Modernizing Business Lending to Drive Growth

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Digitization has altered the business lending landscape and created competitive pressure that will continue to push solutions modernization — and consumers and businesses are ready.

Digital efficiency here is key and underpins lending success. Most importantly, it improves consumer retention, upsell, and cross-sell opportunities for lenders. As the future of business lending caters to the needs of younger entrepreneurs, financial institutions will want to add solutions that offer seamless experiences. This includes a fully contactless digital lending process: seamless digital applications all the way to fast, automated loan decisions. Financial institutions can jump-start and grow digital business lending by implementing advanced technology solutions to digitally engage borrowers and optimize lending processes.

Digital-First Mindset Drives Growth
Millennials are the largest drivers of new loans. This makes sense considering there were more than 166 million individuals under the age of 40 in the U.S. in 2020 — more than half of the U.S. population.

Financial institutions are feeling the pressure all around. Digital banking reigns supreme as consumers increasingly prefer to manage their finances digitally and loyalty is waning. Institutions need to offer innovate lending solutions and reconsider how they engage consumers. Already, digital-savvy financial institutions are scooping up this business. According to the Bain Retail Banking NPS Survey, 54% of loans and 50% of credit cards in the U.S are opened at providers that consumers do not consider their primary financial institution. And more than three-quarters of those surveyed who received a direct offer from a competitive institution said they would have purchased from their primary institution had they received a similar offer.

As more and more lenders provide digital-first experiences, consumer expectations have evolved. Processes that used to take days can now happen in minutes. Technology has decreased the operational effort required of financial institutions and enables demand creation, so institutions can reach new consumers and foster deeper relationships with existing ones.

Pressure to Modernize Business Lending Solutions
Institutions that have not modernized business lending processes are feeling the pressure. Those that still rely on manual and paper-based loan approval procedures find they are out of step with a digitized world, affected by:

  • Slower decision times.
  • Burdensome data management.
  • Time-intensive manual processes that span disparate systems.
  • Inefficient application processes and communications with the borrower.
  • Expensive wet signatures.
  • Difficult document collection, management and storage.

The cumulative effects of these inefficiencies are compounded by the evolving landscape in lending. Nearly nine in 10 financial institutions believe they will lose some business to stand-alone fintech companies over the next five years. That fear is not unfounded.

Managing Credit Risk in a New Era
The business credit framework has not changed. Lenders still consider credit profile and history, firmographics and cash flow analytics when evaluating debt capacity. This requires the ability to collect and analyze data like macroeconomic factors, industry trends, digital presence, credit performance, financials, bank accounts, POS transactions and business credit reports.

Solutions to manage risk, however, have modernized. Advancements in machine learning techniques have transformed risk analysis to consume thousands of data points and leverage insight and learning from decades of loan performance data. For business lenders, this means better, faster, more accurate and consistent decisions in compliance with the set credit policy. Digital-first lenders can:

  • Use superior workflow tools to aid in better decision-making and operational resiliency.
  • Leverage risk assessment techniques that cannot be performed by humans.
  • Improve accuracy and consistency of credit decisions.
  • Specialize and customize by industry based on business goals.
  • Leverage new data sources and decades of credit performance data.
  • Process large volumes of data in seconds alongside the ability to identify and focus on what matters most.

Financial institutions transitioning to digital channels enjoy more opportunities to better serve consumers, expand market share and drive more revenue.

Digital Banking: Being Best in Class and Driving Profit

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Forward-thinking financial institutions have been focused on digital transformation to compete with megabanks and fintechs. They’re funding development to actively shaping user expectations for what a digital banking experience can offer. By 2028, the global digital banking market size is estimated to surpass $10.3 trillion.

Yet, many banks without deep pockets or partners and limited technology resources are relying on their core technology provider for a turnkey platform — a “bank-in-a-box” that includes bundled services like payments, loan origination and digital banking. The biggest threat remains for those institutions that decide to maintain the status quo with a less-than-impressive digital banking platform or ineffective home-brewed solution.

