Going forward, a digitized process should allow a bank to examine its operations for the most client-friendly experience that is also the most cost and risk efficient.

Finally, these five technology value propositions highlight that the client experience is paramount. PPP online applications were driven by the necessity for the client to have remote and speedy access to emergency funding. That theme should carry through to commercial banking in the next decade. Anything that drives a better client experience while still providing a safe and sound operating bank should win the day. These five key value propositions do exactly that — and should continue to drive banking in the future.

Build Versus Buy Considerations for Data Analytics Projects

It is the age-old question: buy versus build? How do you know which is the best approach for your institution?

For years, bankers have known their data is a significant untapped asset, but lacked the resources or guidance to solve their data challenges. The coronavirus crisis has made it increasingly apparent that outdated methods of distributing reports and information do not work well in a remote work environment.

As a former banker who has made the recent transition to a “software as a service” company, my answer today differs greatly from the one I would have provided five years ago. I’ve grown in my understanding of the benefits, challenges, roadblocks and costs associated with building a data analytics solution.

How will you solve the data conundrum? Some bank leaders are looking to their IT department while other executives are seeking fintech for a solution. If data analytics is on your strategic roadmap, here are some insights that could aid in your decision-making. A good place to start this decision journey is with a business case analysis that considers:

  • What does the bank want to achieve or solve?
  • Who are the users of the information?
  • Who is currently creating reports, charts and graphs in the institution today? Is this a siloed activity?
  • What is the timeline for the project?
  • How much will this initiative cost?
  • How unique are the bank’s needs and issues to solve?

Assessing how much time is spent creating meaningful reports and whether that is the best use of a specific employee’s time is critical to the evaluation. In many cases, highly compensated individuals spend hours creating reports and dashboards, leaving them with little time for analyzing the information and acting on the conclusions from the reports. In institutions where this reporting is done in silos across multiple departments and business units, a single source of truth is often a primary motivator for expanding data capabilities.

Prebuilt tools typically offer banks a faster deployment time, yielding a quicker readiness for use in the bank’s data strategy, along with a lower upfront cost compared to hiring developers. Vendors often employ specialized technical resources, minimizing ongoing system administration and eliminating internal turnover risk that can plague “in house” development. Many of these providers use secure cloud technology that is faster and cheaper, and takes responsibility for integration issues.  

Purchased software is updated regularly with ongoing maintenance, functionality and new features to remain competitive, using feedback and experiences gained from working with institutions of varying size and complexity. Engaging a vendor can also free up the internal team’s resources so they can focus on the data use strategy and analyzing data following implementation. Purchased solutions typically promotes accessibility throughout the institution, allowing for broad usage.

But selecting the criteria is a critical and potentially time-consuming endeavor. Vendors may also offer limited customization options and pose potential for integration issues. Additionally, time-based subscriptions and licenses may experience cost growth over time; pricing based on users could make adoption across the institution more costly, lessening the overall effectiveness.

Building a data analytics tool offers the ability to customize and prioritize development efforts based on a bank’s specific needs; controllable data security, depending on what tools the bank uses for the build and warehousing; and a more readily modifiable budget.

But software development is not your bank’s core business. Building a solution could incur significant upfront and ongoing cost to develop; purchased tools appear to have a large price tag, but building a tool incurs often-overlooked costs like the cost of internal subject matter experts to guide development efforts, ongoing maintenance costs and the unknowns associated with software development. These project may require business intelligence and software development expertise, which can carry turnover risk if institutional knowledge leaves the bank.

Projects of this magnitude require continuous engagement from management subject matter experts. Bankers needed to provide the vision and banking content for the product — diverting management’s focus from other responsibilities. This can have a negative impact on company productivity.

Additionally, “in-house” created tools tend to continue to operate in data silos whereby the tool is accessible only to data team. Ongoing development and releases may be difficult for an internal team to manage, given their limited time and resources along with changing business priorities and staff turnover.

The question remains: Do you have the bandwidth and talent at your bank to take on a build project? These projects typically take longer than expected, experience budget overruns and often do not result in the desired business result. Your bank will need to make the choice that is best for your institution.

Five Digital Banking Initiatives for Second Half of 2020

As the calendar nears the midpoint of 2020 and banks continue adjusting to a new normal, it’s more important than ever to keep pace with planned initiatives.

To get a better understanding of what financial institutions are focusing on, MX surveyed more than 400 financial institution clients for their top initiatives this year and beyond. We believe these priorities will gain even more importance across the industry.

1. Enabling Emerging Technologies, Continued Innovation
Nearly 20% of clients see digital and mobile as their top initiatives for the coming years. Digital and mobile initiatives can help banks limit the traffic into physical locations, as well as reduce volume to your call centers. Your employees can focus on more complex cases or on better alternatives for customers.

Data-led digital experiences allow you to promote attractive interest rates, keep customers informed about upcoming payments and empower them to budget and track expenses in simple and intuitive ways. 

2. Improving Analytics, Insights
Knowing how to leverage data to make smarter business decisions is a key focus for financial institutions; 22% of our clients say this is the top initiative for them this year. There are endless ways to leverage data to serve customers better and become a more strategic organization.

Data insights can indicate customers in industries that are at risk of job loss or layoffs or the concentration of customers who are already in financial crisis or will be if their income stops, using key income, spending and savings ratios. Foreseeing who might be at risk financially can help you be proactive in offering solutions to minimize the long-term impact for both your customers and your institution.

3. Increasing Customer Engagement
Improving and increasing customer engagement is a top priority for 14% of our clients. Financial institutions are well positioned to become advocates for their customers by helping them with the right tools and technologies.

Transaction analytics is one foundational tool for understanding customer behavior and patterns. The insights derived from transactions and customer data can show customers how they can reduce unnecessary spending through personal financial management and expert guidance.

