Digital banking transformation is a priority for the majority of financial institutions, but actual progress lags at many of them. With an uncertain economy, banks and credit unions must not fall back further, but redouble their commitment to strategies that will generate positive results quickly and at scale.
Banks and credit unions are trying to keep pace with the expectations of consumers, who have significantly altered the way they conduct banking. From the opening of new deposit and loan relationships, to the way payments are made, financial institutions need to transform from the inside out to remain competitive. Innovation at both speed and scale beyond iterative product development is more important than ever, as non-bank organizations are educating consumers on what is possible in a digital world.
While consumers are less likely to set foot in a branch since the pandemic and before, device-based banking has led them to engage with banks and credit unions significantly more often — usually on a daily basis and often several times per day. This opens the door for greater engagement and time-based recommendations.
The four major trends as banking seeks to adjust to a significantly more digital ecosystem. These are:
- Support digital payments
- Collaborate with fintechs
- Focus on hyper-personalization
- Uncover data and AI opportunities
Each trend is covered below.
The fastest area of change in banking is around the way people pay. While cash is still used for many transactions, the skyrocketing use of cashless and contactless payments is occurring with all segments of consumers and within all industries.
According to McKinsey, more than 80% of Americans use digital payments, including browser-based or in-app online purchases, in-store checkout using a mobile phone and/or QR code, and person-to-person (P2P) payments.
Many executives within traditional banking organizations still consider fintech companies as an enormous competitive threat due to their digital technology, agility and ability to transform data into highly personalized engagements. However, more bankers than ever now see fintechs as a gateway to innovation. Partnering with fintech firms has jump-started many innovation initiatives at banks and credit unions of all sizes.
That is not to say that alternative financial providers are not impacting the competitive balance within banking. While very few consumers are leaving their existing financial providers, people increasingly are diversifying their financial relationships by adding accounts from non-traditional players. The good news is that traditional banks and credit unions have a level of trust and familiarity with account holders that most non-traditional financial institutions have not attained.
Consumers have come to expect highly personalized digital interactions across all industries. The benefit for the consumer is a highly relevant level of service that creates loyalty by recognizing past interactions and predicting future needs. This level of personalization often increases sales and engagement, which increases revenue.
The Alkami research found that only about a quarter of survey respondents reported using hyper-personalization to attain a competitive advantage, while two-thirds said they did not. Often, the inability to deliver contextual communication is due to the lack of data and analytic capabilities to drive strategies.
4. Uncover Data and AI Opportunities
Most banks and credit unions already are using some form of data analysis to optimize performance or tap new markets. Many institutions are also using data to deliver a better member and customer experience (86%), guide decision-making (72%), and reduce development time and costs (23%) according to Alkami. The challenge is that most efforts are in their infancy, due to infrastructure, data, and talent shortcomings.
The key to success is to unlock the information embedded within internal and external data to get a clearer picture of clients’ future needs in order to prepare real-time contextual recommendations. This will drive engagement and loyalty. It is also imperative to try to democratize the distribution and use of insights across the organization.
Finally, AI technologies should also be used to lower the bank or credit union’s costs through increased automation.
During periods of economic uncertainty, financial institutions can’t afford to halt their investment in digital banking transformation. Instead, banks and credit unions must prioritize strategies for the greatest return on investment in the shortest period of time. This should not ignore longer-term, foundational investments, but should balance short- and long-term strategies.
These strategies must include the modernization of existing payments infrastructure, enhancement of innovation strategies (including the collaboration with third parties), the use of data and AI to improve customer experiences, and increased deployment of personalized engagement that reflects the needs of the consumer in real-time.