6 Tactics to Win Customer Engagement

One topic that’s commonly discussed in financial institution boardrooms is how to serve customers and meet their expectations. This topic is especially pertinent now that consumer expectations are at an all-time high.

Bank consumers want delightful, simple customer experiences like the ones they get from companies like Uber Technologies and Airbnb, and they’re more than willing to walk away from experiences that disappoint. As a result, financial institutions are under immense pressure to engage and retain customers and their deposits. Bankers cannot afford to stand idly by and watch a generation of customers increasingly lean on fintechs for all their financial needs.

Fortunately, your financial institution can take action to win the battle for customer engagement — some are already doing so with initial successes. Incumbents like Bank of America Corp. use financial assistants powered by artificial intelligence to assist customers, and fintechs such as Digit offer an auto savings algorithm to help people meet their financial goals. These efforts and features bring the disparate components of a consumer’s financial life together through:

  • An intense focus on the user experience.
  • Highly personalized experiences.
  • “Do it for me” intelligent features.
  • The right communications at the right time.
  • Intuitively-built and highly engaging user interfaces.

How can your bank offer experiences like these? It comes down to equipping your financial institution with the right set of data and tools.

1. Data Acquisition: Data acquisition is the foundation of customer experience.
The best tools are based on accurate and comprehensive data. The key here is that your bank needs to acquire data sourced not only from your institution, but to also allow customers to aggregate their data into your experience. The result is that you and your customers can see a full financial picture.

2. Data Enrichment: Use data science to make sense of unstructured data.
Once your bank has this data, it’s critical that your institution deploys an enrichment strategy. Advanced data science tactics can make sense of unstructured and unrecognizable transaction data, without needing to add data scientists to bank staff. Transforming these small and seemingly unimportant bits of the user experience can have a huge overall effect.

3. Data Intelligence: Create personalized and timely user experiences from the data.
By consistently looking at transactional data, data intelligence tools can identify different patterns and deliver timely, unique observations and actionable insights to help consumers improve their financial wellbeing. These are the small, but highly personalized user experiences that fintechs have become known for.

4. Data Productization: Provide a user interface with advanced pre-built features.
One of the most difficult things for a bank to pull off is data productization. The right tooling and advanced, pre-built features allow banks to unite data and analysis and encapsulate it into intuitively designed digital experiences. This way, consumers can engage naturally with your bank and receive relevant, personalized products and services they need from you. Digital notifications can be part of your strategy, and many customers opt in to receive them; case in point is that 90% of the customers using a Goals-Based Savings application from Envestnet opt into notifications.

5. AI Automation: Utilize AI to enhance self-service capability.
Wouldn’t it be nice if you could ask someone to cancel a check at anytime? Or type in a question and get the answer on the spot? Tools like AI-powered virtual assistants with an automation layer make it simple for consumers to do all this and more, wherever they are. Financial institutions using the Virtual Financial Assistant from Envestnet have automated up to 87% of contact center requests with a finance domain-specific AI.

6. Trusted Partners: Leverage partner to compete.
Competing with fintechs often means, “If you can’t beat ‘em, join ‘em.” But leveraging trusted partners is a tried and true strategy. Your bank’s partner could be a traditional financial institution you’ve pooled assets with to create and embed financial technology deep into your experience. It could be a fintech focused on business-to-business capabilities. Or it could be a partner offering world-class data aggregation as well as analytics and innovative tools to enhance your customer experience.

Fintechs have done a phenomenal job at connecting the disjointed components of consumers’ financial lives through amazing customer experiences. Your financial institution can do the same. By using the right data and tools and partnering up, your bank can deliver the personalized experiences consumers expect, delight and empower them to take control of their finances and future.

Crafting a Modern Customer Service Strategy

Customers increasingly demand immediacy and accountability in their service interactions, whether that means ordering a pair of shoes from Amazon.com or a pizza from Domino’s Pizza.

Financial institutions are not immune to this standard; as customer expectations evolve, so too must banks’ approach to customer service. To retain relevance and customer loyalty, bank executives must prioritize the digitalization and personalization of customer service. If institutions are not working towards this transformation, they’re already behind.

