Digital Deniers Need Not Apply

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There are few bankers who understand the process of digital transformation better than Mike Butler.

Beginning in 2014, Butler oversaw the evolution of Boston-based Radius Bancorp from a federally chartered, brick-and-mortar thrift to one of the most tech-forward banks in the country. Radius closed all its branches except for one (federal thrifts are required to have at least one branch) and adopted a digital-only consumer banking platform.

The digital reinvention was so successful that in February 2020, LendingClub Corp. announced a deal to buy Radius to augment that marketplace lender’s push into digital banking. Now Butler is off on another digital adventure, this time as president and CEO of New York-based Grasshopper Bancorp, a five-year-old de novo bank focused on the small business market. Like Radius, Grasshopper operates a digital-only platform.

Butler will moderate a panel discussion at Bank Director’s upcoming Acquire or Be Acquired Conference focusing on the importance of integrating bank strategy with technology investments. The conference runs Jan. 30-Feb. 1, 2022, at the JW Marriott Desert Ridge Resort and Spa in Phoenix.

Butler says that successful transformation begins with the bank’s executive management team and board of directors, where discussions about technology need to be an integral part of strategic planning. And most importantly, management and the board need to see digital transformation as crucial to the bank’s future success. Butler says there are still plenty of “digital deniers” among bankers who believe they can be successful without strengthening their institution’s digital capabilities.

“Have you embraced the kinds of changes that are taking place inside the industry?” Butler says. “And do you have a very strong cultural commitment to be a part of that change? When you do that, you start to look to technology as the enabling driver to get you to that place.”

Management teams that are just starting out on a path to digital transformation can easily find themselves overwhelmed by the sheer number of potential projects. “The most important thing to do is to prioritize and recognize that you cannot do this all at once,” Butler says. “It would be a mess if you tried. Pick two to three things that you think are critically important.”

A third element of a successful transformation process is finding the right person to lead the project. “You’ve got to have the right talent to do it,” Butler says. “That leader better be somebody who has been pushing it rather than you push it on them as CEO. You can’t say, ‘Joe, you’ve been running branches for 30 years, do you believe in digital? Eh, kind of. Okay, I want you to put in a digital platform.’ That’s not going to work.”

Butler goes so far as to say that only true believers should run those fintech projects. “You cannot do this without people that have the passion and the belief to get to the other side, because you will hit a lot of roadblocks and you’ve got to be able to bust through those roadblocks,” he says. “And if you don’t believe, if you don’t have the passion, there’s a lot of reasons to stop and go a different way.”

Butler might not seem the most likely person to be a digital change agent. He spent 13 years at Radius and pursued a branch banking strategy in the early years. Prior to joining Radius, Butler was president of KeyCorp’s national consumer finance business. He did not come from the fintech sector. He has a traditional banking background. And yet as Butler is quick to point out, Radius didn’t reinvent banking, it reinvented the customer experience.

The fact that Butler lacked a technology background didn’t deter him from pursuing a transformational strategy at Radius. He was smart enough to see the changes taking place throughout the industry, so he understood the business case, and he was also smart enough to surround himself with highly committed people who did understand the technology.

In building out its digital consumer banking platform, Radius worked with a number of third-party fintech vendors. “I wasn’t making technology decisions about whose technology was better, but I surely was making decisions about the companies that we were partnering with and what type of people we were willing to work with,” Butler says. “I met every single CEO of every company that we did business with, and that was a big part of our decision as to why we would partner with them.”

At Grasshopper, Butler says he prefers the challenge of building a new digital bank from scratch rather than converting a traditional bank like Radius to a digital environment. Sure, there are all the pain points of a startup, including raising capital. But the advantages go beyond starting with a clean piece of paper from a design perspective. “It’s really hard to transform a culture into something new inside of an organization,” Butler says. “So, I’d say the upside is that you get to start from scratch and hire the right people who have the right mindset.”

The Road Ahead for Digital Banking

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DigitalBanking.pngThe largest bank in the United States, the $3.4 trillion global behemoth known as JPMorgan Chase & Co., hesitated to put a retail bank in the crowded and competitive United Kingdom in the past.

That changed in 2021. JPMorgan Chase CEO Jamie Dimon announced a digital retail bank with headquarters in London and a customer center in Edinburgh. But no branches.

