The Role Analytics Play in Today’s Digital Environment

Banks have an increasing opportunity to employ and leverage analytics as customers continue to seek increased digital engagement. Combining data, analytics, and decision management tools together enriches executive insights, quantifies risk and opportunity, and makes decision‑making repeatable and consistently executed.

Analytics, and the broad, umbrella phrase automated intelligence can be confusing; there are many different subfields of the phrases. AI is the ability of a computer to do tasks that are regularly performed by humans. This includes expert models that take domain knowledge and automate decisions to replicate the decisions the expert would have made, but without human intervention. Machine learning models extract hidden patterns and rules from large datasets, making decisions based purely on the information reflected in the data.

Financial institutions can use this technology to better understand their data, get more value out of the information they already have and make predictions about consumer behaviors based on the data.

For example, having identified the needs of two consumers, digital marketing analytics can identify the consumer with the greater propensity-to-purchase or which consumer has the more-complex needs to determine resources allocation. These consumers may present equal opportunity, or they may vary by a factor or two. It’s also important to employ analytic tools that extend beyond determining probability to recommending actions based on results. For example, a customer could submit necessary credit information that is sufficient for a lender to receive an instant decision recommendation, increasing customer satisfaction by reducing wait time.

While there are countless ways banks can benefit from implementing analytics, there are eight specific areas where analytics has the most impact:

  • Measuring the degree of risk by evaluating credit, customer fraud and attrition;
  • Measuring the likelihood or probability of consumer behaviors and desires;
  • Improving customer engagement by increasing the relevance of engagement content as well as reaching out to customers earlier in the process;
  • Providing insight into the success or failure in the form of marketing, customer and operational key performance indicator;
  • Detecting and measuring opportunity in terms of customer acquisition, revenue expansion and resource/priority allocation;
  • Optimizing pricing;
  • Improving decisions based on credit, campaign, alerts or routing escalation; and
  • Determining intervention or corrective next action to reduce abandonment.

Each of these capabilities has numerous applications. In a digital economy, the entire customer journey and sales cycle becomes digitally concentrated. This includes using personal financial goal planning, market segmentation, customer relationship management data and website digital sensory to detect opportunities based on consumer intent, fulfillment, obtaining customer self‑reported feedback, attrition monitoring and numerous engagement methods like education or offers. Using analytics adds considerable value to each of these processes — it drives some of them completely. Actionable analytics are key. They drive outcomes based on expert models and data analysis, to scale, to a large set of consumers without increasing the need for additional employees.

Looking at actual business cases will underline the benefits of analytics in relation to propensity‑to‑purchase (PTP), email campaigns and website issue detection. When two different customers visit a bank’s website, the bank can use analytics to detect and measure each user’s navigation for probable interest and intent for new products based on time on page, depth of navigation and frequency signals within a given timeframe. If one person visits a general product page and only stays for 15 seconds, that person has a lower PTP than the other visitor who navigates to specific product and pricing information and remains there for 40 seconds.

The bank can route probable leads to either human‑based or automated engagement plans, based on aggregated data, segmentation, product intent, and in the case of an existing customer, current products owned.

A recent college graduate may be interested in debt management solutions, whereas a more-established empty nester may be in the market for wealth management and retirement planning. Based on user preferences and opportunity cost, these customers can be properly engaged with offers, education and helpful tools through email campaigns, texts, third‑party marketing or branch or contact center personnel.

In today’s banking environment, financial institutions must find new ways to increase efficiency, improve business processes and scale to consumer volume. Analytics support financial institutions in forecasting, risk management and sales by providing data points that help them increase performance, predict outcomes and better solve business issues.

Enhancing Risk & Compliance

Financial institutions increasingly seek to use technology to efficiently and effectively mitigate risk and comply with regulations. Bank leaders will need the right solutions to meet these objectives, given the amount of data to make sense of as organizations include risk as part of their decision-making process. Microsoft’s Sandeep Mangaraj explains how banks should explore these issues with Emily McCormick, Bank Director’s vice president of research. They discuss:
  • How Risk Management is Evolving
  • Adopting AI Solutions
  • Planning for the Future

Scaling Quality Customer Service in the Pandemic Era

Since February 2020, the pandemic has reshaped everyone’s daily reality, creating a perfect storm of financial challenges.

