The Best Way To Increase Digital Deposits

Consumers have come to expect the ability to do banking — and a wide range of other activities — online. These expectations are only likely to grow with the Covid-19 pandemic.

While some banks have offered online services for some time, many others may be rethinking their strategy as they consider options that might help them grow market share beyond their traditional or geographically limited service areas. After all, digital banking has the potential to draw deposits and service loans from a broader pool of potential customers. As banks of all sizes contend with margin compression and increased competition, one of the easiest and most expeditious ways to cut costs is through the use of technology.

As banks work to increase deposits in an increasingly digital world, they have the opportunity to take different, sometimes divergent, approaches to connecting with audiences and compelling them to become customers. Two key strategies are:

  • Establishing a digital branch — a digital version of an existing branch
  • Launching an entirely new digital bank, with an entirely different look and feel from the existing brand

There is no right approach as long as banks are meeting customers’ digital needs. Each bank should pursue an approach that incorporates their brand, their core strategies and their target audiences. But small community banks don’t have to be hampered by the lack of big budgets or deep pockets when providing excellent experiences to their customers and fuel consistent growth, though. By leveraging truly optimized digital capabilities, community banks can grow faster and at a low cost.

Extending the Brand Name
There’s great value in brand loyalty. Many community banks have long-standing positive relationships; strong brand awareness and loyalty are firmly established within the communities they serve. When doubling down on offering online services, leveraging its existing brand name can help the bank establish immediate awareness and preference for its services.

Leveraging the existing brand name can be a less-costly undertaking, since new logos, branding platforms, key messages and marketing collateral don’t need to be established.

The potential downside? When reaching into new markets, an existing brand name may not have enough awareness to compete against the large, national, online brands. Fortunately, the online landscape offers even very small community banks the opportunity to build a very large footprint. To do that, some are launching new brands designed to reach an entirely new target audience.

Launching a New Online Brand
Reaching a new audience is one of the biggest benefits for banks that launch a new online brand. It also creates an opportunity to shift the bank’s image if the existing brand has not been strong or does not convey the modern, nimble image that tends to appeal to younger audiences.

The drawbacks, though, include the costs of creating a new brand, both in terms of time and money with no certainty or guarantee that the new brand will gain traction in the market. In addition, launching a new brand relinquishes any opportunity to leverage any existing brand equity. Operational planning and related costs may also be higher, given the likelihood that some positions and services will be duplicated between physical and online branches.

Still, community banks should carefully consider both options in light of their unique positioning, strategies and goals. While both approaches represent some level of risk, they also provide specific benefits that can be capitalized on to grow market share and revenue. We’ve worked with banks in both camps that have seen incredible growth and gained operational efficiencies well beyond their goals.

No matter the approach, when it comes to digital banking, it’s imperative to have clear objectives, buy-in from all stakeholders, focused resources to make it happen, and partners that can provide guidance and best-practices along the way.

A New Opportunity for Revenue and Efficiency

Intelligence-Report.pngIn 2017, Bank Director magazine featured a story titled “The API Effect.” The story explained how banks could earn revenue by using application programming interfaces, or APIs, and concluded with a prediction: APIs would be so prevalent in five years that banks who were not leveraging them would be similar to banks that didn’t offer a mobile banking application in 2017.

Today, the banking industry is on a fast track to proving that hypothesis.

Banks are hurtling into the digital revolution in response, in no small part, to the outbreak of Covid-19, a novel coronavirus that originated in China before spreading around the globe. The social distancing measures taken to contain the virus have forced banks to operate without the safety nets of branches, paper and physical proximity to customers. They’re feeling pressure to provide up-to-the-minute information, even as the world is changing by the hour. And they’re grappling with ideas about what it means to be a bank and how best to serve customers in these challenging times.

One way to do so is through APIs, passageways between software systems that facilitate the transfer of data.

APIs make it possible to open and fund new accounts instantly — a way to continue to bring in deposits when people can’t visit a branch. They pull data from call centers and chat conversations into systems that use it to send timely and topical messages to customers. And they enable capabilities like real-time BSA checks — an invaluable tool for banks struggling to process the onslaught of Paycheck Protection Program loans backed by the Small Business Administration.

