Digital Banking ... The New Checking Account?

Back in the old days credit unions and banks aggressively marketed to get your checking

account. The reason, banks and credit unions determined that the financial institution that held your checking account was your primary place for banking. While your checking account may not be profitable, all the other banking services and products you used were profitable. 

Fast forward to today. An analysis over five years by Digital Insight of their customer data showed that highly engaged members/customers that used multiple digital banking services are 51% more profitable than members/customers who do not actively utilize online or mobile banking. In addition, members/customers who actively use digital banking services correlate to having higher account ownership, balances, retention, and debit card purchases when compared to offline bankers. It is evident that those members/customers using multiple digital banking services become more “profitable” and engaged, when compared to the offline banking segment.     

The digital channel provides increased opportunity to reach your member/customer wherever they are, at any time. Therefore, the more solutions they actively use, the more engaged they become. By reaching members/customers through multiple digital touch points including emails, banners and prompts, financial institutions can cross-promote complimentary offerings to lead their members/customers to products and services that best fit their needs.

As credit unions and banks struggle with margin compression and seek new revenue sources the answer may lie with your digital strategy. Two of the first considerations when developing a digital strategy:

1. How can digital be used to create a better member/customer experience?  
2. How will it add to the bottom-line?

Most credit unions and banks begin to address question one, although most often in a disjointed piecemeal fashion, reacting to what Wells Fargo or Bank of America are offering.    

Regarding the question most credit unions and banks view digital banking as an expense to the bottom-line.

How do you go 180 degrees from expense to revenue? By developing and implementing a strategic omnichannel and digital banking plan that defines digital as its own self-supporting channel with specific and measurable P&L requirements and performance objectives. Move digital from being a channel designed to drive traffic to the branch network. Digital banking needs to be able to stand on its own.

Branches are not going away, but over time they will fill a different role than they do today. If you have any doubt, look at the enormous success of the branchless USAA Bank (66 billion in assets) or ING Direct Bank that was recently purchased by Capital One for nine billion dollars (US operations) and Scotiabank for 3.1 billion dollars (Canadian operations). They are digital channel only financial institutions, and the list is growing. 

The successful implementation of a sound omnichannel and digital banking strategy is what can set credit unions and banks apart and create a financial model that will set the path forward.

Digital banking is not an expense, it is the new checking account that drive relationship profitability. 

The Digital Divide - The Difference Between Banking Opportunity and Failure

I was reading an article today in Credit Union Management written by Lisa Hochgraf, subtitled, Seven steps to success with your largest 'branch'. The article does a good job

identifying a problem all credit unions and community/regional banks face. "Bank of America has 6,000 branches, Wells Fargo has 3,000 and TD Bank has 1,300." You can’t out-branch them. How is your credit union or bank going to compete?" It is a great question. Unlike many articles of its kind, it goes on to offer seven steps credit unions and banks can follow to make the most of e-delivery. 

Here is the problem. The subheading, Seven steps to success with your largest 'branch' implies that digital channels are another form of a branch. In fact, the largest branch. That is the approach most credit unions and banks take today. They consider digital banking as another branch or an extension of the branch network. That perspective will result in digital banking channel failure.   

The financial services industry is undergoing a transformational change as a result of technology and the emergence of non-traditional financial service providers. Credit Unions and Banks are struggling to understand the impact of this new environment, and how to succeed in it. Combine these factors with increased margin pressure and consolidation and you have a recipe for credit union and bank opportunity ......... or failure.

I have identified how the failure will occur; follow the path most credit unions and banks

are currently on regarding digital banking. Do you remember the story of the Pied Piper of Hamelin? How many times have the companies that break away from the pack gone on to great results? Apple, e-Bay, Amazon to name a few. 

