How Fintechs Can Help Advance Financial Inclusion

Last year, the coronavirus pandemic swiftly shut down the U.S. economy. Demand for manufactured goods stagnated while restaurant activity fell to zero. The number of unbanked and underbanked persons looked likely to increase, after years of decline. However, federal legislation has created incentives for community banks to help those struggling financially. Fintechs can also play an important role.

The Covid-19 pandemic has affected everyone — but not all equally. Although the number of American households with bank accounts grew to a record 95% in 2019 according to the Federal Deposit Insurance Corp.’s “How America Banks” survey, the crisis is still likely to contribute to an increase in unbanked as unemployment remains high. Why should banks take action now?

Financial inclusion is critical — not just for those individuals involved, but for the wider economy. The Financial Health Network estimates that 167 million America adults are not “financially healthy,” while the FDIC reports that 85 million Americans are either unbanked or “underbanked” and aren’t able to access the traditional services of a financial institution.

It can be expensive to be outside of the financial services space: up to 10% of the income of the unbanked and underbanked is spent on interest and fees. This makes it difficult to set aside money for future spending or an unforeseen contingency. Having an emergency fund is a cornerstone of financial health, and a way for individuals to avoid high fees and interest rates of payday loans.

Promoting financial inclusion allows a bank to cultivate a market that might ultimately need more advanced financial products, enhance its Community Reinvestment Act standing and stimulate the community. Financial inclusion is a worthy goal for all banks, one that the government is also incentivizing.

Recent Government Action Creates Opportunity
Recent federal legislation has created opportunities for banks to help individuals and small businesses in economically challenged areas. The Consolidated Appropriations Act includes $3 billion in funding directed to Community Development Financial Institutions. CDFIs are financial institutions that share a common goal of expanding economic access to financial products and services for resident and businesses.

Approximately $200 million of this funding is available to all financial institutions — institutions do need not to be currently designated as a CDFI to obtain this portion of the funding. These funds offer a way to promoting financial inclusion, with government backing of your institution’s assistance efforts.

Charting a Path Toward Inclusion
The path to building a financially inclusive world involves a concerted effort to address many historic and systemic issues. There’s no simple guidebook, but having the right technology is a good first step.

Banks and fintechs should revisit their product roadmaps and reassess their innovation strategies to ensure they use technologies that can empower all Americans with access to financial services. For example, providing financial advice and education can extend a bank’s role as a trusted advisor, while helping the underbanked improve their banking aptitude and proficiency.

At FIS, we plan to continue supporting standards that advance financial inclusion, provide relevant inclusion research and help educate our partners on inclusion opportunities. FIS actively supports the Bank On effort to ensure Americans have access to safe, affordable bank or credit union accounts. The Bank On program, Cities for Financial Empowerment Fund, certifies public-private partnership accounts that drive financial inclusion. Banks and fintechs should continue joining these efforts and help identify new features and capabilities that can provide affordable access to financial services.

Understanding the Needs of the Underbanked
Recent research we’ve conducted highlights the extent of the financial inclusion challenge. The key findings suggest that the underbanked population require a nuanced approach to address specific concerns:

  • Time: Customers would like to decrease time spent on, or increase efficiency of, engaging with their personal finances.
  • Trust: Consumers trust banks to secure their money, but are less inclined to trust them with their financial health.
  • Literacy: Respondents often use their institution’s digital tools and rarely use third-party finance apps, such as Intuit’s Mint and Acorns.
  • Guidance: The underbanked desire financial guidance to help them reach their goals.

Financial institutions must address both the transactional and emotional needs of the underbanked to accommodate the distinct characteristics of these consumers. Other potential banking product categories that can help to serve the underbanked include: financial services education programs, financial wellness services and apps and digital-only banking offerings.

FIS is committed to promoting financial inclusion. We will continue evaluating the role of technology in promoting financial inclusion and track government initiatives that drive financial inclusion to keep clients informed on any new developments.

The Robust Potential of Robo-Advisors

When the New York Stock Exchange closed its doors on its physical trading floors in March of 2020, the immediate future of investing looked fraught with trepidation. The Dow Jones Index had plunged nearly 3,000 points on March 16 — the largest point drop in its history — and many saw this as a grim indicator of the months to come.

Others saw an opportunity.

