Mobile Banking Attracts Deposits; Does It Aid Their Exit?

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Mobile banking channels, which banks have used to attract deposits, are helping deposits flow out faster as rates rise, a May research paper shows. 

The combination of higher interest rates and technology means that banks with robust mobile banking capabilities have also seen more deposit runoffs — even before the spring banking crisis — according to researchers from Columbia University, the University of Chicago and the National Bureau of Economic Research.  

They found that mobile banking has increased the sensitivity of deposits to interest rates, reducing their stickiness: it’s easier for customers to shop rates, open accounts and move funds. The paper refers to the slow or gradual pace of deposits leaving banks as “deposit walks” versus deposit runs, where many customers overwhelm a bank with withdrawal requests.

“Average deposits have become more sensitive to changes in the federal funds rate in the last decade,” they found. This is “particularly pronounced for banks with a digital platform and banks with a brokerage account.” 

In the study, banks were considered digital if their mobile application had at least 300 reviews, and as having brokerages if they report brokerage income in their call report. In the study, 64% of banks that had between $1 billion and $250 billion in assets — admittedly a wide swath — were considered digital. The impact of digital bank channels on deposits appeared in third quarter 2022 as deposit growth between digital and nondigital banks diverged; a quarter later, digital banks began losing both insured and uninsured deposits. 

“Whatever happened in the banking system in late 2022 and early 2023 was not just about the flight of uninsured deposits,” they wrote.

A 400 basis points increase in the federal funds rate leads to deposit decline of 6.4% at banks that don’t have a brokerage and aren’t considered digital, compared to 11.6% for digital banks with a brokerage. They also found that digital banks slowed their “deposit walks” by increasing deposit rates and their overall deposit betas.

Although larger banks with brokerages certainly could have more rate-sensitive customers than smaller banks without brokerages, the researchers attempted to account for that adding another analysis: internet usage among depositors. 

“We find that banks’ deposit outflows are more pronounced in markets with higher internet usage, but that this is only the case for digital banks (regardless of whether they report brokerage fees or not),” the researchers wrote.

Digital banking capabilities contributed to the rapid failure of Silicon Valley Bank, Signature Bank and First Republic Bank, according to testimony from bank officials and regulators. Silicon Valley Bank customers “sought to withdraw nearly all” of the bank’s deposits in less than 24 hours, said Federal Deposit Insurance Corp. Chair Martin Gruenberg in May 18 testimony to the U.S. Senate. He added that “the ease and speed of moving deposits to other deposit accounts or non-deposit alternatives with the widespread adoption of mobile banking” is a development that has increased the banking industry’s “exposure to deposit runs.”

First Republic Bank’s run was “exacerbated” in part by “recent technological advancements that allow depositors to withdraw their money almost immediately,” said former First Republic Bank CEO Michael Roffler in May 17 Congressional testimony. The bank experienced $40 billion in deposit outflows on March 13, after the failures of Silicon Valley and Signature, and a total of $100 billion in withdrawals in the ensuing weeks. 

Not everyone is concerned about the impact of mobile apps on deposits and its implications on bank stability. Ron Shevlin, managing director and chief research officer of Cornerstone Advisors, believes that a small percentage of banks will face notable deposit exits, with most banks able to keep funds stable. Additionally, he points out that banks benefited from having digital and mobile banking channels, especially in the earliest days on the coronavirus pandemic. 

“I don’t think it’s that big of a problem because I think a lot of financial institutions are fairly sophisticated in looking at this,” he says. Banks aren’t just looking at account closures to study deposit outflows; they also analyzing changes in account behavior and transactions. “This is not super new behavior anymore. It’s been in the making for 15 to 20 years.”

Both Shevlin and Luigi Zingales, one of the authors on the paper and a professor at the University of Chicago Booth School of Business, see digital transformation as an inevitability for banks. Zingales points out that apps — not branches — will shape the next generation’s experience with banks. As more community banks become digital banks, he says they may need to adjust their assumptions and expectations for how these capabilities could alter their deposit base, costs and overall balance sheet.

“I think what you need to do is be much more vigilant in how you invest your assets. In the past, you had this natural edge and now this natural edge is much smaller. And if you think you have this natural edge and you take a lot of duration risk, you get creamed,” he says. “I think the [solution] is not to resist technology — to some extent, it’s irresistible. The [solution] is learning to live with a new technology and understanding that the world has changed.”