Consumers expect a seamless digital experience to help them manage their finances and achieve their financial goals. A recent study found that consumers’ trust in digital banking is shifting away from their preferred financial institution. If account holders aren’t convinced that their preferred bank provides the best digital security and privacy, reliability, feature breadth, and ease of use, they’re willing to leave. It’s clear that digital banking can make or break a bank’s future.

What is the ideal digital banking experience that account holders want? Banks should keep these best-in-class components in mind as they search for the right partners and technology for their digital banking transformation.

  1. Data-driven insights. Bank executives must find ways to execute on internal transaction data to deepen user relationships and build profitability and institutional loyalty.
  2. Seamless user experience. Now more than ever, it’s important that banks understand what attractive features will improve digital banking experiences for their users.
  3. Continuous software delivery. Best practices for continuous software delivery is to find a partner offering a single code source, rather than multiple.
  4. Investments in API and SDKs. Vendors that can seamlessly integrate application programming interfaces, or APIs, into digital banking help banks leverage the latest industry leading technology and maintain a competitive advantage.
  5. Cloud-forward thinking. Banks can leverage the cloud to enhance features, security and user experiences while improving uptime, performance and quality.
  6. Modern security strategies. When financial institutions and digital banking providers band together and treat cybersecurity as a shared responsibility, security issues can pose less of a threat.

Financial institutions may need to consider replacing legacy technologies and embracing artificial intelligence tools. This means taking advantage of transaction data flowing through the core to uncover important insights about account holders’ needs based on their behaviors and spending patterns, and using it to optimize the digital experience. This kind of thinking results in transforming digital banking — moving from a cost center into a revenue center, all rooted in data.

In the past, marketing campaigns focused on products that just needed to be sold. They were delivered from the top down, funneling to all users regardless of their personal needs. That strategy changed when big data, artificial intelligence and machine learning gave marketers the ability to target tailored messages to the ideal recipient. Aligning data insights and marketing automation means banks can deliver experiences that are compelling, timely and relevant to account holders.

Pairing insights and marketing automation with a digital banking platform allows banks to target their account holders with personalized engagements and cross-sell marketing offers that appear within the banking platform and other digital channels. Banks can generate a 70% return on initiatives targeting existing customers, versus 10% when targeting new customers, according to PwC. “In a time where every bank is focused on revenue growth in a constrained and competitive environment, making smart choices with limited resources can provide a fast track to higher-margin growth,” PwC states.

Banks can use data to drive revenue through the digital banking channel through a number of real-world, practical applications, including:

  • Onboarding programs.
  • Self-service account opening.
  • Product cross-sell and upsell.
  • Competitive takeaway.
  • Communications and servicing opportunities.
  • Product utilization.
  • Transitioning retail accounts into business accounts.

Digital banking is mission critical to banks. Catalyzing this platform with data insights and marketing automation creates an engaging channel for deeper customer relations, ultimately transforming the digital banking investment into a profit center.

Evaluating Digital Banking In 2023

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Platforms that offer future flexibility, as opposed to products with a fixed shelf life, should be part of any bank’s digital transformation strategy for 2023, says Stephen Bohanon, co-founder and chief strategy and product officer at Alkami Technology. Chatbots and artificial intelligence can deflect many simple, time-consuming customer queries — saving time and costs — but digital channels can go further to drive revenue for the organization. To do that, bankers need to invest in data-based marketing and account opening capabilities.

Topics include:

  • Platforms Vs. Products
  • Sales Via Digital Channels
  • Advantages of Live Service

Nailing the Customer Experience in a Digital Upgrade

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To get your bank’s people ready for a technology upgrade, you need to do two things: educate front line staff so they become ambassadors for the new tech and help customers learn how to use it. Sounds easy, but in many cases, financial institutions don’t have the right tools to nail their digital customer experience through a technology upgrade.

Start with developing your training and development assets for staff training into the bank’s technology project plan and each rollout. Your staff needs to time to become familiar with the new technology; launching training two weeks prior to go-live won’t set them up to successfully help customers access the new services. Project managers and executive sponsors should develop and test a digital banking curriculum in advance of rollout and begin training front line staff on how to use the tech before launching it to the public.

