Putting the Digital Banking Puzzle Together

Digital banking is a relatively new term that encompasses ATMs, mobile banking, online banking and has expanded to include essentially all banking channels except for the branch. Like most iterations, digital banking started as a single solution, ATMs, but really gained traction as a term when online banking and mobile banking were introduced.

The result of this iterative process has been the implementation of a "collection" of technology solutions that are intended to allow credit union members and bank customers to digitally interact conveniently and effectively with their financial institution. Let's call this Digital Banking 1.0

Problems with Digital 1.0 are abound. The first problem is a lack of strategic planning and thinking as the new technology solutions and channels were introduced. The agenda and digital innovation are being driven by the major national banks that either have the resources to develop the technology or have acquired the technology. Everybody else is following, trying to keep up. As a result, there is no digital strategy, it is all reactionary, and digital implementation is a hodgepodge of disconnected solutions.

I was having lunch yesterday with a couple of friends and a discussion about banking began. How exciting I must be as a lunch companion. A question was asked, "Who has an account at a credit union or small bank?" They are both in the millennial generation and confirmed that they both have an account with either a credit union or small bank. I asked, “do you also have an account with a major national bank?" Again they both said they do. I then asked, “who do you prefer to do business with?" They both expressed a preference to for their credit union or community bank; however, both of them almost exclusively use the major national bank. I asked why? They both said, "Because they make it easy to do business with them." 

The credit union and community bank were their preferred financial institution because they provided better loan and deposit rates, better in-branch personal service, and they knew their names, but at the end of the day that is not enough to win their business. Why, because it is not easy enough to do business with the credit union or community bank. Both are relatively new to the Atlanta area. When they moved, their big national bank made the transition easy. To this day, neither one of them have set foot in their new branch locations. The lack of a comprehensive digital strategy sent these two high value customers to a large national bank.

This was a chance discussion, ............how often do you think this happens every day? The data is clear, according to the millennial disruption index study, Chase, Citi, BofA and Wells Fargo are among the ten least loved brands by Millennials. According to FICO's Forging Lasting Banking Relationships with Millennials, 68% of Millennials use Chase, Citi, BofA or Wells Fargo as their primary bank. Only 15% use a credit union and only 9% have a regional bank as a primary bank. More Millennials bank at national banks than any other generational group (55% for Gen X and 43% for Boomers). Why, because the big national banks have a digital strategy and are leading the market with the implementation of their strategy. 

It is past time for credit unions and banks to move into Digital Banking 2.0. You have lost

tremendous ground to the big national banks when it comes to the next generation of most profitable banking members/customers. It is not too late, remember they want to do business with credit unions and smaller banks; you just have to win their business by making it easy and convenient to do business with you.

How do you make it easy and convenient to do business with you?

1. By making digital banking a highest priority
2. By developing a digital banking strategy
3. By allocating the resources necessary to implement your digital strategy
4. By mastering social media communication
5. By treating digital banking as its own P&L channel, and not a channel to drive members/customers to the branch or call center
6. By quite asking the question was is the ROI. That is simply a question to stop moving forward. By the way, Forrester analysts have developed a concrete ROI for mobile banking of 15.7%, if that information helps you feel better

The first step is to assign or hire a digital banking executive to lead your credit union or bank into Digital Banking 2.0 

The Journey to OmniChannel Banking

Omnichannel banking is not a marketing program, a technology solution, or a process. It is not something you can buy. Omnichannel banking is a destination. 

Like any trip it takes a plan. Are you going to New York or Los Angeles? Do you really want to take a trip? Will you drive, fly, take a train or boat? (you can sail through the Panama Canal). When do you want to leave? How long will you be there? Where will you stay? Do you have a budget or money for the trip? How much will it cost? Do you have time to take the trip?  What will the weather be like? What should you pack? What do you want to see? Is the trip business or personal?

The first decision that needs to be made is, "do you want to take the trip?" Omnichannel banking is not a decision to be made lightly. Success will only occur if the entire leadership team and your board of directors are on-board and part of the process. Moving towards an omnichannel banking model is one of the most significant strategic decisions your credit union or bank will make. Be sure you know what you are getting into before you buy the boat. Your team must crystallize exactly what omnichannel banking means to your credit union or bank, and what you want to achieve. 

Once you commit to the journey then the real hard work begins, preparing for the trip. The fun part is the final destination, but what can and will go wrong as you prepare? The

most difficult challenge your organization will face while transforming to an omnichannel banking model is .......culture. An omnichannel banking model is all about putting the member or customer first. Putting the member or customer in the center of your business. Focused outward instead of inward. You say, ah that is easy, we are already member or customer focused? Are you really? 

When a member or customer comes into your branch do they go to a teller, go see a loan

officer, or ask for assistance from a member/customer service representative? Once they move from one transaction to another are they directed to the appropriate department or person? If they do, you are already set-up to fail. Members and customers are not seeking a tour of your branch. They want answers, services and solutions from an expert that can address all their concerns. You have created silos that must be broken down. 