Digital banking cannot be simply a collection of disparate e-solutions that a credit union or bank test and then march out to the members/customers. A piecemeal of solutions that may or may not interface with each other. If your credit union or bank has multiple digital solutions (mobile banking, online banking, new loan origination, new mortgage origination, existing member/customer new account opening, new member/customer new account opening and on-boarding) have you gone to the website and tried to use it. Can your members/customers get immediate approval, do they have to submit information to the branch or administration office, can they log-in once and get access to all digital services, are there workflow rules, is there a decision engine, and are documents available and able to be signed electronically? If the answer to "any one" of these questions is no, then you have created a poor member experience that someone else has solved or is about to solve. 

Digital banking and the ultimate result, omnichannel banking is a huge undertaking. It requires a well thought-out and defined digital strategy that has the executive team and board buy-in. The leader needs to be part of the executive team because digital and omnichannel banking is the new future.

Digital banking is not another branch. It is a completely different channel that needs to be self-supporting and fastest growing channel in your bank or credit union. Digital banking needs to be its own P&L center and not be a channel to direct members/customers to a branch. Don't force members/customers to go where they do not want to go! Don't blame it on "Know Your Customer" or other regulatory issues or constraints.   

So the next time you talk or hear about your bank or credit union refer to digital banking as another branch or branch extension cringe and do something about it. Credit unions and banks face a great opportunity or failure. Where do you want to be when the music stops and you want to find an open chair?

The Holy Grail of Digital Banking Solutions

Credit unions and banks, what is your vision of the "holy grail of digital banking solutions"? I know you are busy, but have you really taken the time to consider what

your member or customer facing digital solutions should look like, how they would operate and interact with your current operation? 

Just to give you a kick-start here is a link to some of my thoughts on the subject.    

http://bit.ly/omnichannel_digital_banking

What does digital banking mean to you? Is it simply online and mobile banking? Is it 24/7 365 day access to all the products, services and support your credit union or bank offers? Is it something in the middle? 

If it is in the middle can you define it? On a scale of one to ten, ten being highest implementation, where does your credit union or bank fit regarding it's digital implementation compared to your expectation? Can your credit union or bank meet your digital solution expectation? If so what will it take? 

Does your holy grail of digital banking exist? If so can you identify it? If it is not out there why do you think that is the case? Can a single technology provider deliver your all encompassing solution? If not, how do you tie multiple solutions together to accomplish your desired goal?  

I hope if you are still reading this blog, most won't be, and that you will take the time and provide your feedback and thoughts. It could be the first step in developing the "holy grail of digital banking solutions".

Considering a Core Data Processing System Conversion - Think Twice

A Microsoft white paper in 2008 said the banking market is ripe for a massive conversion

of legacy core data processing systems (core banking system), most of which were architected and built in the 1970s and early 1980s. 

Earlier this year another prominent consulting group came out with a similar prediction. Close to ten years into the forecasted massive core conversion prediction, ..... it hasn't happened. Heck, even the local TV weatherman would have trouble keeping his job with a forecasting track record this off the mark. 

With all these predictions of banks and credit unions rushing to upgrade or replace their core banking systems, why hasn't it materialized? First we need to understand what is driving the desire to change core banking systems. Before we get there, we need to develop a common understanding of what comprises a core banking system. 

Even defining a core banking system isn't that simple. Just what is a core banking system? The answer depends on whom you ask. This seemingly simple question is complicated by a dizzying array of products and vendors in the market today. Many vendors describe their products almost entirely in terms of end-state benefits, dangling promises of real-time processing, service oriented architectures (SOA), and “bank in a box” solutions that offer end-to-end integration. As a result, the definition of core banking systems varies widely. 

Some credit unions and banks only seek to refresh an ageing MIF/CIF (Member/Customer Information File) or GL (General Ledger). Others believe a core banking system is much more comprehensive solution and is the  backbone of a credit union or bank. A core banking system that supports a wider range of systems, applications and databases as credit unions and banks wrestle with business, member/customer and regulatory demands. A core banking system may support member/customer relationship management (MRM/CRM), business process management (BPM), business intelligence (BI), business rules, risk and fraud management, anti-money laundering (AML), online and mobile banking, treasury, finance resource planning (FRP), asset liability management (ALM), general ledger (GL), regulatory compliance, transaction throughput, interest and fee calculation, parameterized product setup, transaction clearing and many other functions. The first thing a credit union or bank needs to do is define, "what is the executive team's definition of a core banking system".

