Digital Banking: Being Best in Class and Driving Profit

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Forward-thinking financial institutions have been focused on digital transformation to compete with megabanks and fintechs. They’re funding development to actively shaping user expectations for what a digital banking experience can offer. By 2028, the global digital banking market size is estimated to surpass $10.3 trillion.

Yet, many banks without deep pockets or partners and limited technology resources are relying on their core technology provider for a turnkey platform — a “bank-in-a-box” that includes bundled services like payments, loan origination and digital banking. The biggest threat remains for those institutions that decide to maintain the status quo with a less-than-impressive digital banking platform or ineffective home-brewed solution.

Consumers expect a seamless digital experience to help them manage their finances and achieve their financial goals. A recent study found that consumers’ trust in digital banking is shifting away from their preferred financial institution. If account holders aren’t convinced that their preferred bank provides the best digital security and privacy, reliability, feature breadth, and ease of use, they’re willing to leave. It’s clear that digital banking can make or break a bank’s future.

What is the ideal digital banking experience that account holders want? Banks should keep these best-in-class components in mind as they search for the right partners and technology for their digital banking transformation.

  1. Data-driven insights. Bank executives must find ways to execute on internal transaction data to deepen user relationships and build profitability and institutional loyalty.
  2. Seamless user experience. Now more than ever, it’s important that banks understand what attractive features will improve digital banking experiences for their users.
  3. Continuous software delivery. Best practices for continuous software delivery is to find a partner offering a single code source, rather than multiple.
  4. Investments in API and SDKs. Vendors that can seamlessly integrate application programming interfaces, or APIs, into digital banking help banks leverage the latest industry leading technology and maintain a competitive advantage.
  5. Cloud-forward thinking. Banks can leverage the cloud to enhance features, security and user experiences while improving uptime, performance and quality.
  6. Modern security strategies. When financial institutions and digital banking providers band together and treat cybersecurity as a shared responsibility, security issues can pose less of a threat.

Financial institutions may need to consider replacing legacy technologies and embracing artificial intelligence tools. This means taking advantage of transaction data flowing through the core to uncover important insights about account holders’ needs based on their behaviors and spending patterns, and using it to optimize the digital experience. This kind of thinking results in transforming digital banking — moving from a cost center into a revenue center, all rooted in data.

In the past, marketing campaigns focused on products that just needed to be sold. They were delivered from the top down, funneling to all users regardless of their personal needs. That strategy changed when big data, artificial intelligence and machine learning gave marketers the ability to target tailored messages to the ideal recipient. Aligning data insights and marketing automation means banks can deliver experiences that are compelling, timely and relevant to account holders.

Pairing insights and marketing automation with a digital banking platform allows banks to target their account holders with personalized engagements and cross-sell marketing offers that appear within the banking platform and other digital channels. Banks can generate a 70% return on initiatives targeting existing customers, versus 10% when targeting new customers, according to PwC. “In a time where every bank is focused on revenue growth in a constrained and competitive environment, making smart choices with limited resources can provide a fast track to higher-margin growth,” PwC states.

Banks can use data to drive revenue through the digital banking channel through a number of real-world, practical applications, including:

  • Onboarding programs.
  • Self-service account opening.
  • Product cross-sell and upsell.
  • Competitive takeaway.
  • Communications and servicing opportunities.
  • Product utilization.
  • Transitioning retail accounts into business accounts.

Digital banking is mission critical to banks. Catalyzing this platform with data insights and marketing automation creates an engaging channel for deeper customer relations, ultimately transforming the digital banking investment into a profit center.

Evaluating Digital Banking In 2023

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Platforms that offer future flexibility, as opposed to products with a fixed shelf life, should be part of any bank’s digital transformation strategy for 2023, says Stephen Bohanon, co-founder and chief strategy and product officer at Alkami Technology. Chatbots and artificial intelligence can deflect many simple, time-consuming customer queries — saving time and costs — but digital channels can go further to drive revenue for the organization. To do that, bankers need to invest in data-based marketing and account opening capabilities.

