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.
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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.
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
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.
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.
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.
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.
“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.
Digital tech implementations have moving parts that require up-front focus and planning to avoid costly fixes and delays.
Implementations can be thrown off track by blind spots that add costs and time, and result in a lack of confidence in the overall solution. At Bridgeforce, we routinely help clients identify blind spots and take steps to ensure a smooth implementation. Here is our list of the top five of 10 critical blind spots to watch for — all of which can be managed and avoided if you take action early.
Top Five Blind Spots to Watch for When Implementing Digital Technology
1. “Out of the Box” Descriptions
The vendor’s generic screen text and customer journeys are written for all clients. You’ll need to customize it for your organization with unique messaging and copy, customer journey flows, branding and opt-in/opt-out experiences. The blind spot risk is that customization and development adds to your timeline and costs.
Steps to take: Secure Involvement: Engage compliance, customer experience and marketing teams when vendors are providing demos so each group can ask the appropriate questions to ensure that they get what they need from this solution.
Identify SME Assessment: Before vendor selection is complete, require that each business partner assess the work effort and resource needs to make required changes. Then you can determine the impact on the project timeline and budget. This sets expectations and informs effort and subsequent timelines.
2. Not Using Vendor’s Service Providers
Think twice before taking a pass on your vendor’s selected providers. There are four major integrations that must be considered: payments, SMS, emails and letters. Generally, using the vendor’s partners will be an easier onboarding experience with less required customization. The blind spot risk is that difficulty with onboarding and customization adds to your timeline and costs.
Steps to take: Interrogate During Vendor Demos: Discuss available integrations during vendor demos so that you can make an informed assessment. This way, you can weigh trade-offs of using vendor partners against internal or enterprise solutions. The output of this key decision has a direct impact on your timeline and budget.
3. Lack of Source System Knowledge
You’ll need small and medium enterprises that have in-depth knowledge of all the affected source systems to properly map data for placement files and return files. The blind spot risk is that not having the source system familiarity could add weeks and months to the deployment timeline, depending on how many systems your bank uses.
Steps to take: Plan Ahead: Determine early in the process what data will be passed to the vendor in the daily placement file. Ensure that you know how the data that is returned to the source systems will be mapped. Then, begin sourcing those items.
4. Counting on the Vendor for Operationalization
Operationalizing the digital solution falls entirely within your bank, because a software company defines a completed installation only as “deployment of the software.” Vendors aren’t focused on your operations — but you should be. The blind spot risk is you slow progress if you’re slow to recognize the need to operationalize, which can extend your timeframe and add costs if the vendor has to pause activity.
Steps to take: Build Operationalization into Your Timeline: Ensure that your implementation plan considers time for strategy design and coding, messaging content creation and deployment, reporting design, procedure updates, integration with control self-assessments and analytics. Vendors may provide some light support in configuring the application parameters, but anything else beyond that is not their core business model.
Create Workflow in Advance: Predetermine your processes and workflows. For example, is the goal of digital collections to drive more self-service, or to improve interaction that ultimately connects to an agent? The end-to-end internal operational experience and external customer experience is unique to each organization—yours is no exception.
5. Timeline Based on Vendor’s Standard Deployment
The vendor will assume that several key dependencies have been finalized by your organization, such as strategy design. This can create unrealistic, often ambitious timelines. The blind spot risk is the danger of setting false expectations across the organization. The necessary adjustments that you’ll need to make to an unrealistic timeline will lengthen the completion time and could negatively influence staff perceptions.
Steps to take: Determine Current State Readiness: Standard deployment schedules are achievable if your organization is ready. To ensure readiness, complete an initial working session and assessment.
Last Tuesday, payment company PayPal Holdings’ market capitalization of $277 billion was higher than the entire KBW regional bank index of $213.5 billion. This has been true for months now.
Tom Michaud, CEO of Keefe, Bruyette & Woods, noted PayPal’s valuation in a February presentation for Bank Director. “They can really afford to invest in ways a typical community bank can’t,” he said at the time.
PayPal’s market value is richer than several large banks, including PNC Financial Services Group, Citigroup and Truist Financial Corp.
But how can that be? When you compare the earnings reports of PayPal to the banks, you can see the companies’ focuses are entirely different. PayPal promotes its growth: growth in payment volume, growth in accounts and growth in revenue. Truist and PNC are more inclined to highlight their profitability, which is typical of well established, legacy financial companies.
Source: PayPal. Total payment volume is the value of payments, net of payment reversals, successfully completed on PayPal’s platform or enabled by PayPal on a partner platform, not including gateway exclusive transactions.