The seemingly logical approach is to ask the bank’s learning and development group to create some new tech training in the learning management system (LMS). But that often doesn’t work. Traditional LMSes often aren’t tooled for digital experiences; static learning content struggles to drive digital fluency among employees. And tedious training approaches or topics can foster an aversion to LMS training among staff. Banks investing in their digital products and services may want to consider a modern solution that’s tooled for teaching tech.

Game-based learning that uses built-in incentives and an employee’s inherent motivation, as well as interactive role-plays and visually appealing learning modules, are often the most effective way to help today’s employees retain essential information. These innovative elements can make the difference in a bank’s training system and subsequent customer interactions.

And as your staff tries out the tech, either in-house or after launch, be sure to explicitly ask and encourage for their feedback on the digital experience. What can be improved? Which features are hard to understand or non-intuitive? What additional features and functions are desired? Where do they stumble when using the tech?

Endicott, New York-based Visions Federal Credit Union created a digital advisory board made up of a dozen rank-and-file employees who meet monthly to discuss consumer behavior trends, review prospective vendor partnerships and provide feedback on the institution’s use of consumer technology.

“They’re not necessarily managers, VPs or SVPs,” says Tom Novak, vice president and chief digital officer at Visions Federal Credit Union. “They’re day-to-day employees that are in the know about what’s happening in technology, social media and typical consumer lifestyles. They understand why people are on TikTok more than Facebook, or why they use Venmo instead of traditional PayPal mechanisms.”

Your team will also need the right tools to support your customers after their training. Consider providing them with access to technology walk-throughs and simulators, so they can easily find quick tips and features to help customers calling in or visiting a branch. Ensure your learning solution provides staff with support in the flow of work, so they can help customers on demand.

Finally, allow your customers to “test drive” the tech before they commit. Change is hard on your customers too. Your institution needs to be prepared to coach them along the journey — whether that’s a new digitally based product or service or an upgrade from a prior solution that they have grown comfortable with over time. Give them a chance to try it out, and provide them with a safety net through easy-to-use, shareable technology walkthroughs and simulators to make learning easy.

While financial institutions of all sizes are making significant investments to transform their technology to meet the ever-changing needs of their customers, the biggest hurdle often comes in right at the end. To achieve success in your technology upgrade, your bank will need to leverage the power of your people through a well-considered deployment strategy that places intuitive learning and technology support squarely at its center. New, innovative learning and development tools make these processes — and ultimately, the digital transformation — less intimidating, engaging, fun and flexible.

How to Move Older Customers to Digital Banking Channels

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The Covid-19 pandemic altered how Americans conduct financial transactions, with many making a permanent shift to digital channels.

However, one age group still is a holdout. Baby boomers, ages 58 to 76, didn’t flock to digital channels, especially mobile banking, at as high of a rate as younger cohorts, according to the American Bankers Association. This demographic is still more likely than younger generations to conduct transactions at bank branches.

Of course, in-person banking fosters engagement and drives loyalty. But by not using digital channels, banks miss an opportunity to unlock the value of this high-engagement, high-balance demographic. Forward-thinking banks recognize that the era of the sleepy “senior account” and frequent branch visits is in decline. Rather than let these customers tell you that they’re fine with coming into a branch for all transactions, banks should take steps to help their older customers take advantage of technology that turns service costs into potential growth.

Focus on Safer, Not Easier
Older adults who use online banking are much more likely than younger adults to be concerned about security, according to a survey from Lightico. Banks should make the case to older customers that digital banking channels are secure and can provide a safer banking experience.

Provide staff with talking points in simple language about the layers of protection your financial institution uses to keep customers’ sensitive information safe. Create a list of the security benefits of online banking that staff can share with older customers, such as:

• The ability to check accounts at any time, rather than waiting for a monthly statement.
• The ability to pay bills online and set up automatic payments to prevent checks from getting lost or stolen in the mail.
• The ability to set up notifications of transactions, such as a low account balance or large withdrawals.