Topics include:

  • Platforms Vs. Products
  • Sales Via Digital Channels
  • Advantages of Live Service

How Bank Compliance Teams Can Champion Micro-Innovation

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Despite the compliance group’s reputation as a dream-crushing, idea-stomping wielder of power, they actually do want to help the rest of the bank succeed in delighting customers and clients.

It’s time to approach digital transformation as the new normal for banks. The best way to do that is to get compliance teams on board early — and the best way to accomplish that is by practicing micro-innovation. Micro-innovations are incremental changes that run parallel to proven processes, allowing nimble, modern organizations to try new approaches or strategies without sapping time and attention from what’s known to work.

Jeffery Kendall, the CEO of Nymbus and my colleague, says it best: “Modern organizations know that incremental innovation at a quick pace usually wins, compared to spending years developing a single product.”

The key for banks is to start talking with compliance when the bright idea is forming — not when the work is done. When teams are on the same page from the start, compliance can be an invaluable partner that can help balance risk throughout your micro-innovation strategy.

Align Teams From the Start
Start by including front-line staff and, yes, even compliance, when it’s time to set micro-innovations in motion. Long-tenured employees can be change generators. A recent study showed that the average American customer stays with the institution connected to their primary checking account for 14 years. Chances are, some of them have a relationship with tellers and lobby staff who understand their frustrations better than anyone and can bring these insights to the planning table.

Involving compliance from the outset can uncover what’s possible, rather than just reinforcing what can’t be done. By including compliance early, you can enliven achievable possibilities through micro-innovations. Start with monthly level-setting conversations and a deep dive into what projects and initiatives are on the horizon. Include teams in product development, sales, marketing and compliance so the bank is aligned on opportunities and goals from the start.

Find the Compliance Sweet Spot
Banks face a challenging operating environment; for compliance and risk, it’s also an opportunity to innovate. To support innovation in this landscape, compliance officers can ask themselves “How can we get where we want to go?” and “Where are the boundaries?”

In reality, most of a bank’s biggest processes, procedures and inefficiencies route through the risk compliance organizations at some point. This makes compliance staff natural advocates for change. Because they own the processes, empowered compliance officers are well positioned to understand nuance and identify opportunities for improvement and change.

Siya Vansia, chief brand and innovation officer at ConnectOne Bancorp in Englewood Cliffs, New Jersey, notes that when she stepped into her role, she “stopped hiring for innovation” and “started building internal advocates.” By working with compliance and others throughout the organization, Vansia creates a culture of innovation that looks for opportunities instead of tallying roadblocks.

With 70% of banks saying the Great Resignation has challenged their ability to carry out compliance requirements, some are considering unconventional hiring to fill jobs. As your institution prepares for 2023, prioritize retention and employee satisfaction to retain the talent you have on hand.

Digitize Progress, Not Inefficiencies
It can be tempting for banks to build an app and migrate longstanding inefficiencies onto a new digital platform. That’s a missed opportunity for positive change and customer loyalty.

“The future is about making banking better and connected, not simply having a cool app with a lot of features,” says Corey LeBlanc, cofounder and chief operating and chief technology officer of Fort Lauderdale, Florida-based Locality Bank.

As your institution identifies targets for micro-innovations, examine existing processes to ensure they still fit what your customers need and want. Look for opportunities to remove inefficient and cumbersome practices and simplify the customer experience. Even one or two steps in a process can add up over a customer journey; incremental improvements can have a significant impact on satisfaction. Compliance here can be a tool to identify inefficient processes. Leverage these same techniques to assess your people, resources and strategies. Start now with small changes that can have an innovative impact right away.

Your bank’s compliance office doesn’t have to be a “no” factory. Compliance teams can help banks build delightful experiences that matter to their customers — especially when they’re aligned on solving the problem from the start.

It can be daunting to assemble a 2023 strategic plan that hits the key performance indicators, solves the issues and makes digital a reality — all at once. So don’t. Instead, divide and conquer with micro-innovations that allow your institution to take small and mighty steps toward growth and change without delay.