International expansion was cost-prohibitive in the past, Dimon admitted, but the economics of banking have changed. Even the biggest U.S. banks, which haven’t abandoned branches, know that.

“What we always said is we’re not going to do retail overseas … I can open 100 branches in Mumbai or 100 branches in the U.K., and there’s no chance I’d gain enough share to make up for the additional overhead,” he said at a Morgan Stanley conference in June of 2021. “Digital changes that.”

This shifting landscape means digital platforms hold a lot of promise for banks seeking to grow profitably. This report, sponsored by Nymbus Labs, will focus on these business models, return on investment and elements of success of digital-first banks and banking platforms.

Of course, terms such as neobank, challenger bank and digital bank get thrown around a lot these days. Some of the newcomers are chartered and regulated banks. Others are offshoots of a bank. Most are financial technology companies that rely on banks to access payment rails, compliance programs or deposit insurance. For simplicity’s sake, we’ll call them digital banks. Whether they are banks or just call themselves a bank, we’ll include them in this report. The goal is to reveal how they are changing the banking marketplace.

To learn more, download our FinXTech Intelligence Report, Digital Banking: Profit and Purpose.

The Key to Upgrading Digital Experiences

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The pandemic has accelerated a number of trends and digital roadmaps, momentum that continues today.

Microsoft Corp. Chairman and CEO Satya Nadella put it best when he said “We’ve seen two years’ worth of digital transformation in two months.” In banking, 59% of consumers said the pandemic increased their expectations of their financial institutions’ digital capabilities. How can banks respond?  

A Non-Negotiable Experience
As customers, haven’t we all had an experience that left us confused? Many times it’s something obvious, like a marketing email urging us to download an app that we’ve had downloaded for years and use weekly. Customers expect that when they share their data, they get a better experience. A recent survey of Generation Z consumers reported that nearly 40% give a business only one chance to provide a satisfactory digital experience before moving onto a competitor.

Customers also expect their bank to be a strategic partner in money management, offering relevant services based on the data they have. These experiences can build loyalty by making customers feel taken care of by their financial institutions.

Common Challenges
When it comes to managing and optimizing their customers’ digital experiences, we see banks dealing with a few major issues:

  • Difficulty effectively cross-selling between products.
  • Disparate services where data lives in disconnected silos.
  • The scale of data, often exceeding legacy capabilities.

These challenges, along with many others, stem from the fact that customer data often live in numerous different systems. When data is scattered and siloed, it’s impossible to tie it together to understand customers or create personalized digital experiences that engender loyalty. This is why many banks are turning to customer data platforms (CDP).

Upgrading the Digital Experience
CDPs are powering some of the most cutting edge, customer-centric digital programs across leading financial institutions. An enterprise CDP makes data accessible and useful by bringing disparate data sources together, cleansing the data, and creating a singular view of the customer that can be used across the entire organization. It can become a bank’s single source of truth on customers. Marketing can connect to customers with personalized offers, analytics can explore data to find trends and areas of opportunity, customer service can access relevant information to assist customers, and finance can forecast with customer key performance indicators.

Should you consider a CDP?
Here are a few questions executives should ask to determine if their bank’s current setup is working:

  • Are customer data points and interactions centralized in one location?
  • How much time are analysts spending gathering customer data for reporting?
  • Is marketing able to easily use the same customer data to drive personalization?
  • How confident are teams in the data?
  • Is it easy to bring in a new data source?

If there is hesitation around any of the answers, looking at CDP options could be a really smart idea.

Capabilities to Look for

There are many companies using CDP terminology to describe products that aren’t exactly that. Banks should focus on a few key features when evaluating a CDP.

Speed to value. How long does it take to pull data together for a customer 360 degree view? When will data be ready to serve customers and power initiatives across the organization? The best way to accelerate these timelines is with a CDP that uses artificial intelligence to unify and organize records, which is much faster and more stable than rules-based data unification systems.

Enterprise functionality. A CDP should serve as the single source of truth for the entire organization, with a suite of tools that can accommodate the needs of different teams. Multiple views means teams are only presented with the data they need, with the methods that they prefer: robust SQL query engine for analysts, point-and-click segmentation for less technical users and dashboards for executive visibility.

Flexibility and interoperability. A CDP should work with your bank’s current technology investments, connecting easily to any tools or systems you add in the future. One sign of this is a CDP having many partnerships and easy integrations that can quickly allow you to take action.