Some banks even choose to use digital platforms to provide an additional level of protection for older customers. These services can monitor accounts 24/7 and alert account holders to unusual transactions, signs of fraud and even money mistakes that are common among older adults

Highlight Digital Controls
Staying in control of their finances often is a top concern that older adults have about aging. One way banks can encourage older adults to move to digital banking channels is by highlighting how digital access keeps them in control over their finances. Rather than reconciling checkbooks with account statements each month, they can check their account balance at any time. They can stay in control of bills by setting up automatic payments to avoid late or missed payments or involving others to help with getting payments in the mail.

If they want to gain even more control, encourage them to simplify their financial lives by consolidating accounts that they have at other financial institutions into accounts they have at your bank. Then they’ll just need one password to log on and get a complete picture of their finances. Digital channels are critical to meeting the strong desire of older adults to remain independent.

Digital Doesn’t Replace Humans
Your older customers might be reluctant to adopt digital banking because they enjoy interacting with “their person” at the bank. Banks should emphasize that online and mobile banking isn’t meant to replace in-person banking or their personal relationship in the branch. Rather, these digital tools give relationship managers more ways to help them, from fraud detection and oversight to issue resolution.

Too many banks pitch digital channels as “convenience.” However safety and control are the drivers of digital conversion and engagement for this demographic —and even a potential bridge to acquire their tech-friendly children as new customers.

5 Strategies for Creating a Seamless AI Experience

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The broad adoption of digital channels has been accompanied by hiring challenges for banks that often struggle to adequately staff their service channels and branches. This leads to an urgent drive to adopt virtual assistants and chatbots as a way to provide better and more comprehensive service options to their customers.

This comes at the same time as the Consumer Financial Protection Bureau surveys the experience of digital chatbots and virtual assistants at big banks. This is likely due to poor perception the consumers have of chatbot-based service.

Bank executives must balance the need to provide self-service, always available options without alienating consumers with sub-optimal experiences. But there are several simple strategies that can go a long way in achieving the best of both worlds, making AI-boosted customer experience truly seamless.

To start, consider some reasons behind this poor perception. Many virtual assistants and self-service experiences try to replace humans, containing the customer without escalating the conversation to a human service member. This can lead to overly eager assistants persistently asking customers to rephrase their query or choose from a slate of options. In the worst case scenario, virtual assistants emulate humans with the aim of fooling the customer — resulting in greater frustration when this illusion is shattered. Another common source of frustration are virtual assistants that ask a lot of questions before routing the customer to an appropriate human service member, just to have those same questions repeated by the human agent.

All these examples show how a virtual assistant makes it more difficult for customers to accomplish their goal, rather than simplifies it, and increases the customer’s required effort.

The key to improving the customer experience, while getting the benefit of self service, is to make the virtual experience seamless: help the consumer when possible and get out of the way otherwise.

Here are five practical suggestions to make your bank’s virtual assistant experience seamless, leading to happier and more satisfied customers.

  1. Make it clear to your customers when they are interacting with a virtual assistant versus a human. This helps set consumer expectations and helps develop trust in the service. Consumers may choose to use shorter, direct questions, instead of more verbose communication they would normally use with humans.
  2. Always provide an option for customers to bypass the virtual assistant and connect to a human. Customers can typically tell whether their question is something simple that can be answered by a virtual assistant, or something more complex that requires human intervention. Providing an option to engage with a human when customers choose allows them to self-select into an appropriate path and delivers an experience that’s better adopted to their needs.
  3. Where possible, make it clear the limitations of the virtual assistant up front. For example, certain types of disputes and fraud-related questions might not be able to be handled by the virtual assistant; letting the customer know up-front helps them understand any possible limitations.
  4. Remove repetitive questions from the virtual assistant-to-human transfer process. If questions are needed to better route the customer, take care that they don’t overlap with verification and authentication questions that the human would ask after the transfer. Answering the same questions over and over gives the impression that customers aren’t heard; changing the questions leads to a more seamless transfer.
  5. Supplement any off-hour self-service queries with follow-up options. In cases where a virtual assistant is not able to help the customer solve their issue or it requires human intervention, your institution can offer to follow up on their request and leverage the virtual assistant to collect the relevant information rather than force the customer to repeat the process or switch channels. This gives customers an impression that they’re valued and worthy of additional follow-up to solve their issue.