Leveraging capabilities like digital customer service can enhance the customer and employee experience while diminishing the risk of complacency — strengthening a bank’s overall competitive position.

Many banks still employ a phone-centric approach to customer support, which can be inefficient and cumbersome for all involved. Even though bank transactions are frequently initiated or occur on digital devices, customers are often required to dial into a contact center when they encounter issues or have questions. Recent research from Bankmycell found 81% of millennials experience anxiety when making a phone call. But this dislike for phone calls isn’t unique to younger generations; a study by Provision Living found that baby boomers made even fewer phone calls than millennials do on their smartphones.

The customer service bar is set by the likes of Apple, Netflix and Meta Platform’s Facebook: companies that facilitate seamless, uninterrupted interactions with as little friction as possible. It’s time for bankers to be able to meet customers in the digital domain and empower them with choice on how to communicate, whether it’s through chat, video or voice. Such an approach boosts the customer experience and fosters long-term loyalty.

Digital customer service can improve the employee experience as well. The customer service agent role has traditionally been one of low satisfaction and high churn, which is especially concerning as the country continues to experience the Great Resignation. Digital customer service allows frontline agents to join a digital interaction in progress on the customer’s own screen, eliminating the risk of miscommunication and expediting resolution time. Such technology even allows agents to guide customers in how to solve the issue themselves next time. As a result, agents shift from customer care representatives to become a teacher or coach, instilling confidence in users to solve future issues through digital self-service. Digitalized customer service and a seamless on-screen experience allows agents to complete tasks with greater speed and efficiency — while making the role itself more enjoyable and fulfilling.

Complacency is both a common barrier and a looming threat for bank executives; many keep legacy processes and strategies in place because of comfort and fear of change. But the failure to innovate can be a death knell for banks when it comes to keeping up with competitors. And technology continues to shorten the innovation cycle — making complacency that much more dangerous.

Financial institutions are at the vanguard of innovation in the consumer-driven market; experiences are the key differentiator. Customer service, and how customer-facing employees work, are experiencing dramatic digital transformation. As a result, financial institutions must examine, reconsider and frequently adapt to new technologies as they emerge.

The banks that recognize the urgency of modernizing customer service and act accordingly will benefit from a competitive advantage for years to come. Those that fail to act risk falling behind competitors and face significant customer attrition.

5 Ways Banks Can Keep Up With Consumer’s Digital Demands

As technology progresses, more financial institutions will face scrutiny from consumers seeking features powered by advanced digital banking platforms.

Consumers are actively searching for banks that value them by giving them remote, customized experiences. Many banks have seen record growth in digital banking usage in recent years, according to a Deloitte Insights report. While this might create a challenge to many financial institutions, it can also be an opportunity to further build relationships with consumers. Below are five things banks should do to proactively respond to customers’ digital needs in their next stage of growth.

1. Analyze Consumer Data
Gaining real-time insights from consumer data is one way banks can start improving customer experiences. Analyzing data allows banks to see how, when and where consumers are spending their money. This data is a gold mine for creating custom approaches for individuals or recommending products that a consumer could benefit from. This electronic trail of customer information can ultimately lead to more personalized financial strategies, better security features and more accurate insights as to what digital banking features will be needed in the future.

2. Humanize The Digital Experience
Financial Institutions are being given a chance to humanize their digital banking platforms. Banks can build and strengthen relationships with their consumers by customizing their mobile experience — right down to the individual. Listening to feedback and valuing a customer’s experiences can create productive and useful relationships. It is important to take a customer-centric approach, whether in-person or through digital platforms. Financial institutions can use consumer purchase history to create custom reward offerings — like 10% off at their favorite coffee shop or rewards on every purchase — that lay the foundation for a bespoke, valuable experience.

3. Understand Digital Trends
According to Forbes, 95% of executives say they are looking for new ways to engage their customers. Financial institutions that remain complacent and tied to their legacy systems can expect to fall behind their competitors if they do not keep up with advancing digital trends. Consumers increasingly shop around and compare account offerings and benefits; they are choosing customizable, digital solutions. Banks that don’t, or refuse to, keep up with digital trends will lose these relationships. As technology expands, so do the needs of consumers —it is up to banks to keep up with those needs.

