The Future of Banking in the Metaverse

From Nike’s acquisition of RTFKT to Meta Platform’s Chairman and CEO Mark Zuckerberg playing virtual pingpong, the metaverse has evolved from a buzzword into a way of doing business.

The metaverse could become a “river of entertainment in which the content and commerce flow freely,” according to Microsoft Corp. Chairman and Chief Executive Satya Nadella in “The Coming Battle Over Banking in the Metaverse.” Created by integrating virtual and augmented reality, artificial intelligence, cryptocurrency, and other technologies, the metaverse is a 3D virtual space with different worlds for its users to enhance their personal and professional experiences, from gaming and socializing to business and financial growth.

That means banking may ultimately come to play a significant role in the metaverse. Whether exchanging currencies between different worlds, converting virtual or real-world assets or creating compliant “meta-lending” options, financial institutions will have no shortage of new and traditional ways to expand their operations within this young virtual space. Companies like JPMorgan Chase & Co. and South Korea’s KB Kookmin Bank already have a foot in the metaverse. JPMorgan has the Onyx Lounge; Kookmin offers one-on-one consultations. However, banks will find they cannot operate in their traditional ways in this virtual space.

One aspect that might experience a drastic change is the branches themselves. The industry should expect an adjustment period to best facilitate the needs of their metaverse banking customers. These virtual bank branches will need to be flexible in accepting cryptocurrencies, non-fungible tokens, blockchains and alternative forms of virtual currency if they are to survive in the metaverse.

However, not everyone agrees that bank branches will be that relevant in the metaverse. The idea is that online banking already accomplishes the tasks that a branch located in the metaverse might fulfill. Another issue is that there is little current need for bank branches because the migration to the metaverse is nascent. Only time will tell how banking companies adapt to this new virtual world and the problems that come with it.

Early signs point to a combination of traditional and new banking styles. One of the first products from the metaverse is already shining a light on potential challenges: The purchase and sale of virtual space has significantly changed over the past year. In Ron Shevlin’s article, “JPMorgan Opens A Bank Branch In The Metaverse (But It’s Not What You Think It’s For),” he writes, “the average investment in land was about $5,300, but prices have grown considerably from an average of $100 per land in January to $15,000 in December of 2021, with rapid growth in the fourth quarter when the Sandbox Alpha was released.”

The increasing number of virtual real estate transactions also means the introduction of lending and other financial assistance options. This can already be seen with TerraZero Technologies providing what could be described as the first mortgage. This is just the beginning as we see opportunities for the development of banking services more clearly as the metaverse, its different worlds and its functions and services mature.

Even though the metaverse is still young and there are many challenges ahead, it is clear to see the potential it could have on not only banking, but the way we live as we know it.

Recapturing the Data That Creates Valuable Customer Interactions

Before the end of 2021, regulators announced that JPMorgan Chase & Co. had agreed to pay $200 million in fines for “widespread” recordkeeping failures. For years, firm employees used their personal devices and accounts to communicate about business with their customers; the bank did not have records of these exchanges. While $200 million is a large fine by any account, does the settlement capture the true cost of being unsure about where firm data resides?

In 2006, Clive Humby coined the phrased “data is the new oil.” Since then, big tech and fintech companies have invested heavily in making it convenient for consumers to share their needs and wants through any channel, anytime — all while generating and accumulating tremendous data sets makes deep customer segmentation and target-of-one advertising possible.

Historically, banks fostered personal relationships with customers through physical conversations in branches. While these interactions were often triggered by a practical need, the accumulated knowledge bankers’ had about their customers, and their subsequent ability to capitalize on the power of small talk, allowed them to identify unmet customer needs with products and services and drive deeper relationships. Fast forward to the present day: Customer visits to branches have dropped to unprecedented levels as they embrace digital banking as their primary way of managing their finances.

But managing personal finances is different from banking. While most bank interactions revolve around checking balances, depositing checks and paying people and bills, the valuable interactions involve open-ended conversations about the desire to be able to buy a first home, planning for retirement or education, and funding large purchases like cars. These needs have not gone away — but the way consumers want to engage with their institution has completely transformed.