You need to trust that a CDP can scale to the enterprise and compliance demands of a bank, accommodating vast stores of data that will only continue to grow.

A critical opportunity
There is unprecedented demand from banking leaders to stand up a CDP as a critical business driver. And no wonder. With so many customers using digital channels and generating more data, banks need to double down on increasing the lifetime value of existing customers while finding ways to attract new customers.

Principles to Drive Digital Banking Transformation

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In the earliest moments just after midnight on January 1 each year, millions of people worldwide establish resolutions. While I won’t bore you with my resolution for 2020, I will admit that it was not to spend 11 months of the succeeding year working from a makeshift office in my bedroom or making sure my 6-year-old son was always adorned with a mask for any non-familial human interaction. Suffice to say, last year provided us all with unsuspected challenges and learning opportunities — banks squarely included.

The most impactful learning for banks wasn’t a novel way of connecting borrowers with capital or a new method of taking deposits. In fact, it wasn’t a lesson learned by banks at all, but instead by their customers. While banks have seen foot traffic into the branches decrease at a predictably steady rate, watched ATM transactions hold strong and cheered the increasing usage of online banking, every new medium they introduced to serve clients inevitably became an “and” versus an “or.” Allow me to explain: When ATMs made their way onto the scene in the 1970s, bank customers didn’t stop walking into branches. They leveraged both channels. Same for interactive voice response (IVR), digital banking and mobile banking.

The pandemic changed that. For the first time, it forced banks to close their doors; customers had to stop straddling the line between the branch and digital realms. The choice had finally been made for them. In 2020, customers learned that they can truly have a digital-only relationship with their bank.

Now, more than ever, the crunch is on for banks. Digital banking trends are consistently increasing and the competition is coming in from all sides. Between the moneycenter national banks, a seemingly endless wave of fintechs like Chime and Revolut, and the ever-looming threat of technology firms like Alphabet’s Google and Amazon.com jumping into the mix, how can banks compete? It’s time for a digital transformation.

Where to begin?
There are a number of paths to success in a digital transformation — and an untold figure that lead to failure. Whether your bank starts with the core and works its way out to the digital banking service, or vice versa,– there are a few driving principles to keep in mind.

  1. The cloud provides unparalleled economies of scale. If your bank isn’t taking advantage of a cloud-based solution to realize both the economic benefits and the cutting-edge innovation made available by the hyperscalers (architecture built to scale appropriately as demand fluctuates throughout the day), your institution risks falling further behind.
  2. Data is a bank’s most valuable asset. Unfortunately, it is also the most underutilized. A digitally transformed bank will replace the personal connection of the branch visits by being contextually relevant at the exact right moment, with the proper actionable message to each individual client. Even if they never quite get there, this is the oasis in the desert of commoditized banking relationships and should be every digital transformation journey’s North Star.
  3. Determine how much of the digital banking experience you want to own, really. Many banks strive to create a unique digital experience for their clients, but that uniqueness comes at a mighty expense in both time and money for the duration of its existence. The importance of choosing the technology partner that aligns most closely with your bank’s desired balance of technical prowess and partnered innovation can’t be overstated.
  4. Look for opportunities to leverage your institution’s banking APIs to extend its reach beyond traditional domains. Through initiatives like embedded banking, banks are able to establish mutually beneficial partnerships to empower non-banking services and leverage the functionality of their bank partner. Embedded banking is a growing way for banking services to be integrated into traditionally non-bank websites and mobile applications, like Shopify’s business account offering as part of their seller services. Embedded banking opens the door to perform simple tasks like view account balances, make payments or even originate new deposits and loans.

Even just 10 years ago, these options weren’t available to most institutions. That’s no longer the case. Banks no longer have to resign themselves to providing a mediocre, commoditized digital experience — in fact, it’s the last thing they can afford to do. While the pandemic taught us many things, the most pressing lesson for banks is that the time for a digital transformation is now.

Building a Digital Masterpiece on Top of the Core

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Digital banking has become a must-have feature. The coronavirus pandemic forced consumers to accelerate their adoption of digital banking tools; now they love the convenience and flexibility these products provide.

But what is troubling for banks is that many consumers do not care if these services are met by a traditional financial institution or a fintech challenger bank. U.S. consumers are increasingly comfortable transacting with an increasing number of financial service providers to get the specific products and features that are most important to them.