Back to the first question, "what is driving the desire to change core banking systems"? 

The existing core banking systems are rigid and inflexible because of the complexity, age

of the design and multiple platforms, which makes it hard to understand, run and change. Changing the platforms to comply with regulatory requirements and to respond to round-the-clock digital banking needs is difficult. Driving the desire to change core banking systems are six common themes that can be easily identified:

1. Total cost of ownership: The cost of running core banking platforms is considered to be too high. Cost reduction is needed to restore the competitiveness of credit unions and banks.
2. Complexity: The complexity of core banking platforms and processes is seen as a very big challenge. This complexity has a significant impact on the ability of the IT team to track down issues. The cost of running, updating and changing the platform increases because of the complexity. The challenge is exacerbated in many organizations by the need to support and maintain multiple platforms, sometimes as a result of past renovation initiatives.
3. Age: Most organizations have aging systems that are forty years old or are even older. Keeping legacy platforms current requires ongoing investment in compliance, security, flexibility, functionality, and speed to market. Finding ways to retain skills and knowledge of the legacy technologies and the systems themselves is also a challenge.
4. Regulations and compliance: Regulations and compliance are consistently reported as a significant challenge. The pressure is exacerbated by the speed at which bad news travels because of instant social media communication. The cost and time of making compliance changes is also a major challenge.
5. Batch-focused systems: Most core banking platforms are basically batch systems. Adapting them to support the always-on channel solutions of mobile and internet banking and making the credit union/bank appear to be functional round the clock is a significant challenge.
6. Support for front office digital channel: According to the Microsoft white-paper, the majority of credit union and banking executives believe that core banking platforms will inhibit the development of front office solutions, rather than enable them. 

Many credit union and bank leaders plan to implement transformation strategies that specifically address front office digitization. Banking leaders who plan to transform the core banking platform for front office digitization expect to enable front office change by implementing enterprise middleware platforms and portals that use well-defined system interfaces.

So maybe the "big bang" is not going to happen after all. Their is growing consensus that

a migration plan is the best approach to deal with the deficiencies of core banking systems. In my opinion, as an past executive of a core banking system vendor, there has been very little progress made by North American core banking system providers towards architectural modernizing of their core banking systems. Oh sure, they have added new JAVA or .Net presentation layers, but the fact remains, the core architecture and application stack remains essentially that same as it was 30 to 40 years ago. How does that saying go, ............ "it is like putting lipstick on a pig".  With such a stunning lack of progress why would any credit union or bank what to upgrade its core banking system. In the year 2014 would you upgrade your 2000 Chevrolet for a 2005 Ford?

Is it surprising, then, that while the industry has been talking about legacy modernization and predicting growth in the numbers of banks and credit unions replacing their legacy core banking systems since the early 2000s, most banks and credit unions have hesitated and put off a core conversion? Despite all the media and consultant reports that core conversion are about to bust loose, it hasn't happen. Many credit union and bank leaders wish to evolve the architecture of their core banking platform as a strategy to achieve their objectives. The adoption of enterprise-wide enabling technologies such as business rules engines, master data management, analytics and business process management are seen as significant reasons for their wish to move to a more flexible architecture. Surrounding legacy systems with a multichannel and omnichannel architecture that has strong process and workflow capabilities; externalizing specific banking services such as MRM/CRM, payments, origination, document management and others, and ultimately migrating the remaining legacy system code to a different platform.

With the lack of modernizing progress that most North American core banking system

vendors have made, I believe it is smart business to evaluate middleware and portal solutions before making a core banking system change. In fact, I will go on record and suggest that "with the technology tools currently on the market, the smart money is investing in those solutions and solutions that can overcome most of the weaknesses of the legacy core banking system". This could make core banking system conversion obsolete, or at least, buy multiple years to allow existing or new core banking system vendors to prove their worth with open, modularized, and modern architected systems. 

