Why Omnichannel and Digital Banking will Not Succeed at Your Credit Union or Bank

Omnichannel and digital banking is such a massive initiative, how do credit union and bank executives get their head around it? There are so many parts, where do you start? Have you ever sat down to create a list of solutions today’s members/customers expect, or will soon expect from their credit union or bank?

Here is my list in no particular order. What have I missed?

1.    Data and ID security

2.    Easy but secure authentication

3.    Continuity of transactions, applications and services across all channels

4.    Online banking

5.    Mobile banking

6.    Personal financial management (PFM)

a.    Spending learning and predictions

b.    Expense tracking, tagging and management

c.    Retirement

d.    Budgeting

e.    Investment

f.     Education

7.    Online forms that adapt to the device accessing the form

8.    Process workflow

9.    Management defined business rules

10.  Automated decisioning - credit and accounts

11.  Electronic document management and signature

12.  Data aggregation and analytics

13.  Voice command recognition

14.  Digital assistant - predictive

15.  Digital credit origination - instant approval, access and funding

16.  Credit servicing (payments, balances, due dates, payoff balances, and remaining term)

17.  Digital account opening - instant approval, access and funding

18.  Account funding (ACH, debit card, credit card, PayPal)

19.  Digital account management

a.    Digital account-change records

b.    Digital account switching

c.    Digital account lockdown service to freeze access that freezes the account until a passcode and/or shared secret is provided

e.    Antivirus and spyware protection

f.     Onboarding program with quick-start guide

20.  Video - Skype, FaceTime, Online (PC, mobile and tablet)

21.  Call center

22.  Smart ATM

23.  24/7 message chat, email, text support, voice message

24.  Social media monitoring and contribution

25.  Abandoned application management

26.  Web, ATM, phone and branch reloadable pre-paid cards

27.  Prepaid ATM/debit cards with web, branch, phone and ATM reloading

28.  Real-time core data processing system (no end of day batch)

29.  Behavioral predictive analytics

30.  Real-time credit manager (regular preapproved credit offers and notification with instant approval and access)

31.  Push text notifications and verification

32.  Balance and event trigger notification

33.  Email and text rate updates/alerts

34.  Real-time money movement

a.    Send, receive, spend, save, mobile deposit, bill pay, photo bill pay, P2P, PayPal, wire transfer, app

35.  Personal banking portal

36.  Digital document vault

37.  Blogs and custom web content, personal finance microsites with information and tools for key segments such as

a.    College students/new graduates

b.    Empty-nesters

c.    Families with younger children

d.    High school students

e.    Middle school students

f.    Movers

g.    New homeowners

h.    Newlyweds

i.     Primary/elementary students

j.     Retirees

k.    Retirement planning

l.     Singles

38.  Account aggregation
39.  P2P lending
40.  E-statements
41.  E-Receipts
42.  Loyalty program and sweepstakes
43.  YouTube/Vimeo video - educational and product/service demo
44.  Teen/tween banking with parents
45.  Mobile app with youth UI
46.  Credit score and credit score enhancement
47.  Credit and ID theft monitoring and alerts
48.  No fee overdraft protection
49.  Customer relationship management (CRM) system
50.  Just in-time one off marketing/offer
51.  Secure charitable fund raising
52.  Exception management system
53.  Digital appointment tool for scheduling banker meetings
54.  Digital newsletter and newsletter archives
55.  iBeacon and digital fence
56.  Relationship pricing
57.  Relationship product packaging
58.  Investment club support
59.  A user interface that is shared by the member/customer and staff
60.  Online help functions

a.    Auto-response to all queries

b.    Form-based queries

c.    Departmental email addresses/phone numbers

d.    A forum where the community can help each other

e.    Site-search with filters

f.     Executive email addresses

g.    Video information/tutorials

h.    Context-sensitive HELP

i.     Demos (online and mobile)

j.     Virtual suggestion box

Head spinning? How can a credit union or non-national or non-super regional bank compete? How can they afford all these solutions? How can they evaluate all these solutions? How can they implement all these solutions while also knowing innovation and the resulting list grows daily? How do you plan for the next solution that you do not know is coming? Credit unions and most banks simply do not have the resources, expertise and capital to continue in what is amounting to the old arms race between the Soviet Union and the United States. 

