Optimize Fintech Spending With 3 Key ROI Drivers

Bankers are evaluating their innovation investments more closely as customer expectations continue to skyrocket and margins shrink. Technology spending shows no sign of slowing any time soon. In fact, Insider Intelligence forecasts that U.S. banks’ overall technology spending will grow to an estimated $113.71 billion in 2025, up from $79.49 billion in 2021.

The evolution of the fintech marketplace is challenging banks to strategically choose their next fintech project and calculate the return on those investments. How do they ensure that they’re spending the money in the right places, and with the right providers? How can they know if the dollars dedicated toward their tech stack are actually impacting the bottom line? They can answer these key questions by evaluating three key ROI drivers that correlate with different stages of the customer journey: acquire, serve and deepen or broaden.

The first ROI driver, acquire, relates to investments focused on customer acquisition that are often the main focus of new technology initiatives — for good reason. Technology that supports customer acquisition, such as account opening or loan origination, makes bold claims about reducing abandonment and driving higher conversion rates. However, these systems can also lead to a disjointed user experience when prospects move between different systems, each with their own layout and aesthetic.

When bankers search for solutions that improve customer acquisition, they should ensure the solution provides the level of flexibility required to meet and exceed customer expectations. A proof of concept as part of the procurement process can help the bank validate the claims made by the fintechs under consideration. Remember: A tool that is more configurable on the front-end likely requires more up-front work to launch, but should pay dividends with a higher conversion rate. A style guide that describes the bank’s design principles can help implementation go smoother by ensuring new customers enjoy a visually consistent, trustworthy onboarding experience that reinforces their decision to open the account or apply for the loan.

The next ROI driver, serve, is about critically evaluating customer service costs, whether that’s achieved through streamlining internal processes, integrating disparate systems or empowering customers with self-service interfaces. While these investments are usually aimed at increasing profitability, they often contribute to higher customer satisfaction.

An often-overlooked opportunity is to delegate and crowdsource content through nonbank messaging channels, like YouTube or Reddit. A Gartner study found that millennials and Gen Z customers prefer third-party customer service channels; some customers even reported higher satisfaction after resolving their issue via outside channels. A majority of financial services leaders say they are challenged to provide enough self-service options for customers; those looking to address that vulnerability and improve profitability and customer satisfaction may want to explore self-service as a compelling way to differentiate.

The final ROI driver is about unlocking growth by pursuing strategies that deepen or broaden your bank’s relationships with existing customers while expanding the strategic core of the company. A study by Bain & Co. evaluated the effectiveness of different growth moves performed by 1,850 companies over a five-year period. Researchers found six types of growth strategies that outperformed: expand along the value chain, grow new products and services, use new distribution channels, enter new geographies, address new customer segments and finally, move into the “white space” with a new business built around a strong capability.

The key to any successful innovation initiative is to view it not as a one-time event, but rather a discipline that becomes central to your institution’s strategic planning. Bain found that the average companies successfully launches a new growth initiatives only 25% of the time. However, that rate more than doubles when organizations embrace innovation as a cyclical process that they practice with rigor and discipline.

As your bank seeks to better prioritize, optimize and evaluate its fintech investments, carefully consider these three key ROI drivers to identifying where the greatest need stands can help. This will ensure your institution’s valuable technology dollars and employee efforts are spent wisely for both the benefit of the customer and growth of the bottom line.

The Next 5 Years in Banking Is Plumbing

Of the 1,400-plus people wandering the halls of the JW Marriott Desert Ridge Resort and Spa in Phoenix last week during Bank Director’s Acquire or Be Acquired Conference, more than half wore ties and suit jackets. Roughly a quarter sported sneakers and hoodies.

Bankers mingled with fintech entrepreneurs in sessions on bank mergers and growth, followed by workshops and discussions with titles such as “Curating the Right Digital Experience for Your Customers.” It’s an embodiment of the current environment: Banks are looking to an increasing array of financial technology companies to help them meet strategic goals like efficiency and improved customer experience online and on a mobile device.

Investors are pouring money into the fintech sector right now, a spigot that is fueling competition for banks as well as producing better technology that banks can buy. Last year, venture capitalists invested $8.7 billion on digital banking, credit card, personal finance and lending applications, more than double the amount the prior year, according to Crunchbase.

At the conference, venture fund managers filtered through the crowd looking for bankers willing to plunk down money for funds devoted to start-up fintech companies. Many of them have found willing investors, even among community banks. In Bank Director’s 2021 Technology Survey, 12% of respondents said they had invested directly in technology companies and 9% said they had invested in venture funds in the sector. Nearly half said they had partnered with a technology company to come up with a specific solution for their bank.

It turned out that an M&A conference goes hand in glove with technology. More than half of all banks looking to acquire in Bank Director’s 2022 Bank M&A Survey said they were doing so to gain scale so they would have the money to put into technology and other investments.

“The light bulb has gone off,” said Jerry Plush, vice chairman and CEO of $7.6 billion Amerant Bancorp in Coral Gables, Florida, speaking at the conference for fintech companies one floor above, called FinXTech Transactions. Directors and officers know they need to be involved in technology partnerships, he said.

Even longtime bank investors acknowledge the shifting outlook for banks: John Eggemeyer, founder and managing principal of Castle Creek Capital, told the crowd that the next five years in banking is going to be about “plumbing.”

However, cobbling together ancient pipes with new cloud-based storage systems and application programming interfaces has proven to be a challenge. Banks are struggling to find the skilled employees who can ensure that the new fintech software they’ve just bought lives up to the sales promises.