In my opinion there are two obstacles that still need to be addressed with a migration instead of replacement strategy. The most difficult is batch focused systems. Batch processing is a legacy from the 1960s. In today's modern world, batch processing should be an obsolete term in core banking systems. I can assure you, despite what you may be told, all the core banking systems utilize some form of batch processing. In a 24/7 365 always on world, batch processing is the enemy of the desired member/customer experience. Members and customers want, expect and should get real-time access and transaction processing with up to the second accurate information. The core banking systems are not architected to support online, real-time processing 24/7, 365 access and processing. 

The second challenge of a migration strategy involves integrating all these systems, applications and channels and orchestrating banking processes from front to back – especially given multiple underlying operating systems and communication protocols. Even if you can get them to communicate, do the systems work together to provide a unified user experience. 

What does core banking systems have to do with omnichannel banking? It is the reason we are talking about omnichannel banking instead of already having implemented it. Omnichannel banking's implementation obstacle is the legacy and disparate technology solutions that are not able to support omnichannel banking.  Omnichannel banking is the seamless convergence of all credit union member and bank customer interaction channels delivering a consistent and uninterrupted experience, regardless of what or how many channels a member/customer uses to connect with the credit union or bank. Omnichannel banking is an “end goal”, not a product, service, or marketing campaign. Omnichannel is the breaking down of silos that exist with most traditional financial services providers. It is the entire member/customer experience. It is how credit unions and banks interact and reach out to their members/customers, both digitally and within the brick and mortar of their buildings. 

Almost all the core banking system platforms do not support an omnichannel banking strategy, therefore a core banking system change is not likely going to help you implement that strategy. But the good news is there are options that will work!    

The Discombobulated Sides of OmniChannel Banking

The definition of "omni" is "all". Omnichannel means all channels. The definition of discombobulate is "confusion or disorder". There is plenty of confusion about omnichannel banking. 

The current fervor in banking over omnichannel is focused on the member/customer experience. The goal is to create a seamless experience across all banking channels. 

Be warned, focusing only on the member or customer experience is like giving your 16 year old son an airplane on his birthday without any flying experience, and telling him to go take it for a quick test flight. It is going to be quick alright, ..... as it crashes and burns. There are two sides to omnichannel banking. The side your members or customers uses to interact with your credit union or bank, and the forgotten side. The side your member/customer facing employees use to interact and support your clients. 

What is driving omnichannel banking? Too many technology solutions that don't communicate with each other or share a common interface or user experience. In short, the user experience ...... how do I say this politely...... SUCKS! As a former executive of a banking core data processing company, I can attest that banking is a complex business that involves many products and technology solutions. One of the primary goals of omnichannel banking is to have all the member/customer facing solutions communicate with each other and provide a user experience that doesn't look and feel as though there are a bunch of systems pasted together.     

If member/customer look, feeling and experience are not important to you then you may

think you can solve the problem by creating a single sign-on that allows members/customers to access multiple technology solutions through a your website or mobile application. Yes you can do that, and that is what most financial institutions are doing today. 

If your credit union or bank has the ability to deliver multiple products and service solutions through your website or mobile application have you ever tried it? Even with a single sign-on it is a very frustrating experience which often leads to a phone call to your call center or a visit to a branch. That is not even effective multichannel banking. If they wanted to talk or make a trip to the branch they would have done that in the first place.

Assume for a second that you have solved the member/customer user experience. You get a check-mark, but you are a long way from being finished and accepting pats on the back and your next promotion. As I already pointed out, banking is complex business. As much as you improve, refine, and advance your member or customer user experience or add automated decisioning, workflow routing or intelligent analytics, there are still going to be times that members and customers will need to talk with a live person. That's when the breakdown occurs and the member or customer enters "banking hell". You know, that place reserved for your members or customers that love to seek out the CEO or Board Member to complain.