Consumers want to engage their banker through channels that are convenient to them, and this includes mobile messaging, SMS, Facebook messenger and WhatsApp. JPMorgan’s bankers may not have been trying to circumvent securities regulations in engaging with customers on their terms. Failing to meet your customers where they are frustrates both customers and bankers. Failing to embrace these digital channels leads to less valuable data the bank can use.

Banking platforms — like digital, payment and core banking — can capture data that provides insight into consumers’ saving and spending behavior, but fails to capture latent needs. Institutions that make it more convenient for customers to ask their personal banker something than Googling it opens up an entirely new data source. Allowing customers to ask open-ended questions augments transactional insight with unprecedented data on forward-looking needs.

In a recent case study, First National Bank of Omaha identified that 65% of customers expressed interest in exploring new products and services: 15% for credit cards, 12% for home loans, 9% for investments, and 7% for auto loans.

If “data is the new oil,” the real value lies is in the finished product, not the raw state. While data is exciting, the true value is in deriving insights. Analyzing conversational data can provide great insight. And banks can unlock even greater value when they analyze unprocessed conversational data in the context of other customer behavior, like spending patterns, propensity to use other engagement channels and socio-demographic changes.

At present, most of this data is owned and guarded by financial processors and is not readily available for banks to access and analyze. As banks extend their digital engagement model, it is imperative they own and can access their data and insights. And as banks increasingly see the benefits of allowing customers to engage with their banker in the same way they talk to their friends, key considerations should include:

  • Conversation aggregation. Is a customer’s conversation with multiple bankers aggregated to a single thread, avoiding data lost through channel switching?
  • Are conversations across channels retained within a dedicated and secure environment?
  • Can conversations transition from one relationship banker to another, avoiding the downfall of employee attrition?
  • Are suitable tools powered by artificial intelligence and other capabilities in place to ensure a real-time view of trending topics and requests?
  • Data access. Is raw conversational data readily available to the bank?

Engaging customers through digital channels presents an exciting opportunity for banks. No longer will data live within the mind of the banker: rather, insight that are derived from both individual and aggregate analysis can become a key driver for both strategic and tactical decisioning.

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.

The Future-Proof Response to Rising Interest Rates

After years of low interest rates, they are on the rise — potentially increasing at a faster rate than the industry has seen in a decade. What can banks do about it?

This environment is in sharp contrast to the situation financial institutions faced as recently as 2019, when banks faced difficulties in raising core deposits. The pandemic changed all that. Almost overnight, loan applications declined precipitously, and businesses drew down their credit lines. At the same time, state and federal stimulus programs boosted deposit and savings rates, causing a severe whipsaw in loan-to-deposit ratios. The personal savings rate — that is, the household share of unspent personal income — peaked at 34% in April 2020, according to research conducted by the Federal Reserve Bank of Dallas. To put that in context, the peak savings rate in the 50 years preceding the pandemic was 17.7%.

These trends became even more pronounced with each new round of stimulus payments. The Dallas Fed reports that the share of stimulus recipients saving their payments doubled from 12.5% in the first round to 25% in the third round. The rise in consumers using funds to pay down debt was even more drastic, increasing from 14.6% in round one to 52.3% in round three. Meanwhile, as stock prices remained volatile, the relative safety of bank deposits became more attractive for many consumers — boosting community bank deposit rates.

Now, of course, it’s changing all over again.

“Consumer spending is on the rise, and we’ve seen a decrease in federal stimulus. There’s less cash coming into banks than before,” observes MANTL CRO Mike Bosserman. “We also expect to see an increase in lending activities, which means that banks will need more deposits to fund those loans. And with interest rates going up, other asset classes will become more interesting. Rising interest rates also tend to have an inverse impact on the value of stocks, which increases the expected return on those investments. In the next few months, I would expect to see a shift from cash to higher-earning asset classes — and that will significantly impact growth.

These trends are unfolding in a truly unprecedented competitive landscape. Community banks are have a serious technology disadvantage in comparison to money-center banks, challenger banks and fintechs, says Bosserman. The result is that the number of checking accounts opened by community institutions has been declining for years.

Over the past 25 years, money-center banks have increased their market share at the expense of community financial institutions. The top 15 banks control 56.2% of the overall marketshare, up from 40% roughly 25 years ago. And the rise of new players such as fintechs and neobanks has driven competition to never-before-seen levels.