During the second quarter of 2020, at the onslaught of the pandemic, Apex Clearing’s Next Investor Outlook Report saw a 27.5% increase in volume of trades as compared to the first quarter. A Charles Schwab study found that 15% of U.S. investors entered the market for the first time during 2020. Robinhood claimed 13 million users by the end 2020, a number some now believe to be near 20 million, according to the news publication CNBC.

Interest in investing has arguably never been more popular, and this trend has no signs of slowing down. CB Insights’ State of Wealth Tech Q1’21 reported that the wealth tech sector raised $5.6 billion in capital in the first quarter of 2021, surpassing the total amount raised during all of 2020 ($5.2 billion). Investors plowed the most money into retail investing, with $4.2 billion raised during the first quarter.

Consumers, specifically new individual investors, are showing that they want in on the action. And banks are in a prime position to introduce their customers to all types of services associated with wealth management via robo-advising technology.

Implementing robo-advising capabilities is an affordable way for banks to provide personalized financial advice to a broad segment of customers. There is typically no asset minimum, and services are available at any time. Also worth noting, banks don’t have to pull professionals away from their high net worth clients and accounts.

Robo-advisors aren’t strictly rooted in investment capabilities. Robinhood and other similar retail investment technology platforms get a lot of press, but there are hundreds of wealth management companies around the world that offer retirement, personal finance management, savings, onboarding, back office automation, reporting, portfolio analytics and aggregation, as well as automated trade execution services.

ABAKA, for example, is a London-based fintech that uses its artificial intelligence technology to offer bank customers retirement, wealth management, banking, workplace and mortgage advice, among other services. Their technology isn’t limited to one sector of wealth management, and customers are in control of what type of advice they seek out depending on their current needs.

Bambu takes a similar stance when it comes to offering individuals specific financial advice at specific moments in time. “Everybody wants a better financial life,” says Ned Phillips, CEO and founder of the Singaporean digital wealth management technology developer. And while this is a universal want, the path to financial security is as unique as snowflakes are.

Phillips points out that the banks that will succeed in keeping customer accounts will be the ones that understand their goals and desires, and subsequently provide personal and actionable advice, as well as recommended next steps. “You need a smaller, nimble company to provide that tech,” he adds. And currently, he thinks fintechs are much better positioned than a bank to understand how to make this attainable for each individual user.

While robo-advisors are an incredible way to both democratize and personalize financial advice, they do not diminish the importance of professional advisor and management services a bank may offer. There will be customers whose needs surpass the services a robo-advisor can offer, and should be transferred to a physical advisor when the time comes.

There isn’t enough time in the world for each individual person to sit down with a financial advisor, but wealth techs with robo-advice capabilities can at least offer it as an option to bank customers. For many, this may be the first time they ever receive financial advice that is tailored to their wants and needs.

Making these services accessible to all will be what sets a bank apart from the rest. And Phillips believes that we’ve barely scratched the surface regarding robo-advising technology and its potential impact on consumer financial wellness. “Today, we’re not even at the beginning.”

Tactical Pillars for Quick Wins in the Challenging Operating Environment

The challenges of 2020 included a landslide of changes in financial services, and the sheer effort by banking professionals to keep operations running was nothing short of historic.

Although there will be some reversion to prior habits, consumers in 2021 have new expectations of their banks that will require more heavy lifting. This comes at a time when many banks in the U.S. are engaging in highly complex projects to redesign their branches, operations and organizational charts. Fortunately, there are some quick win tactics that can support these efforts. Consider the following three “pillar” strategies that offer short-term cost savings and guidelines to set a foundation for operational excellence.

Portfolio Rationalization
Portfolio rationalization need not involve product introductions or retirements. But, given the changing consumer landscape, executives should consider taking a fresh look at their bank’s product portfolios. Due to the many changes in accountholder behavior, certain cost/benefit dynamics have changed since the pandemic began. This fact alone makes re-evaluating and recalibrating existing portfolio strategies a matter of proper due diligence. Rationalizing the portfolio should include revising priorities, adding new features and reassessing risk profiles and existing project scopes.

Process Re-Engineering
Banking executives have been under tremendous pressure recently to quickly implement non-standard procedures, all in the name of uninterrupted service during socially distanced times.