In early March 2020, the economy was thriving. Six weeks later, over 30 million U.S. workers had filed for unemployment. The pandemic has exacerbated alreadycrushing consumer debt loads. At the end of the first quarter, nearly 11% of the $1.54 trillion student loan debt was over 90 days past due. Emergency lending programs like the Small Business Administration’s Paycheck Protection Program have not been renewed.  

Guiding consumers, especially millennials and Gen Z, to financial wellness is critical to the future of financial institutions. These demographics bring long-term value to banks, given their combined spending power of over $3 trillion.

But the banking support system is straining under incredible demand from millions of consumers, and it feels broken for many. Consumers are scrambling for help from their banks; their banks are failing them. With hold times ranging from 20 minutes to three hours, compared with an average of 41 seconds in normal times, customers are having an increasingly aggravating experience. And website content isn’t helping either. Often too generic or laced with confusing jargon like “forbearance,” customers can’t get advice that is relevant to their unique situation and  make good financial choices.

All this comes at a time of restricted branch access. Gone are the days when customers could easily walk into their local branch for product advice. Afraid of coronavirus exposure, most consumers have gone digital. Moreover, many branches are closed, reduced hours or use appointments due to the pandemic. No wonder digital has become an urgent imperative.

How can community banks scale high-quality service and advice cost-effectively in the pandemic era and beyond? The answer lies in a new breed of technology, pioneered by digital engagement automation, powered by artificial intelligence and knowledge. Here is what you can do with it.

Deliver smarter digital services. AI-automated digital self-service enables banks to deliver service to more customers, while lowering costs. For example, next-gen chatbots are often just as effective as human assistance for solving a broad range of basic banking queries, such as bill payments, money transfers and disputed charges. The average cost per agent call could be as high as $35; an AI-powered chatbot session costs only a few pennies, according to industry analysts.

Provide instant access to help. The next generation of chatbots go beyond “meet and greet” and can solve customer issues through AI and knowledge-guided conversations. This capability takes more load off the contact center. Chatbots can walk customers through a dialog to best understand their situation and deliver the most relevant guidance and financial health tips. Where needed, they transition the conversation to human agents with all the context, captured from the self-service conversation for a seamless experience.

Satisfy digital natives. Enhancing digital services is also critical to attracting and keeping younger, digital-native customers. Millennials and Gen Z prefer to use digital touchpoints for service. But in the pandemic era, older consumers have also jumped on the bandwagon due to contact risk.

Many of blue-chip companies have scaled customer service and engagement effectively with digital engagement automation. A leading financial services company implemented our virtual assistant chatbot, which answers customer questions while looking for opportunities to sell premium advice, offered by human advisors. These advisors use our chat and co-browse solution to answer customer questions and help them fill forms collaboratively. The chatbot successfully resolved over 50% of incoming service queries.

The client then deployed the capability for their IT helpdesk, where it resolved 81% of the inquiries. Since then the client has rolled out additional domain-specific virtual assistants for other functional groups. Together, these virtual assistants processed over 2 million interactions in the last 12 months.

The economic road ahead will be rocky, and financial institutions cannot afford to lose customers. Digital engagement automation with AI and knowledge can help scale up customer service without sacrificing quality. So why not get going?

When All The Examiners Left

What would happen if all the bank examiners left?

In 1983, the ninth district of the Federal Home Loan Bank lost almost all of its examiners when the office hastily relocated from Little Rock, Arkansas, to Dallas. The move was the culmination of a campaign from congressional and business efforts beginning in the 1950s, the efforts of which had previously been staved off by Arkansas’ representatives.

In response, 37 of 48 employees in the department of supervision chose not to relocate and left, according to Washington Post archival articles; the remaining 11 were mostly low-level administrators. The two remaining field agents split monitoring almost 500 savings and loans across a 550,000 square-mile area.

The move was capricious, political, expensive and, ultimately, disastrous.

The result was a rare natural experiment that explores the importance that bank supervision plays in regulation and enforcement, according to a recent fascinating paper published by Federal Reserve Bank economists John Kandrac and Bernd Schlusche.

The situation became so bad that the Federal Home Loan Bank Board in Washington implemented a supervision blitz in 1986, sending 250 supervisory and examination staffers from across the country to conduct intensive exams in the region. The number of exams conducted during the six weeks was more than three times the number performed in 1985; for many institutions, it was their first comprehensive exam in two or three years.

Here are several takeaways from the paper.