For many community banks, this is an existential threat. Community banks are critical to maintaining competition and equity in the U.S. financial system. But their role is often overlooked in an industry that is constantly evolving and focused on bigger, faster and shinier features. The average American adult prefers to open their accounts digitally. Institutions that lack the tools to power that experience will have a difficult future — regardless of where interest rates are. For institutions that have fallen behind the digital transformation curve, the opportunity cost of not modernizing is now a matter of survival.

The key to survival will be changing how these institutions think about technology investments.

“Technology isn’t a cost center,” insists Christian Ruppe, vice president of digital banking at the $1.2 billion Horicon Bank. “It’s a profit center. As soon as you start thinking of your digital investments like that — as soon as you change that conversation — then investing a little more in better technology makes a ton of sense.”

The right technology in place allows banks to regain their competitive advantage, says Bosserman. Banks can pivot as a response to events in the macro environment, turning on the tap during a liquidity crunch, then turn it down when deposits become a lower priority. The bottom line for community institutions is that in a rapidly changing landscape, technology is key to fostering the resilience that allows them to embrace the future with confidence.

“That kind of agility will be critical to future-proofing your institution,” he says.

Preventing the 3 ROI Killers in Digital Transformation From the Start

Digital transformation at community banks is often a complicated, time-consuming and costly process.

With the right approach, however, community banks can increase the value and return on investment of their digital transformation initiatives. The key to maximizing ROI is to take a systematic approach and avoid common pitfalls that could become barriers to success.

Any technology investment that a bank makes needs to meet — rather than hinder — its business goals. Adopting a customer-centric point of view and proceeding incrementally are essential to ensure a successful outcome. Digital transformation is ultimately about future-proofing the business, so it’s critical to choose technologies that can grow, scale and evolve.

The three most common ROI killers in digital transformation are:

  • Doing too much, too quickly.
  • Failing to connect with the customer.
  • Not selecting a connected and experienced partner.

Doing Too Much Too Quickly
The number and variety of technology solutions for the banking industry to choose from is nothing short of mind-boggling. But successful digital transformation doesn’t happen overnight. Not all features are suitable for every bank’s needs or budget — or their customers.

Resist becoming blinded by the shiny objects some vendors will flash. Buying into all the bells and whistles isn’t always necessary at the outset of a transformation initiative. If the implementation fails, it will kill any ROI and team morale, and risks overloading staff and systems with immature solutions before the bank has confirmed they work.

A better strategy is implementing features and solutions incrementally using process improvement and customer satisfaction to quantify value. Taking smaller steps improves stakeholder buy-in and allows a bank to test-drive new initiatives with customers. Taking smaller steps towards digital transformation: implementing sidecar offerings and managed services instead of ripping out and replacing cores or launching products that the bank can’t fully support. New offerings must enable value without losing quality, security or customer satisfaction. Bank executives should establish clear and measurable key performance indicators to track progress, and only move on to the next step when the first is satisfied. There are few things worse than investing in technology that is too difficult to use or doesn’t achieve promised results.

Failing to Connect with the Customer
Misaligning technology choices with customer preference and digital banking needs sets up almost any initiative for failure before it’s out of the starting gate.

Banks typically cater to a broad demographic, making research and strategic planning critical at the procurement stage. Focusing implementations on tools favored by one specific group but not by others limits an organization’s capabilities and alienating others in the process. Customers groups have their own particular concerns and preferences, and it can be challenging to apply a single strategy that pleases everyone.

To avoid this pitfall, executives need to research, strategize, plan and focus to launch products that their customers truly want and need. Open dialogue with customers is the key to success, as priorities will differ vastly  in every community. It’s not enough to emulate competitors, although that is a helpful benchmark. Ideally, banks should seek customer feedback through surveys, direct market research and speaking with them when they interact with the branch or brand to understand their priorities.

Not Selecting a Connected and Experienced Partner
Finding technology companies to support digital transformation isn’t difficult. It’s estimated that companies in the United States waste up to 40% of their technology spend on poorly-made decisions, like investing in technology based on a pitch from a sales professional that does not understand or have expertise in the institution’s particular needs.

Community banks have unique needs, concerns and customers, and should seek technology providers that speak their language, with solutions and insights to advance their goals. Select providers with experience in your niche — one that understands the particular challenges of community banking in the post-pandemic world. They should be experts that are well-versed in the banking industry, provide all technical documentation, satisfy regulatory and compliance need, and offer technology solutions that create excellent user experiences while being flexible, scalable and within budget.