Though many working models will see permanent change, it is critical to optimize these processes early for long-term efficiency, security and customer experience. As the digital curve steepens, banks will need to map out the customer journey across all digital channels to remain competitive. Some process re-engineering methods include eliminating workarounds, streamlining processes and updating legacy policies that are no longer relevant.

Intelligent Automation
Banks are increasingly leveraging technologies classified under the umbrella of intelligent automation. These include machine learning, robotic process automation and artificial intelligence — all of which have become especially relevant to deal with multiple types of high-volume, low-value transactions. Automated workflows remove the clerical aspects of the process from the experts’ plates, allowing them to focus time and energy on more high-value activities. When executed well, intelligent automation works alongside humans, supplementing their expertise rather than replacing it. For example, areas like fraud and underwriting are becoming increasingly automated in repetitive and known scenarios, while more complicated cases are escalated to personnel for further analysis.

Supplier Contracts
Auditing invoices for errors and evaluating vendor contracts might be the last place a banker would look to establish a quick win. However, our benchmarks suggest they can be a critical stepping-stone to bottom-line opportunities. Existing vendor contracts often include inconsistent clauses and undetected errors (such as applications of new pricing tiers missed, etc.). Eventually, minor errors can creep into the run rate that adds up over the years to significant dollar discrepancies. With extensive due diligence or someone in the know, it’s possible to find a six to seven figure lift, simply by collecting intelligence on the prevailing market rates, the available range of functionality and reasonable expectations for performance levels.

While the financial services industry has been keeping operations running uninterrupted, there is no time like the present to optimize operating processes. Accomplishing a few results early  on can free up resources and support long-term gains. Executives should take the time now to optimize operating model structures in order to brace for what comes next. Looking into the increasingly digital future, consumers will continue to expect banks to reinvent and build up their operating models to greater heights.

How FIs Can Take the Speedboat or Extensibility Approach to Digital, Accelerated Financial Services

In a post-pandemic world, legacy financial institution must accelerate their digital processes quickly, or risk ceasing to be relevant.

With financial technology companies like Chime, Varo Money, Social Finance (or SoFi) and Current on the rise, change is inevitable. Alongside the nimble fintech competition, banks face pressure to rapidly deliver new products, as was the case with the Small Business Administration’s Paycheck Protection Program loans. While most legacy institutions try to respond to these business opportunities with manual processes, companies like Lendio and Customers Bank can simply automate much of the application process over digital channels.

Legacy institutions lack the access to the latest technology that digital challengers and fintechs enjoy due to technology ecosystem constraints. And without the same competitive edge, they are seeing declining profit margins. According to Gartner, 80% of legacy financial services firms that fail to adapt and digitize their systems will become irrelevant, and will either go out of business or be forced to sell by 2030. The question isn’t if financial institutions should evolve — it’s how.

To fuel long-term growth, traditional banks should focus on increasing their geographic footprint by removing friction and automating the customer’s digital experience to meet their needs. Millions of Generation Z adults are entering the workforce. This generation is 100% digitally native, born into a world of vast and innovative technology, and has never known life without Facebook, Snapchat, TikTok or Robinhood. In a couple of years, most consumers will prefer minimal human interaction, and expect fast and frictionless user experience in managing their money, all from their smartphone.

Some solutions that traditional banks s have undertaken to enhance their digital experience include:

  • Extending on top of their existing tech stack. In this scenario, financial institutions acquire digital/fintech startups to jump-start a move into digital banking. However, there are far fewer options to buy than there are banks, and few of the best fintechs are for sale.
  • Totally transforming to modern technology. This option replaces the legacy system with new digital platforms. It can come with significant risks and costs, but also help accelerate new product launches for banks that are willing to pay a higher initial investment. Transformations can last years, and often disrupt the operations of the current business.
  • Using the extensibility approach. Another way forward is to use the extensibility approach as a sub-ledger, extending the legacy system to go to market quickly. This approach is a progressive way to deliver fit-for-purpose business capabilities by leveraging, accelerating and extending your current ecosystem.

Institutions that want to enter a market quickly can also opt for the speedboat approach. This includes developing a separate digital bank that operates independently from the parent organization. Speedboats are fintechs with their own identity, use the latest technology and provide a personalized customer experience. They can be quickly launched and move into new markets and unrestricted geography effortlessly. For example, the Dutch banking giant ABN AMRO wanted to create a  fully digital lending platform for small to medium enterprises; in four months, the bank launched New10, a digital lending spinoff.