4. Utilize Advance Card Features
Technology’s rapid advancement means that the digital features that banks can take advantage of have also advanced. Consumers want features that correspond with their everyday financial management strategies and spending. Virtual cards with state-of-the-art security features are just one of the many digital solutions available to banks. Adjustable settings, like the ability to block and unblock merchants, create family hubs, set spending limits for individuals and family members, are just a few of the ways that banks can differentiate their card programs.

5. Keep Evolving
Many banks use legacy systems that are outdated, expensive and difficult to uproot. This technology strategy holds them back from being on a level playing field with their competitors. However, partnering with fintechs that can integrate with their current systems is one way that banks can keep up with digital trends — without the upfront cost of installing an entirely new system.

According to a FICO study, 70% of U.S. bank customers report that they would be “likely” or “very likely” to open an account at a competing provider if that provider offered services that addressed their unmet needs. Today, consumers do not just prefer digital banking: They expect it. Banks that cannot provide their consumers with customizable digital options are at a disadvantage.

Why Embedded Finance Is the Next Area of Digital Revolution

The four decades after the internet made information readily accessible has led to inventions and innovations like smart devices, mobile apps and the ability to be constantly connected. Today, companies are focusing on harnessing technology to build smoother, richer and deeper customer experiences.

As the information age evolves to the experience age, the next digital revolution will be embedded finance. Embedded finance enables any brand, business or merchant to rapidly, and at a low cost, integrate innovative financial services into new propositions and customer experiences. Embedded finance is driven by consumers’ desire for more convenient and frictionless financial services. Several use cases that underline the demand for embedded financial experiences include:

  • Billing payments as part of the experience. Businesses are already using payment options, like buy now, pay later, to differentiate their offering, increase sales and empower buyers at checkout.
  • Growing popularity of Point-of-Sale financing. The volume of installment-based, flexible payment and instant credit options has increased significantly in the past five years, indicating a desire for instant access to short-term borrowing.
  • Mainstreaming of digital wallets. As more people use their mobile phones to purchase products and services, it makes sense that consumers want to access other financial services seamlessly within apps.

There is potential for embedded finance in almost every sector; in the U.S. alone, embedded finance is expected to see a tenfold revenue increase over the next five years. Financial institutions are in a position to provide branded or white-label products that non-banks can use to “embed” financial services for their customers. Banks must evolve rapidly to take advantage of this new market opportunity.

The front-runners will be institutions that can offer digital real-time payments or instant credit with minimal friction and optimum convenience to customers. But providing this requires new core technologies, cloud capabilities and flexible application programming interfaces, or APIs and other infrastructure to support new business models. Banks will also have to become much more collaborative, working closely with fintechs that may own or intermediate the customer relationship.

Embedded finance allows nonbank businesses to offer their customers additional financial services at the point of decision. Customers can seamlessly pay, redeem, finance or insure their purchase. This can look like buying, financing, and insuring a TV from a store’s shopping app, securing a mortgage through the estate agent’s website as part of a house purchase or obtaining health insurance from a fitness app. This does not mean that every retailer or e-commerce business will become a bank, but it does mean that many more will be equipped with the potential to offer more financial capabilities to customers as a way to compete, differentiate and engage more effectively.

In May 2021, Mambu surveyed 3,000 consumers and found the following:

  • 81% would be interested in purchasing health insurance via an app, and almost half of these would pay a small premium.
  • 60% would prefer to take out an education loan directly from their academic institution rather than a bank.
  • 86% would be interested in purchasing groceries from a cashier-less store.

How these capabilities are delivered and consumed is changing constantly. Consumers want to use intuitive and fast financial services via online and mobile banking channels. Digitalization and cloud services are reinventing back-office functions, automating and streamlining processes and decision-making. At the same time, legislation, open banking and APIs are driving new ecosystems. These changing markets and increased competition make it more difficult for banks to meet evolving customer demands, prevent churn and sustain growth.