Risk issues like these will be covered during Bank Director’s Bank Audit & Risk Conference in Chicago June 12-14, 2023.

Winning the Trust and Loyalty of Younger Generations

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Traditional banking is rapidly evolving; long gone are the days when community banks could impress potential customers simply with the number of brick and mortar locations they have or a wholesome in-person experience.

Members of millennials and Generation Z make up the largest population demographic in the United States. They have high expectations from the companies they do business with, including their financial institution. Unlike their parents and generations before them, customers of these younger generations value the digital experience that companies can provide, and often use that as the determining factor when choosing their primary bank.

Millennials and Gen Z customers are considered digital natives who have grown up surrounded by tech companies using electronic payments; they’re used to digital experiences that are instant and seamless, in every aspect of their lives. This creates an expectation that daily banking will be built around them and their needs — but unfortunately, community banks are having trouble keeping up. While these institutions are known for creating high-touch, personalized experiences for their customers in person, translating this capability to digital experiences isn’t always easy.

There are three things community banks can do to win the trust and loyalty of younger generations.

1. Create a Human, Digital Connection
Although a seamless digital experience may be the top priority for millennials and Gen Z, they still have a desire for a human connection for situations where they cannot find a solution or answer online. The key for banks is to find the balance in providing both — this requires understanding what younger generations want from a bank and putting that in the context of a digital experience. Banks must put forth effort in embedding digital banking with their face-to-face interactions.

2. Provide Tailored Experiences
Taking on a “people first” mindset is essential to thriving in the platform era. Potential customers enjoy very tailored experiences from companies like Apple and Uber Technologies; they carry those same expectations for their community financial institutions. Personal and tailored interactions that go beyond addressing customers by their first name can greatly improve long term loyalty and trust.

One competitive advantage community banks have over fintechs and neobanks is the large amount of data they can use to improve their cross-selling and upselling efforts.

3. Utilize an Engagement Banking Platform
To thrive in the platform era, community banks need to make a paradigm shift from vertical silos that can be hard to change — and even harder to stitch together — when attempting to meet the needs of customers. Instead, they must move to a single customer-centric platform, leaving fragmented journeys behind and leading into the new era of banking. An engagement banking platform can eliminate fragmented member experiences by plugging into your institution’s core banking systems, integrating with the latest fintechs and providing ready-to-go apps for the bank’s various business lines.

The platform era isn’t going anywhere; choosing to continue traditional banking practices isn’t an option for community banks that hope to thrive and become industry leaders. It’s time to embrace the disruption, rather than run from it, and prepare for digital transformations that will re-architect banking around customers.

Building a Robust Digital Ecosystem, Regardless of Size

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Let’s get right to the punch: Size should not limit how progressive your bank can be with its digital innovation strategy. Don’t let asset size fool — or limit — you.

As a 2022 ICBA ThinkTECH Accelerator graduate, we’ve had the opportunity to speak to over 150 banks of every shape and size, and here is what we’ve heard. Not all banks are created equal. However, large or small, asset size shouldn’t box you in and prevent you from giving your customers and teams the digital experiences they expect.

That’s because asset size doesn’t correlate to a more-advanced digital ecosystem. We’ve seen $105 million banks act like $5 billion banks, and $8 billion banks act like $250 million banks. Every bank is at a different stage of its digital transformation journey. So, what’s the difference?

Smaller banks may not have as large of a budget for tech, but they are often able to move faster and experiment more easily because there are fewer stakeholders who need to buy-in. These banks are increasingly having to decide if they are going to grow and stay independent or become a more attractive acquisition target. Either way, digital systems are critical to their future.

Larger banks, on the other hand, usually have larger budgets, but more stakeholders involved in the decision-making process and more entrenched operations. Turning the Titanic can take time if the organization does not have a history of supporting experimenting with innovative technology solutions.