PNC reported net income of $7.5 billion, an increase of 40% from the year before, on total revenue of $13.7 billion in 2020. PayPal reported earnings of $4.2 billion in 2020, nearly double what the company had earned the year prior.
PayPal was trading at about 67 times earnings last Wednesday, while Truist was trading at about 19 and PNC at 28, according to the research firm Morningstar.
Of course, it’s silly to compare PayPal to banks. PayPal isn’t a bank, nor does it want to be, says Wedbush Securities managing director and equity analyst Moshe Katri. “It’s better than a bank,” he says. “What you’re getting from PayPal is a host of products and services that are more economical.”
Katri says PayPal, which owns the person-to-person payments platform Venmo, offers transaction fees that are lower than competitors. For example, PayPal advertises fees to merchants for online transactions for a flat 2.9% plus 30 cents. Card associations such as Visa and Mastercard offer a variety of pricing options for credit and debit cards.
Katri says PayPal’s valuation is related to its platform and its earnings power. PayPal has roughly 350 million consumers and about 29 million merchants using its platform, with potential to grow. Not only could PayPal expand its customer base, but it could also grow its transactions and fees per customer.
“It allows you to do multiple things: shop online, transfer funds, transfer funds globally, bill pay,” Katri says. “They offer other products and services that look and feel like you’re dealing with a bank.”
PayPal also offers small business loans, often for as little $5,000. It uses transaction data to underwrite loans to merchants that may appear unattractive to many banks.
But PayPal is more often compared to competitors Mastercard and Visa than to banks. Both Mastercard and Visa saw a decline in payment volume during the pandemic after losing some in-person merchant business, according to the publication Barron’s. In contrast, PayPal did especially well during 2020, when the pandemic forced more purchases to move online.
PayPal’s size and strength have helped it invest, including recent initiatives like an option to pay via cryptocurrency, a touchless QR-code payment option and a “buy now, pay later” interest-free loan for consumers.
PayPal CEO Dan Schulman said on a fourth-quarter earnings call that the company plans to enhance bill pay options this year and launch budgeting and savings tools. “We all know the current financial system is antiquated,” he said.
But the juggernaut that is PayPal may not ride so high a few years from now. Shortly after a February investor presentation where the company projected a compound annual growth rate of 20% in revenue, reaching $50 billion by 2025, the stock price skyrocketed to $305 per share.
It has come down considerably since then, along with many high-flying technology companies. PayPal’s stock sunk 20% to $242.8 per share at market close last Wednesday, according to Morningstar. Katri has a buy rating on the stock, assuming a price of $330 per share.
Morningstar analyst Brett Horn thinks PayPal’s long term prospects are less certain, even though few payments companies are as well positioned as PayPal right now. Competitors are active in mergers and acquisitions, getting stronger to go up against PayPal’s business model. Apple Pay remains a formidable threat.
On the merchant processing side, Stripe and Square are among the players growing considerably, too. What’s clear is that giant payments platforms may continue to erode interchange fees and other income streams for banks.
“The digital first world is no longer our future,” Schulman said in February. “It is our current reality and it will forever change how we interact in almost all elements of our lives.”
Acquiring another bank will be one of the most important decisions that a board of directors ever makes. A well-played acquisition can be a transformational event for a bank, strengthening its market presence or expanding it into new markets, and enhancing its profitability.
But an acquisition is not without risk, and a poorly conceived or poorly executed transaction could also result in a significant setback for your bank. Failing to deliver on promises that have been made to the bank’s shareholders and other stakeholders could preclude you from making additional acquisitions in the future. Banking is a consolidating industry, and acquisitive banks earn the opportunity to participate one deal at a time.
When a board is considering a potential acquisition, there are five critical assessments of the target institution that it should make.
When you are acquiring a bank, you’re getting more than just a balance sheet and branches; you’re also acquiring talent, and it is critical that you assess the quality of that asset. If your bank has a more expansive product set than the target, or has a more aggressive sales culture, how willing and able will the target’s people be to adapt to these changes in strategy and operations? Who are the really talented people in the target’s organization you want to keep? It’s important to identify these individuals in advance and have a plan for retaining them after the deal closes. Does the target have executives at certain positions who are stronger than members of your team? Let’s say your bank’s chief financial officer is nearing retirement age and you haven’t identified a clear successor. Could the target bank’s CFO eventually take his or her place?