So what can credit unions and banks that do not want to be merger candidates and want to survive do? The technology race to the top is not a winnable solution for most banks and credit unions. Out branching is not a winnable solution. That leaves a couple of choices:

1. Develop a niche that is not reliant or expecting the latest technology solutions - You may not be their primary financial institution, but your niche is profitable and long-term sustainable enough to remain strong. A credit union or community bank in a small rural town is not a sustainable long-term niche. Walmart loves your market and demographic.
2. Partner with other credit unions or banks to develop a technology strategy, roadmap, funding, R&D, hosting, implementation and support plan that serves each of the participating credit unions or banks.

Partnering with your competitors or with credit unions and banks outside your service area may seem like a scary and radical proposition. It is, but what is the alternative? Can your credit union and bank really stay on top of and fund the technology solutions members and customers expect? 

I have used this data in several of my blogs because it speaks to exactly what is transpiring today. The data is clear and the members/customers have spoken by their actions. 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.

Credit unions and banks are losing the battle for the next profitable generation of customers, the Millennials. Millennials, 18 to 35 age bracket 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 the bank's future looks bleak because there are plenty of traditional and emerging non-traditional financial service providers that will. 

Are you ready to partner with other banks or credit unions? In addition to achieving technological economies of scale, another part of the plan can be to achieve economies of scale in back-office processing. Why do you want to own the technology and back-office processing? Because you always have? Instead, why not focus on marketing, front-end operations, brand, and differentiation through the service and support you provide. Just because technology and back-office operations are shared does not mean that the credit unions and banks that are part of the shared technology and back-office support team need to look, operate or execute the same as the other participants.

Lead with creativity, marketing and service and you will have happy members/customers and you will not have the burden of technology and back-office operations. 

Is there any doubt credit union and bank consolidation is real? Is there any doubt the NCUA and FDIC are encouraging through regulation consolidation of banks and credit unions. Industry experts forecast that in 15 years the number of remaining banks and credit union could be reduced by as much as 50%. What is your credit union's or bank's plan to be one of those remaining credit unions or banks? 

"United we stand, divided we fall", Aesop. "Innovation is taking two things that already exist and putting them together in a new way", Tom Freston. Wise words or blasphemy?

Agree or disagree with this proposition? Why? Is it workable? What are the problems? What would stop its implementation? Pipe dream or viable solution of the future?    

   

Do We Need Better System Integration or Fewer Systems to Integrate? (Gonzo Banker)

I read an article ”Do We Need Better System Integration or Fewer Systems to Integrate?” by Terence Roche, co-founder of Cornerstone Advisors and contributor to Gonzo Banker. In the article he says, “If I were to go to most bankers today and ask them what one thing they would do to improve their systems environment, a large number would say better integration of the systems they are using. Ten years ago, if I had asked them that same question, the majority probably would have said - hang on to your hats here - better systems integration. Despite a lot of focus on middleware, application programming interfaces (APIs) and other tools, this issue has never stopped being top of mind with system users.”

He goes on to suggest that the solution is not better system integration, but rewriting systems following the design principle of other industries - customers and employees use a common system and the front-end experience is the start point? He cites Amazon, Uber and FedEx as examples of other industries to follow. 

I accept the author’s premise that banking systems need to be built around the front-end member/customer experience first and then the back-end that credit union and bank employees access and use to support the member/customer. From that point forward I will argue the opposite as it relates to the solution he proposes, rewriting the many banking technology solutions into a single platform. 

He rightly points out that back-end banking systems (their core processing systems) were written 20 to 40 years ago and are based on antiquated technology. They were designed before self-service or member/customer facing solutions were even a twinkle in the eyes of the developers. They were batch systems designed to process transactions. 

Unlike Amazon, Uber or FedEx, the level of innovative solutions (third party and homegrown), complexity, high level of expertise required to create and deliver these solutions and the ongoing regulation that must be overcome is limited, compared to what banks and credit unions face.

To expect a company with a single banking technology platform to develop, deliver and support all the technology solutions to meet the needs of their customers, regulators and employees is not practical. There are several core data processing companies that have gone down that road with very limited success. 