No matter the size, banks should assess whether their current technology stack is driving efficiency or dragging the team down due to platform fatigue or lack of clean integrations. In fact, banks have the ability to use digital innovation to decrease the efficiency ratio and increase returns on investment. In our experience, there are a few key things any institution needs to consider when evaluating digital platforms:

  • Does it create a delightful experience?
    Any platform you’re exploring should provide a clean, easy and delightful experience for both your borrowers and employees. Any sense of friction for either group and your institution could lose leads or operational efficiency.
  • Can the platform support a fully integrated environment?
    Platforms should not only be configured to align with your institution’s operational process, but also able to directly connect to essential technology providers: the core, customer relationship management software, know your customer or business solutions, credit providers and spreading platforms, among others. A well-integrated solution should eliminate duplicate work for your team and provide a 360-degree view of the customer, allowing staff to more effectively maximize each customer relationship.
  • Does it do more with the same size team?
    Digital solutions shouldn’t be used to justify letting employees go. They should elevate team members out of busy work to their best and highest use: establishing and growing customer relationships. Having a robust technology stack can help attract and retain top talent in today’s environment.
  • Can the platform scale with the bank?
    Digital platforms should help drive the efficiency ratio down and scale as your bank grows. Below are how two banks on different ends of the asset spectrum have embraced this concept.

Andrew Black, CEO of $105 million Princeville State Bank, based in Illinois, says, “We don’t let our asset size define how we want to serve our customers and team members. At the end of the day, we want to make sure we’re providing a customer-centered, easy experience that helps us continue to grow and expand our customer base. Digital banking capabilities are table stakes for any bank these days, regardless of how large they are.”

Allan Rayson, American Banker’s digital banker of the year and chief innovation officer at Arkansas-based Encore Bank has seen some of the fastest organic growth of any bank in the country. The $2.8 billion bank has a goal of hitting $5 billion in assets with a team of fewer than 400 people — and they’re on track to do it.

“We’re not trying to be the biggest bank in every market, but a bank that delivers an exceptional customer experience. The key is focusing on partnering with best-of-breed technology partners to make that happen. What we have seen with this approach is incredible growth, a transformation of our operations that supports our bank team members and an increase in our overall efficiency,” says Rayson.

Cornerstone Advisors’ annual report states that 86% of banks say their spend on tech is going to be somewhat or significantly higher this year. It’s not a question of “If,” but when and how your team tackles creating a digital ecosystem. Don’t let your asset size dictate what you think your institution can and can’t do. Make sure you’re partnering with a platform that meets you where you are and can scale with you as your bank grows.

How Embedded Compliance Plays the Game to Win, Not Break Even

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Imagine a game where your team can’t score points and there’s no such thing as winning. All you can do is meticulously follow the rules; if you follow them well enough, then your team doesn’t lose. Most banks approach compliance with this survival mindset and it shows.

According to the Federal Reserve Bank of St. Louis, compliance expenses account for 7% of banks’ non-interest expenses. The majority of that spend is typically directed at headcount distributed across siloed operational functions — using equally siloed technology — to get the job done during the last leg of a transaction. The best that can be said for this approach is that it achieves baseline compliance. The worst? It prevents institutions from investing in transaction data management strategies that deliver compliance while simultaneously driving efficiencies and business growth that show up on the bottom line. This scenario becomes more untenable with each passing year: Increasing compliance complexity drives up costs, and that diversion of investment erodes a bank’s ability to compete.

Banks can choose to play the game differently, by viewing compliance as an integrated part of the data management process. Solutions that leverage application programming interfaces, or APIs, provide a mechanism for technology components to communicate with each other and exchange data payloads. Outside of this approach, transaction data resides in bifurcated systems and requires extra handling, either by software or human intervention, to complete a transaction and book the right data to the core. Having the same data in multiple systems and rekeying data dramatically increase an institution’s risk profile. Why make it harder to “not lose” the game when banks can leverage API-first solutions to ensure that data is only collected once and passes through to the touchpoints where it’s needed? The key to unlocking this efficiency is a compliance architecture that separates the tech stack from the compliance stack. Otherwise, banks are obliged to wait for code changes every time compliance updates are pushed.

Mobile enablement is now as critical for a bank’s success as any product it offers. The customers that banks are trying to reach have no practical limit to their financial services options and are increasingly comfortable with contact-free experiences. According to studies from J.D. Power & Associates released this year, 67% of U.S. bank retail customers have used their bank’s mobile app and 41% of bank customers are digital-only customers. Given historical trends, those numbers are expected to only increase.