Technology Making a thorough technology assessment is crucial, and it begins with the target’s core processing arrangement. If the target uses a different third-party processor, how much would it cost to get out of that contract, and how would that affect the purchase price from your perspective? Can the target’s systems easily accommodate your products if some of them are more advanced, or will significant investments have to be made to offer their customers your products?
It can be difficult to assess another bank’s culture because you’re often dealing with things that are less tangible, like attitudes and values. But cultural incompatibility between two merger partners can prevent a deal from reaching its full potential. Cultural differences can be expressed in many different ways. For example, how do the target’s compensation philosophy and practices align with yours? Does one organization place more emphasis on incentive compensation that the other? Board culture is also important if you’re planning on inviting members of the target’s board to join yours as part of the deal. How do the target’s directors see the roles of management and the board compared to yours? Unless the transaction has been structured as a merger of equals, the acquirer often assumes that its culture will have primacy going forward, but there might be aspects of the target’s culture that are superior, and the acquirer would do well to consider how to inculcate those values or practices in the new organization.
Return on Investment
A bank board may have various motivations for doing an acquisition, but usually there is only one thing most investors care about – how long before the acquisition is accretive to earnings per share? Generally, most investors expect an acquisition to begin making a positive contribution to earnings within one or two years. There are a number of factors that help determine this, beginning with the purchase price. If the acquirer is paying a significant premium, it may take longer for the transaction to become accretive. Other factors that will influence this include duplicative overhead (two CFOs, two corporate secretaries) and overlapping operations (two data centers, branches on opposite corners of the same intersection) that can be eliminated to save costs, as well as revenue enhancements (selling a new product into the target’s customer base) that can help drive earnings.
Capabilities of Your M&A Team
A well-conceived acquisition can still stumble if the integration is handled poorly. If this is your bank’s first acquisition, take the time to identify which executives in your organization will be in charge of combining the two banks into a single, smoothly functioning organization, and honestly assess whether they are equal to the task. Many successful banks find they don’t possess the necessary internal talent and need to engage third parties to ensure a successful integration. In any case, the acquiring bank’s CEO should not be in charge of the integration project. While the CEO may feel it’s imperative that they take control of the process to ensure its success, the greater danger is that it distracts them from running the wider organization to its detriment.
Any acquisition comes with a certain amount of risk. However, proactive consideration toward talent, technology, culture, ROI and a thoughtful selection of the integration team will help enable the board to evaluate the opportunity and positions the acquiring institution for a smooth and successful transition.
As the financial institutions industry embarks on 2021, our reflections capture a world disrupted by the Covid-19 pandemic. Economic uncertainty continues to impact strategic and growth plans for an inestimable period of time. Banks are closely monitoring loan payment trends and deposit account fluctuations as customers continue to struggle with stable employment and small businesses fight to survive.
The Covid-19 crisis occurred at a time of strength for most financial institutions. Unlike the 2008 Great Recession, banks have been able to rely on strong capital positions, which was crucial when it became no longer possible to continue operating business as usual.
Essentially overnight, consumer behavior shifted away from most face-to-face interactions, prompting an increase in online and contactless activity. Banks had to quickly adapt and explore innovation in order to meet both customer and employee needs. Outdated manual processes, continuity vulnerabilities and antiquated methods of communication immediately became apparent, with institutions pivoting to operate effectively. The pandemic became an accelerant and forced banks to embrace innovation to avoid business interruption, while prioritizing information security and employee and customer safety. Necessity is the mother of invention, and the Covid-19 pandemic created necessity — with an emphasis on urgency.
Top Five Covid-19 Challenges That Prompted Innovation
To reduce the potential virus spread, executives found alternative means of meeting and interacting with employees and customers. Virtual meetings were the solution for many banks.
While many institutions allowed for some remote work, this was not permitted for most employees prior to the pandemic. In some cases, chief technology officers had to quickly implement secure VPN access, evaluate hardware availability, order laptops and expand upon remote working policies and procedures.
Digital transformation immediately moved from “wouldn’t it be great if we did this?” to “to be competitive and survive we must accomplish this immediately.” No. 1 on the transformation list was enhancing the customer experience. To remain competitive, transformation was no longer optional but absolutely required. Digital channels have been trending as customers’ preferred way to bank in the last few years, but this became the primary channel for customer engagement out of necessity. This shift prompted banks to reevaluate and enhance digital channel offerings along with supporting technologies.
Round one of the Paycheck Protection Program was a difficult, labor-intensive process for participating institutions. The need for an efficient PPP application process prompted lenders of all sizes to embrace automation and fintech partnerships, resulting in a smoother process during round two.