  
You have created and implemented all these great external member/customer facing systems. They all work great together,...... until they don't. Now the member/customer must emerge from the protective cocoon of your carefully crafted omnichannel banking user interface into the harsh reality of employees that do not have a clue what the hell the member is doing or talking about. Without tying the same systems together that members or customers access for your member/customer facing employees with an internal user interface that is actually helpful, you have condemned your valuable clients and staff to "banking hell", from which they return after much frustration, angst and wasting of time. Yet another satisfied customer.  

For an omnichannel banking strategy to succeed it will require focusing on both the member/customer users experience and the member/customer facing employees user experience and related tools, systems and processes. An omnichannel banking strategy should not be undertaken lightly, but for those credit unions and banks that do, ..... the reward can be great. Don't let your omnichannel strategy crash and burn.        

Who's on First? The Contradiction of Millennial Research

"Who's on First?" comedy routine made famous by Abbott and Costello speaks to the

confusion of communication. How can same thing have two polar opposite positions? Research about the Millennial generation seems to be research in contradiction. 

For example,  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). Millennials also have more products with their primary bank. They have 3.49 products compared with 3.3 products for Boomers. How can these two studies be reconciled?  

FICO's report also goes on to say, "Millennials now comprise the largest population segment ever in U.S. history, and that segment is growing as a percentage of the overall population. Opportunities are abound for banks and credit unions that understand this generation and can address their unique requirements." 

It is clear that credit unions and banks have to understand and resolve this conflict of information or their futures may be bleak. Philosophically, a credit union's mission is more inline with Millennials beliefs than major banks, yet the four major banks dominate their banking experience? Why?

Millennials, while bringing values that may be different than their parents, are also extremely pragmatic, learning from the challenges their parents face. In an interview by The Financial Brand, “Millennials are very pragmatic and have high expectations around technology,” said Laurie Paleczny, co-founder of Digital Fieldwork, noting that the research examined thousands of online data points, including publicly available profiles on Facebook, Twitter and other social networks. “If convenience and functionality aren't there, they’ll do business with banks even if they do not always respect their values.”   

Digital Fieldwork's research suggests that "credit unions have a golden opportunity to acquire a new generation of members, but first they must adopt smarter ways of engaging them online. Their research into U.S. credit unions’ digital landscape reveals a distinct gap between the current digital strategies of credit unions and the interests of Millennials." Credit unions’ struggles to attract Millennials, a demographic of approximately 74 million people, is well documented. Many credit union observers are concerned that the average age of credit union members is 47, and that a large majority of younger generations are not familiar with credit unions.

Javelin Strategy & Research writes, "Millennials are made up of two distinct

segments, both with widely differing circumstances, behaviors, and needs. The first group, Gen Y.1, numbers 31 million consumers ages 18 to 24. Gen Y.1 is financially young and uncommitted to any one service provider - a great target for prepaid cards or basic checking accounts. Their counterparts, the 42 million consumers of Gen Y.2, are 25 to 34 years old. These consumers are highly engaged in financial services, and are tech-savvy consumers with an appetite for financial products. To earn the business of next-generation financial customers, providers must understand and meet the needs of these two groups."

There is good new for credit unions and community/regional banks. Despite the

high Millennial market share the four major US banks have they are very vulnerable. According to FICO's Forging Lasting Banking Relationships with Millennials study, Millennials are less loyal to their primary banks than other consumers. The survey showed that Millennials are five times more likely than those over age 50 to close all accounts with their primary bank. They are three times more likely to open a new account with another bank.

So what does all this information mean 
about how to attract and retain Millennials to credit unions and community/regional banks? Millennials are using the services of the major US banks primarily because of pragmatism and their perception that only the major banks have the digital channel they seek to conduct their financial business. They have little knowledge about credit unions. They are not loyal to the big banks and will quickly switch when they find a better option. Millennials consist of two distinct groups that have very different needs. Credit unions and banks must appeal to both segments.