Powering the Web of Partnerships to Make Innovation Easy

The right platform can help banks accelerate innovation, navigate the changing tech landscape and offer next generation solutions to customers. Public clouds are the platform to achieve these outcomes.

The cloud has moved from an ambiguous and amorphous buzzword to the platform that powers much of the innovation happening in the financial industry. Clouds, like Microsoft’s Azure, serve as the modern foundation banks, digital cores and other fintech firms use to build, develop, house and host their solutions. Participating in the cloud eco-system allows these players to seamlessly integrate with each other to expand their customer reach, take advantage of pre-built accelerators, and access third party fintech solutions. This ecosystem, with its multiple connection points, when housed on the same cloud means innovation can happen faster — at every level.

That accelerated innovation is crucial to small and mid-sized banks like Hawthorn Bank, a subsidiary of the Jefferson City, Missouri-based Hawthorn Bancshares. Banks must balance providing high-quality customer service and relevant products to customers while keeping up with nonbank and big bank competitors, but have limited staff and capacity for adding new tech projects and offerings. Hawthorn wanted to add more services and solutions for its business customers, like expedited online and in-person payments, which didn’t always fit into its traditional suite of offerings.

Hawthorn didn’t realize it at the time, but belonging to the right cloud network helped it address a number of their business customer’s pain points. The $1.7 billion bank relies on Jack Henry’s Banno digital banking platform, which now offers embedded invoicing and digital payment acceptance functionality through a partnership with Autobooks, as well as the full Autobooks small business solution as a seamless add-on to Banno platform users.

Both Autobooks and Jack Henry reside in Microsoft Azure, which made it easy for Banno to incorporate Autobooks as an additional service, as well as for Hawthorn to flip a switch to enable the service. And Autobooks proved to be a complementary, revenue-generating solution that Hawthorn Bank could bring to its business customers.

Examples like this show how coexisting in a cloud ecosystem can remove friction at all levels of development, deployment and integration. This has several benefits for banks and the end user. Being in the same cloud means that fintechs like Autobooks and service providers like Jack Henry can roll out new features and updates to their banks faster. It also helps banks control their third-, fourth- and fifth-party risks, which regulators have highlighted as a way to manage operational and cyber risk.

Selecting that cloud provider, however, starts with trusting the tech company as a secure partner who can meet regulatory expectations. Azure’s developers engage with more than 200 global financial regulators to meet compliance and security requirements, including hosting an annual summit to discuss new regulations and threats. Microsoft also accompanies regulators during audits at financial institutions. And Microsoft works with banks at the platform level to help them navigate projects with other partners, including audit, analytics and other digital banking overhauls and core integrations.

A relationship that close requires shared values — and increasingly, banks are noticing that some of their vendors may not be true partners. A number of large tech firms providing cloud, analytics and platform services to banks are also developing financial products on the side that could compete directly for the bank’s customers. Banks may find that their big-tech cloud provider doesn’t share their values or definition of partnership or compliance; they may treat private customer data differently. The ultimate risk for banks is that they partner with a firm that could one day become a competitor. Banks should look for cloud providers with a proven track record of staying focused on delivering value to the institution.

Community banks like Hawthorn are constantly looking for ways to serve customers better through innovative products and services, while keeping a close eye on costs and managing employee workloads. The right digital platform, powering their service providers and fintech partners alike, is key to unlocking and accelerating their digital transformation.

Furthering Digitization, Automation to Push Digital Transformation

 

Banks proved during the pandemic that they are capable of rapid digital transformation when absolutely necessary, with minimal interruptions. Now, they must build on those recent investments by evaluating what improvements will be most valuable to deliver an optimal customer experience.

With the multitude of touchpoints, both in-person and online, each step in a customer’s journey presents an opportunity for you to learn more and uncover insights. Banks can unlock insights with always-on customer engagement. Being agile and nimble will give them the ability to both react to changing market conditions — and get ahead of them.

Topics addressed include:

  • Evaluating Further Digitization
  • Shifting Traditional Mindsets
  • Importance of Staying Agile, Nimble

Building a Digital Masterpiece on Top of the Core

Digital banking has become a must-have feature. The coronavirus pandemic forced consumers to accelerate their adoption of digital banking tools; now they love the convenience and flexibility these products provide.