We are living in the world of the continuous next. Customers expect financial service providers to anticipate and meet their requirements — sometimes even before they know what they want — and package those services in a highly contextual and personalized way. At the same time, new digital players are setting up camp in the bank space. Tech giants are inching ever closer to the banking market, putting bank relationships and revenue pools are at risk. On an absolute basis, this could cost the industry $3.7 trillion, according to our research.

Incumbent banks need to adopt a foundation oriented toward continuous innovation to keep pace with changing customer preferences. Embracing innovations such as embedded finance is one way that banks can unlock new opportunities and raise new revenue streams.

How Technology Blends Banking’s Future

After rapidly adjusting operations at the start of the pandemic and accelerating their digital transformation roadmaps, banks are left wondering: What happens next? And what did the acceleration mean for banks’ digital strategy?

Banks need to shift their mindsets from emergency response toward using digital technologies to boost their relevance to their customer’s lives. Blended banking will become the norm. Although Covid-19 will be with us for the foreseeable future, people have returned to shops, restaurants and theatres. Similarly, customers are returning to bank branches, but in lower volumes and for different reasons. The proliferation of digital banking means customers no longer need to visit a branch for a transaction. But many retail and business customers will still visit a branch to receive advice or to buy a financial product. And although most banking journeys start online, many are still completed in branch.

Banks must recognize this and provide a consistent customer experience across channels, with human support for digital interaction and digital tools that augment human interaction. In practice, this means empowering customers with an engaging digital experience that can continue in branch. Many banks already acknowledge this evolution: They are repurposing branches as advice centers, with less emphasis on over-the-counter transactions. In addition, banks can harness modern tech devices, like tablets, to support the in-person experience. But to truly elevate the customer experience and increase engagement, banks must also harness the power of data.

Advanced Analytics
For many banks, data and analytics have great untapped potential to drive the next wave of innovation to increase customer engagement. With a wealth of customer data at their disposal, banks can gain a deep understanding of customers behavior, goals and financial aspirations, and deliver personalized experiences in a way that was never before possible.

In practice, big life events have financial consequences — buying a car, getting married or having children — but the reality is that small transactions and spending habits can also provide valuable clues to a customer’s behavior. Careful use of data and analytics allows banks to help customers align their financial services closely with real-life events. They can also use data to help their customers gain a deeper understanding of their own financial standing, providing recommendations to optimize the use of cash. For example, a customer with surplus funds may be advised to pay down a mortgage or increase pension contributions rather the leave money on deposit.

Banks can also do more for commercial customers to evolve beyond transactional banking to helping them run their business more effectively. Once again, data and integration are key. Providing commercial customers with up-to-the-minute aggregated cash positions and forecasts gives them a deeper understanding of their cash use, liabilities and commitments. As banking becomes more open and connected, commercial banks can become the heart of an ecosystem with many participants. Banks must embrace modern technologies, boost automation and integration and ultimately adopt a fintech approach to finance.

A Fintech-First Approach to Finance
The pandemic has accelerated banking’s shift to a technology business. Banks that ignore this will be left behind. To attract and retain consumers and business customers, banks need to eliminate guesswork by harnessing technology and data and offering customers what they want, when they need it.

Banks have much to learn from big technology: Amazon.com generates around 35% of sales from recommendations, while 75% of what’s streamed on Netflix is because of its suggestion algorithm. In the digital age, consumers welcome recommendations, nudges and insights — and are usually happy for trusted suppliers to use their data to personalize their digital experience. Banks must adopt a more entrepreneurial approach to customer engagement.

Retail banking: For a long time, bankers have designed banking experiences based on customer journeys. Now is the time to support customer life journeys by proactively supporting customers throughout their entire lifecycle — from large, life-changing decisions as well as everyday spending and budgeting.

Commercial banking: Banks must acknowledge that millennials are more digital savvy and entrepreneurial than any previous generation. Many current retail customers will start businesses and become the commercial customers of tomorrow. Many will need financial advice, and all will need banking.