Javelin Strategy & Research recommends:

1. Don’t wait until Millennials are profitable. Start a relationship with Gen Y.1 now through products such as student loans, checking accounts, and prepaid cards. Gen Y.1 consumers are underbanked at high rates, which demonstrates a clear need for bank products.
2. Provide Gen Y.2 consumers products suited to their career-driven life stage. Unlike Gen Y.1 consumers, Gen Y.2 has a developing need for products such as brokerage and retirement accounts and home loans. Credit unions and banks that act as a trusted provider and teacher throughout Gen Y.2’s financial maturation can earn their loyalty in the long term.
3. Design digital banking for speed and simplicity to serve Gen Y.1. Position high-frequency activities like account balance and recent transactions front and center and allow users to monitor their accounts without logging in. To satisfy Gen Y.2, build out support for multiple financial products and services within digital banking: retirement accounts, loans, stocks, and multiple account types.
4. Look for opportunities to create financial co-management tools. Because 40% of Gen Y.1 members have others managing their finances, look for opportunities to create financial co-management tools to support their needs. These could include tools to facilitate easier money movement or for oversight to help caregivers ensure their funds are being used responsibly. Additionally, design actionable alerts enhance these tools.
5. Opportunities lie around budgeting, savings, and education. For Gen Y.2 members are transitioning from co-dependence to financial autonomy, so lightweight tools to create and manage budgets are critical. For education, a guided experience can help them become better buyers of financial services products and maintain financial well-being.

Millennials use a broad set of channels and devices to interact with their credit union or bank. Credit unions and banks need to keep communications and customer experiences consistent between channels and well-orchestrated. A well planned and executed digital and omnichannel banking strategy is a key to gaining and retaining Millennials banking business.

What's Your View of the Banking World?

You know it is coming. What are you going to do about it? Is there any doubt that non-

traditional financial service providers and partnerships are aggressively trying to move into the financial services space? Where is your head on this issue? Is it a real threat or not? Will they succeed? 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. Why? 

According to Jim Marous, Publisher of Retail Banking Strategies for The Financial Brand, the confluence of the financial crisis of 2008 and the rapid adoption of technology that puts increasing power in the hands of every consumer has resulted in higher demands being placed on financial providers. Today’s consumer expects their bank and credit union to know who they are and how they transact. They also want services built around their spending and wealth-building desires and want to be rewarded for their business.

Banks and credit unions generally are not delivering on these higher expectations of their

members/customers. In this competitive world, when an void is created it is usually quickly filled. Silicon Valley, Boston, London, New York, Atlanta and other financial and tech hubs are breeding  new banking innovations to meet the heightened expectations of of both new and long-term financial service consumers. 

Prominent venture capitalists, and even banks are supporting and funding these new Fintech ventures. Why? Because they perceive a need and an opportunity, filling a void. Fred Wilson one of New York's mostly highly respected venture capitalists and blogger recently said, "financial services disruption is the next huge market to be taken." 

Wal-Mart over many years pushed aggressively into financial services despite failed attempts to obtain a U.S. bank charter that would allow the company to lend money and

offer deposits backed by the Federal Deposit Insurance Corp. The Walmart and American Express joint venture called Blue Bird solved their problem, and is another example of non-traditional and a traditional financial services provider partnering to leverage new opportunities and customers in the financial services market. It started out as simple prepaid cards aimed at tens of millions of middle-class and lower-income Americans eager to avoid fees charged by banks cashing their checks. Less than six months into the partnership Wal-Mart took another leap into the banking world, announcing a prepaid card and debit account with American Express that will give low-income consumers access to features like smartphone deposits. Is this the end or just the beginning of this partnership and others like it into the traditional financial services market space?  

According to a recent study by CGI, the study found that consumers want their bank and credit union to be an integrated part of their daily lives. The five top consumer desires were the following:

1. Reward Me for my business (81%)
2. Simplify My Life by providing “anytime, anyplace” access to my balance (61%)
3. Know Me as a person (58%)
4. Look Out For Me by providing me with wealth-building advice (55%)
5. Anticipate My Needs by telling me what I am spending money on and how I can save (52%)

What are your members and customer searching for from your credit union or bank? I can promise you it is not the status quo.  

