The Key to Upgrading Digital Experiences

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.

How FIs Can Take the Speedboat or Extensibility Approach to Digital, Accelerated Financial Services

In a post-pandemic world, legacy financial institution must accelerate their digital processes quickly, or risk ceasing to be relevant.

With financial technology companies like Chime, Varo Money, Social Finance (or SoFi) and Current on the rise, change is inevitable. Alongside the nimble fintech competition, banks face pressure to rapidly deliver new products, as was the case with the Small Business Administration’s Paycheck Protection Program loans. While most legacy institutions try to respond to these business opportunities with manual processes, companies like Lendio and Customers Bank can simply automate much of the application process over digital channels.

Legacy institutions lack the access to the latest technology that digital challengers and fintechs enjoy due to technology ecosystem constraints. And without the same competitive edge, they are seeing declining profit margins. According to Gartner, 80% of legacy financial services firms that fail to adapt and digitize their systems will become irrelevant, and will either go out of business or be forced to sell by 2030. The question isn’t if financial institutions should evolve — it’s how.

To fuel long-term growth, traditional banks should focus on increasing their geographic footprint by removing friction and automating the customer’s digital experience to meet their needs. Millions of Generation Z adults are entering the workforce. This generation is 100% digitally native, born into a world of vast and innovative technology, and has never known life without Facebook, Snapchat, TikTok or Robinhood. In a couple of years, most consumers will prefer minimal human interaction, and expect fast and frictionless user experience in managing their money, all from their smartphone.

Some solutions that traditional banks s have undertaken to enhance their digital experience include:

  • Extending on top of their existing tech stack. In this scenario, financial institutions acquire digital/fintech startups to jump-start a move into digital banking. However, there are far fewer options to buy than there are banks, and few of the best fintechs are for sale.
  • Totally transforming to modern technology. This option replaces the legacy system with new digital platforms. It can come with significant risks and costs, but also help accelerate new product launches for banks that are willing to pay a higher initial investment. Transformations can last years, and often disrupt the operations of the current business.
  • Using the extensibility approach. Another way forward is to use the extensibility approach as a sub-ledger, extending the legacy system to go to market quickly. This approach is a progressive way to deliver fit-for-purpose business capabilities by leveraging, accelerating and extending your current ecosystem.

Institutions that want to enter a market quickly can also opt for the speedboat approach. This includes developing a separate digital bank that operates independently from the parent organization. Speedboats are fintechs with their own identity, use the latest technology and provide a personalized customer experience. They can be quickly launched and move into new markets and unrestricted geography effortlessly. For example, the Dutch banking giant ABN AMRO wanted to create a  fully digital lending platform for small to medium enterprises; in four months, the bank launched New10, a digital lending spinoff.

A speedboat is an investment in innovation — meant to be unimpeded by traditional organizational processes to address a specific need. Since there is a lot of extensibility, the technology can be any area the bank wants to prioritize: APIs, automation, cloud and mobile-first thinking. Banks can generate value by leveraging new technology to streamline operations, automate processes and reduce costs using this approach.

Benefits include:

  • Being unencumbered by legacy processes because the new bank is cloud native.
  • The ability to design the ideal bank through partners it selects, without vendor lock-in.
  • Easier adaption to market and consumer changes through the bank’s nimble and agile infrastructure.
  • Lower costs through automation, artificial intelligence and big data.
  • Leveraging a plug-and-play, API-first open banking approach to deliver business goals.

By launching their own spin-off, legacy banks can go to market and develop a competitive edge at the same speed as fintechs. Modern cloud technology allows banks to deliver innovative customer experiences and products while devoting fewer resources to system maintenance and operational inefficiencies.

If a financial institution cannot make the leap to replace the core through a lengthy transformational journey and wants to reach new clients and markets with next-generation technology, launching a speedboat born in the cloud or opting for the extensibility approach opens up numerous opportunities.

How an Online-Only Bank Powers Its Platform

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.”