But it’s crucial to offer a great user experience in all your customer-facing tools and technologies. Consumers have become savvier in the way they use and interact with digital channels and apps and expect that experience from your organization. Intuitive, simple, and functional applications could be the difference between your customers choosing your financial institution or switching to a different provider.

4. Leveraging Open Banking, API Partnerships
Open banking and application programming interfaces, or APIs, are fast becoming a new norm in financial services. The future of banking may very well depend on it. Our findings show that 15% of clients are considering these types of solutions as their main initiative this year. Third-party relationships can help financial institutions go to market faster with innovative technologies, can strengthen the customer experience and compete more effectively with big banks and challengers.

Financial institutions can leverage third parties for their agile approach and rapid innovation, allowing them to allocate resources more strategically, expand lines of business, and reduce errors in production. These new innovations will help your financial institution compete more effectively and gives customers better, smarter and more advanced tools to manage their financial lives.

But not all partnerships are created equally. The Office of the Comptroller of the Currency recently released changes surrounding third-party relationships, security and use of customers’ data, requiring financial institutions to provide third-party traffic reports of companies that scrape data. Right now, the vast majority of institutions only have scrape-based connections as the means for customers to give access to their data — another reason why financial institutions should be selective and strategic with third-party providers.

5. Strategically Growing Customer Acquisition, Accounts
As banking continues to transform, so will the need to adapt including the way we grow. Nearly 30% of our clients see this as a primary goal for 2020 and beyond. Growth is a foundational part of success for every organization. And financial institutions generally have relied on the same model for growth: customer acquisitions, increasing accounts and deposits and loan origination. However, the methods to accomplish these growth strategies are changing, and they’re changing fast.

Right now, we’re being faced with one of the hardest times in recent history. The pandemic has fundamentally changed how we do business, halting our day-to-day lives. As we continue to navigate this new environment, financial institutions should lean on strategic partnerships to help fill gaps to facilitate greater focus on their customers.

Helping Customers When They Need It Most

Orvin Kimbrough intimately understands the struggles shared by low-to-moderate income consumers. Raised in low-income communities and the foster care system, he also worked at the United Way of Greater St. Louis for over a decade before joining $2.1 billion Midwest BankCentre as CEO in January 2019. “[Poverty costs] more for working people,” he says. “It’s not just the financial cost; it’s the psychological cost of signing over … the one family asset you have to the pawn shop.”

His experiences led him to challenge his team to develop a payday loan alternative that wouldn’t trap people in a never-ending debt cycle. The interest rate ranges from 18.99% to 24.99%, based on the term, amount borrowed (from $100 to $1,000) and the applicant’s credit score. Rates for a payday loan, by comparison, range in the triple digits.

The application process isn’t overly high-tech, as applicants can apply online or over the phone. The St. Louis-based bank examines the customer’s credit score and income in making the loan decision; those with a credit score below 620 must enroll in a financial education class provided by the bank.

Industry research consistently finds that many Americans don’t have money saved for an emergency — a health crisis or home repair, for example. When these small personal crises occur, cash-strapped consumers have limited options. Few banks offer small-dollar loans, dissuaded by profitability and regulatory constraints following the 2008-09 financial crisis.

If the current recession deepens, more consumers could be looking for payday loan alternatives. Regulators recently encouraged financial institutions to offer these products, issuing interagency small-dollar lending principles in May that emphasize consumers’ ability to repay. 

Everybody needs to belong to a financial institution if you’re going to be financially healthy and achieve your financial aspirations,” says Ben Morales, CEO of QCash Financial, a lending platform that helps financial institutions automate the underwriting process for small-dollar loans.

QCash connects to a bank’s core systems to automate the lending process, using data-driven models to efficiently deliver small-dollar loans. The whole process takes “six clicks and 60 seconds, and nobody has to touch it,” Morales says. QCash uses the bank’s customer data to predict ability to repay and incorporates numerous factors — including cash-flow data — into the predictive models it developed with data scientists. It doesn’t pull credit reports.

Credit bureau data doesn’t provide a full picture of the customer, says Kelly Thompson Cochran, deputy director of FinRegLab and a former regulator with the Consumer Financial Protection Bureau. Roughly a fifth of U.S. consumers lack credit history data, she says, which focuses on certain types of credit and expenses. The data is also a lagging indicator since it’s focused on the customer’s financial history.

In contrast, cash flow data can provide tremendous value to the underwriting process. “A transaction account is giving you both a sense of inflows and outflows, and the full spectrum of the kind of recurring expenses that a consumer has,” says Cochran.

U.S. Bancorp blends cash flow data with the applicant’s credit score to underwrite its “Simple Loan” — the only small-dollar loan offered by a major U.S. bank. The entire process occurs through the bank’s online or mobile channels, and takes just seven minutes, according to Mike Shepard, U.S. Bank’s senior vice president, consumer lending product and risk strategy. Applicants need to have a checking account with the bank for at least three months, with recurring deposits, so the bank can establish a relationship and understand the customer’s spending behavior.

“We know that our customers, at any point in time, could be facing short-term, cash-flow liquidity challenges,” says Shepard. U.S. Bank wanted to create a product that was simple to understand, with a clear pricing structure and guidelines. Customers can borrow in $100 increments, from $100 to $1,000, and pay a $6 fee for every $100 borrowed. U.S. Bank lowered the fee in March to better assist customers impacted by the pandemic; prior to that the fee ranged from $12 to $15.

Since the loan is a digital product, it’s convenient for the customer and efficient for the bank.

Ultimately, the Simple Loan places U.S. Bank at the center of its customers’ financial lives, says Shepard. By offering a responsible, transparent solution, customers “have a greater perception of U.S. Bank as a result of the fact that we were able to help them out in that time of need.”