Major Setback to Supervision
The dramatic loss of expertise within the supervision division plagued the FHLB’s ninth district for at least two years. Even though Dallas is the region’s financial capital, it would take years to tutor supervision trainees to the level of the departed senior examiners. The other option the bank had was trying to poach examiners from another region or agency, which creates deficiencies of its own.

When the Cat’s Away, the Mice Will Play
The paper finds that less intensive supervision and less frequent supervision comes with some risk to the stability of institutions.

Unsupervised thrifts increased their risk-taking behaviors and appetites compared to both thrifts outside the region receiving regular examinations and commercial banks in the region. They grew “much more rapidly” by entering newly deregulated and riskier lending spaces, funded the growth with funds like brokered deposits and “readily engaged in accounting gimmicks to inflate their reported capital ratios.”

“[A]ffected institutions increased their risky real estate investments as a share of assets by about 7 percentage points. The size of the treatment effect is economically large,” the paper finds, adding later: “Our results are consistent with the hypothesis that risk taking is a function of supervisory attention.”

Some of this risk-taking led to insolvency. The paper found that the lack of supervision activity led to about 24 additional failures, which cost the insurance fund about $5.4 billion — over $10 billion in 2018 dollars.

Someone Needs to Enforce the Rules
Rules alone were insufficient for these institutions to manage their risk. The paper stresses the role that examiners play in effective enforcement of regulation — an issue that has taken on renewed relevancy given both a lengthening of the examination cycle to 18 months for some community banks and the changes in in-person visits due to the coronavirus pandemic.

Bank supervisors have many tools — formal and informal — by which they can influence a bank’s behavior. The paper notes how regular interactions and conversations, coupled with power of bank regulation itself, seem to be more effective at curbing or correcting risky behavior at banks than self-regulation alone. The six-week supervision blitz in 1986 led to a 76% increase in enforcement actions compared to the year prior, as well as management replacement actions, liquidation requests and 500 criminal referrals to the Department of Justice.

“[S]upervision and examination matter even for what many considered to be the most ineffectual supervisor in the United States. Therefore, even if the importance of supervision has diminished over time on average, we should still expect modern supervisors to meaningfully limit bank risk taking,” the paper reads.

Four Digital Lessons from the Pandemic

2020, so far, is the year of digital interactions.

Without the ability to interact in the physical world, digital channels became the focal point of contact for everyone. Industries like retail and restaurants experienced a surge in the use of digital services like Instacart, DoorDash and others.

This trend is the same for banks and their customers. In a survey conducted by Aite Group, 63% of U.S. consumers log into financial accounts on a desktop or laptop computer to check accounts at least once a week, while 61% use a smartphone.

The coronavirus pandemic has certainly accelerated the move to the digital channel, as well. In a Fidelity National Information Services (FIS) survey, 45% of respondents report changing the way they interacted with their financial institution because of the pandemic. The increased adoption of the digital channel is here to stay: 30% of respondents from the same survey noting they plan to continue using online and mobile banking channels moving forward.

The same is true for payments. FIS finds that consumers are flocking to mobile wallets and contactless payment to minimize virus risks, with 45% reporting using a mobile wallet and 31% planning to continue using the payment method post-pandemic.

This pandemic-induced shift in consumer preferences provides a few important lessons:

1. Experience Matters
Customers’ experiences in other industries will inform what they come to expect from their bank. Marketing guru Warren Tomlin once said, “a person’s last experience is their new expectation.” No matter where it came from, a great digital experience sets the standard for all others.

Banks should look to other industries to see what solutions can offer a great customer experience in your online and mobile banking channels. Customers’ service experiences with companies like Amazon.com’s set the bar for how they expect to interact with you. Their experience making payments with tools from PayPal Holdings, like Venmo, may inform their impression of how to make payments through the bank.

2. Personalization is Key
Providing a personalized experience for customers is key to the success of your bank, both now and in the future. Your bank’s online and mobile tools must generate a personalized experience for each customer. This makes them feel valued and well served — regardless of whether they are inside a branch or transacting through a mobile app.

Technologies like artificial intelligence can learn each customer’s unique habits and anticipate specific needs they might have. In payments, this might look like learning bill pay habits and helping customers manage those funds wisely. AI can even make recommendations on how users can ensure they have enough funds to cover the month’s bills or save anything they have left over.

AI is also able to look at customer data and anticipate any services they might need next, like mortgages, car loans or saving accounts. It brings the personal banker experience to customers in the digital world.