When surveying your customers on their experience in a hybrid customer service journey, it is crucial to consider the entire experience and not just focus on one pathway or channel. Ultimately, great human customer service will not be sufficient to offset an unpleasant experience in a self-service setting or vice versa. Getting a full picture is crucial to understanding consumer pain points for improvements.

Creating a Winning Scenario With Collaborative Banking

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The banking industry is at a critical crossroads.

As banks face compounding competition, skyrocketing customer expectations and the pressure to keep up with new technologies, they must determine the best path forward. While some have turned to banking as a service and others to open banking as ways to innovate, both options can cause friction. Banking as a service requires banks to put their charters on the line for their financial technology partners, and open banking pits banks and fintechs against each other in competition for customers’ loans and deposits.

Instead, many are starting to consider a new route, one that benefits all parties involved: banks, fintechs and customers. Collaborative banking allows institutions to connect with customer-facing fintechs in a secure, compliant marketplace. This model allows banks and fintechs to finally join forces, sharing revenue and business opportunities — all for the good of the customer.

Collaborative banking removes the regulatory risk traditionally associated with bank-fintech partnerships. The digital rails connecting banks to the marketplace anonymize and tokenize customer data, so that no personally identifiable information data is shared with fintechs. Banks can offer their customers access to technology they want, without having to go through vendor evaluations, one-to-one fintech integrations and rigorous vendor due diligence.

Consider the time and money it can take for banks to turn on just one fintech today: an average of 6 months to a year and up to $1 million. A collaborative banking framework allows quick, more affordable introduction of unlimited fintech partnerships without the liability and risk, enabling banks to strategically balance their portfolios and grow.

Banks enabling safe, private fintech partnerships will be especially important as consumers increasingly demand more control over their data. There is a need for greater control in financial services, granting consumers stronger authority over which firms can access their data and under which conditions. Plus, delivering access to a wider range of features and functionality empowers consumers and businesses to strengthen their financial wellness. Collaborative banking proactively enhances consumer choice, which ultimately strengthens relationships and creates loyalty.

The model also allows for banks to offer one-to-one personalization at scale. Currently, most institutions do not have an effective way to accurately personalize experiences for each customer they serve. People are simply too nuanced for one app to fit all. With collaborative banking, customers can go into the marketplace and download the niche apps they want. Whether this means apps for the gig economy or for teenagers to safely build credit, each consumer or business can easily download and leverage the new technology that works for them. Banks have an opportunity to sit at the center of customer financial empowerment, providing the trust, support, local presence and technology that meets customers’ specific needs, but without opening up their customers to third-party data monetization.

While many banks continue attempting to figure out how to make inherently flawed models, such as banking as a service and open banking, work, there is another way to future-proof institutions while creating opportunities for both banks and fintechs. Collaborative banking requires a notable shift in thinking, but it offers a win-win-win scenario for banks, fintechs and customers alike. It paves the way for industry growth, stronger partnerships and more control and choice for consumers and businesses.

Insights Report: Technology Tools Enhance Financial Wellness

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https://www.bankdirector.com/wp-content/uploads/Insights-FIS-Digital.pdfIn a March 2022 survey, Morning Consult found that just 23% of U.S. adults could handle a major, unexpected expense. At a time when Americans are worried about rising prices for everything from cars to gas to groceries in today’s inflationary environment, lower-income individuals who earn less than $50,000 annually feel this financial anxiety most deeply. Yet, even people in higher income brackets are worried: Only 47% of those earning $100,000 or more believe they could handle such an expense, according to the market research firm.

Financial wellness is often conflated with financial inclusion. These informative tools can play an important role in helping lower-income customers, but everyone needs a trusted advisor to meet their financial goals, whether that’s saving for retirement, eliminating debt or creating an emergency fund.

Americans may be struggling but they trust their banks, according to Morning Consult, which recommends financial institutions acknowledge financial stress, demonstrate empathy and provide “actionable guidance” for their customers.