According to a recent survey conducted by Cornerstone Advisors, 35% of consumers now have more than one checking account, led by the 42% of millennials who have two or more accounts. The report found that challenger banks hold a growing number of these accounts by offering specific features that consumers can’t get from their existing financial institution.

This pressure is particularly high on community and regional banks, which lack the budgets and IT resources of the global banks. However, the technology powering challenger banks has also created an emerging option that enables banks to accelerate product innovation and effectively compete with larger financial institutions and challenger banks: modular banking.

Challenger Bank Tech, One Block at a Time

Community and regional banks in pursuit of innovation are often left to choose between two equally unappealing options: wait on a core that may not innovate at the speed they want or take on the risk of a massive core conversion.

Modular banking, on the other hand, applies the challenger bank approach of building hyper-focused services to the realities of a bank’s existing core and IT landscape. Modular banking platforms typically offer the same functionality as a modern core banking system. However, instead of building the entire platform at once, modular banking approaches service much like a set of building blocks. Banks only need to select the products and services that complement their existing systems’ functionality or build new digital products on top of it.

Put simply, modular banking looks at each piece of a bank’s functionality — such as Know Your Customer, card issuance, P2P or rewards — as a collection of loosely coupled microservices and application programming interfaces (APIs) that can be combined and deployed in a cloud environment to facilitate specific use cases.

Modular banking enables institutions to build specific products to meet the specific needs of their customers and quickly adjust as market conditions change. For example, a regional bank could solve an immediate need for banking products to offer contract workers with a pre-built module, before shifting to bring innovative features for families that make up most of the service area with teen and children accounts. A modular approach to digital transformation benefits small and mid-size community banks in two keys ways.

Quickly Develop New Products
By decoupling critical infrastructure, like the systems and processes that need to work reliably but don’t confer competitive differentiation, from the people, processes and technology focused on product innovation, modular banking provides a potential solution to execution challenges that banks face.

Productive Fintech Partnerships
Creating productive, long-term partnerships requires financial institutions to build mutually beneficial relationships with fintech companies. Innovating through fintech partnerships also requires banks to move fast, which is where modular banking comes in.

The open architecture of a modular banking platform can facilitate the rapid integration of third-party partners, by giving potential partners a modern API to connect to and build on top of. Bank leaders can take a much more proactive approach to pursuing and operationalizing new partnerships.

By building these strategic partnerships, they can create a competitive differentiator to fuel growth for the coming years.

Small Business Checking, Repositioned

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This is part two of a two-part post diving into the future of small business checking. Read part one, Small Business Checking, Reimagined.

Increasingly, small businesses see digital payment solutions as both a way to get paid faster and to satisfy customers who now prefer to pay that way. Indeed, this capability has become indispensable for most small businesses. And for banks, it is the key to capturing even more small and medium-sized business relationships moving forward.

However, there is one problem: Banks don’t offer a simple solution to help their small business customers meet this fundamental need. As a result, small business owners have had to resort to outside options (four of which we explored in part one). Over time, this reliance on fintech challengers can lead to disintermediation for the bank, as the non-banks begin to replace the financial institution with their own offerings.

At this point you may be wondering: Does my bank already offer this kind of solution, or something that’s similar enough? The answer, most likely, is no — or not yet.

The reality is that the ideal solution for a small business owner is a steep change from the small business accounts of today. Current accounts are built on transactional functionality. The many supporting, and sometimes dizzying, features that go along with it, such as transaction fees, minimum balances and item allowances, may be important to the bank, but miss the mark for a small business.

Simply put, small business owners need bank accounts designed for a very specific reason: to receive digital payments and easily track their critical cash flow in the process.

To be truly relevant, this reimagined small business checking account needs to include the following three crucial components:

  • Digital payment acceptance, including credit cards, and online invoicing, set up and ready for the small business owner to start getting paid faster into the very same account.
  • Manage and track customer payments, ranging from incoming, coming due, and past due, right inside the digital platform that’s comprises their checking account.
  • Expertise and high-touch support that a business owner can expect from a longstanding and trustworthy institution. This is an important differentiator, and one that fintech challengers can’t come close to matching.

This checking account product offers two significant benefits. For a small business owner, it represents exactly what they have been searching for: a complete small business solution that features receivables functionality, offered by the same trusted institution that they’ve come to rely on for so many other needs.