You have three options: 

1. Put your head in the sand and hope
2. You are close to retirement, so it is someone else's problem
3. Address it head-on by developing and executing a strategy

What's your choice?  

Pray For the Baby Boomers

Let's face it, baby boomer leaders have it rough. Many companies are led by baby boomers in their 50s and 60s with a growing employee base consisting of those damn generation Xers and Yers. You know .......... the Millennials. "We just don't understand those people!" 

Did you ever read the book, Men Are from Mars, Women Are from Venus? When is John Gray going to write an update, "Baby Boomers are from Earth, Millennials are from Another Galaxy?" All kidding aside, the world has changed immensely over the past 25 years and many community and regional bank's and credit union's executives have struggled to keep-up and catch Millennials attention. 

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. 

What are Millennials looking for from their financial services provider? Millennials want their banks and credit unions to provide the same kind of customer experience that they receive through more agile consumer technology companies they rely on in other parts of their life. They are looking to manage their personal financial lives in the same way they manage their digital and social lives. Right now, with some exceptions, non-traditional financial service providers are building superior offers.

Just in case you have been sleeping here are some more facts about Millennials according to the Millennial Disruption Index study:

1. 71% would rather go to the dentist than listen to what banks are saying
2. 1 in 3 are open to switching banks in the next 90 days  
3. All 4 of the leading Banks are among the ten least loved brands by Millennials
4. 68% say that in 5 years, the way we access our money will be totally different
5. 70% say that in 5 years, the way we pay for things will be totally different
6. 33% believe they won’t need a bank at all
7. Nearly half are counting on tech start-ups to overhaul the way banks work
8. Millennials believe innovation will come from outside the industry
9. 73% would be more excited about a new offering in financial services from GOOGLE, AMAZON, APPLE, PAYPAL or SQUARE than from their own nationwide bank

Credit unions and banks should focus on service as an engagement route with their younger members. An omnichannel strategy designed to deliver a low-effort seamless member/customer experience across all interaction channels. Best-in-class mobile and web solutions, as well as simplified, transparent products all support this direction. 

Another buzz word in omnichannel banking is "seamless experience". What the heck is a seamless experience? Despite the required breaking down of banking silos, hand-offs between channels or people within the credit union or bank will continue to occur. When they do, members and customers don’t want things falling through the cracks or to have repeating their problem multiple times.

As +Ron Shevlin from the Aite Group  says, "consumers want things to work. Period. But if you must elaborate, they want things to work the way they expect those things to work, when they use them, and where they use them. And consumers don’t want to have to think about any of it. They just want it to happen. If you really think about it, what they really want is for banks to be invisible." Combine simplicity and low effort with Mr. Shevlin's comments and you have the definition of a seamless experience. 

I hear credit union and banking executives ask "what is the ROI of your digital technology

solution?". Digital technology solution providers say, "shift your routine transaction volume to the lower cost digital channels." Credit union and banking executives ask, "does that mean I have to maintain both branches and digital channels? My costs go up." Both parties miss the point. Branches and digital solutions are the ante just to have the opportunity to play-in or stay-in the game. Consumers expect and demand more. They want 24/7

365 day access to all the services, products and counselling their financial institution

provides. They want choice according to their timeline and mode of communication. It is not about shifting consumers to lower cost channels, it is about service and meeting the expectations of the information age consumer.

Omnichannel represents a long-term journey and commitment. I describe Omnichannel as an “end goal”, not a product, service, or marketing campaign. Omnichannel is the breaking down of silos that exist with most traditional financial services providers. Omnichannel as goal, and its successfully implementation will only occur if it receives the same commitment, resources and seat at the executive table as the CFO, COO, marketing and other key areas of the credit union.  Omnichannel is not just “e” services or digital services. It is the entire member experience. It is how credit unions and banks interact and reach out to their members/customers, both digitally and within the brick and mortar of their buildings.

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.