All those capabilities will still be important once the crisis is over. But by then, thanks to the surge in API adoption, they’ll also be table stakes for banks that want to remain competitive.

In short, there’s never been a better time to explore what APIs can do for your bank, which is the purpose of this FinXTech Intelligence Report, APIs: New Opportunities for Revenue and Efficiency.

The report unpacks APIs — exploring their use cases in banking, and the forces driving adoption of the technology among financial institutions of all sizes. It includes:

  • Five market trends driving the adoption of APIs among banks
  • Actionable API use cases for growing revenue and creating efficiencies
  • A map of the API provider landscape, highlighting the leading companies enabling API transformation
  • An in-depth case study of TAB Bank, which reimagined its data infrastructure with APIs
  • Key considerations for banks developing an API strategy

To learn more, download our FinXTech Intelligence Report, APIs: New Opportunities for Revenue and Efficiency.

How to Respond to LendingClub’s Bank Buy

For me, the news that LendingClub Corp. agreed to purchase Radius Bancorp for $185 million was an “Uh oh” moment in the evolution of banking and fintechs.

The announcement was the second time I could recall where a fintech bought the bank, rather than the other way around (the first being Green Dot Corp. buying Bonneville Bank in 2011 for $15.7 million). For the most part, fintechs have been food for banks. Banks like BBVA USA Bancshares, JPMorgan Chase & Co and The Goldman Sachs Group have purchased emerging technology as a way to juice their innovation engines and incorporate them into their strategic roadmaps.

Some fintechs have tried graduating from banking-as-a-service providers like The Bancorp and Cross River Bank by applying for their own bank charters. Robinhood Markets, On Deck Capital, and Square have all struggled to apply for a charter. Varo is one of the rare examples where a fintech successfully acquired a charter, and it took them two attempts.

It shouldn’t be surprising that a publicly traded fintech like LendingClub just decided to buy the bank outright. But why does this acquisition matter to banks?

First off, if this deal receives regulatory approval within the company’s 12 to 15 month target, it could forge a new path for fintechs seeking more control over their banking future. It could also give community banks a new path for an exit.

Second, banks like Radius typically leverage technology that abstract the core away from key digital services. And deeper pockets from LendingClub could allow them to spend even more, which would create a community bank with a dynamic, robust way of delivering innovative features. Existing smaller banks may just fall further behind in their delivery of new digital services.

Third, large fintechs like LendingClub don’t have century-old divisions that don’t, or won’t, communicate with each other. Banks frequently have groups that don’t communicate or integrate at all; retail and wealth come to mind. As a result, companies like LendingClub can develop and deploy complementary banking services, whereas many banks’ offerings are limited by legacy systems and departments that don’t collaborate with each other.

The potential outcome of this deal and other bifurcations in the industry is a new breed of bank that is supercharged with core-abstracted technology and a host of innovative, complementary technology features. Challenger banks loaded with venture capital funds and superior economics via bank ownership could be potentially more aggressive, innovative and dangerous competitors to traditional banks.

How should banks respond?

Start by making sure that your bank has a digital channel provider that enables the relatively easy and cost-effective insertion of new third-party features. If your digital channel partner can’t do this, it’s time to draft a request for proposal.

Next, start identifying and speaking to the myriad of enterprise fintechs that effectively recreate the best features of the direct-to-consumer fintechs in a white-label form for banks. Focus on solutions that offer a demonstrable path to revenue retention, growth and clear cost savings — not just “cool” features.

After coming up with a plan, find a partner to help you market the new services either through  the third-party vendors you select or another marketing partner. Banks are notorious for not doing the best job of marketing new products and features to their clients. You can’t just build it and hope that new and existing customers will come.