With fintechs and challenger banks growing in scope and number, now is the time for incumbent banks to act. The digital age is here to stay.

Breaking the Legacy Mindset

For banks, the status quo can often stymie innovation. Even if executives have the desire to try something new, their institution can be incumbered by entrenched legacy systems.

But taking a chance on something new can open up institutions to the possibility of achieving something bigger. The decision to choose a new path is usually very difficult; loyalty and security can feel hard coded in our DNA. But sometimes it comes to the point where you realize that the thing you are doing over and over is never going to produce a different, game-changing outcome.

The adage of “Nobody ever got fired for buying IBM” continues to ring true in many ways in the fintech space. It refers to the idea that making a safe bet never got anyone in trouble; choosing the industry’s standard company, product or service had little repercussions for the executives making the decisions — even if there were newer, cheaper or better options. It was safe, the company was reliable and little happened in the way of bucking the status quo.

The payments industry has a number of parallels from which we can draw. The electronic payment ecosystem is more than 40 years old; while there has been innovation, it has not been at the same pace as the rest of the technology industry. Some bankers may remember “knuckle busters” and the carbon paper of old. Although banking have since shed those physical devices, the core processing behind the electronic payments system largely remains the same.

These legacy systems mean the payments industry traditionally has had extremely high barriers to entry. This is due to a number of factors, including increasing risk and regulatory compliance needs, high capital investments, a technology environment that is difficult to penetrate and complex integration webs between multiple partners. This unique environment increases the stickiness of mature offerings and creates a complex set of products and long-standing relationships that make it difficult for new products or providers to break through.

The industry’s fragmentation is also a blessing and a curse. While fragmentation gives institutions and consumers choices in the market, it hinders new companies from emerging. This makes it challenging for companies to gain traction or disrupt existing solutions with new and creative ways to solve problems and address needs. Breaking into the market is still only step one. Convincing banks that you can simplify their processes and scale your solutions is an ongoing challenge that smaller fintechs must overcome to truly participate — and potentially disrupt — the industry. The combination of these factors fuels a deep resistance to change in the banking industry.

Fintechs aren’t legacy companies — and that is a good thing. Implementations don’t need to take months, they can be done in weeks. Customer service isn’t challenging when communication happens openly and quickly. Enhancements are affordable, and newer platforms offer nimbleness and openness.

In order to succeed, fintechs must find ways to innovate within the gray space. This could look like any number of things: taking advantage of mandates that create new opportunities, stretching systems and capability gaps to explore new norms, or venturing out into entirely uncharted territory. And banks do not have to fit into the same familiar patterns; changing one piece of the puzzle does not always have to be a massive undertaking.

What within your bank’s walls just “works”? What system or processes have been on autopilot that could chart a new path? What external services are your customers using that the bank could bring in-house if executives thought outside the box? Fintech can complement the bank, if you select the right partner that expands your ecosystem. Fintech can change user experiences — simplifying them to deliver a truly different outcome altogether.

Take a chance on fintech. It will be epic.

3 Ways to Drive Radical Efficiency in Business Lending

Community banks find themselves in a high-pressure lending environment, as businesses rebound from the depths of the pandemic and grapple with inflation levels that have not been seen for 40 years.

This economic landscape has created ample opportunity for growth among business lenders, but the rising demand for capital has also invited stiffer competition. In a crowded market, tech-savvy, radically efficient lenders — be they traditional financial institutions or alternative lenders — will outperform their counterparts to win more relationships in an increasingly digitizing industry. Banks can achieve this efficiency by modernizing three important areas of lending: Small Business Administration programs, small credits and self-service lending.

Enhancing SBA Lending
After successfully issuing Paycheck Protection Program loans, many financial institutions are considering offering other types of SBA loans to their business customers. Unfortunately, many balk at the risk associated with issuing government-backed loans and the overhead that goes along with them. But the right technology can create digital guardrails that help banks ensure that loans are documented correctly and that the collected data is accurate — ultimately reducing work by more than 75%.