Steve Williams, founder and CEO of Cornerstone Advisors, said in an interview that many banks lack the talent to ensure a return on investment for new bank-fintech partnerships. The employee inside a bank who can execute on a successful partnership isn’t usually the head of information technology, who is tasked with keeping the bank’s systems running and handling a core conversion after an acquisition. Engaging in a relationship with a new fintech company is similar to hiring a personal trainer. “They’re not going to just deliver you a new body,” Williams said. “You have to do the work.”

He cited banks such as Fairmont, West Virginia-based MVB Financial Corp. and Everett, Washington-based Coastal Financial Corp. for hiring the staff needed to make fintech partnerships work.

Eric Corrigan, senior managing director at Commerce Street Capital, said banks should consider whether their chief technology officer sits on the executive team, or hooks up the computers. “Rethink the people who you’re hiring,” he said.

Jo Jagadish, an executive vice president at TD Bank who spoke at the conference, has a few years of experience with bank/fintech partnerships. Prior to joining TD Bank USA in April 2020, she was head of new product development and fintech partnerships with JPMorgan Chase & Co. “You can’t do your job and a fintech partnership on the side,” she said in an interview. “Be focused and targeted.”

Jagadish thought banks will focus the next five years on plumbing but also improving the customer experience. Banks shouldn’t wait for the plumbing to be upgraded before tackling the user experience, she said.

Cornerstone’s Williams, however, thought the work of redoing a bank’s infrastructure is going to take longer than five years. “It’s going to be a slog,” he said. “The rest of your careers depends on your competency in plumbing.”

Plumbing may not sound like exciting work, but many of the bankers and board members at the conference were happy to talk about it. Charles Potts, executive vice president and chief innovation officer for the Independent Community Bankers of America, said that fintech companies and their software can put community banks on par with the biggest banks and competitor fintechs on the planet. Nowadays, community banks can leverage their advantage in terms of personal relationships and compete on the technology. All they have to do is try.

Community Banks That Fail to Leverage Technology May Become Obsolete


7-31-KPMG.jpgThere is unprecedented change afoot in the banking industry. Technology is rapidly evolving and it’s changing consumer expectations about how banks should be serving them.

The ubiquity of mobile devices and tablets has changed the banking business forever. An example of how quickly technology is transforming our lives can be seen in your own board room. Two years ago, boards used printed materials for meetings. Now, almost all my clients are using tablets to access board meeting materials.

Community banks, in particular, have been slower to embrace technology as a means to interact with and serve customers. In doing so, they risk becoming obsolete. Directors and boards will need to stay on top of this sea change and work with senior management to address it.

Below are some key issues for directors and boards of community banks to consider and discuss with senior management.

Customer Loss Versus Investment Return

The debate inside community bank boardrooms about offering the latest customer-focused technology applications often hinges on whether there is an adequate return on investment (ROI). That, no doubt, is a legitimate question, given the current economic climate and the industry’s profit profile. But the debate needs to go beyond whether the expense is prudent or even if these new tools can actually connect consumers to the bank in faster, more immediate ways.

More to the point, if a bank isn’t already actively working out how to offer these solutions, it may become marginalized by only offering products and services that have become commodities.

The traditional banking products—credit, savings and payments—are necessary ones. But what those products look like and how we interact with our customers is going to change drastically and will be radically different from the services offered today. When trying to recently describe how a passbook worked to my children, I realized that the days are soon coming when it will be just as difficult to describe the concept of a checkbook.

Bank boards will need to engage in active discussions about how and when to offer the new tools customers are demanding, whether those products be remote deposit capture, person-to-person payments, mobile check deposit, “picture pay’’ for bill paying, and remote re-loading of pre-paid cards. Fundamental to survival in our rapidly changing industry is the ability of community banks to leverage their existing strong customer connection in an age when visits increasingly are digital.

Deciding on a course of action, of course, will require careful thought and a solid plan, but it is critical to understand that it would be a costly mistake to wait until these new technologies can cost justify themselves. Customers will simply find another bank that offers what they want.

Evaluate Bank Branch Strategies

Directors and boards also need to assess how these new technology offerings may impact bank branch strategies, where ROI often is a huge consideration. Offerings like remote deposit capture and mobile check deposit can reduce branch traffic as customers no longer need to visit a branch to conduct tasks now enabled by technology. This presents an opportunity to evaluate whether or not real estate and staff expenses can be reduced and offset the costs of technology implementation.

Other technologies such as virtual customer service—where a customer interacts with a service representative based in a remote location via a kiosk that is physically located in a branch—also are impacting branch staffing needs.

Realize Benefits of New Capabilities

Rolling out these new technological capabilities for consumers also can provide hidden benefits. Data generated by the use of these technologies can be harnessed so that community banks can generate actionable insights. For example, a community bank can monitor how frequently a customer remotely re-loads a prepaid card along with the amounts being loaded. If the amount reaches a certain threshold, the bank might consider offering this customer a checking/debit account or another product.

Directors and boards need to know if their community banks have the ability to collect and analyze this data in a meaningful way. If not, community banks can either build in-house capabilities or use external providers.

Take the Road Less Traveled

Community banks that continue to turn a blind eye towards new technology may be on the cusp of irrelevance.

The challenge will require a wholesale shift in the way a community bank conducts business. The issue revolves around how the bank’s board and the bank’s management behave— how the organization goes about the business of banking.

Our industry must heed the hard lessons learned from other industries—such as the print media and music distribution—that failed to adjust to new technological advances that eradicated their long-held business models overnight.

The model that defined our industry for generations has now been turned on its head. The road to transforming your community bank won’t be short. But, it’s a road that must be taken.