The rapid digital acceleration occurring in financial services today has changed how banks maintain and build customer relationships, as well as deliver advice. “Banking relationships have become digital relationships,” says Maria Schuld, division executive, Americas Banking Solutions at FIS.

Financial education isn’t new to the industry, and personal financial management tools have been around for years. But technologies like artificial intelligence can help institutions deliver more meaningful insights to their customers. What’s more, younger consumers have a greater need for financial advice; a recent online WalletHub survey of 350 respondents found that young people are three times more likely to seek a complete view of their financial health, compared to consumers aged 60 or more. Being Gen Z’s first bank could lead to larger relationships as their lives change. “Once you establish that relationship early on,” says Schuld, “you have a very strong chance of being able to retain that relationship as their financial needs grow.”

To download the report, sponsored by FIS, click here.

What Does a Tech-Forward Bank Look Like?

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You wouldn’t think Jill Castilla would have trouble getting a bank loan. After all, she’s the CEO of Citizens Bank of Edmond, a $354 million institution in Edmond, Oklahoma. But as a veteran of the U.S. Army married to retired lieutenant colonel Marcus Castilla, she figured they would qualify to get a VA home loan from a bank other than Citizens, which doesn’t offer VA loans.

After 60 days stretched to more than 90 days, the big bank still hadn’t said yes or no, and the seller was getting increasingly anxious. To get the house they wanted, the couple switched gears and got a loan from Citizens instead.

After abandoning the attempt to get a VA loan, Castilla vowed to help other veterans. Her bank has partnered with several technology companies, including Jack Henry Banking, Teslar Software and ICE Mortgage Technology to start a lending platform on a national basis called Roger.

Bank of Edmond hit on a problem the market hadn’t solved: How to make the process of getting a VA loan quicker and easier, especially in a hot real estate market where veterans are more likely to lose bids if they can’t be competitive with other buyers. As Managing Director Sam Kilmer of Cornerstone Advisors put it at Bank Director’s FinXTech Experience conference recently, borrowing from Netflix co-founder Marc Randolph, “the no. 1 trait of an innovator is recognizing what causes other people pain.” Many banks like Castilla’s are trying to solve customer problems and remake themselves with the help of technology, particularly from more nimble financial technology, or “fintech” partners.

In fact, investors already view banks differently based on their approaches to technology, said William “Wally” Wallace IV, a managing director and equity analyst at Raymond James Financial, who spoke at the conference. Wallace categorized banks in three groups: the legacy banks, the growth banks and the tech-enabled banks.

The legacy banks aren’t growing and trade close to book value or 1.5 times book, Wallace said. The growth banks emphasize relationships and are technologically competent. They trade at 1.5 to 2.5 times book. But the tech-enabled banks use technology offensively, rather than defensively. Tech-enabled banks look to create opportunities through technology. Their stocks command a median tangible to book value of 2.5 times. They have more volatile stock prices but they have outperformed other indexes since 2020, with an average return of 104%, he said. Wallace predicts such banks will out-earn other banks, even growth banks, in the years ahead. He estimates their earnings per share will enjoy average compound annual growth rates of about 24% over a five-year period starting next year, compared to 7% for small-cap banks on average.

Take the example of banking as a service, where a bank provides financial services on the back end for a fintech or another company that serves the customer directly. Wallace said those banks have a fixed cost in building up their risk management capabilities. But once they do that, growth is strong and expenses don’t rise at the same rate as deposits or revenue, generating positive operating leverage.

But, as banks try to remake themselves in more entrepreneurial and tech-forward ways, they’re still not tech companies. Not really. Technology companies can afford to chase rabbits to find a solution that may or may not take off. Banks can’t, said Wallace. “You have to be thoughtful about how you approach it,” he added. But, he suggested that tech-enabled banks that invest in risk management will have large payoffs later. “If you guys prove you can manage the risks, and not blow up the bank, investors will start to pay for that growth,” he said.

Customers Bancorp is positioning itself as one of those tech-forward banks but it’s already seeing results. The West Reading, Pennsylvania-based bank reported a core return on common equity of 24% and a return on average assets of 1.63% in the first quarter of 2022.