Compliance represents an opportunity to remove friction from the mobile banking experience, whether offered through an app or a website. Traditional PDF documents are designed for in-branch delivery and are a clumsy fit for the mobile world. Responsive design applies to compliance content no less than it applies to mobile apps; content needs to adjust smoothly to fit the size of the viewing screen. The concept of “document package” is evolving to the point where a “compliance package” should be constructed on responsive design principles and require minimal user clicks to view and acknowledge the content.

An embedded compliance solution should treat optimized mobile channels as table stakes. To survive and thrive in this environment, institutions need to be where their customers are, when they are there. Traditional banker’s hours have officially gone the way of the dodo.

Embedded compliance can also enhance bank data security in the event of a breach. It is difficult to overstate the reputational damage that results from a data breach. Embedded compliance offers critical safeguards for sensitive customer information, bolstering an institution’s overall security profile. Legacy compliance or document-prep solutions often require duplicate data entry and expose customer personal identifiable information to the inherent data breach risks that come with multiple databases scattered across technology platforms. Look for solutions that do not store PII data, and instead offer bi-directional integrations with your platform.

Increasing demand for digital engagement provides banks with opportunities to rethink their technology stacks. Management should evaluate each component for its potential to address a myriad of business needs. Compliance solutions can sharpen or dull a bank’s competitive edge and should be considered part of a strategic plan to grow business. Who knows, maybe someday compliance will actually become “cool”? A dreamer can dream.

Why Banks Should Scrap Their Digital Strategy

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The last thing banks need when they pursue a digital transformation is a digital strategy.

Not too many banks get this right. Rather than create a digital strategy, companies instead need one cohesive enterprise strategy for how to be the best in serving their clients’ needs.

Setting up distinct channel strategies, or a digital strategy that runs outside of your bank strategy, only generates a bunch of disparate go-to-market ideas. That siloed approach puts your bank on a road to failure by generating and instigating conflicts, as teams vie for differentiated levels of support and resources to strengthen now-competing channels.

Instead of standing on its own, digital should shape and drive your single banking strategy. You are striving for integrated omnichannel delivery, which will translate into the best experience no matter how customers engage with you. Even if you want customers to handle the overwhelming percentage of their banking online, many will continue to walk into branches, particularly for complex transactions like mortgage applications, and call you with questions.

Granted, safer-at-home guidance in response to the coronavirus pushed digital adoption forward, more by necessity than desire. In July, nearly five months after the pandemic started, 91% of consumers conducted banking online, mostly to deposit checks or review account balances. Even more striking: 40% of consumers reported using their bank’s mobile app more often. But bankers shouldn’t take these adjustments for granted or consider them permanent.

Customers don’t care that different teams manage your digital, branch and telephone channels. They want to trust you to meet them wherever they are, and not have to explain who they are and what they want every time they interact with your bank. Digital allows you to walk that fine line with insights to follow their electronic footprints to specific products that match their financial needs.

Digital Is a Tool, Not a Product
This is so important that I need to repeat it: Digital is a tool, not a product.

I already know some folks are saying, “But, yes, it is. We produced a mobile app.” That’s not the same. You created that app for its own purpose. It also needs to be connected to something else — your banking systems — and deliver a real solution.

Granted, your bank needs digital visionaries who can envision powerful, engaging capabilities and stay ahead of customers. But these leaders must start with your banking strategy and weave their innovative ideas into that bedrock. Your team should be constantly stepping up its capabilities and services, and positioning them in a near-linear fashion alongside the customer journey so that customers can get what they want, when they need it.

And while you should never have a distinct digital strategy, you do need a dedicated team to monitor and track performance in this channel and identify new customer needs and opportunities. This is the essence of digital transformation, as you continue iterating your offerings and migrating more customers and transactions into your digital channel.

Changing the Internal Mindset
Digital transformation is about changing who you are as a bank and bringing that to your customers. The starting point is always your enterprise strategy, which anchors your value propositions on how you serve customers and your role in the community.

Every bank associate will have a role in achieving the future vision defined in that strategy. Be clear on how digital connects to your bank strategy and communicate expectations so that everyone from the call center team to the C-suite understands where they fit in. Even as your bank inches forward, it remains on a treadmill: continuing to advance to stronger performance that outpaces the competition but never crossing the finish line.