3. Weave the Branch Into the Digital
The ability to interweave the personalized, in-branch experience into the digital world is crucial. There are positives and negatives in both the branch and digital channels. The challenge for banks is to take the best of both worlds and provide customers with an experience that shines.

Customers want to know that someone is looking out for them, whether they can see that person or not. A digital assistant keeps customers engaged with the bank and provides the peace of mind that, whether they are in the branch or 100 miles away, there is always someone looking out for their financial well-being.

4. Embrace the “Now” Normal
To state that the Covid-19 pandemic changed the world would be a big understatement. It has disrupted what we thought was “business as usual,” and irrevocably changed the future.

The “new normal” changes day by day, so much that we choose to more accurately refer to it as the “now normal.” The increased dependency on digital has made it critical to have the right infrastructure in place . You truly never know what is coming down the line.

Customers enjoy the ease of digital and, more than likely, will not go “back to normal” when it comes to banking and payments. Now, more than ever, is the time to examine the digital experiences that your bank offers to further ensure its prepared for this endless paradigm shift that is the “now normal.”

A Costly Problem Facing Banks

Bill pay is a central tool in digital banking suites — but most customers aren’t actively using it.

It’s counterintuitive: Banks play a central role in our financial lives, yet most consumers opt to pay billers directly, according to “How Americans Pay Their Bills: Sizing Bill Pay Channels and Methods,” a survey conducted by Aite Group. The online survey of more than 3,000 U.S. consumers was commissioned by the bill-pay platform BillGO.

Almost 60% of bills are paid online, according to the survey, which finds that the percentage of online bill payments paid directly via a biller’s website — already accounting for the vast majority — increased by 14 points since 2010. In that same time period, banks’ share declined by 16 points as third-party entrants entered the space.

The result is chaos for consumers seeking to pay their bills on time and a missed opportunity for their banks.

[For] many financial institutions, bill pay has been a fairly strategic component of the consumer relationship,” says David Albertazzi, Aite’s research director in the retail banking and payments practice. Along with automated loan payments and direct deposits, bill pay is viewed as a core element of the primary financial relationship.

There’s also the real cost associated with this problem: One bank recently shared with Bank Director that it built a bot just to deregister inactive bill-pay users sitting on its core system.

Bank Director’s 2020 Technology Survey finds that improving the customer experience is a top technology objective. Albertazzi says that bill pay should be part of that strategic consideration — and the experience needs to improve. Dramatically.

“The actual model and the experience have not changed for many years,” he says. “Today, it’s pretty prone to friction.” Payees must be added manually by the customer, and there’s a risk of mis-keying that information. Customers can’t choose how to pay, beyond their primary checking account. They aren’t notified by the bank when the bill is due. The payments lack information and context, and they don’t occur in real time.

These barriers limit the experience, driving more than three-quarters of the Americans who pay bills online to just go directly to their biller’s website.

Financial institutions need to shift from a transactional to a customer-centric mindset, says Albertazzi. “Once financial institutions do that, then there’s a great opportunity to recapture market share,” he says.

Banks should also consider how they can change customer behavior. Just a third of bills are scheduled to be paid on a recurring basis, according to survey respondents, which points to another gap where banks lose a bill-pay user, according to Albertazzi. Encouraging customers to enroll in automatic payments means they’re more likely to keep using their bank’s bill-pay capabilities.

Most customers trust their bank, but poor experiences have driven consumers to a decentralized model that benefits no one. With the massive adoption of digital channels that accompanied Covid-19, banks have a chance to change consumer behaviors.

“Providing that convenience to the consumer, the transparency in the process and addressing efficiencies to the entire consumer bill-pay experience will help drive change in consumer bill payment behavior over time,” says Albertazzi.

Scaling Customer Acquisition Through Digital Account Openings

A strong digital account opening strategy, when done correctly, can generate returns on investment that are both obvious and large.

Critical to this strategy, however, is to have a granular and holistic understanding of customer acquisition cost, or CAC. Customer acquisition cost is a broad topic and is usually composed of multiple channels. Digital account opening is a tool used to acquire customers, and therefore should be included in your financial institution’s CAC. ‍It may even be able to reduce your current CAC.

Financial institutions define CAC differently, and there is no limit to its granularity. We advise financial institutions to separate user acquisition cost into two buckets: digital CAC and physical CAC. This piece will focus on digital CAC.