A speedboat is an investment in innovation — meant to be unimpeded by traditional organizational processes to address a specific need. Since there is a lot of extensibility, the technology can be any area the bank wants to prioritize: APIs, automation, cloud and mobile-first thinking. Banks can generate value by leveraging new technology to streamline operations, automate processes and reduce costs using this approach.

Benefits include:

  • Being unencumbered by legacy processes because the new bank is cloud native.
  • The ability to design the ideal bank through partners it selects, without vendor lock-in.
  • Easier adaption to market and consumer changes through the bank’s nimble and agile infrastructure.
  • Lower costs through automation, artificial intelligence and big data.
  • Leveraging a plug-and-play, API-first open banking approach to deliver business goals.

By launching their own spin-off, legacy banks can go to market and develop a competitive edge at the same speed as fintechs. Modern cloud technology allows banks to deliver innovative customer experiences and products while devoting fewer resources to system maintenance and operational inefficiencies.

If a financial institution cannot make the leap to replace the core through a lengthy transformational journey and wants to reach new clients and markets with next-generation technology, launching a speedboat born in the cloud or opting for the extensibility approach opens up numerous opportunities.

Marketing Campaigns Go High Tech

For years, community banks had to sit on the sidelines while the biggest banks rolled out sophisticated marketing and revenue-generating programs using artificial intelligence.

That’s no longer the case. There are now plenty of financial technology companies offering turnkey platforms tailored for community banks who can’t afford to hire a team of data analysts or software programmers.

“It’s amazing how far the industry has come in just five years in terms of products, regulatory structure and what banking means to customers,” says Kevin Tweddle, senior executive vice president for the Independent Community Bankers of America. Banks and regulators have gotten quite comfortable doing business with fintechs, choosing from a grocery cart full of options, he says.

One of the best examples of this is Huntsville, Alabama-based DeepTarget, which topped the operations category in Bank Director’s 2021 Best of FinXTech Awards. The category rewards solutions that boost efficiencies and growth.

The finalists and winners recognized in the annual awards are put through their paces in a rigorous process that examines the results generated by the growing technology provider space. For more on the methodology, click here.

DeepTarget’s 3D StoryTeller product delivers customized marketing content using 3D graphics that can be produced by a small bank or credit union without an in-house graphic design staff. Marketing messages resemble the video-rich stories on Instagram, Facebook and Snapchat, allowing the smallest financial institutions to compete with the biggest companies’ marketing campaigns.

The Ohio Valley Bank Co., the $1 billion bank unit of Ohio Valley Banc Corp. in Gallipolis, Ohio, has been using DeepTarget’s 3D StoryTeller software since October 2020, says Bryna Butler, senior vice president of corporate communications.

The bank used 3D StoryTeller to market an online portal where people could shop for cars and then apply for an auto loan through Ohio Valley Bank. From January to September of last year, that car-buying website generated just four loans. But after Ohio Valley Bank used DeepTarget’s 3D StoryTeller, the site saw a 1,289% increase in traffic. Using 3D StoryTeller translated into loans, too. Ohio Valley Bank generated 72 loans through the Auto Loan Center from October to December of 2020. Butler believes the response would have been even higher if the bank hadn’t been undercut by competitors with lower rates.

3D StoryTeller is a recent addition to DeepTarget’s line up; Ohio Valley Bank has been working with the company for about a decade. DeepTarget uses performance analytics among other options to recommend specific products and services that it believes will cater to each customer’s interests, similar to the way Facebook targets ads based on its knowledge of its users. “It’s not just scheduling ads,” Butler says. DeepTarget reports the return on investment for each campaign to the bank every month, including how many clicks translated into new account openings.

When the pandemic hit in March 2020 and the bank put its marketing plans on hold, the graphics program easily adjusted to feature messaging on how to use the bank’s digital banking or drive-thru customer service.

Although DeepTarget integrates with several cores, Butler says the software is also core-agnostic, in the sense that she can pull a CSV file on her customers and send that securely to DeepTarget.

Ohio Valley pays a small monthly fee for DeepTarget, but Butler says the software pays for itself every year. Other Best of FinXTech Awards finalists in the operations category include the marketing platform Fintel Connect, which tracks results and connects ad campaigns to social media influencers, and Derivative Path, a cloud-based solution that helps community banks manage derivative programs and foreign exchange transactions.