When looking for tools that drive efficiency in SBA lending, bank executives should prioritize features like guided application experiences that enforce SBA policies, rules engines that recommend offers based on SBA eligibility and platforms that automatically generate execution-ready documents.

Small Credits Efficiencies
Most of the demand for small business loans are for credits under $100,000; more than half of such loans are originated by just five national lenders. The one thing all five of these lenders have in common is the ability to originate business loans online.

Loans that are less than $100,000 are customer acquisition opportunities for banks and can help grow small business portfolios. They’re also a key piece of creating long-term relationships that financial institutions covet. But to compete in this space, community institutions need to combine their strength in local markets with digital tools that deliver a winning experience.

Omnichannel support here is crucial. Providing borrowers with a choice of in person, online or over-the-phone service creates a competitive advantage that alternative lenders can’t replicate with an online-only business model.

A best-in-class customer experience is equally critical. Business customers’ expectations of convenience and service are often shaped by their experiences as consumers. They need a lending experience that is efficient and easy to navigate from beginning to end.

It will be difficult for banks to drive efficiency in small credits without transforming their sales processes. Many lenders began their digital transformations during the pandemic, but there is still significant room for continued innovation. To maximize customer interactions, every relationship manager, retail banker, and call center employee should be able to begin the process of applying for a small business loan. Banks need to ensure their application process is simple enough to enable this service across their organization.

Self-Service Experiences
From credit cards to auto financing to mortgages, a loan or line of credit is usually only a few clicks away for consumers. Business owners who are seeking a new loan or line of credit, however, have fewer options available to them and can likely expect a more arduous process. That’s because business banking products are more complicated to sell and require more interactions between business owners and their lending partners before closing documents can be signed.

This means there are many opportunities for banks to find efficiency within this process; the right technology can even allow institutions to offer self-service business loans.

The appetite for self-service business loans exists: Two years of an expectation-shifting pandemic led many business borrowers to prioritize speed, efficiency and ease of use for all their customer experiences — business banking included. Digitizing the front end for borrowers provides a modern experience that accelerates data gathering and risk review, without requiring an institution to compromise or modify their existing underwriting workflow.

In the crowded market of small business lending, efficiency is an absolute must for success. Many banks have plenty of opportunities to improve their efficiency in the small business lending process using a number of tools available today. Regardless of tech choice, community banks will find their best and greatest return on investment by focusing on gains in SBA lending, small credits and self-service lending.

What Does a Tech-Forward Bank Look Like?

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

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

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

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

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

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

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

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

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

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

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

Poll Results: Digital Transformation’s Next Phase

NYDIG-Report.pngJPMorgan Chase & Co., which is the largest U.S. bank by assets, spends $12 billion a year on technology, investing in a vast array of technologies that include machine learning, artificial intelligence and blockchain. The second largest bank, Bank of America Corp., spends roughly $3.5 billion annually on new technology initiatives alone, according to Chairman and CEO Brian Moynihan.

It’s a lot of money — and a level of spending that smaller banks can’t hope to achieve. Executives and directors primarily representing community banks under $10 billion in assets reported a median technology budget of $1.7 million for fiscal year 2021 in Bank Director’s 2021 Technology Survey, with a median increase in spending of 10% compared to the previous year.

Those limitations should have bank leaders thinking strategically about how to allocate those precious dollars. With that in mind, Bank Director’s FinXTech division polled bank executives in January and February 2022 about technology adoption trends, and asked about specific noncore solutions that have had a recent, significant impact toward achieving their goals.

Bankers identified 20 platforms as their favorites when it came to driving that change, ranging from digital lending solutions to data analysis. You can find the companies listed on page 7-8 of the report. To categorize the solutions by type, we relied on input from FinXTech Research Analyst Erika Bailey, who manages Bank Director’s FinXTech Connect platform, a guide to financial technology companies working with U.S. banks.

While the past 18 months found many banks putting digital account opening and lending platforms in place — in response to the digital acceleration brought about by the pandemic — banks shifted plans for the next 12 months to application programming interface (API) platforms, data aggregation and analysis, and workflow automation.