But what is troubling for banks is that many consumers do not care if these services are met by a traditional financial institution or a fintech challenger bank. U.S. consumers are increasingly comfortable transacting with an increasing number of financial service providers to get the specific products and features that are most important to them.

According to a recent survey conducted by Cornerstone Advisors, 35% of consumers now have more than one checking account, led by the 42% of millennials who have two or more accounts. The report found that challenger banks hold a growing number of these accounts by offering specific features that consumers can’t get from their existing financial institution.

This pressure is particularly high on community and regional banks, which lack the budgets and IT resources of the global banks. However, the technology powering challenger banks has also created an emerging option that enables banks to accelerate product innovation and effectively compete with larger financial institutions and challenger banks: modular banking.

Challenger Bank Tech, One Block at a Time

Community and regional banks in pursuit of innovation are often left to choose between two equally unappealing options: wait on a core that may not innovate at the speed they want or take on the risk of a massive core conversion.

Modular banking, on the other hand, applies the challenger bank approach of building hyper-focused services to the realities of a bank’s existing core and IT landscape. Modular banking platforms typically offer the same functionality as a modern core banking system. However, instead of building the entire platform at once, modular banking approaches service much like a set of building blocks. Banks only need to select the products and services that complement their existing systems’ functionality or build new digital products on top of it.

Put simply, modular banking looks at each piece of a bank’s functionality — such as Know Your Customer, card issuance, P2P or rewards — as a collection of loosely coupled microservices and application programming interfaces (APIs) that can be combined and deployed in a cloud environment to facilitate specific use cases.

Modular banking enables institutions to build specific products to meet the specific needs of their customers and quickly adjust as market conditions change. For example, a regional bank could solve an immediate need for banking products to offer contract workers with a pre-built module, before shifting to bring innovative features for families that make up most of the service area with teen and children accounts. A modular approach to digital transformation benefits small and mid-size community banks in two keys ways.

Quickly Develop New Products
By decoupling critical infrastructure, like the systems and processes that need to work reliably but don’t confer competitive differentiation, from the people, processes and technology focused on product innovation, modular banking provides a potential solution to execution challenges that banks face.

Productive Fintech Partnerships
Creating productive, long-term partnerships requires financial institutions to build mutually beneficial relationships with fintech companies. Innovating through fintech partnerships also requires banks to move fast, which is where modular banking comes in.

The open architecture of a modular banking platform can facilitate the rapid integration of third-party partners, by giving potential partners a modern API to connect to and build on top of. Bank leaders can take a much more proactive approach to pursuing and operationalizing new partnerships.

By building these strategic partnerships, they can create a competitive differentiator to fuel growth for the coming years.

Tailor Innovation With Fintech, Bank Collaborations

The Covid-19 pandemic reshaped the way that community banks think about their digital products and the expectations that consumers have for them. Digital transformation is no longer an option – it is a necessity.

In fact, 52% of consumers have used their financial institution’s digital banking services more since the start of the pandemic, according to BAI Banking Outlook. However, the research also found that only 61% of consumers feel their community bank understands their digital needs, compared to that 89% of direct bank consumers and 77% of large bank consumers.

As customers’ ever-growing expectations are not being met, banking teams are also concerned that their digital tools may be missing the mark. For many, the investments into digital solutions and tools are not having as wide as an impact as expected; on occasion, they do not hold any true benefit to their current and prospective account holders.

In addition, many community banks find themselves innovating for the sake of innovating, rather than solving real problems that exist within their target market. The communities that these banks serve are distinctive and can present unique challenges and opportunities, unlike those as little as a state away. Community banks must consider practical, powerful digital tools that benefit their one-of-a-kind customer base.

Rather than a product-driven approach to development, community banks must look to the niche needs within the market to discover areas to innovate. Identifying obstacles in the financial lives of existing customers and prospects ensures that community banks are working to solve a problem that will alleviate pain points for accountholders. But, with limited time and resources, how can this be accomplished?

Fintech-Bank Partnerships
Community banks can attract new customers, expand existing relationships and improve customer experience within the specific communities that they serve by implementing fintech solutions that are  specialized to the individual market or demographic.