Jennifer Frost, executive vice president and chief administrative officer at $19.2 billion Customers Bank, spoke at the conference. “We had some pretty sophisticated platforms, but we didn’t have a way to unlock the power with the people who knew how to use them,” she said. Since the Paycheck Protection Program proved the bank could pivot to providing digital loans quickly, the bank began ramping up its capabilities in small business and commercial lending. Instead of limiting itself to buying off-the-shelf platforms from technology providers, its strategy is to carefully pick configurable programs and then hire one or two developers who can make those programs a success.

“Take what you’ve learned here and start a strategy,” she warned the crowd of some 300 bankers and fintech company representatives at the conference. “If you’re not starting now, it’s going to be a dangerous season.”

The Future-Proof Response to Rising Interest Rates

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After years of low interest rates, they are on the rise — potentially increasing at a faster rate than the industry has seen in a decade. What can banks do about it?

This environment is in sharp contrast to the situation financial institutions faced as recently as 2019, when banks faced difficulties in raising core deposits. The pandemic changed all that. Almost overnight, loan applications declined precipitously, and businesses drew down their credit lines. At the same time, state and federal stimulus programs boosted deposit and savings rates, causing a severe whipsaw in loan-to-deposit ratios. The personal savings rate — that is, the household share of unspent personal income — peaked at 34% in April 2020, according to research conducted by the Federal Reserve Bank of Dallas. To put that in context, the peak savings rate in the 50 years preceding the pandemic was 17.7%.

These trends became even more pronounced with each new round of stimulus payments. The Dallas Fed reports that the share of stimulus recipients saving their payments doubled from 12.5% in the first round to 25% in the third round. The rise in consumers using funds to pay down debt was even more drastic, increasing from 14.6% in round one to 52.3% in round three. Meanwhile, as stock prices remained volatile, the relative safety of bank deposits became more attractive for many consumers — boosting community bank deposit rates.

Now, of course, it’s changing all over again.

“Consumer spending is on the rise, and we’ve seen a decrease in federal stimulus. There’s less cash coming into banks than before,” observes MANTL CRO Mike Bosserman. “We also expect to see an increase in lending activities, which means that banks will need more deposits to fund those loans. And with interest rates going up, other asset classes will become more interesting. Rising interest rates also tend to have an inverse impact on the value of stocks, which increases the expected return on those investments. In the next few months, I would expect to see a shift from cash to higher-earning asset classes — and that will significantly impact growth.”

These trends are unfolding in a truly unprecedented competitive landscape. Community banks are have a serious technology disadvantage in comparison to money-center banks, challenger banks and fintechs, says Bosserman. The result is that the number of checking accounts opened by community institutions has been declining for years.

Over the past 25 years, money-center banks have increased their market share at the expense of community financial institutions. The top 15 banks control 56.2% of the overall marketshare, up from 40% roughly 25 years ago. And the rise of new players such as fintechs and neobanks has driven competition to never-before-seen levels.

For many community banks, this is an existential threat. Community banks are critical to maintaining competition and equity in the U.S. financial system. But their role is often overlooked in an industry that is constantly evolving and focused on bigger, faster and shinier features. The average American adult prefers to open their accounts digitally. Institutions that lack the tools to power that experience will have a difficult future — regardless of where interest rates are. For institutions that have fallen behind the digital transformation curve, the opportunity cost of not modernizing is now a matter of survival.

The key to survival will be changing how these institutions think about technology investments.

“Technology isn’t a cost center,” insists Christian Ruppe, vice president of digital banking at the $1.2 billion Horicon Bank. “It’s a profit center. As soon as you start thinking of your digital investments like that — as soon as you change that conversation — then investing a little more in better technology makes a ton of sense.”

The right technology in place allows banks to regain their competitive advantage, says Bosserman. Banks can pivot as a response to events in the macro environment, turning on the tap during a liquidity crunch, then turn it down when deposits become a lower priority. The bottom line for community institutions is that in a rapidly changing landscape, technology is key to fostering the resilience that allows them to embrace the future with confidence.

“That kind of agility will be critical to future-proofing your institution,” he says.