And for banks, this new account allows them to embrace a mindset focused on customer workflows and solving real-world challenges. It could even signal a way forward, and open the door to many more opportunities. Promoting such a markedly different product, however, would require some care. Unlike a typical account, with its mandatory list of bulleted features, a reimagined solution like this one requires positioning that highlights its problem-solving capabilities.

A generic framework for our hypothetical account, organized by customer need first and benefit(s) second, could go:

Get paid, the way they want to pay
Make it easy for paying customers. Accept online payments and credit cards, or send personalized digital invoices. Either way, get paid directly into your bank account for easy access to funds.

Better control of your cash flow
Track and manage it all automatically: incoming, coming due and past due customer payments. Know exactly who has paid and when, and get an up-to-date view of your cash flow.

Do it all, all in one place
More than a checking account. Everything you need for your small business is included with your account. And there’s no need to set up multiple accounts across multiple platforms — one easy enrollment is all you need.

You don’t have to go it alone
Because a great digital experience is only the beginning. Every successful business needs an accessible financial partner — your bank is available and ready to help.

Of course, a reimagined small business checking account needs to be designed and launched with supporting capabilities in mind. Look for partners that can help your institution go to market with a proven solution — inclusive of the product capabilities and go-to-market services — that enable small business owners to get paid, while staying ahead of the competition.

Learn more about Autobooks and download your free small business resources here.

How an Online-Only Bank Powers Its Platform

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If Radius Bank was going to succeed as a digital-only bank, it needed to offer customers an incredible digital experience.

By 2016, the Boston-based bank had closed most of its branches to focus solely on digital channels — a strategy that hinged on offering consumers and small business customers a superior experience without needing physical locations to resolve problems or open new accounts. Part of a suite of financial technology partners that powered this strategy was Narmi, a digital banking platform provider. Radius found success with its strategy, so much so that it became a natural acquisition for another online lender: In February 2021, LendingClub Corp., a San Francisco-based marketplace lender, closed its acquisition of Radius Bank and renamed the company LendingClub Bank.

Radius has been a long-time adopter of Narmi’s platform, and success stories like theirs helped Narmi secure the top spot in both the customer experience category and as the “Best of Connect” — the best overall among the category winners — in Bank Director’s 2021 Best of FinXTech Awards. Finalists included NCR’s open-technology-based Digital Banking Platform and Velocity Solutions’ Account Revenue Solution, which offers customers rewards to increase engagement. You can read more about Bank Director’s award methodology and judging panel here.

Radius partnered with Narmi about three years ago to refresh its online and mobile platforms, says Mike Butler, the former CEO of Radius Bancorp. Narmi offered “a drastic change” in the look, feel and functionality of the consumer banking platform. The platform also helps banks reduce both fraudulent account openings and account opening abandonment.

“Three years ago, if you visited the site, you’d see a traditional bank. Today, you’d see a more user-friendly experience,” he says. “[Narmi is] more than just technology people who say, ‘Tell me what you want and I’ll do it.’ From a fintech perspective, they give us their views of how they think the customer experience should operate. It’s like an added management team to us.”

Change can be jarring to customers used to the previous layout of a site. Butler acknowledges some initial dips in the bank’s net promoter score, which it uses to measure the platform’s success via the willingness of a customer to recommend the product. But Radius Bank’s score rebounded to above 50 within three months — a level that is considered to be “very good” for a bank, he says.

The platform features a “marketplace” where Radius introduces clients and customers to other products and services outside of banking that can improve their financial health. The implementation went so well, and subsequent customer reaction was so positive, that Radius decided to use Narmi again to launch a small business digital banking platform in 2020 — a product launch that helped the bank address a segment under intense pressure because of the coronavirus pandemic, and whose needs are often left out of bank offerings. Butler says Narmi was able to meet the bank’s implementation deadlines, clearly communicating the work required to make adjustments, and laying out options and alternatives in cases where the bank risked missing its timeline.

“Having our small business launch in 2020 in the middle of the pandemic was a big boost to our small business clients,” Butler says. “We’ve had a huge uptick in our acquisitions of small business clients — you have to throw Narmi into the mix of reasons why.”

Four Things to Do if Your Bank Is Eyeing Digital Assets

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Digital banking is evolving in the wake of guidance from the Office of the Comptroller of the Currency as it concerns digital assets and their underpinning technology.