C-suite executives and bankers across the organization found themselves in a position where it was difficult to access information quickly and easily in order to make timely decisions to improve the customer experience and manage the bank. For many institutions, especially community financial institutions, this continues to be a challenge.
The need for accurate and efficiently delivered information and data across the organization has never been so great. It is still quite common for financial institutions to manage information in data silos, making it impossible to create the contextual customer intelligence necessary to compete in the post-pandemic environment. Financial institutions have the most intimate data about their customers. This data is of little value until it is transformed into meaningful information that can be easily digested, interpreted, and acted upon.
Banks that recognize that their data is a valuable asset are actively seeking out intelligent analytics tools to create contextual customer intelligence that can be strategically deployed across the organization and leveraged for consistent multichannel experiences to generate sales, increase customer and employee loyalty and reduce operating expenses. Financial institutions must have the ability to gather, aggregate and analyze their complex data assets quickly and accurately to remain competitive, meet regulatory reporting expectations and to achieve market success. The ability to analyze this data and act decisively is the path to not only being a better financial institution but prospering in uncertain times. Leveraging high-value data is imperative to thriving and increasing an institution’s competitive advantage.
Community banks are the beating heart of the American banking system — and they’ve received a major jolt to their system.
While community banks represent only 17% of the US banking system, they are responsible for around 53% of small business loans. Lending to small businesses calls for relationship skills: Unlike lending to large firms, there is seldom detailed credit information available. Lending decisions are often based on intangible qualities of borrowers.
While community banking is relationship lending at its very best, the pandemic is forcing change. Community bankers have been caught in the eye of the Covid-19 storm, providing lifesaving financial services to small businesses. They helped fuel the success of the Paycheck Protection Program, administering around 60% of total first wave loans, according to Forbes. This was no small feat: Community banks administered more loans in four weeks than the grup had in the previous 12 months.
However, as with many businesses, they have been forced to close their doors for extended periods and move many employees to remote arrangements. Customers have been forced to move to online channels, forming new banking habits. Community banks have risen to all these challenges.
But the pandemic has also shown how technology can augment relationship banking, increase customer engagement and drive revenue growth. Many community banks are doing things differently, acknowledging the need to do things in new ways to drive new revenues.
Even before Covid-19, disruptive forces were reshaping the global banking landscape. Customers have high expectations, and have become accustomed to engaging online and through mobile services. Technology innovators have redefined what’s possible; customers now expect recommendations based on their personal data and previous behavior. Many believe that engaging with their bank should be as easy as buying a book or travel ticket.
Turn Data into Insights, Rewards
While a nimble, human approach and personal service may offset a technical shortcoming in the short run, it cannot offset a growing technology debt and lack of innovation. Data is becoming the universal driver of banking success. Community banks need to use data and analytics to find new opportunities.
Customer data, like spending habits, can be turned into business insights that empower banks to deliver services where and when they are most needed. Banks can also harness the power of data to anticipate customer life moments, such as a student loan, wedding or a home purchase.
Data can also drive a relevant reward program that improves the customer experience and increases the bank’s brand. Rewards reinforce desired customer behavior, boost loyalty and ultimately improve margins. For example, encouraging and rewarding additional debit transaction activity can drive fee income, while increasing core deposits improves lending margins.
The pandemic also highlights the primacy of digital transformation. With branches closed, banks need to find new ways to interact with customers. Digital services and digitalization allow customers to self-serve but also create opportunities to engage further, adding value with financial wellness products through upselling and cross-selling. In recent months, some community banks launched “video tellers” to offset closed branches. Although these features required investment, they are essential to drive new business and customers will expect these services to endure.
With the right digital infrastructure, possibilities are limited only by the imagination. But it’s useful to remember that today’s competitive advantage quickly becomes tomorrow’s banking baseline. Pre-pandemic, there was limited interest in online account opening; now it’s a crucial building block of an engaging digital experience. Banking has become a technology business — but technology works best with people. Community banks must invest in technologies to augment, deepen and expand profitable relationships.
Leverage Transformative Partnership
Technology driven transformation is never easy — but it’s a lot easier with an expert partner. With their loyal customers, trusted brands and their reputation for responsiveness, community banks start from a strong position, but they need to invest in a digital future. The right partner can help community banks transform to stay relevant, agile and profitable. Modern technologies can make banking more competitive and democratic to ensure community banks continue to compete with greater customer insights, relevant rewards programs and strong digital offerings.
When combined, these build on the customer service foundation at the core of community banking.