Nailing the Customer Experience in a Digital Upgrade

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To get your bank’s people ready for a technology upgrade, you need to do two things: educate front line staff so they become ambassadors for the new tech and help customers learn how to use it. Sounds easy, but in many cases, financial institutions don’t have the right tools to nail their digital customer experience through a technology upgrade.

Start with developing your training and development assets for staff training into the bank’s technology project plan and each rollout. Your staff needs to time to become familiar with the new technology; launching training two weeks prior to go-live won’t set them up to successfully help customers access the new services. Project managers and executive sponsors should develop and test a digital banking curriculum in advance of rollout and begin training front line staff on how to use the tech before launching it to the public.

The seemingly logical approach is to ask the bank’s learning and development group to create some new tech training in the learning management system (LMS). But that often doesn’t work. Traditional LMSes often aren’t tooled for digital experiences; static learning content struggles to drive digital fluency among employees. And tedious training approaches or topics can foster an aversion to LMS training among staff. Banks investing in their digital products and services may want to consider a modern solution that’s tooled for teaching tech.

Game-based learning that uses built-in incentives and an employee’s inherent motivation, as well as interactive role-plays and visually appealing learning modules, are often the most effective way to help today’s employees retain essential information. These innovative elements can make the difference in a bank’s training system and subsequent customer interactions.

And as your staff tries out the tech, either in-house or after launch, be sure to explicitly ask and encourage for their feedback on the digital experience. What can be improved? Which features are hard to understand or non-intuitive? What additional features and functions are desired? Where do they stumble when using the tech?

Endicott, New York-based Visions Federal Credit Union created a digital advisory board made up of a dozen rank-and-file employees who meet monthly to discuss consumer behavior trends, review prospective vendor partnerships and provide feedback on the institution’s use of consumer technology.

“They’re not necessarily managers, VPs or SVPs,” says Tom Novak, vice president and chief digital officer at Visions Federal Credit Union. “They’re day-to-day employees that are in the know about what’s happening in technology, social media and typical consumer lifestyles. They understand why people are on TikTok more than Facebook, or why they use Venmo instead of traditional PayPal mechanisms.”

Your team will also need the right tools to support your customers after their training. Consider providing them with access to technology walk-throughs and simulators, so they can easily find quick tips and features to help customers calling in or visiting a branch. Ensure your learning solution provides staff with support in the flow of work, so they can help customers on demand.

Finally, allow your customers to “test drive” the tech before they commit. Change is hard on your customers too. Your institution needs to be prepared to coach them along the journey — whether that’s a new digitally based product or service or an upgrade from a prior solution that they have grown comfortable with over time. Give them a chance to try it out, and provide them with a safety net through easy-to-use, shareable technology walkthroughs and simulators to make learning easy.

While financial institutions of all sizes are making significant investments to transform their technology to meet the ever-changing needs of their customers, the biggest hurdle often comes in right at the end. To achieve success in your technology upgrade, your bank will need to leverage the power of your people through a well-considered deployment strategy that places intuitive learning and technology support squarely at its center. New, innovative learning and development tools make these processes — and ultimately, the digital transformation — less intimidating, engaging, fun and flexible.

Creating Breakthrough Value: Crafting the Right Technology Strategy

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Banking is becoming more invisible, more embedded and less conscious to consumers. Finding ways to capitalize on this banking shift will continue to be one of the industry’s defining evolutionary challenges.

And it all begins with crafting the right technology strategy.

In this episode of Reinventing Banking, a special podcast series brought to you by Bank Director and Microsoft Corp., we talk to Nikhil Lele, Global and Americas Consumer Banking Leader from EY. He brings his expertise as a former core technologist to expand on how banks can digitally transform by using the correct data.

Lele also touches on three fundamental pillars that banks can build on to drive digital adoption: growth and strategy ambition, incentivized leadership and talent, and having the right capabilities.

The business model of banking is changing. Listen here to find out how to stay proactive in that change.