Finally, leverage the assets you already have: physical branches, a mobile banking app that should be one of the top five on a user’s phone, and pricing advantage over fintechs. Most fintechs won’t be given long runways by their venture capital investors to lose money in order to acquire clients; at some point, they will have to start making money via pricing. Banks still have multiple ways to make money and should use that flexibility to squeeze their fintech competitors.

Change is the only constant in life — and that includes banking. And it has never been more relevant for banks that want to stay relevant in the face of rapidly developing technology and industry-shifting deals.

How Community Banks Can Compete Using Fintechs, Not Against Them


fintech-7-15-19.pngSmaller institutions should think of financial technology firms as friends, not foes, as they compete with the biggest banks.

These companies, often called fintechs, pose real challenges to the biggest banks because they offer smaller firms a way to tailor and grow their offerings. Dozens of the biggest players are set to reach a $1 billion valuation this year—and it’s not hard to see why. They’ve found a niche serving groups that large banks have inadvertently missed. In this way, they’re not unlike community banks and credit unions, whose people-first philosophy is akin to these emerging tech giants.

Ironically, savvy fintechs are now smartly capitalizing on their popularity to become more like big banks. These companies have users that are already highly engaged; they could continue to see a huge chunk of assets move from traditional institutions in the coming year. After all, what user wouldn’t want to consolidate to a platform they actually like using?

The growth and popularity of fintechs is an opportunity for community banks and credit unions. As customers indicate increasing openness to alternative financial solutions, these institutions have an opportunity to grab a piece of the pie if they consider focusing on two major areas: global trading and digital capabilities.

Since their creation, community banks and member-owned organizations have offered many of the same services as their competitors. However, unlike fintechs, these financial institutions have already proved their resilience in weathering the financial crisis. Community banks can smartly position themselves as behind-the-scenes partners for burgeoning fintechs.

It may seem like the typical credit union or community banking customer would have little to do with international transactions. But across the world, foreign payments are incredibly common—and growing. Global trading is an inescapable part of everyday consumer life, with cross-border shopping, travel and investments conducted daily with ease. Small businesses are just as likely to sell to a neighbor as they are to a stranger halfway around the globe. Even staunchly conservative portfolios may incorporate some foreign holdings.

Enabling global trades on a seamless digital scale is one of the best avenues for both community banks and credit unions to expand their value and ensure their continued relevance. But the long list of requirements needed to facilitate international transactions has limited these transactions to the biggest banks. Tackling complex regulatory environments and infrastructure can be not only intimidating, but downright impossible for firms without an endless supply of capital earmarked for these such investments.

That means that while customers prefer community banks and credit unions for their personalization and customer service, they flock to big banks for their digital capabilities. This makes it all the more urgent for smaller operations to expand while they have a small edge.

Even as big banks pour billions of dollars into digital upgrades, an easy path forward for smaller organizations can be to partner with an established service that offers competitive global banking functions. Not only does this approach help them save money, but it also allows them to launch new services faster and recapture customers who may be performing these transactions elsewhere.

As fintechs continue to expand their influence and offerings, innovation is not just a path to success—it’s a survival mechanism.

Are You Digitally Native or Just Digitally Naive?


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Your bank’s survival could hinge on how you answer this question.

In recent years, we’ve seen a tremendous increase in use of technology. According to a range of surveys, at least one in every three people in developed markets now carries a smartphone. And in the United States alone, smartphones account for more than half of all mobile subscriptions, meaning that at least a third of all consumers potentially will use their phones to make payments and purchases.

The digital era is here to stay and adopting a digital-first mindset is no longer a matter of preference but rather, a question of necessity. Traditional banks need to recognize the need to expand their own digital services and capabilities, and many have started innovating and investing heavily to do so.

If you’re ready to become a part of the digital revolution, that means your core banking platform needs to be up to the task of helping you establish a strong digital presence. Evolving into a more fully digital organization with the right core in place can help financial institutions deliver quicker and more reliable services, strengthen the relationship with current clients while helping to acquire new ones—all the while delivering a unique, personalized customer experience to all of their customers.