The regulator issued an interpretative letter last July authorizing OCC-regulated national banks to hold digital assets and another one in early 2021 allowing such banks to use blockchain and stablecoin infrastructures. Consumers and commercial entities continue to demand offerings and services for digital assets, and the pandemic has accelerated this push.

This rise of digital assets will have far-reaching implications for the entire banking sector for years to come. It’s crucial for executive teams at traditional banks to understand how best to capitalize on these changes, where the risks lie and how to prepare for the future of banking. For banks weighing how and when to start offering digital asset services, here are four key things leadership teams should do:

  1. Prepare to stake a claim. The evolution of money toward digital assets is affecting bank and fintech organizations globally. Companies should proactively think through adjustments now that will enable them to keep up with this rapid pace of change. At the start of this century, when mobile banking apps first began appearing and banks started offering remote deposit captures for checks, organizations that were slow to adopt these technologies wound up being left behind. The OCC guidance explicitly authorizing the use of digital assets should alleviate any doubts around whether such currencies will be a major disruption.
  2. Assess technology investments. A crucial determinant in how successful a bank will be in deploying digital asset-related services is how well-equipped and properly aligned its technology platforms, vendors, policies and procedures are. One of the primary concerns for traditional banks will be assessing their existing core banking platform; many leading vendors do not have blockchain and digital asset capabilities available at this time. This type of readiness is key if bank management hopes to avoid significant technology debt into the next decade. Additionally, banks will need to assess whether it makes sense to partner, buy or build the necessary technology components to transact, custody, settle and potentially issue digital assets.
  3. Prepare for growing demand. As digital assets become more mainstream, there will be significant growth in institutional adoption and growth in consumer demand, especially from millennials and Generation Z customers. The OCC’s recent interpretative letters and the rapid growth of digital assets even just in the last year only emphasize that the adoption of such assets will be the next phase of evolution for banks. That also involves added responsibilities and regulatory compliance that executives need to start understanding now.
  4. Mind the regulator. The era of digital assets is new, and as such, there is heightened scrutiny around related services and offerings. Executives will need to assess existing “know your customer” compliance obligations and update accordingly. Banks also need to understand necessary capital expenditures related to deploying digital asset services. Regulators will be especially interested in not just what’s under the hood, but how banks are managing these new parts and pieces.

What’s next?
Banks that are contemplating or already in the process of deploying digital asset services will need to understand the regulatory requirements in this space and make upgrades to their core banking platforms to make sure those systems can interface with blockchain and other distributed web (sometimes called Web 3.0) technologies. To learn more about how your executive team can prepare, register now for BankDirector’s May 11 webcast — sponsored by RSM — on the future of bitcoin and digital assets.

Fraud Attempts on the Rise Since Pandemic’s Start

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As Covid-19 passes its one year anniversary in the United States, businesses are still adjusting to the pandemic’s impacts on their industry.

Banking is no exception. While banks have quickly adjusted to new initiatives like the Small Business Administration’s Paycheck Protection Program, the most notable impact to financial institutions has been the demand for online capabilities. Banks needed to adjust their offerings to ensure they didn’t lose their client base.

“ATM activity is up, drive-through banking is up 10% to 20% and deposits made through our mobile app are up 40%,” said Dale Oberkfell, president and CFO of Midwest Bank Centre last June.

The shift to digital account openings has been drastic. The chart below looks at the percent change in cumulative number of evaluations from 2019 to 2020 for a cohort of Alloy customers, limited to organizations that were clients for both years. Since the onset of the pandemic, digital account opening has increased year-over-year by at least 25%.

Although the shift to digital was necessary to meet consumer demands, online banking opens up the possibility of new types of fraud. To study the pandemic’s impact on fraudulent applications, we took a closer look at changes in consumer risk scores since the onset of the pandemic. Similar to credit scores, risk scores predict the likelihood of identity or synthetic fraud based on discrepancies in information provided, behavioral characteristics and consortium data about past fraud activity.

Comparing the pandemic months of March 2020 to December 2020 to the same period in 2019, Alloy clients saw a dramatic rise in high-risk applications. Total high-risk applications increased by 137%, driven both by overall growth in digital application volume and a comparatively riskier population of applicants.

There are several ways for you to protect your organization against this growing threat. One way is to use multiple data sources to create a more holistic understanding of your applicants and identify risky behaviors. It also ensures that you are not falling victim to compromised data from any one source. It’s a universal best practice; Alloy customers use, on average, at least 4 data sources.