Evaluating Your Technology Relationship

 

It’s tough to find a technology provider that puts your bank’s needs first. Yet given the pace of change, it’s becoming crucial that banks consider external solutions to meet their strategic goals — from improving the digital experience to building internal efficiencies. In this video, six technology experts share their views on what makes for a strong partnership.

Hear from these finalists from the 2021 Best of FinXTech Awards:

  • Dan O’Malley, Numerated
  • Nicky Senyard, Fintel Connect
  • Zack Nagelberg, Derivative Path
  • Doug Brown, NCR Corp.
  • Joe Ehrhardt, Teslar Software
  • Jessica Caballero, DefenseStorm

To learn more about the methodology behind the Best of FinXTech Awards, click here.

If you’re a bank executive or director who wants to learn more about the FinXTech Connect platform, click here. If you represent a technology company that is currently working with financial institutions, click here to submit your company for consideration.

Why Banks Should Focus on Financial Strength in 2021

Winston Churchill is credited with having famously stated, “Never let a good crisis go to waste.” After a year of profound challenges on many fronts, there very much remains a crisis, causing especially deep financial turmoil for millions of unemployed Americans as a result Covid-19.

Many are undoubtedly feeling financial uncertainty, stress and fear. This crisis represents a singular opportunity for banks to earn and establish deep foundations of trust with customers navigating the murky waters of their financial stress. These efforts will garner a loyalty and connection that will bear incredible fruit in the future, as those customers come out of their own individual crises. Banks should earn this deep trust by making their customers’ financial strength an urgent, key focus in 2021.

Many financial institutions are tuned into this urgency, according to our ongoing original research into financial services. Our recent survey of 220 bankers at institutions spanning the financial industry showed that two of the most significant shifts in business objectives for 2021 are toward recognizing the urgency of digital experience and financial wellness tools.

These two initiatives go hand in hand, especially following a year of branch closures. People are increasingly looking for ways to get financial guidance directly on their phones. We’ve found that 84% of consumers use their mobile banking app at least weekly and 26% use it daily. By contrast, 83% of consumers say they go into a branch once a month or less — and a third say that they plan to visit bank branches less frequently than they did before the pandemic once it is over.

Put simply, your customers need and expect real-time financial guidance on their devices. Here are three ways to offer that:

1. Show People Where They Are Today
First, people need to know where they are currently — financially speaking. Offering a money experience that provides users with a 360-degree view of their accounts in one place is like  seeing the words “You Are Here” on a map. That alone can provide tremendous relief, especially if an individual sees that they are not too far from help.

The same is true for finances. People need clarity about their broad financial picture. They need to be able to quickly see how they’ve been doing, with transactions that are cleansed, categorized, and augmented — and then visualized simply. The days of manually documenting every single check from a checkbook are long gone; very few people have the time or patience to do that kind of work. To be competitive, people need you to do the work for them. It’s not about money management. It’s about a money experience.

2. Help Them Look Ahead
Second, people need to know where to go next. This experience should be a GPS for finances, detailing what true financial strength looks like and laying out general principles to get to that destination. This means that people should be able to quickly see their savings goals, receive recommendations on what route to take and quickly choose or simply confirm automatic funneling of money toward those specific goals, without having to pause their busy life.

3. Get Personal
Third, the money experience should also guide and protect users by offering personalized advice and warnings moment to moment — leading user toward what they need to do. This requires a foundational corpus of clean, enriched data coupled with powerful algorithms behind the scenes to even have a shot at offering an elegant, personalized experience. It is exactly the kind of money experience that will establish trust and build loyalty, especially from customers in dire need of it. This will also become more and more critical as customers desire going into a branch less and less.

Creating a money experience that follows these principles will help create a world where individuals are empowered to be financially strong, where fewer and fewer face personal financial crises.