Looking into the future, a 2014 McKinsey & Co. research predicted that within a few years over two-thirds of all banking users will be fully adapted to the online world. However, a 2016 Bain & Co. study also indicates that adding channels to a customer’s experience can increase confusion and frustration. In other words, there are still some bumps in the road to a purely digital experience.

With the increasing adoption of digital channels, despite some snags, it’s easy to see an emerging trend: to succeed, financial institutions must adopt a digital-first view of how to do business (PDF).

The average customer will interact at least twice a day with their bank, checking on payments and balances, paying bills or making purchases. Because of this heightened activity, an increasing number of financial institutions are beginning to grasp the importance of the digital-first view of banking. North American banks have begun to invest heavily in apps that, when working in concert with existing core technologies, will improve the customer experience and cultivate stronger and longer-lasting relationships with their clients. These new apps allow banking clients to perform a range of financial activities while on the go, offering services more sophisticated than mere paperless customer experiences, which have been around for nearly a decade.

There is no doubt that the world is already experiencing a digital transformation. But can the inevitable change be advantageous? It can, if you’re ready with solid core technologies already in place. By some estimates, adopting digital technology could allow banks to decrease their physical footprint by 30 percent, resulting in a significant reduction in costs and corresponding improvement in profitability. Brian Moynihan, CEO of Bank of America Corp., cites the rise of digital usage among his customers as a prime driver behind significant workforce reductions in recent years.

Figures from the last few years demonstrate the success of digital banking. Online-only banks, for instance, saw more than a 30 percent rise in deposits between 2010 and 2013. Mobile banking will grow to more than 2 billion users worldwide by 2020. And according to a recent Accenture study, 20 percent of all bank customers are entirely digital users, meaning that if a bank wants to increase its customer base, catering to the needs of these new tech-savvy clients is a must.

The ability to deliver services the way customers want, including through digital channels, while not neglecting the core services that all clients demand, is increasingly crucial to establishing and maintaining long-term banking relationships. Digital change demands that financial institutions digitize their processes and drastically reset how banking staff reacts to customer needs. The adaptation of lean core banking IT systems and investment in new digital products and services that enhance and personalize customer experience will be key factors going forward.

In short, digital banking can realize astonishing improvements in earnings before interest, taxes, amortization and depreciation, while also enabling you to reach a wider set of customers through an expanded range of services. Experts estimate that a digital transformation of the financial sector and banking institutions can ensure secure transactions and minimize risks, reduce costs, ensure seamless integration with back office applications—and last but not least, streamline the customer experience.

David Mitchell is the president of Nymbus.

A Roadblock That Ruins Futures


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Culture is one of the best things a bank has going for it. It’s also one of the worst.

While I am bullish on the future of banking as a concept, I am admittedly concerned about what’s to come for many banks who struggle with cultural mindsets resistant to change. Specifically, the same mindsets that helped weather the last few years’ regulatory challenges and anemic economic growth may now prevent adoption of strategically important, but operationally risky, relationships with financial technology companies.

Most banks don’t have business models designed to adapt and respond to rapid change. So how should they think about innovation? I will raise that question and others at our upcomingFinTech Weekin New York City startingtoday, a look at how technology continues to change the nature of banking. Those in attendance include banks both large and small, as well as numerous financial technology companies.

More so than any regulatory cost or compliance burden, I sense that the organizational design and cultural expectations at many banks present a major obstacle to future growth through technology.While I am buoyed by the idea that smaller, nimble banks can compete with the largest institutions, that concept of agility is inherently foreign to most legacy players. It doesn’t have to be. Indeed, Richard Davis, the chairman and CEO of the fifth largest bank in the country, U.S. Bancorp, shared at our Acquire or Be Acquired Conference in Phoenix last January that banks can and should partner with fintech companies on opportunities outside of traditional banking while working together to create better products, better customer service and better recognition of customer needs.