Why not build a single member/customer and employee user interface (UX) platform that accesses all these diverse systems and databases and let the diverse systems and databases do what they do best, process transactions? The result is a single member/customer and employee UX with integration to all of the credit union’s/bank’s front-end, back-end systems and supporting services. How data is input, retrieved and used would be dependent upon how the credit union or bank design their user interface (UX). Designed around business rules, workflows, and decision matrixes, this UX using today’s technology can be built around drag and drop and customization menus. Work that can be done not by credit union/bank IT programmers, but by the new banking team of the future:

1. Data analyst - Google has even created a new name for this position, Data Scientists
2. User experience designer - Must be able to tell your story in a simple and in an intuitive way
3. Algorithmic risk specialist - Identifies risk through multiple data sets without requiring input from the users
4. Predictive analytics - Provides services, solutions and expected responses at just the right time, "the magic second" of opportunity.
5. Behavioral psychologist - Must understand your members or customers, their desires, buying and behavioral patterns. The future of bank marketing is behavioral patterns not demographic profiles
6. Social media expert - The person that develops the message and engages your members and customers

The sheer complexity, services integrations and number of technology front-end and back-end banking systems make a single rewritten system with the required specialization and ongoing regulatory compliance almost impossible. A single system is a utopia that will not happen.

Credit Unions to their credit are actively designing a standard interface protocol “Credit Union Financial Exchange” (CUFX) led by the CUNA Technology Council that will help facilitate integration between technology solutions. A UX platform integrated with the credit union’s or the bank’s front-end, back-end and outside services have a much higher probability of success and is a realistic goal to achieve omnichannel implementation than a rewritten single technology platform.

For your enjoyment, a fun cartoon about and OmniChannel Banking. It hits the mark. 

How Apple Watch Will Change the Face of Banking

Credit unions and bankers, I have good and bad news for you with the introduction of

Apple Watch. The good news, your members/customers will have another way to interact with your credit union or bank. The bad news, your members/customers will have another way to interact with your credit union or bank.

Apple Watch introduces a whole new interaction channel, wearable technology. Just like the ATM, computer, mobile phone, and tablet; wearable technology is the next technology channel that your members/customers expect and will want to be able to use to interact with your financial institution. 

What makes wearable technology and Apple Watch in particular different, is the small display surface available on Apple Watch. Apple recognized this limitation and went back to the future to create a digital crown, similar in concept to the Blackberry roller-ball. Using the crown on the side of the watch allows interaction without covering the display surface. 

Call it a good start. The problem is Apple Watch is still highly reliant on manual scrolling and swiping to interface with the technology. That is a concept that is left over from the PC, mobile phone and tablet. 

Yesterday when Apple introduced Apple Watch it, was the "first generation". Remember the iPhone:

• iPhone (1st generation)
• iPhone 3G
• iPhone 3GS
• iPhone 4
• iPhone 4S
• iPhone 5
• iPhone 5C
• iPhone 5S
• iPhone 6
• iPhone 6 Plus

The first generation Apple Watch is undoubtedly going to be a long list of future versions of Apple Watch and other wearable technology solutions. What does that mean? It means reliance on manual scrolling and swiping to interface with the technology will evolve to voice, virtual assistant and behavioral predictive technology. For credit unions and banks it means another technology solution that must be incorporated into their channel strategy. A technology solution in which the rules will rapidly evolve.

It is exciting times for fintech providers and consumers, but I am not sure credit unions

and banks feel that same level of enthusiasm. The milestone marker just changed and many credit unions and banks are still trying to adjust to mobile technology. Moore's law suggests that the pace of technological change doubles every two years. 

Most credit unions and banks have not been able to fully assimilate the mobile space and the opportunity mobile presents. How are those same credit unions and banks going to handle wearable technology such as Apple Watch?

The fact is the pace of technological change and the costs associated with the technology is beyond the scope and capability of all but the largest national and regional banks. Credit unions and banks, ...... the walls are closing in on you and your corner is looking dark. How can you change the game and give your credit union or bank an opportunity to survive and thrive?      

Through cooperation. Technology solutions and non-member/non-customer facing operations do not have to be owned, controlled and executed by each credit union or bank. Credit unions and most banks simply cannot keep up with the technological change and the costs associated with technology solutions. Instead, a new cooperative entity needs to be created to handle all technology and non-member/non-customer facing operations. Through the use of shared resources true economies of scale can be achieved, but it must include both technology solutions and back-office operations in order to realize the full true cost savings. It may be radical thinking, but based on the prognosis for credit unions and banks, it may take radical action to change the paradigm. Sometimes radical surgery is required to save the patient.

The time to act is now. Remember Moore's law, the pace of technological change doubles every two years. You are already behind and you do not have time to wait before the next technological leap occurs.  

   

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 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.