Evaluating Your Technology Relationship

 

It’s tough to find a technology provider that puts your bank’s needs first. Yet given the pace of change, it’s becoming crucial that banks consider external solutions to meet their strategic goals — from improving the digital experience to building internal efficiencies. In this video, six technology experts share their views on what makes for a strong partnership.

Hear from these finalists from the 2021 Best of FinXTech Awards:

  • Dan O’Malley, Numerated
  • Nicky Senyard, Fintel Connect
  • Zack Nagelberg, Derivative Path
  • Doug Brown, NCR Corp.
  • Joe Ehrhardt, Teslar Software
  • Jessica Caballero, DefenseStorm

To learn more about the methodology behind the Best of FinXTech Awards, click here.

If you’re a bank executive or director who wants to learn more about the FinXTech Connect platform, click here. If you represent a technology company that is currently working with financial institutions, click here to submit your company for consideration.

How to Reduce Application Abandonment and Grow Revenues

Banks drive significant portions of their revenues through products such as credit cards, mortgages and personal loans. These products help financial institutions improve their footprint with current customers and acquire new customers. The coronavirus pandemic has increased demand for these products, along with an excellent opportunity to improve revenues.

But applying for these offerings has become a challenge due to changes in the in-person banking environment and the limited availability of customer support outside traditional banking hours. Even though customers and prospects are attempting to apply for these products online, financial institutions are experiencing low conversions and high drop-off rates. Simple actions — such as an applicant not checking an agreement box or not having clarity about a question — are behind over 40% of the application abandonment instances.

Financial institutions can tackle such situations to improve the application journey and reduce instances of abandonment with products such as smart conversion that are powered by artificial intelligence (AI).

How Does Smart Conversion Work?
AI is being increasingly incorporated into various functions within banks to help tackle a variety of issues. Incorporating AI can enhance customer service, allowing customers to become more self-sufficient and quickly find answers to questions without long wait times or outside of bank hours.

In smart conversion, an AI-powered assistant guides applicants throughout the application process, step by step, providing tips and suggestions and answering questions the applicant may have. Smart conversion achieves this through its AI co-browsing capability. In AI co-browsing, the AI assistant snaps on to the application form and proactively helps fill out the application form if it sees a customer slow down. If an applicant has questions, it helps them at the moment of doubt and ensures they continue with the application. This enables applicants to complete the form with ease, without additional assistance from someone within the financial institution.

Say there is a portion of an application that stops an prospective customer in their tracks: They are not sure of its meaning. Smart conversion will proactively assist them with the clarification needed at that moment. Applicants can also interact with the smart conversion assistant at any time to ask questions. For applicants already in the system, the smart conversion assistant can autofill information already available about them, making the application process more seamless and efficient.

The smart conversion assistant provides complete flexibility to the bank to choose the parts of an application that should deliver proactive help to applicants. It also offers insights on the customer journey and details why applicants drop off — continually enabling financial institutions to improve the customer journey.

Better Business with Smart Conversion
Smart conversion helps financial institutions increase revenues and enhance the customer experience by assisting applicants and improving application completion rates. These tools have proven to increase conversions by up to 30% — a considerable improvement to financial institutions of any size.

Financial institutions must look at the current offerings in their technology suite and explore ways to incorporate valuable tools to become more efficient and grow. They should consider leveraging smart conversion to reduce application abandonment rates and the assistance needed from the call center or internal staff while growing revenues.

In a time when banks are fiercely competing for customers’ valuable business and relationships, AI-powered tools like smart conversion that can be set up easily and deliver results swiftly will be key.

Deal Integration Can Transform Finance, Risk and Regulatory Reporting

A number of banks announced mergers and acquisitions in 2020, capitalizing on growth opportunities against a forbidding backdrop of chronically low interest rates and anemic economic growth during the Covid-19 pandemic.

The deals ranged from more moderately sized with a few headline-grabbing mega-mergers —a trend that expected to continue through 2021.

The appeal of M&A for regional and superregional institutions in the United States is that the right transaction could create big benefits from economies of scale, and enhance the proforma company’s ability to gain business. While the number of deals announced in this environment are modest, the stakes involved in contemplating and executing them certainly are not. Nor is the work that banks will face after a combination. Once the transaction has been completed, the hard work begins.