As you develop your bank’s enterprise strategy, establish and monitor metrics upfront to gauge success and maturity, including in the digital channel. Some metrics to consider include improved efficiency, the amount of customers adopting digital behaviors and successfully escalating the right transactions in your digital channel.

Be sure to measure progress in three dimensions: Are you getting more efficient as customers migrate to higher digital usage? Are you freeing up funds to invest in other initiatives? And are you maintaining the customer experience that defines your bank?

Because if you lose that in the long run, you’re going to lose your customers.

Increasing Customer Engagement to Exceed Expectations

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The new normal produced by the pandemic has underpinned the need for change and connection.

One impacted area are the adjustments organizations are making as they rediscover the benefits of connecting with consumers, rather than simply selling them a product. These businesses are on the right track, as one thing is becoming abundantly clear in the wake of Covid-19: This is not the time to solely sell and advertise.

While advertising and selling inevitably play a big role in business operations, companies are often too focused on these two aspects and it doesn’t always pay off. Now is the time to connect, reach and engage with consumers on a deeper level. The coronavirus pandemic and economic fallout has impacted nearly all areas of consumers’ lives, and their interactions and needs from their banks and financial institutions need to change as a result.

Focusing on advertising and selling may work for some organizations, but with growing consumer expectations, this just won’t do for banks. Customers choose banks partially because of their emphasis on customer service and will be annoyed if the institution tries to advertise or sell them a product that doesn’t match their financial needs.

Connection goes beyond having the best catchphrase or the sunniest stock photo. True engagement is driven by identifying customer needs and communicating relevant solutions, peaking their interest and building connections that will last.

Right now, traditional, product-focused promotional efforts and marketing don’t work because people’s daily lives have drastically changed. Their financial situations may have been altered. A more personal approach develops connections and loyalty that will last for years.

It is more important than ever that banks use customer and business intelligence effectively to promote relevant products and services. Some institutions may need to return to their roots and their initial goal: to serve their communities and the people that live in them. This approach may sound simplistic, but it can prove challenging to achieve.

And banks, like their customers, don’t want to merely survive this health crisis, they want to thrive in these unprecedented times. It takes a shift in strategy to do so. “In a matter of weeks, digital and mobile banking technologies went from being a ‘nice to have’ to a ‘must have.’” The pandemic was even the catalyst for tech adoption at some financial institutions. With the help of data-driven communication systems, one-on-one communication is both realistic and accessible. The massive drive for digital solutions allows banks to reassess digital access to products and services. This immediate boost in digital engagement offers a huge opportunity for institutions that are implementing digital marketing plans, perhaps for the first time.

Practically applied, banks need to turn to smart technology to create a clear path to build better customer relationships and return to the longstanding values of one-on-one communication. While this may seem straightforward, using forward-thinking, innovative technology as the way to “get back to their roots” is an approach not previously imagined by many bank executives.

Utilizing a data-driven digital infrastructure allows banks to reach customers personally, uniquely and instantly. Banks need to embrace comprehensive digital outreach to touch people where they are with the services they need most. Customers still need access to financial services, even if they are avoiding branch locations and ATM lines. The solution is simple: Be the bank that communicates what options are easily accessible and available to them. Be the branch that shows that they care. With the help of an intelligent digital experience platform and the right technology, banks can automate the relevant communications, so the right messages reach the right person at the right financial time for them.

The pandemic sparked a much-needed shift: from being overly focused on advertising, selling and pushing products and services to establishing and building better customer relationships, increasing customer engagement as well as gaining consumers’ trust and loyalty for years to come. Returning to your bank’s original mission of serving the community will give you the ability to target consumers at the exact right time in their financial journey – reaching each customer’s specific needs and allowing banks to engage with their customers.

FinXTech Special Report: Mobile Banking

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Mobile-Report.pngIn September 2017, Amazon.com’s patent for “1-Click” checkout lapsed. It was a foundational moment in e-commerce. Waves of digital retailers streamlined their purchasing processes. The moment reframed customer expectations. And meeting those expectations became a matter of survival.

Simplifying the checkout process, Amazon chairman and CEO Jeff Bezos believed, would reduce cart abandonment and increase conversion rates — the percentage of shoppers who complete the purchasing process. Cart abandonment is a huge problem in retail, where an estimated 69.5% of digital carts go unclaimed.