The urgency to adapt and evolve should be evident by now.The very nature of financial services has undergone a major change in recent years, driven in part by digital transformation taking place outside banking.Most banks—big and small—boast legacy investments.They have people doing things on multi-year plans, where the DNA of the bank and culture does not empower change in truly meaningful ways.For some, it may prove far better to avoid major change and build a career on the status quo then to explore the what-if scenarios.Here, I suggest paying attention to stories like those shared by our Editor-in-Chief Jack Milligan, who just wrote about PNC Financial Services Group in our current issue of Bank Director magazine. As his profile of Bill Demchak reveals, it is possible to be a conservative banker who wants to revolutionize how a company does business.But morphing from a low-risk bank during a time of profound change requires more than just executive courage. It takes enormous smarts to figure out how to move a large, complex organization that has always done everything one way, to one that evolves quickly.

Of course, it’s not just technological innovation where culture can be a roadblock.Indeed, culture is a long-standing impediment to a successful bank M&A deal, as any experienced banker knows. So, just as in M&A deals, I’d suggest setting a tone at the top for digital transformation.

Here are three seemingly simple questions I suggest asking in an executive team meeting:

  • Do you know what problems you’re trying to solve?
  • What areas are most important to profit and near-term growth?
  • Which customer segments are critical for your bank?

From here, it might be easy to create a strategic direction to improve efficiency and bolster growth in the years ahead.But be prepared for false starts, fruitless detours and yes, stretches of inactivity.As Fifth Third Bank CEO Greg Carmichael recently shared in an issue of Bank Director magazine, “Not every problem needs to be solved with technology… But when technology is a solution, what technology do you select? Is it cost efficient? How do you get it in as quickly as possible?You have to maintain it going forward, and hold management accountable for the business outcomes that result if the technology is deployed correctly.”

Be aware that technology companies move at a different speed, and it’s imperative that you are nimble enough to change, and change again, as marketplace demands may be different in the future. Let your team know that you are comfortable taking on certain kinds of risk and will handle them correctly. Some aspects of your business may be harmed by new technology, and you will have to make difficult trade-offs. Just as in M&A, I see this is an opportunity to engage with regulators.Seek out your primary regulator and share what you’re looking for and help regulators craft an appropriate standard for dealing with fintech companies.

Culture should not be mistaken for a destination.If you know that change is here, digital is the expectation and you’re not where you want to be, don’t ignore the cultural roadblocks. Address them.

Digital is in Our DNA


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Once your most basic needs in the first two levels of Abraham Maslow’s famous hierarchy of needs have been covered—including food, shelter, security and the like—what do you need then?

According to Maslow, the next three levels of need are Belongingness and Love, Esteem and Self-Actualization. All of these needs are fulfilled in one way or another by various forms of digital media: blogs, emails, twitter and LinkedIn.Combined, the digital mobile world we live in today plays to our basic psychological and self-fulfillment needs, which is why it is so addictive.

According to the Bank of America Corp.’sannual researchinto mobility, millennials spend more time interacting on their phone than with their partner, family, friends and colleagues.

Perhaps this is why many of us are so addicted to selfies and using the camera to stream our daily routines non-stop.It is also why some joker added WiFi and a battery to Maslow’s well known pyramid. (And if Maslow was alive today, he would no doubt agree.)

When we don’t have our phone, we often feel anxious and bored with a fear of missing out on what’s going on. We even walk and talk differently when we are using a mobile phone. The University of Bathfound that people who text had developed a protective shuffle that prevents them bumping into obstacles, or tripping over hazards. This means that it takes those texting 26 percent longer to complete a walking task compared to those who were not distracted by their phones, and it is really annoying. You know, you’re walking along the pavement and someone is shuffling slowly in front of you with that hunched over look that signals they are playing with their mobile phone. You kind of want to hit them in the back of the head and tell them to get out of the way, but don’t because you know you do it yourself. This is the world today, and the reason whysome citiesare introducing texting and non-texting sidewalks.

Before we look at banks, a little test. Turn off your mobile phone and seehow many minutes or hours you can wait before turning it back on again. Do this when you’re not in a meeting or sleeping and have ready access to your phone. I bet none of you last more than an hour.