With respect to digital CAC, there are a number of inputs that can include:

  • The digital account opening platform;
  • social media advertising spend;
  • print ad spend (mailers, billboards);
  • general ad spend (commercials, radio);
  • retargeting ad spend (i.e. Adroll); and
  • creative costs.

Optionally, a financial institution can also include the salaries and bonuses of employees directly responsible for growth, any overhead related to employees directly responsible for growth and even physical CAC, if this is less than 20% of overall CAC spend.

How Does Digital Account Opening Reduce CAC?
Digital account opening platforms are actually intended to lower your customer acquisition costs. Initially, this might sound counterintuitive: how would installing a digital account platform, which is an additional cost, reduce CAC over the long run?

The answer is scale.

For example, let’s say your financial institution spends $1 million on marketing and gains 10,000 new customers. This results in a CAC of $100 per customer. Compare that to spending $1.2 million on marketing that includes digital account opening. Providing the ability for customers to easily open accounts through online, mobile and tablet channels results in 15,000 customers, dropping your CAC to $80. In this example, implementing a fast and easy way for customers to open accounts reduced CAC by 20% and increased the return on existing marketing spend.‍

Once you have a successful marketing machine that includes strong digital account opening, you will want to scale quickly. Marketing spend decisions should be driven by quantitative metrics. You should be able to confidently expect that if it increases marketing spend by $X, you will see a Y increase in new accounts and a Z increase in new deposits.

The only additional costs your financial institution incurs for account opening are per application costs — which tend to be nominal inputs to the overall CAC calculation. ‍

What is a Good CAC for a Financial Institution?‍
CAC has so many variables and broad-definitions that it is nearly impossible to tell financial institutions what is “good” and what is “bad.” Across CAC industry benchmarks, financial services has one of the highest costs to acquire new customers:

Technology (Software): $395

Telecom: $315‍

Banking/Insurance: $303

‍Real Estate: $213

Technology (Hardware): $182

Financial: $175

Marketing Agency: $141

Transportation: $98

Manufacturing: $83

Consumer Goods: $22

Retail: $10

Travel: $7‍ ‍‍

Customer acquisition cost and digital account opening go hand-in-hand. Financial institutions should focus on the output of any marketing spend, as opposed to the input cost. Different marketing strategies will have varied levels of scalability. It’s important to invest in strategies that can scale exponentially and cost-effectively. By focusing on these principles, your financial institution will quickly realize a path towards industry-leading growth and profit metrics, putting your financial institution ahead of the competition.

A Pandemic-Proof Process Transformation Game Plan

Initiatives without execution are dreams that never become plans.

At MX, we’re helping banks use financial data to improve the financial lives of more than 30 million people. Banks need a secure foundation to build on at a time when profits have stalled, laying the groundwork for ways to increase revenue, offset losses and impact to your bottom line.

To get a better understanding of what financial institutions are focusing on, we recently surveyed more than 400 financial institution clients for their top initiatives this year and beyond. We believe these priorities will gain even more importance across the industry. The top five initiatives are:

  1. Enabling Emerging Technologies, Continued Innovation
  2. Improving Analytics, Insights
  3. Increasing Customer Engagement
  4. Leveraging Open Banking, API Partnerships
  5. Strategically Growing Customer Acquisition, Accounts

But identifying the initiatives to prioritize is merely the first step. Banks need to align their top initiatives throughout their organization to lay down the project’s foundation. Sustainable transformation is not accomplished by simply plugging in a new technology or process. True transformation requires a shift in the way the organization operates day to day. Without a commitment to changing the way you do business your efforts will be stunted and you will not achieve the outcomes promised in the initial business case.

The first thing banks need to do is ensure that their organizational goals translate top down, from executive leadership through department levels, all the way to individual contributors. If certain priorities don’t align from top to bottom, it’s important to address these outliers right away to ensure everyone is moving ahead in the same direction.

Banks will also want to make sure they’re effectively tracking their performance against the company strategy and organizational vision through Objectives and Key Results (OKRs) and department metrics. Look at the top initiatives in the industry and see how they align within your bank’s own organizational goals.

This practice might reveal that that not all initiatives work together. Three critical questions to ask during this process are: Are we focused on understanding and solving the needs of our customers? How do we shift priorities to align with where we should be going as an organization? Where is overlap or conflict of priorities between all stakeholders?