This episode, and all past episodes of Reinventing Banking, are available on Bank Director.com, Spotify and Apple Music.

Maximizing Profitability Potential Via Push Notifications

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Implementing digital fintech solutions is critical for banks seeking to grow their customer base and maximize profitability in today’s increasingly competitive industry.

To engage account holders, banks must explore digital-first communication strategies and mobile-friendly fintech products. Push notifications are an often overlooked, yet powerful, tool that enables financial institutions to proactively deliver important messages to account holders that earn higher engagement rates than traditional communication methods.

Push notifications are delivered directly through a banking app and sent to account holders’ mobile devices and can provide timely alerts from a financial provider. While push notifications can act as a marketing tool, they can also convey critical security alerts via a trusted communication channel — as opposed to mediums that are vulnerable to hacks or spoofing, such as email or SMS texts. Push notifications can be used for personalized promotional offers or reminders about other financial services, such as bill pay or remote check deposit, transaction and application status updates, financial education and support messaging, local branch and community updates and more.

Banks can also segment push notifications using geo-location technology, as long as customers get permission, to alert account holders at a time, place and setting that is best suited to their needs. Banks can customize these notifications to ensure account holders receive messages notifying them of services that are most relevant to their financial needs.

When leveraged effectively, push notifications are more than simple mobile alerts; they’re crucial tools that can significantly increase account holder engagement by nearly 90%. Push notifications can be more effective in reaching account holders compared to traditional marketing methods like email or phone calls and receive engagement rates that are seven times higher.

Boosting customer engagement can ultimately have a significant impact on a bank’s profitability. Studies show that fully engaged retail banking customers bring in 37% more annual revenue to their bank than disengaged customers. Enhancing ease of use while offering greater on-demand banking services that consumers want, banks can leverage push notifications to encourage the use of their banking apps. Enabling push notifications can result in a 61% app retention rate, as opposed to a rate of 28% when financial providers do not leverage push notifications.

Bank push notifications come at a time when consumer expectations for streamlined access to digital banking services have greatly accelerated. In a study, mobile and online access to bank accounts was cited by more than 95% of respondents as a prioritized banking feature.

This focus forces financial institutions to explore fintech solutions that will elevate their customers’ digital experience. Traditional institutions that fail to innovate risk a loss of market or wallet share as customers migrate to technologically savvy competitors. U.S. account holders at digital-only neobanks is expected to surge, from a current 29.8 million to 53.7 million by 2025.

Banks should consider adding effective mobile fintech tools to drive brand loyalty and reduce the threat of lost business. Push notifications are a unique opportunity for banks to connect with their audience at the right moments through relevant messaging that meets individual account holder needs.

Real-time and place push notifications can also be a way for banks to strengthen their cross-selling strategies with account holders. They can be personalized in a predictive way for account holders so that they only offer applicable products and services that fit within a specific audience’s needs. This customization strategy can drive revenue while fostering account holder trust.

To gain insight on account holders’ financial habits and goals, institutions can track user-level data and use third-party services to tailor push notifications about available banking services for each account holder. Institutions can maximize the engagement potential of each offer they send by distributing contextually relevant messaging on services or products that are pertinent to account holder’s financial needs and interests.

Push notifications are one way banks are moving toward digital-first communication strategies. Not only do push notifications offer a proactive way to connect with account holders, they also provide financial institutions with a compelling strategic differentiator within the banking market. Forward-looking financial institutions can use mobile alerts to strengthen account holder relationships, effectively compete, grow their customer base and, ultimately, maximize profitability.

Leveraging Innovations to Double Down Where Fintechs Can’t Compete

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For years, financial technology companies, or fintechs, have largely threatened the domain of big banks. But for community banks — perhaps for the first time — it’s getting personal. As some fintechs enter the lending domain, traditional financial institutions of all sizes can expect to feel the competitive impact of fintechs in new ways they cannot afford to ignore.