A Closer Look From Regulators
One potential outcome is added scrutiny from the authorities; a new merged entity, with more assets and a broader range of activities, could have more complex risk calculations and reporting obligations to deal with.

Overall, regulators have sharpened their focus on banks during and after the merger process by performing additional audits, more closely scrutinizing key figures and ensuring that the M&A plan is being adhered to. Even if there are no significant changes to a firm’s profile with regulators, or if any needed changes in risk and reporting obligations are manageable, the formidable task of combining the operations of two organizations remains. A single, seamless whole must be assembled from two sets of activities, two work forces with their own culture and two sets of technological assets.

Merging the Parts, Not Just the Wholes
None of these issues is distinct from the others. Consider the technology: The proforma company will have to contend with two data systems — at least. Each company’s data management architecture has staff that makes it run using its own modus operandi developed
over years.

And that is the best-case scenario. Joining so many moving parts is no small feat, but it provides no small opportunity. Deal integration forces the constituent institutions to reassess legacy systems; when handled correctly, it can assemble a comprehensive, fully integrated whole from existing and new tech to meet the combined entity’s compliance and commercial needs.

Creating the ideal unified finance, risk and reporting system starts with an honest evaluation of the multiple systems of the merging partners. Executives should take particular care to assess whether the equipment and processes of the merged entity are better than the acquirer’s, or have certain features that should be incorporated.

Management also should consider the possibility that both sets of legacy systems are not up to present or future challenges. It could be that the corporate combination provides an opportunity to start over, or nearly so, and build something more suitable from the ground up. Another factor they should consider is whether the asset size of the new unified business warrants an independent verification process to supplement the risk and regulatory reporting program.

Understanding What You Have and What You Need
To get the evaluation process under way for the operational merger, a bank should list and assess its critical systems — not just for their functionality, but with respect to licensing or other contractual obligations with suppliers to determine the costs of breaking agreements.

Managers at the combined entity should look for redundancies in the partners’ systems that can be eliminated. A single organization can have a complicated back-end systems architecture, with intricate workarounds and many manual processes. Bringing together multiple organizations of similar complexity can leave the combined entity with expensive and inflexible infrastructure. A subledger and controlling functions can simplify this for finance, risk and regulatory reporting functions. They can consolidate multiple charts of accounts and general ledgers, relieving pressure on the general ledgers. Organizations in some cases can choose to migrate general ledgers to a cloud environment while retaining detailed data in a fat subledger.

Whatever choices executives make, a finance, risk and reporting system should have the latest technology, preferably based in the cloud to ensure it will be adaptable, flexible and scalable. Systems integration is critical to creating a unified financial institution that operates with optimal productivity in its regulatory compliance, reporting efforts and general business.
Integrating systems helps to assure standardization of processes and the accuracy, consistency,
agility and overall ease of use that result from it.

Fraud Attempts on the Rise Since Pandemic’s Start

As Covid-19 passes its one year anniversary in the United States, businesses are still adjusting to the pandemic’s impacts on their industry.

Banking is no exception. While banks have quickly adjusted to new initiatives like the Small Business Administration’s Paycheck Protection Program, the most notable impact to financial institutions has been the demand for online capabilities. Banks needed to adjust their offerings to ensure they didn’t lose their client base.

“ATM activity is up, drive-through banking is up 10% to 20% and deposits made through our mobile app are up 40%,” said Dale Oberkfell, president and CFO of Midwest Bank Centre last June.

The shift to digital account openings has been drastic. The chart below looks at the percent change in cumulative number of evaluations from 2019 to 2020 for a cohort of Alloy customers, limited to organizations that were clients for both years. Since the onset of the pandemic, digital account opening has increased year-over-year by at least 25%.

Although the shift to digital was necessary to meet consumer demands, online banking opens up the possibility of new types of fraud. To study the pandemic’s impact on fraudulent applications, we took a closer look at changes in consumer risk scores since the onset of the pandemic. Similar to credit scores, risk scores predict the likelihood of identity or synthetic fraud based on discrepancies in information provided, behavioral characteristics and consortium data about past fraud activity.

Comparing the pandemic months of March 2020 to December 2020 to the same period in 2019, Alloy clients saw a dramatic rise in high-risk applications. Total high-risk applications increased by 137%, driven both by overall growth in digital application volume and a comparatively riskier population of applicants.