Here’s a brief overview of how banks can create a game plan to guide their process transformation:

1. Align OKRs With Vision
Break down your bank’s vision into objectives. This can be anything from helping employees develop the right skills to acquiring the right technologies and so on. From there, break those objectives down into quarterly Objectives and Key Results and translate them across each department and individual employee.

2. Specify Metrics
Ensure your bank has the right metrics in place for measuring your OKRs. The more clarity your bank can get around what you’re measuring and why, the easier it will be to understand if your efforts’ progress and success.

3. Find Champions
Identifying champions within your organization is a great way to move things forward. These critical stakeholders will be just as motivated as you to get certain things done. If you’re considering new technologies or new programs, work with them to translate the need and opportunity to the executive suite.

4. Identify Trusted Partners 
Now’s the time to lean on trusted partners for support. Your customers are actively looking to you for alternative digital solutions to manage their money. Instead of going at it alone and trying to build everything in-house, it may be faster to partner with financial technology firms and other third parties that can get your products to market more efficiently.  

At MX, we’re working closely with our partners and clients to ensure they have the tools they need to optimize their digital experiences and complete their top initiatives, even in these challenging times. Banks must create comprehensive strategies around their digital channels and offerings, so they can continue to lead during uncertainty and change. This is a valuable opportunity for all of us to be better to one another and to the communities we serve.

Five Digital Banking Initiatives for Second Half of 2020

As the calendar nears the midpoint of 2020 and banks continue adjusting to a new normal, it’s more important than ever to keep pace with planned initiatives.

To get a better understanding of what financial institutions are focusing on, MX surveyed more than 400 financial institution clients for their top initiatives this year and beyond. We believe these priorities will gain even more importance across the industry.

1. Enabling Emerging Technologies, Continued Innovation
Nearly 20% of clients see digital and mobile as their top initiatives for the coming years. Digital and mobile initiatives can help banks limit the traffic into physical locations, as well as reduce volume to your call centers. Your employees can focus on more complex cases or on better alternatives for customers.

Data-led digital experiences allow you to promote attractive interest rates, keep customers informed about upcoming payments and empower them to budget and track expenses in simple and intuitive ways. 

2. Improving Analytics, Insights
Knowing how to leverage data to make smarter business decisions is a key focus for financial institutions; 22% of our clients say this is the top initiative for them this year. There are endless ways to leverage data to serve customers better and become a more strategic organization.

Data insights can indicate customers in industries that are at risk of job loss or layoffs or the concentration of customers who are already in financial crisis or will be if their income stops, using key income, spending and savings ratios. Foreseeing who might be at risk financially can help you be proactive in offering solutions to minimize the long-term impact for both your customers and your institution.

3. Increasing Customer Engagement
Improving and increasing customer engagement is a top priority for 14% of our clients. Financial institutions are well positioned to become advocates for their customers by helping them with the right tools and technologies.

Transaction analytics is one foundational tool for understanding customer behavior and patterns. The insights derived from transactions and customer data can show customers how they can reduce unnecessary spending through personal financial management and expert guidance.

But it’s crucial to offer a great user experience in all your customer-facing tools and technologies. Consumers have become savvier in the way they use and interact with digital channels and apps and expect that experience from your organization. Intuitive, simple, and functional applications could be the difference between your customers choosing your financial institution or switching to a different provider.

4. Leveraging Open Banking, API Partnerships
Open banking and application programming interfaces, or APIs, are fast becoming a new norm in financial services. The future of banking may very well depend on it. Our findings show that 15% of clients are considering these types of solutions as their main initiative this year. Third-party relationships can help financial institutions go to market faster with innovative technologies, can strengthen the customer experience and compete more effectively with big banks and challengers.

Financial institutions can leverage third parties for their agile approach and rapid innovation, allowing them to allocate resources more strategically, expand lines of business, and reduce errors in production. These new innovations will help your financial institution compete more effectively and gives customers better, smarter and more advanced tools to manage their financial lives.

But not all partnerships are created equally. The Office of the Comptroller of the Currency recently released changes surrounding third-party relationships, security and use of customers’ data, requiring financial institutions to provide third-party traffic reports of companies that scrape data. Right now, the vast majority of institutions only have scrape-based connections as the means for customers to give access to their data — another reason why financial institutions should be selective and strategic with third-party providers.