To gain additional perspective on these trends, we talked to the executives of three banks that are actively accelerating their digital journeys. Mascoma Bank, a $2.6 billion mutual in Lebanon, New Hampshire, is in the early stages of implementing an API-enabled, cloud-based core platform that will help the bank customize its product and service offerings. St. Louis-based Midwest BankCentre, with $2.4 billion in assets, leveraged its digital subsidiary to expand its capabilities to all of its customers; it will expand digital account opening to business clients in 2023. And West Reading, Pennsylvania-based Customers Bancorp, with $20 billion in assets, is using data-driven insights to fuel the next phase of its digital transformation.

Click here to access the poll results and learn more about how those banks are moving technology transformation forward in this special report.

Also included is a success checklist, questions that boards and leadership teams could ask to help strengthen their technology strategy.

Bank leaders should start by evaluating their organization’s strengths and how technology can align with strategy, advises Ron Shevlin, chief research officer at Cornerstone Advisors. “Stop thinking about technology adoption, and focus more on … the business opportunity,” he says. “Focus on the business results.”

An Inside Look At One Bank’s Digital Growth Planning

By now, most bank leadership teams understand the importance of offering well-designed digital experiences. What we’ve found is often more elusive is knowing where to start when making a significant investment in digital.

One bank that recently grappled with this was Boston-based Berkshire Hill Bancorp, the $11.6 billion parent company of Berkshire Bank.

Executives wanted to digitally transform the bank and that success would only be achievable if they unified around a core set of goals and built a robust strategic plan for reaching them. This vision allowed teams to work toward individual milestones along the way.

We recently spoke with Lucia Bellomia, EVP and head of retail banking and CIO Jason White. They gave us an inside look at what went into developing the Berkshire BEST plan for transformation, and the factors they believe will lead to their successful digital growth.

The Berkshire leadership team started by recognizing that if the plan was going to truly transform the entire bank, they needed to gather input and feedback from every department. “Executives spoke to stakeholders in every department to what milestones the bank would need to hit and what it would take to achieve those goals”, says Bellomia. They also formed groups specifically to achieve some of the components of that milestone.

Involving this many additional stakeholders extended the strategic planning phase — In Berkshire’s case, it took three months of meetings. But White felt the time spent laying a foundation of transparency and open communication will help the bank execute and fulfill the objective of the transformation.

Without some clearly defined pillars outlining your main goals, the whole process of starting the institution’s digital plan can feel chaotic and messy. White suggests that banks first investigate what it means for their institution to digitally transform, and then define the core strategic pillars from there.

Berkshire’s three core pillars were: optimize, digitize and enhance. These pillars support efforts to improve the customer experience, deliver profitable growth, enhance stakeholder value, and strengthen their community impact. Taking the time to first define core pillars that support a larger strategic plan helped Berkshire Bank recognize even greater opportunities. Rather than simply adding new digital services to their banking stack, they realized they could facilitate the evolution of their entire bank.

With the plan announced and in place, Berkshire launched into the execution phase of its transformation. Here, they were met with new challenges that required thoughtful commitments from leadership and investments in project infrastructure. One impactful early investment was developing a transformation office that was responsible for measuring, monitoring and communicating the success of the plan. Executives and sponsors worked with the office to define both date and monetary milestones.

A dedicated internal resource focused on project management helped Berkshire communicate the progress made toward each milestone through regular meetings, tracked and updated key performance indicators, and other updates.

Equally important to the success of Berkshire’s transformation plan was its commitment to scrutinizing each investment and vendor to ensure the right fit and an acceptable return on investment for the bank. The bank is a “low-code” development team with limited resources and used achievable digital goals to identify and select vendors to digitize, according to the bank’s plan.

As part of its transformation plan, the bank extended its existing fintech relationship to include digital banking platforms for consumer and small business customers. This allows the bank to innovate and digitize at an accelerated pace, without having to grow internal developer resources.

Ultimately, institutions like Berkshire Bank are realizing that developing a successful plan for digital transformation that works for both internal stakeholders and customers requires a rethinking of the way executive teams gather feedback, address challenges across departments, and monitor the success of a project.