Leaders of financial institutions are in the fight of their lives and facing foes from multiple directions. Giant banks are investing hundreds of millions of dollars to hone, re-invent, and perfect digital banking experiences and stealing market share. On the other side, small fintechs like Venmo, Robinhood, and Acorns are creating new deposit options for consumers to stash cash and drain deposits from traditional checking and savings accounts. In short, the competitive pressures for customers and deposits are creating a “now or never” moment in digital banking.
These moments have often produced some of the greatest innovations in American business. If played right, 2019 could be the year that smaller banks and credit unions reclaim their rightful leadership role as the default choice for financial transactions and services.
As in all matters competitive, these financial institutions must leverage their relative strengths. In particular, I’ll discuss three key advantages that these institutions can—and should—leverage in order to attract and retain customers through digital banking: personalized digital service, the power of partnerships, and organizational agility.
Be Number 1 in Personalized Digital Service
30 years ago, local banks and credit unions dominated the market because of convenience, ease of access, and personal relationships. Your bankers were your neighbors. You knew them and they knew you—and you felt connected and valued because of that relationship. The local branch was the most convenient option at the time. Competition was limited to similar brick-and-mortar institutions with essentially the same services and rates.
As technology ushered in new and faster alternatives, consumers gravitated to the efficiency and convenience, and personal relationships took a backseat to anytime/anywhere banking. Digital access gave mega banks and fintechs the upper hand in terms of convenience and ease.
For this and many other reasons, banks and credit unions must focus on digital transformation—not for its own sake, but in order to create stronger relationships with their customers. The authentic human touch remains a fond memory for many consumers, and, by and large, most Americans prefer to bank locally; they just want the digital experience to be efficient.
Regional and mid-sized banks and credit unions should focus on amplifying their unique customer brand across all channels, not to create a digital divide. A great example of deploying digital to create closer connections is the “go-to” solution provided by Umpqua Bank. As an innovator in customer service, their mobile app allows customers to select a personal digital banker and have secure, one-to-one conversations with their banker at any time through a familiar chat-like interface. Forget the IVR, forget the random chat agent—your personal digital banker knows who you are, understands you as a customer and stands ready to assist you through your financial journey in life.
Don’t Out-Spend Fintech or Banking Giants, Out-Partner Them
Consumer demand has put massive pressure on banks and credit unions to innovate—and do it more quickly. As financial institutions first began to evolve, the vast majority of them took the safe road into digital banking by choosing pre-packaged solutions provided by their legacy core processing vendors.
Budgets and lack of technical expertise meant banks had to suffer through mediocre solutions with terrible customer experiences. Their apps looked identical to the competing banks down the street, but it was the low-risk, cheap—and frankly “good-enough”—choice at the time.
The legacy core processing providers simply weren’t orientated to create differentiated solutions for each financial institution; they were focused on the opposite model of creating a simple app they could easily copy and paste for every bank and credit union in their customer base. As smaller financial institutions experimented with the product sold by their legacy core providers, giant banks, digital savvy competitors, and fintechs gained further ground by innovating and siphoning off customers.
In 2019, make an honest appraisal of your offering. Determine if you have the expertise or bandwidth in house to accomplish true digital transformation. Typically, it’s only the mega-banks that have their own fleet of engineers, but you can compete effectively by teaming up with proven outside experts with a track record of success in digital banking.
Choosing the right strategic partner is immediately accretive to your bottom line. You instantly ingest their capabilities and deploy their expertise as your own. The right choice can put you light years ahead of your competition, increase efficiency, and pay for itself with greater assets under management.
Don’t take chances. Ensure you select a team that can come alongside your staff to deploy a frictionless platform that runs seamlessly with your existing back office system. Stay open to leveraging competencies of other organizations—as long as you can ensure their systems integrate seamlessly with yours and that you retain control. Demand proof of success by scrutinizing work performed for other organizations. Pay special attention to the commitment and demonstration of partnership—meaning do they remain flexible and attentive to your needs and meet you where you are? Or do they make you adjust to rigid business models and product set? This will be important as you face challenges in the future you might not even anticipate.
Leverage Agility and Your Unique Brand
It’s not easy to transform a financial institution into a technology company, but that’s essentially what you’re doing. Although multi-national banks have unlimited resources and access to talent, smaller organizations have a distinct advantage: They can more nimbly make decisions, test ideas, and execute changes.
There is another advantage to being a smaller bank or credit union: As the pace of innovation increases, there is a growing consumer hunger for brands that don’t innovate themselves into a brand drift. Successful financial institutions maintain their warmth, accessibility, and customer service throughout all channels and across all devices. Digital banking should amplify your organization’s voice and identity while delivering convenience and efficiency.
True digital transformation is a corporate culture shift, not merely the adoption of a transactional platform. Leadership must be firmly on board with both feet. Project engineers must remain singularly focused on the end-user’s digital experience. Look at everything through this prism and audit your process to ensure it results in your organization becoming easier to transact with—without drifting away from the core brand that attracted your customers in the first place.
As 2019 unfolds, follow the “digital banking hockey puck” to where it’s going, not where it is. Anticipate your customers’ needs and deliver solutions. Your customers’ digital banking experience will be directly tied to your organization’s overall performance.