5. Strategically Growing Customer Acquisition, Accounts
As banking continues to transform, so will the need to adapt including the way we grow. Nearly 30% of our clients see this as a primary goal for 2020 and beyond. Growth is a foundational part of success for every organization. And financial institutions generally have relied on the same model for growth: customer acquisitions, increasing accounts and deposits and loan origination. However, the methods to accomplish these growth strategies are changing, and they’re changing fast.

Right now, we’re being faced with one of the hardest times in recent history. The pandemic has fundamentally changed how we do business, halting our day-to-day lives. As we continue to navigate this new environment, financial institutions should lean on strategic partnerships to help fill gaps to facilitate greater focus on their customers.

Helping Customers When They Need It Most

Orvin Kimbrough intimately understands the struggles shared by low-to-moderate income consumers. Raised in low-income communities and the foster care system, he also worked at the United Way of Greater St. Louis for over a decade before joining $2.1 billion Midwest BankCentre as CEO in January 2019. “[Poverty costs] more for working people,” he says. “It’s not just the financial cost; it’s the psychological cost of signing over … the one family asset you have to the pawn shop.”

His experiences led him to challenge his team to develop a payday loan alternative that wouldn’t trap people in a never-ending debt cycle. The interest rate ranges from 18.99% to 24.99%, based on the term, amount borrowed (from $100 to $1,000) and the applicant’s credit score. Rates for a payday loan, by comparison, range in the triple digits.

The application process isn’t overly high-tech, as applicants can apply online or over the phone. The St. Louis-based bank examines the customer’s credit score and income in making the loan decision; those with a credit score below 620 must enroll in a financial education class provided by the bank.

Industry research consistently finds that many Americans don’t have money saved for an emergency — a health crisis or home repair, for example. When these small personal crises occur, cash-strapped consumers have limited options. Few banks offer small-dollar loans, dissuaded by profitability and regulatory constraints following the 2008-09 financial crisis.

If the current recession deepens, more consumers could be looking for payday loan alternatives. Regulators recently encouraged financial institutions to offer these products, issuing interagency small-dollar lending principles in May that emphasize consumers’ ability to repay. 

Everybody needs to belong to a financial institution if you’re going to be financially healthy and achieve your financial aspirations,” says Ben Morales, CEO of QCash Financial, a lending platform that helps financial institutions automate the underwriting process for small-dollar loans.

QCash connects to a bank’s core systems to automate the lending process, using data-driven models to efficiently deliver small-dollar loans. The whole process takes “six clicks and 60 seconds, and nobody has to touch it,” Morales says. QCash uses the bank’s customer data to predict ability to repay and incorporates numerous factors — including cash-flow data — into the predictive models it developed with data scientists. It doesn’t pull credit reports.

Credit bureau data doesn’t provide a full picture of the customer, says Kelly Thompson Cochran, deputy director of FinRegLab and a former regulator with the Consumer Financial Protection Bureau. Roughly a fifth of U.S. consumers lack credit history data, she says, which focuses on certain types of credit and expenses. The data is also a lagging indicator since it’s focused on the customer’s financial history.

In contrast, cash flow data can provide tremendous value to the underwriting process. “A transaction account is giving you both a sense of inflows and outflows, and the full spectrum of the kind of recurring expenses that a consumer has,” says Cochran.

U.S. Bancorp blends cash flow data with the applicant’s credit score to underwrite its “Simple Loan” — the only small-dollar loan offered by a major U.S. bank. The entire process occurs through the bank’s online or mobile channels, and takes just seven minutes, according to Mike Shepard, U.S. Bank’s senior vice president, consumer lending product and risk strategy. Applicants need to have a checking account with the bank for at least three months, with recurring deposits, so the bank can establish a relationship and understand the customer’s spending behavior.

“We know that our customers, at any point in time, could be facing short-term, cash-flow liquidity challenges,” says Shepard. U.S. Bank wanted to create a product that was simple to understand, with a clear pricing structure and guidelines. Customers can borrow in $100 increments, from $100 to $1,000, and pay a $6 fee for every $100 borrowed. U.S. Bank lowered the fee in March to better assist customers impacted by the pandemic; prior to that the fee ranged from $12 to $15.

Since the loan is a digital product, it’s convenient for the customer and efficient for the bank.

Ultimately, the Simple Loan places U.S. Bank at the center of its customers’ financial lives, says Shepard. By offering a responsible, transparent solution, customers “have a greater perception of U.S. Bank as a result of the fact that we were able to help them out in that time of need.”