It makes sense. Fintech-bank partnerships can pair a bank’s distinct market opportunities with technology that can effectively unlock niche verticals. We collaborated with five community banks who were searching for a responsive web app for digital commercial escrow and subaccounting that would eliminate the manual processes that limited their ability to handle commercial escrow and subaccounting accounts. Engaging with a fintech and leveraging extensive resources that are dedicated to developing and improving upon innovative technology gave these institutions a solution built with their companies in mind.

These partnerships between fintechs and banks are also more financially feasible — many community banks are unable to develop similar solutions in-house due to understaffing or lack of resources. With the help of a fintech, the institution can implement solutions faster and reach profitable clients sooner.

Fintech and bank collaborations are changing the way that community banks innovate. Together, they can expand the potential of a solution, both in its specialization and its capability, to better meet customer needs. Banking teams can provide the digital tools that their clients need and attract desirable clients that they hope to serve.

Pandemic-Induced Innovation Charts Path Toward New Normal

As the financial institutions industry embarks on 2021, our reflections capture a world disrupted by the Covid-19 pandemic. Economic uncertainty continues to impact strategic and growth plans for an inestimable period of time. Banks are closely monitoring loan payment trends and deposit account fluctuations as customers continue to struggle with stable employment and small businesses fight to survive.

The Covid-19 crisis occurred at a time of strength for most financial institutions. Unlike the 2008 Great Recession, banks have been able to rely on strong capital positions, which was crucial when it became no longer possible to continue operating business as usual.

Essentially overnight, consumer behavior shifted away from most face-to-face interactions, prompting an increase in online and contactless activity. Banks had to quickly adapt and explore innovation in order to meet both customer and employee needs. Outdated manual processes, continuity vulnerabilities and antiquated methods of communication immediately became apparent, with institutions pivoting to operate effectively. The pandemic became an accelerant and forced banks to embrace innovation to avoid business interruption, while prioritizing information security and employee and customer safety. Necessity is the mother of invention, and the Covid-19 pandemic created necessity — with an emphasis on urgency.

Top Five Covid-19 Challenges That Prompted Innovation

  1. To reduce the potential virus spread, executives found alternative means of meeting and interacting with employees and customers. Virtual meetings were the solution for many banks.
  2. While many institutions allowed for some remote work, this was not permitted for most employees prior to the pandemic. In some cases, chief technology officers had to quickly implement secure VPN access, evaluate hardware availability, order laptops and expand upon remote working policies and procedures.
  3. Digital transformation immediately moved from “wouldn’t it be great if we did this?” to “to be competitive and survive we must accomplish this immediately.” No. 1 on the transformation list was enhancing the customer experience. To remain competitive, transformation was no longer optional but absolutely required. Digital channels have been trending as customers’ preferred way to bank in the last few years, but this became the primary channel for customer engagement out of necessity. This shift prompted banks to reevaluate and enhance digital channel offerings along with supporting technologies.
  4. Round one of the Paycheck Protection Program was a difficult, labor-intensive process for participating institutions. The need for an efficient PPP application process prompted lenders of all sizes to embrace automation and fintech partnerships, resulting in a smoother process during round two.
  5. C-suite executives and bankers across the organization found themselves in a position where it was difficult to access information quickly and easily in order to make timely decisions to improve the customer experience and manage the bank. For many institutions, especially community financial institutions, this continues to be a challenge.

The need for accurate and efficiently delivered information and data across the organization has never been so great. It is still quite common for financial institutions to manage information in data silos, making it impossible to create the contextual customer intelligence necessary to compete in the post-pandemic environment. Financial institutions have the most intimate data about their customers. This data is of little value until it is transformed into meaningful information that can be easily digested, interpreted, and acted upon.

Banks that recognize that their data is a valuable asset are actively seeking out intelligent analytics tools to create contextual customer intelligence that can be strategically deployed across the organization and leveraged for consistent multichannel experiences to generate sales, increase customer and employee loyalty and reduce operating expenses. Financial institutions must have the ability to gather, aggregate and analyze their complex data assets quickly and accurately to remain competitive, meet regulatory reporting expectations and to achieve market success. The ability to analyze this data and act decisively is the path to not only being a better financial institution but prospering in uncertain times. Leveraging high-value data is imperative to thriving and increasing an institution’s competitive advantage.