There are several ways for you to protect your organization against this growing threat. One way is to use multiple data sources to create a more holistic understanding of your applicants and identify risky behaviors. It also ensures that you are not falling victim to compromised data from any one source. It’s a universal best practice; Alloy customers use, on average, at least 4 data sources.

Another way for you to protect your institution is by using an identity decisioning platform to understand and report on trends in your customer’s application data. Many data providers will return the values that triggered higher fraud scores, such as email and device type. An identity decisioning platform can store that data for future reference. So, even if a risky application is approved at onboarding, you can continue to monitor it throughout its lifetime with you.

Digital banking adoption and usage is expected to only increase in the future. Banks need to ensure that their processes for online capabilities are continuously improving. If your organization is spending too much time running manual reviews or using an in-house technology, it may be time for an upgrade. Click here to see how an identity decisioning platform can improve your process and help you on-board more legitimate customers.

Best Practices to Achieve True Financial Inclusivity

According to the Federal Reserve’s report on the economic well-being of U.S. households in 2019, 6% of American adults were “unbanked” and 16% of U.S. adults make up the “underbanked” segment.

Source: Federal Reserve

With evolving technological advancements and broader access to digital innovations, financial institutions are better equipped to close the gap on financial inclusivity and reach the underserved consumers. But to do so successfully, banks first need to address a few dimensions.

Information asymmetry
Lack of credit bureau information on the so-called “credit invisible” or “thin file” portions of unbanked/underbanked credit application has been a key challenge to accurately assessing credit risk. Banks can successfully address this information asymmetry with Fair Credit Reporting Act compliant augmented data sources, such as telecom, utility or alternative financing data. Moreover, leveraging the deposits and spend behavior can help institutions understand the needs of the underbanked and unbanked better.

Pairing augmented data with artificial intelligence and machine learning algorithms can further enhance a bank’s ability to identify low risk, underserved consumers. Algorithms powered by machine learning can identify non-linear patterns, otherwise invisible to decision makers, and enhance their ability to screen applications for creditworthiness. Banks could increase loan approvals easily by 15% to 40% without taking on more risk, enhancing lives and reinforcing their commitment towards the financial inclusion.

Financial Inclusion Scope and Regulation
Like the Community Reinvestment Act, acts of law encourage banks to “help meet the credit needs of the communities in which they operate, including low- and moderate-income (LMI) neighborhoods, consistent with safe and sound banking operations.” While legislations like the CRA provide adequate guidance and framework on providing access to credit to the underserved communities, there is still much to be covered in mandating practices around deposit products.

Banks themselves have a role to play in redefining and broadening the lens through which the customer relationship is viewed. A comprehensive approach to financial inclusion cannot rest alone on the credit or lending relationships. Banks must both assess the overall banking, checking and savings needs of the underbanked and unbanked and provide for simple products catering to those needs.

Simplified Products/Processes
“Keep it simple” has generally been a mantra for success in promoting financial inclusion. A simple checking or savings account with effective check cashing facilities and a clear overdraft fee structure would attract “unbanked” who may have avoided formal banking systems due to their complexities and product configurations. Similarly, customized lending solutions with simplified term/loan requirements for customers promotes the formal credit environment.

Technology advancements in processing speed and availability of digital platforms have paved the way for banks to offer these products at a cost structure and speed that benefits everybody.

The benefits of offering more financially inclusive products cannot be overstated. Surveys indicate that consumers who have banking accounts are more likely to save money and are more financially disciplined.

From a bank’s perspective, a commitment to supporting financial inclusivity supports the entire banking ecosystem. It supports future growth through account acquisition — both from the addition of new customers into the banking system and also among millennial and Gen Z consumers with a demonstrated preference for providers that share their commitment to social responsibility initiatives.

When it comes to successfully executing financial inclusion outreach, community banks are ideally positioned to meet the need — much more so than their larger competitors. While large institutions may take a broader strategy to address financial inclusion, community banks can personalize their offerings to be more relevant to underserved consumers within their own local markets.

The concept of financial inclusion has evolved in recent years. With the technological advancements in the use of alternative data and machine learning algorithms, banks are now positioned to market to and acquire new customers in a way that supports long-term profitability without adding undue risk.