How Banks Can Create Financially Savvy Communities

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Money is a complicated subject for many Americans, and financial literacy is often a challenge.

Financial wellness is often a personal journey that lasts a lifetime — and is a place where banks and technology can really improve people’s lives. Everyone benefits when bank customers enjoy financial wellness. People in good financial health tend to enjoy better physical and mental health, contribute more to society and pay more in taxes. But from a bank perspective, financial wellness is both a challenge to be met and an opportunity to be seized. Now is the time for institutions to pick up the pace.

Although financial wellness can be hard to define, only 22% of respondents in a recent TIAA survey described their finances as “healthy.” This is a concern because of the negative compounding effects over the long term mean that multiple generations may struggle to get on top of their finances. How can the banking industry address this potential widening gap between the rich and poor?

Financial literacy is one starting point, but only 21 states require students complete a personal finance course to graduate from high school. This is a major shortcoming – personal finance is an essential life skill. There’s no substitute for starting early.

The Money Smart financial education program from the Federal Deposit Insurance Corp. helps people of all ages enhance their financial skills and create positive banking relationships. FIS actively supports this and is helping to move this program online and embed financial education within financial products and services. But there is more work to do.

Just like physical well-being, everyone has unique goals and measures of success of financial wellness. Banks that appropriately assist customers on their financial journeys can create deep loyalty and great customer satisfaction. Personalized tools are essential to help individuals align finances with life goals, such as going to college, getting married or having a family. But ultimately, financial wellness is about making small, everyday choices about budgeting, expenses and using credit wisely. While this is never easy, technology can help.

Put Data and Technology to Work
For many people, facing up to their financial position is daunting. Financial jargon can be confusing, and the majority of individuals cannot afford a financial adviser to help navigate the complexity of securities, mutual funds, 401(k)s and the like. But, with the right digital tools and banking support, most don’t need one.

Digital technology empowers people to better understand their financial transactions by harnessing the power of data. The right analysis makes it easy to determine patterns, whether decisions are wise and if they are aligned with savings and retirement goals. Sophisticated data tools can provide insights to financial wellness and take much of the hard work out of the analysis of where customers spend money, and where there are opportunities to save. Over time, people form new financial habits that encourage easier budgeting and regular saving.

The opportunity is there for banks to become proactive and help customers make better financial decisions. With a wealth of customer financial data, banks are uniquely positioned to offer customers a guided journey to good financial health; those that do will be rewarded with loyal customers.

Financial wellness is an opportunity for every bank. It requires bankers to think creatively and collaborate, likely working with fintechs and suppliers to offer financial management services that empower customers to better manage their money. Open banking makes this easier and more affordable, and the time is right to accelerate progress.

Financial wellness and financial inclusion go hand in hand. Financial wellness tools can educate and encourage unbanked and underbanked individuals to participate in the regulated bank space. But it takes perseverance and commitment from banks to progress and earn the trust of those unfamiliar with traditional banking. Banks committed to financial wellness and inclusion must think big and start small. But the crucial thing is to start.

What 2022 Holds for Community Banks

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All banks need to prepare now for inevitably more change. As the year draws to a close, a quick look back provides some insightful clues about the road ahead. There are some trends that are well worth watching.

Changing Customer Habits
The coronavirus pandemic accelerated digitalization efforts and adoption. A recent PACE survey reveals that 46% of respondents changed how they interact with their bank in the last year. It is no surprise that consumers across generations continue to use new channels over in-branch banking.

  • The demand for drive-through banking doubled for young millennials.
  • The demand for phone banking tripled for Generation Z.
  • The percentage of young millennials communicating with their banks via email and social media rose by four times over the previous ten months.

Customers are more likely to visit a branch to receive advice, review their financial situation or to purchase a financial product. Many bank branches are being repurposed to reflect this new dynamic, with less emphasis on traditional over-the-counter services.

The way people pay has also changed, probably forever. Businesses encouraged digital and contactless payments, particularly for micropayments such as bus fares or paying for a coffee. In contrast, check use declined by about 44%. Forty-seven percent of community bank customers surveyed say they have mobile payments wallets, according to FIS’ PACE PULSE Survey for 2021.

Bank as a Partner
In addition to providing traditional services, many community banks elevated their position to financial partner, offering temporary services when and where they were needed. The immediate relief including increased spending limits on credit cards, payment deferral options on mortgages, personal loans based on need and penalty fee waivers for dipping below account minimums.

Since then, community banks have continued taking steps to boost financial inclusion. The unbanked and underbanked are prime candidates for new, low-cost financial services delivered through mobile channels and apps. Providing such services is likely to be well rewarded by enduring customer loyalty, but the banks need the right technologies to deliver them.

The State of the Industry
The last year has seen a flurry of M&A deals. Many recent mergers involved banks with mature brands, loyal customers and strong balance sheets. These institutions’ interest in deals reflects a need to reduce the cost of doing business and the universal need to keep pace with technology innovation.

Digital technologies and data are increasingly the baseline of success in banks of all sizes. Merging with a peer can jump-start innovation and provide a bigger footprint for new digital services.

Robotics Process Automation and Data
Although much of the discussion around digitalization has focused on customer services, digital technologies can also boost automation and efficiency. With the right approach, robotic process automation, or RPA, can automate high-volume repeatable tasks that previously required employees to perform, allowing them to be redeployed to more valuable tasks. But to maximize value, RPA should not be considered in isolation but as part of a bank’s overall data strategy.

The Road Ahead
Although the road ahead may be paved with uncertainty, these are things FIS expects to see across the industry:

Customers have rising expectations. They want banking services that are intuitive, frictionless and real time. Big Tech, not banks, are continuing to redefined the customer experience.

Crypto will become mainstream. Many consumers already hold and support cryptocurrencies as investments. Banks must prepare for digital currencies and the distributed ledger technology that supports them.

The branch must evolve. Banks need to reinvent the branch to offer a consistent smooth experience. Human services can be augmented by technologies that automate routine retail banking tasks. For example, video tellers can conduct transactions and banking services with customers, using a centrally based teller in a highly engaging real-time video/audio interaction. Banks must persevere to draw people back into their branches.

Investing in data and technology is essential. Banks must eliminate guesswork and harness data to drive better decisions, increasing engagement and building lifetime loyalty. Smart banks can use customer data to gain unique insight and align banking with life events, such as weddings, school and retirement.

The new age of competition is also one of collaboration. At a time when community banks and their customers are getting more involved with technology, every bank needs to adopt a fintech approach to banking. Few banks can achieve this alone; the right partner can help an institution keep up the latest developments in technology and focus on its core mission to attract and retain customers.