Another way for you to protect your institution is by using an identity decisioning platform to understand and report on trends in your customer’s application data. Many data providers will return the values that triggered higher fraud scores, such as email and device type. An identity decisioning platform can store that data for future reference. So, even if a risky application is approved at onboarding, you can continue to monitor it throughout its lifetime with you.

Digital banking adoption and usage is expected to only increase in the future. Banks need to ensure that their processes for online capabilities are continuously improving. If your organization is spending too much time running manual reviews or using an in-house technology, it may be time for an upgrade. Click here to see how an identity decisioning platform can improve your process and help you on-board more legitimate customers.

Top Four Digital Trends for the Next Five Years

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The sheer amount of disruptions the banking industry endured in 2020 has cast a new light on banking industry trends. But will these disruptions translate into major shifts or further acceleration — especially with regard to digital growth — over the next five years?

Last year, banks saw an unprecedented influx of deposits — $2.4 trillion, according to the Federal Deposit Insurance Corp., with gains going primarily to the biggest banks. Looking ahead, we predict further ascendance of the moneycenter banks, but still see opportunities for smaller, nimbler banks to remain competitive when it comes to digital banking innovation. 

Disruptions and Opportunities
The Covid-19 pandemic demonstrated compelling reasons for community banks to step up their digital banking efforts. In-person interactions are limited, and even in places where banks are open, many customers may not feel safe. The preference for remote banking is likely to continue into the future: Qualtrics XM Institute found that 80% of people who start banking online are at least somewhat likely to continue.

But the coronavirus is just another tick in the column in favor of greater investments in digital banking. Many community banks have already rolled out online service options in the past few years. Their efforts and investments to make digital banking more user-friendly and efficient is paying dividends.

For instance, Cross River Bank, a community bank with $11.5 billion in assets in Fort Lee, New Jersey, emerged as one of the top Paycheck Protection Program lenders while simultaneously gathering $250 million in deposits in just 15 days. As innovative banking technology becomes more readily available, community banks will have convenient alternatives to legacy vendors that don’t require a massive budget.

What’s Next in Digital Banking?
Banking will continue to evolve rapidly over the next five years. In particular, community institutions should take heed of four trends.

1. Hyper-localized products will help community banks compete with larger institutions.
Community institutions should focus on overall product offerings, not just rates. Digital solutions can offer better tools to connect with the local community, as well as expand a bank’s customer base nationwide.

A major trend for banks to consider is verticalized banking. The big banks aren’t capable of delivering hyper-localized or targeted offerings to the same extent. While these services already exist for certain demographics, such as military personnel and students, we’re seeing this expand to female entrepreneurs, minority-owned businesses and tech developers.

2. Banks are leveraging technology to deepen community relationships.
Covid-19 relief efforts created an opening for tech-savvy community banks to win market share and goodwill among small businesses and communities at-large. These relief efforts will likely continue to be a major area for investment and innovation over the next few years.

A prime example of this is Quontic Bank’s #BetheDrawbridge campaign. The Astoria, New York-based bank’s Drawbridge Savings account matches a portion of interest paid to account holders into a fund providing financial relief to New York City families and businesses. Not only is the bank leveraging digital account opening to broaden its footprint, but also building goodwill within its home-base. 

3. Real-time transaction monitoring becomes table stakes to compete online.
While the U.S. has been slow to adopt real-time payments (RTP), the time is near. The Federal Reserve is working to release its RTP network, FedNow, by 2024; The Clearing House’s RTP Network is quickly expanding.

Community banks should prepare for real-time banking — not only through the implementation of real-time digital servicing, but also through real-time transaction monitoring. Money moves today; if banks don’t receive a report until the next morning, it’s too late. As real-time payments become more accessible, real-time transaction monitoring will be table stakes in order to prevent fraud, mitigate costs and stay competitive.

4. The business banking experience will see major growth and user-friendly improvements.
Commercial banking has so far lagged behind consumer services, remaining manual and paper-based. Fortunately, the innovations that have emerged in personal banking are migrating to the commercial space. This will likely become a major area of focus for technology firms and financial institutions alike.

Looking Ahead
In the next five years, smaller banks will need to double down on digital banking trends and investments, taking advantage of their nimble capabilities. The right tools can make all the difference — the best way for banks to fast-track digital offerings in the next stage of their evolution is to find the right partners and products for their needs.