Online merchants of books and sweaters aren’t the only businesses that need to care about this; banks do too.

Customer expectations are fluid, flowing from one industry to the next. Amazon and other tech giants set the standard for the digital experience; banks and other companies must now follow it. Customers expect to acquire their new credit card as easily as they can download the latest Taylor Swift album.

Banks may not obsess about cart abandonment and conversion rates to the extent that other e-commerce companies do, but the same concepts apply to making loans and attracting deposits over digital channels. That’s why the principles of modern design are so important. Taking cues from companies like Amazon isn’t just a best practice; increasingly, it’s a matter of success and failure.

Nowhere is design more important than on mobile devices, which have emerged as the primary channel banks use to serve customers and is the purpose of this FinXTech Intelligence Report, Mobile Banking: How Leading Banks Make Modern Apps That Drive Sales.

The report unpacks mobile bank design: why an attractively designed experience will be critical to growing engagement, and the processes that have guided regional and community banks in creating their respective apps. It includes:

  • The rise of mobile banking
  • An overview of key features and functions
  • How modern design affects usability
  • Q&A with USAA’s chief design officer
  • A digital checklist to evaluate a bank’s offerings and approach

To learn more, download our FinXTech Intelligence Report, Mobile Banking: How Leading Banks Make Modern Apps That Drive Sales.

To access our earlier report on APIs, click here.

Four Digital Lessons from the Pandemic

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Rare Opportunity for Change

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Jeff Rose believes there’s no rush to reopen his bank’s branches.

Davenport, Iowa-based AmBank Holdings’ eight branch lobbies have been closed since March, limiting physical interactions to drive-thru lanes and by appointment. Even then, the $373 million bank is exercising caution — customers who schedule appointments have to complete a questionnaire, have their temperature taken by an American Bank & Trust employee, wear a mask and socially distance.

“A lot of banks in our area did reopen their lobbies [around] mid-June,” says Rose, the bank’s CEO. “Many of those are now reclosing, some of them because of the spike in the virus.”

The Covid-19 pandemic has forced banks and other businesses to change their operations to remain open. But while the health crisis underlying the economic downturn may be temporary, it offers banks an opportunity to rethink the role of the branch in serving the customer.

For some financial institutions, Covid-19 has merely accelerated this shift.

Bank OZK, based in Little Rock, Arkansas, doesn’t focus singularly on branch strategy, explains Carmen McClennon, chief retail banking officer of the $26 billion bank. Instead, OZK considers how the combination of its digital, ATM, call center and branch channels can build a high-quality client experience. Its lobbies have remained open during the pandemic, but social distancing measures still limit in-person connection.

“The reality is, we’re not face-to-face and having that critical contact with our clients on such a regular basis,” she adds. “What worries me is I’ve got to think about what we’re doing in these other channels so we’re at the top of the consideration when our client has their next financial need.”

An analysis of consumer traffic trends by the advisory firm Novantas finds weekly branch visits down by 20% as of July 14, since the pre-pandemic period of Jan. 30 through Mar. 4, 2020. An earlier survey found branch activity unlikely to recover, with only 40% of consumers saying they’d return to their local branch once the pandemic abates.

Separately, Fidelity National Information Services (FIS) reported that new mobile banking registrations increased by 200% in April, and mobile banking activity rose by 85%.

McClennon believes that personalization across channels will be important. “We’re looking at things like smart offers when they’re logging in to pay a bill,” she explains. Also, “how do we personalize an ATM experience so we’re maintaining that relationship with our client? I think we’ve got to challenge ourselves [to do that].”

OZK plans to unveil mobile app enhancements soon, and will thoroughly train branch and call center staff on its features. “We want them to confidently promote it” to clients, says McClennon.

Covid-19 doesn’t appear to be driving OZK to close locations. These decisions will be made by branch and by market, McClennon explains, based on OZK’s ability to serve its clients and meet its strategic objectives.

It recently sold four branches — two each in South Carolina and Alabama. “Candidly, we didn’t have enough density to deliver a strong client experience. That’s really challenging in a low-density market,” says McClennon. But she points out that the bank opened as many branches as it closed — three — in 2019.

Rose says AmBank will soon field surveys to better understand customer preferences and help the bank’s leadership team plot a path forward. While drive-thru transactions have risen 10% over the past couple of months — which Rose partially attributes to the warmer weather — mobile and online usage are back to pre-pandemic levels.