The reason for giving this insight into the mobile digital age being part of our DNA is that, if our relationships are with and through our digital devices, how does a bank become part of that world? That’s a difficult question. Most bankers think that mobile and digital generally are projects to invest in, not the representation of a cultural transformation.But this dependency on our devices is a cultural transformation. The very fact that we have gone from a phone being a mere communication device to being at the very center of our lives in just one decade is incredible, but true.

Meanwhile, what banks are offering the best mobile experience? In the U.S., it’s JP Morgan Chase & Co.’s Chase retail banking unit, according toMagnify Money. Chase was voted the best mobile banking app in the country for a large bank, and applauded by users for a combination of design and functionality. The app has a lot of the features deemed most important by consumers, which includes fingerprint sign-on, mobile check deposit and the ability to see images of deposited checks. Consumers want to be able to do everything on the app, and Chase has been adding functionality throughout the year to keep people satisfied.

Forrester ranked the world’s best retail mobile banking services and benchmarked the retail mobile banking services of 46 large retail banks across four continents on 40 criteria, and found the average bank scored 65 out of 100.

Australia’s Westpac outstripped the average bank by being strong in every category. The bank earned the highest score in the transactional features category and did particularly well in its range of touch points, account and money management, and marketing and sales. It is one of the few banks to offer contactless mobile payments capability using near-field communication technology. The bank has also rolled out innovative features such as letting customers take pictures of their credit cards to activate them.

Of theother banks reviewed, nine stood out from their peers for their impressive mobile banking capabilities: CaixaBank in Spain, Canadian Imperial Bank of Commerce and Scotiabank in Canada, Garanti in Turkey, Bank of America and Wells Fargo & Co. in the U.S., Bank Zachodni WBK in Poland and Lloyds Bank in the U.K.

Data Wars to Dominate 2017


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It’s the start of 2017, and many people have already blogged their predictions for the year. I won’t repeat those predictions, as the future isn’t what it used to be, but I do find it interesting to look at the common themes across them all. The standout theme for me is that 2017 is the year of The Analytic.

Data analysis to be exact. Now you can get analysis paralysis if you dwell on this too long, but data analytics will be the fuel for everything else. Effective data analysis is core to being able to leverage artificial intelligence; data analytics will be the key to unlocking the internet of things; and data analytics is essential to chatbots, augmented customer experiences and enhanced services.

Think about it: How can you deliver a decent digital service if you don’t have the data to tell you what your customers want? This then becomes the essential challenge for all incumbent institutions as their customer data is often siphoned into silos. I know that for a fact, having spent 20 years trying to create bank enterprise data stores and services. Now some banks are beginning to wake up and embrace the data opportunity and threat but, for those who are comfortable with distributed data and no ability to analyze it effectively, here’s the hard truth: You will not survive.

I’ve believed this for a long time but, with each passing year, I am sounding the alarm bell louder and louder. After all, we have argued for decades that a consistent customer experience across channels is essential. We haven’t been able to deliver it, but we’ve tried. Now we are not even talking channels anymore, we are just talking about a digital foundation that everyone accesses through open marketplaces online. We have moved from a historical, closed and proprietary architecture to an open platform structure where everyone can plug and play. But how can they do that if the data is locked in old proprietary systems that are siloed and closed?

This is going to be a key conundrum for U.S. banks, which are arguing that the only person who can access customer data is the customer. That’s a great way to lock out third-party players, shut down the aggregators and block the open systems march. However, it strikes me as being like the king who has placed his army at the gates of the castle, while not noticing that the citizens are all leaving via the back door. What is the use of having a kingdom if there’s no one in it? And that is what will happen to banks that continue to have distributed data that cannot be leveraged.

The march of the fintech community, the regulator and the customer is towards easy, convenient, proactive and personalized financial providers. Those providers are increasingly like the Amazons of the world: they know their customers digital footprint and maximize their knowledge of that footprint to the hilt. In 2017, as we watch the progression of AI, machine learning, deep learning, chatbots and personalization, any bank that keeps its data locked up in a chastity belt is missing a trick.