Who in your credit union or bank is responsible for the member/customer experience?  Is it the chief operating officer, marketing, digital operations, information technology, regional vice presidents, branch managers, the CEO? Silos, they must be broken down with focus being on the member or customer, not areas of responsibility that exist within your current organizational structure. What will that do to your executive team? Easy you said, we are already member or customer focused. Are you really?      

Omnichannel banking has a huge upside for those credit unions and banks that are ready to embrace the concept and commit the time, resources, planning and re-educations to make it a reality and not just another passing fad. Are you and your team ready to take a trip to omnichannel banking?          

Banking in the Information Age

Ah the good ole days, a time when the bank was a destination.

You dress in your Sunday best, straighten your tie and put on your hat, wanting to look your best before you head to the bank. You remember those days ..... right? Of course not, but they really did happen. Those days are over. Banking is undergoing a metamorphosis that according to Brett King in his book Bank 2.0 started with the mass consumer adoption of the Internet and has accelerated through the use of social media. The facts are clear, banking has changed and continues to evolve. 

Banking for the most part is no longer about relationships, it is about the cold hard facts. Your credit score, loan to income ratio, how long you have been employed. There was a time that bank managers new your name and made you a loan based on your reputation and relationship with the bank. Today loans decisions are automated using algorithms established by consultants and lending application vendors that have no other connection to you or the bank. So take off your tie, remove your hat and saddle up to the computer. 

Brett King talks about four phases of disruption that has and will occur in banking. Each of these phases are game changers and must be successfully addressed in order to meet the needs of credit union members and bank customers. 

Phase One - Arrival of the Internet and social media – control and choice

• 12 years ago, 60% of all transactions where conducted in a branch. Today, 95% of all transactions are done through an ATM, call center, Internet and mobile phone. In summary, 60% of transactions “back then” were done in-person compared with a stunning 5% today.

Phase Two - Arrival of smart devices and apps – anytime anywhere

• U.S. market has over 100% adoption rate of mobile phones.
• As of December 2011, smartphone users average 94 minutes a day using apps compared to 72 minutes using web browsers.
• 99% of mobile banking users view balances.
• 90% of mobile banking users view transactions.
• 10 billion dollars have been moved using mobile transfer/bill pay.
• More than 50% of iPhone users have used mobile banking within the last 30 days.
• 33% of mobile banking users monitor accounts daily, 80% weekly.  

Phase Three – Arrival of the mobile wallet – cardless and cashless

• Mobile payments on a broad scale including near-field contactless mobile wallets, micro-payments, convergence of the mobile phone with credit/debit cards.
• If only 50% of cash transactions are replaced by electronic stored value cards, debit cards and mobile wallets, the branch infrastructure becomes cost prohibitive unless it is re-purposed.
• In 2000, 59.5% retail payments were made by checks. In 2010 it was 4.3%.

Phase Four – Anyone is a bank – pervasive and ubiquitous

• Banking is no longer somewhere we go, but something we do.
• Banking services and products are delivered wherever and whenever a customer needs the utility of a financial transaction.
• Banks and credit unions do not have the ubiquitous coverage to deliver these products and services in the new world.
• New partnerships will be required.
• Non-traditional value chains will meet banking needs.
• This phase will produce a fundamental split between banking as distribution and banking as a product/manufacturing or credit granting capability.

You can choose to agree or disagree with Mr. King, but there is no denying that the arrival of the Internet and social media have had a huge impact on how we bank today. Smart phones and devices are enabling banking 24/7 anywhere anytime. 

The mobile wallet despite numerous attempts by some very well funded and visionary companies  has failed to gain much traction, especially in North America. I believe that the mobile wallet will achieve mass success in time. The developers to-date have just not found the right mix of ease of use, security and point of sale accommodation that solves a problem. They will.  

What does this mean to credit unions and community/mid-tier banks? It means adjust your thinking and business model or risk shutting the doors. Bank and credit union executives must not only think about how they intent to meet the challenges of change, but must also be ready to take concrete steps to address the changing banking environment. Time is not an ally. 

How you plan today to meet the changing expectations will have a huge impact on the long-term viability of your credit union or bank. We are approaching an important crossroad in the financial services market and how financial products and services are delivered. Are you prepared? The 18 to 35 age bracket, collectively known as Millennials, now make-up the largest age segment of our population, passing the baby boomers. If you don’t have a plan to meet their banking needs then your credit union’s or bank's future looks bleak, because there are plenty of traditional and emerging non-traditional financial service providers that will. As I write this blog, there are over 1,000 venture backed or seeking venture capital companies that are breaking into the payments and financial services space. What are Millennials searching for from their financial services providers? I can promise you it is not the status quo.  

My next blog I will discuss solutions.