Data will drive AmBank’s reopening plans, but Rose believes that some lobbies will remain closed in less-frequented locations where customers have adapted to drive-up service.

When its lobbies reopen, Rose believes it will be a rare opportunity to change how customers interact with his bank. AmBank has invested in new technology, including DocuSign and improved payment capabilities; they’re also looking at self-service technology, like interactive teller machines. Rose is inspired by Apple’s stores and the hair salon chain Great Clips, which let customers schedule service appointments digitally.

“We’ve got one shot at modifying the client experience for the betterment of our customer,” he says. “We love our customers, we want to see them, but if they can self-serve and not have to drive to the bank, it’s going to be a better experience for them overall. How do we take advantage of the pandemic situation to permanently upgrade the client experience?”

Defending Commercial Deposits From Emerging Risks

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The competition for commercial deposits has become fiercer in the new decade.

The rate of noninterest deposits growth has been declining over the last three years, according to quarterly reports from the Federal Deposit Insurance Corp. The percentage of noninterest deposits to total deposits has also dropped over 250 basis points since 2016. This comes as the cost of funding earning assets continues to rise, creating pressure on banks’ net interest margins.  

At the same time, corporate customers are facing changes in their receipt of payments. Emerging payment trends are shifting payers from paper-based payments to other methods and avenues. Checks and paper-based payments — historically the most popular method — continue to decline as payers’ preferred payment method. Electronic payments have grown year-over-year by 9.4%.

Newer payment channels include mobile, point of presentment and payment portals. However, these new payment channels can increase the cost of processing electronic payments: 88% of these payments must be manually re-keyed by the accounting staff, according to one study. This inefficiency in manually processing payments increases costs and often leads to customer service issues.

Treasurers and senior corporate managers want automated solutions to handle increased electronic payment trends. Historically, banks have served their corporate customers for years with wholesale and retail lockbox services. But many legacy lockbox services are designed for paper-based payments, which are outdated and cannot handle electronic payments. Research shows that these corporate customers are turning to fintechs to solve their new payment processing challenges. Payments were the No. 1 threat that risked moving to fintechs, according to a 2017 Global Survey from PricewaterhouseCoopers.

Corporate customers are dissatisfied with their current process and are looking to use technology to modernize, future-proof, and upgrade their accounts receivable process. The top five needs of today’s treasurer include: enterprise resource planning (ERP) integration, automated payment matching, support for all payment channels, consolidated reporting and a single historical archive of their payments. 

Integrated receivables have three primary elements: payment matching, ERP integration and a single reporting archive. Automation matches payments from all channels using artificial intelligence and robotic process automation to eliminate the manual keying process. The use of flexible business rules allows the corporate to tailor their operation to meet their needs and increase automated payments over time. A consolidated payment file updates the corporates’ ERP system after completing the payment reconciliation process. Finally, integrated receivable provides a single source of all payment data, including analytics and reporting. An integrated receivables platform eliminates many disparate processes (most manual, some automated) that plague most businesses today. In fact, in one recent survey, almost 60% of treasurers were dissatisfied with their company’s current level of AR automation.

Banks can play a pivotal role in the new payment world by partnering with a fintech. Fintechs have been building platforms to serve the more-complex needs of corporate treasury, but pose a threat to the banks’ corporate customers. A corporate treasurer using a fintech for integrated receivables ultimately disintermediates the bank and now has the flexibility to choose where to place their depository and borrowing relationships. 

The good news is that the treasurer of your corporate customer would prefer to do business with their bank. According to Aite Research, 73% of treasurers believe their bank should offer integrated receivables, with 31% believing the bank will provide these services over the next five years. Moreover, 54% of the treasurers surveyed have planned investments to update their AR platform in the next few years. 

Many fintechs offer integrated receivables today, with new entrants coming to market every year. But bankers need to review the background and experience of their fintech partner. Banks should look for partners with expertise and programs that will enable the bank’s success. Banks should also be wary of providers that compete directly against them in the corporate market. Partnering with the right fintech provides your bank with a valuable service that your corporate customers need today, and future-proofs your treasury function for new and emerging payment channels. Most importantly, integrated receivables will allow your bank to continue retaining and attracting corporate deposits.