The good news is that fintechs can’t replicate the things that make local community banks special and enduring: the relational and personal interactions and variables that build confidence, trust and loyalty among customers. What’s even better is that local financial institutions can replicate some of the fintechs playbook — and that’s where the magic happens.

It’s likely you, the board and bank management understand the threat of fintech. Your bank lives it every day; it’s probably a key topic of conversation among the executive team. But what might be less clear is what to do about it. As your institution navigates the changing landscape of the banking industry, there are a few topics to consider in creating your bank’s game plan:

  • Threat or opportunity? Fintechs give consumers a number of desirable and attractive options and features in easy-to-navigate ways. Your bank can view this as a threat — or you can level up and find a way to do it better. Your bank should start by identifying its key differentiators and then elevating and leveraging them to increase interest, engagement and drive growth.
  • It’s time for a culture shift. Relationships are not built through transactions. Banks must move from transactional to consultative by investing time, talent and resources into the relational aspects of banking that are best done in-person. They also need to find ways to meet the transactional needs of consumers in low friction, efficient ways.
  • It’s not about you … yet. Step outside of the services your bank directly provides. Think of your institution instead as a connector, a resource and trusted advisor for current and prospective consumers. If your bank doesn’t provide a certain service, have a go-to referral list. That prospect will continue to come back to you for guidance and counsel and one day soon, it will be for the service you provide.
  • What’s in your toolbox? What is the highest and best use of your team’s time? What are your team members currently spending time on that could be accomplished more efficiently through an investment in new, different or even fintech-driven tools? By leveraging technology to streamline operations, your bank can benefit from efficiencies that create space and time for staff to focus on relationship-building beyond the transaction.
  • Stop guessing. You could guess, but wouldn’t you rather know? Banks have access to an incredible amount of data. Right now, many financial institutions are sitting on a treasure trove of data that, when activated appropriately, can help target and maximize growth efforts. Unlocking the power of this data is key to your financial institution’s growth and evolution; data drives action, offering valuable insight into consumer behaviors, preferences and needs.

Your bank can adopt a view that fintechs are the enemy. Or it can recognize that fintechs’ growth stems from an unmet consumer need — and consider what it means for your bank and its products and services. The key is doubling down on the who, what and why that is unique to your brand identity, and capitalizing on the opportunity to highlight and celebrate what makes your bank stand out, while simultaneously evolving how your institution determines and delivers against your consumers’ needs.

Unlocking the Opportunities of Open Banking

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Whether banks know it or not, their customers may already be leveraging open banking technology.

If they pay friends using Venmo, transfer money from their account at your bank to websites like Robinhood to purchase stocks or use any other third-party financial applications that require a connection to their financial accounts, they are using open banking. Simply defined, open banking is a system that helps enable fast, innovative, and frictionless digital financial services.

Open banking creates a number of opportunities for consumers and businesses. Customer demand for seamless management of financial experiences has increased as they’ve grown accustomed to the benefits of personalized digital services. Research from Visa’s Open Banking Consumer Survey shows that 87% of U.S. consumers use open banking to link their financial accounts to third parties; however only 43% of U.S. consumers are aware that they are using open banking.

What is Open Banking?
Open banking is a system through which consumers or businesses authorize third parties, which can include any financial services organization like mortgage underwriter, banks or budgeting or trading app, to access their financial information or services. The third party may need the customers’ transaction or payment history or make a payment or requesting a loan on their behalf. Aggregators connect third parties to the financial accounts of consumers and businesses. When consumers or businesses share their financial data with third parties, the third parties can provide a number of products and services, including budgeting, credit checks or help initiating payments. Open banking enables consumers to connect financial accounts and share data securely.

How Does Open Banking Work?
Open banking is increasingly enabled by application programming interfaces, or APIs. Open banking APIs are specifically designed to link software systems and apps to securely communicate with each other. Financial institutions can establish these APIs to make consumer financial data available to third-party aggregators that serve as the bridge between account providers, like banks, brokerages and credit unions, and third-party applications, such as fintechs, merchants and other banks, that use this bank account data to provide financial services to consumers and businesses.