For me, this mission is personal. I’ve taken an entrepreneurial approach to my career, bounding between exhilarating highs and anxiety-inducing lows. I’ve experienced four separate times where my income dropped to zero, and felt the overwhelming weight of trying to navigate my finances as a young husband and father. I empathize with anyone who feels that stress. Similarly, I can also empathize with the deep trust and lifetime loyalty that can be established when someone helped navigate out of those tough situations. This understanding motivates me to help banks and fintech companies offer a money experience that empowers true financial strength in 2021.

How to Get Private Equity Out of the Dark Ages

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Alternative investments are on a tear, and no asset class has seen more growth than private equity. According to a recent study by eVestment, assets under administration grew 44 percent from 2015 to 2016. This influx of capital has caused major ripple effects across the entire private equity landscape, with fund managers competing intensely to attract investor capital.

This competition has reinforced the importance of the overall experience that private equity managers provide to their investors, and as a result managers have increasingly been looking to their fund administrators for solutions.

Technology is widely seen as the solution to many of the challenges facing both private equity managers and fund administrators. Yet despite this consensus, “private equity is in the dark ages when it comes to technology” as Allison Piet, director of alternative investments accounting and reporting with insurer MetLife, puts it.

Private equity fund managers and fund administrators alike are finding themselves at a crossroads on two key issues:

  1. Delivering on investor demands for greater transparency and a more modern digital experience.
  2. Handling the operational burden of labor-intensive and margin-constraining processes that are insufficient to meet growing regulatory requirements.

A study by technology provider FIS, titled “The Promise of Tomorrow: Private Equity and Technology,” brings context to these two important issues:

Delivering on investor demands for a more transparent and modern digital experience.

One of the greatest obstacles to solving this challenge is the proliferation of systems that fund administrators and fund managers use across areas like accounting, reporting and document storage.

This multi-system approach adds a great level of difficulty to the process of collecting and preparing data required to provide investors with transparency. Further, maintaining multiple systems often proves to be arduous and time-consuming.

This demand for a more modern experience has placed tremendous pressure on fund administrators in particular, as their fund manager clients increasingly look to them to meet this need. Fund managers are sending a loud message by walking away from administrators that can’t help. In fact, according to a Preqin study, 28 percent of fund managers fired their fund administrator in the past 12 months.

This helps to explain why, according to the FIS study, 26 percent of respondents felt “threatened” by technology. That said, those that are leveraging the power of technology to improve their offerings are realizing that it can become a competitive advantage, as evidenced by the 74 percent of respondents that affirmed this in the study.

A quote from the FIS study makes this key point: “The private equity industry’s effortsto reinvent its relationship with technology also reflect recognition of the critical importance of technology to winning and retaining customers and to penetrating new markets.”

Handling the operational burden of labor-intensive and margin-constraining processes that are insufficient to meet growing regulatory requirements.

The private equity and the alternative investment industries have also been going through a metamorphosis over the past few years in the area of operations, driven in large part by the imposition of ever-increasing regulatory requirements. Compliance is the great equalizer, affecting all stakeholders in the industry from the fund administrator down to the investor.

These requirements become a business-breaking burden when operational efficiency is dictated primarily by the number of people that a company has available to help tackle them. The alternative investment industry is notorious for how heavily it relies on people to handle manual and repetitive tasks that should be automated. These are things like document preparation and distribution, tracking and receiving needed approvals, sending emails for notifications and more.

These manual tasks are exponentially more troublesome when legal and regulatory requirements come into play as most fund administrators have to add one full-time employee for every three or four new clients that they win.

This results in a vicious cycle for fund administrators as they far too often expand their budgets by adding additional staff instead of investing in technology that could solve their root problems.

Technology provides the clearest path to help private equity get out of the dark ages. This is the one solution that will help all key stakeholders improve the overall offering to investors without compromising their ability to build profitable businesses.

This quote from the FIS study encapsulates it best: “Firms that embrace this world of innovative technologies are likely to be the ones that win out in the marketplace.”