Open Banking Use Cases
A common, early use case is digitizing traditional financial management in a more efficient and secure way. But there is virtually no limit to the products and services that could be enabled by open banking.

Open banking enables financial institutions to improve their consumer experiences, illustrating the value of open access to financial information. Importantly, open banking could be a significant catalyst for financial inclusion and equity. The ability for all parties in the ecosystem to innovate and offer financial products to underserved communities could be considerably increased in a world where access to customer-permissioned information is easily available.

So while open banking is still in its early days, there are many potential opportunities and benefits that financial institutions should explore and consider offering to customers.

FinXTech’s Need to Know: Cash Flow

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This article is the second in a series focusing on small business banking financial technology. The first covers accounts payable technology and can be found here.

There are 33.2 million small businesses in the United States. With a looming recession, many may soon be looking for ways to lower their budgets, be it by reducing staff, cutting back on hours or even terminating contracts with other vendors. The median small business holds only 27 days of cash on hand, according to a 2016 study from the JPMorgan Chase Institute — an amount that could be challenged by the changing economic state.

Financial institutions should see cash flow management as an opportunity to provide their small business customers with integrated products and services they used to go elsewhere for.

Business owners decide where, when and how to invest and spend revenue after tallying bills, employee hours and balance sheets. They now have modern tools and ways to leverage third-party softwares to automate their balances.

Banks can provide this software to their small business customers, and they don’t have to start from scratch: They can turn to a fintech partner.

Here are three fintechs that could satiate this software need.

Boston-based Centime launched its Cash Flow Control solution in partnership with $26 billion First National Bank of Omaha in 2019. Centime gathers accounts receivable and accounts payable data to provide accurate, real-time forecasts to business customers. Any bank can integrate the solution as an extension of their online banking or treasury management services.

Banks can profit off of these cash flow products, too. Small business customers have access to a direct credit line through the analytics platform. And in a still rising interest rate environment, expanding the lending portfolio will be crucial to a bank. Banks that offer Cash Flow Control to their business customers can play a strategic role in their clients’ cash flow control cycle, gain visibility into their finances and provide streamlined access to working capital loans and lines of credit.

Centime states that it works best with banks with more than $1 billion in assets.

Cash flow solutions can also provide essential insight into current and projected business performance for a bank’s own purposes. Less than 50% of banks said that not effectively using and/or aggregating their data was one of their top concerns in Bank Director’s 2022 Technology Survey. Data segmented into business verticals could shed light into what businesses need from their banks and when they need it.

Monit from Signal Finance Technologies is another cash flow forecasting and analytics solution available to small businesses. Monit aggregates data from the small business’s accounting software, like QuickBooks, Xero or FreshBooks, along with data inputs from the business owner. The projections are dynamic: Business owners can dive deeper into exact factors that influence anticipated dips in cash flow. They can also model alternative scenarios to find ways to avoid the shortfall.

Using the projections, Monit provides business owners with suggestions for the future success of their business, such as opening a new line of credit or slowing down on hiring.

Accessing business data and the third-party apps that house it is another way to strengthen a bank’s understanding of their business clients, as well as indicate how, where and when to help them. UpSWOT’s data portal could be the right solution for a bank looking to gather better data on their business customers and connect with the third-parties that house it.

UpSWOT uses application programming interfaces, or APIs, to collect data from over 150 business apps and provide key performance indicators, marketing data and actionable insights to both bank and business users. It can even notify a bank about a small business client’s activity such as new hires, capital purchases like real estate or vehicles, payment collection and accounts receivable, financial reporting and tax information.

The upSWOT portal also creates personalized marketing and sales dashboard, which bankers can use to anticipate their business clients’ needs before their balance sheets do.

Essential to every single one of the more than 30 million small businesses in the U.S. is cash. And without the ability to effectively forecast and manage it, these small businesses will fail. Banks can help them flourish with the aid of fintech partners.

Centime, Monit and upSWOT are all vetted companies for FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email [email protected]