With consistent new developments in technology, digital banking was already constantly changing. Now, with the “new normal” caused be the COVID-19 pandemic, digital banking has to evolve even further in some areas. According to research found in the 2019 Digital Lending Review, only 52% of banks and credit unions that offer online loan applications were able to complete the entire loan application process completely online. While many organizations have simplified their digital lending processes, those that haven’t let their customers down in the wake of COVID-19.
At the beginning of the year, Xtensifi identified five trends to expect from many financial institutions in the coming year to become more competitive and keep up with the constantly evolving industry. With the current crisis we’re facing, these areas that we once deemed “trendy,” are now crucial for the survival of many FIs.
Driving New Deposits and Loan Growth
Increasing numbers of consumers were leaving their banks each year prior to the current pandemic. A recent study of consumer banking trends by Accenture found that consumers no longer see switching banks as difficult, and 79 percent see their banking relationships as transactional. They have more non-traditional banking options than ever before and are moving by double digits to online banks and payment providers with cheaper products and more convenience.
With the current crisis at play, it’s now more important than ever for banks and credit unions to drive new deposits and loan growth and support their customers and members. To drive growth, financial institutions can use data analytics and digital marketing techniques to find out what their customers want and how they behave, and then design loyalty programs and personalized experiences accordingly.
The Accenture study also found that 47 percent of consumers are open to receiving automated “robo-advice” to help make financial decisions because it’s faster, more convenient, and cheaper than traditional consultation. As digital natives, Millennials are most amenable to robo-advice.
Robo-advice is still emerging, but banks are experimenting with other automated conversational interfaces, like chatbots, video banking, virtual tellers, and voice-activated banking. Capital One, for example, has partnered with Amazon to provide voice-banking services through the Amazon Echo. Digitized conversational interfaces are gaining ground in customer interaction and may become a necessity for many institutions with social distancing guidelines in place.
Integration and Open Banking
Over the past year or so, open banking has quickly evolved from an experimental activity by a select few banks to a more common practice. In open banking, banking data is shared through APIs between two or more unaffiliated parties to bring enhanced financial services capabilities to the marketplace. The largest banks in the U.S. have built several different types of APIs for various purposes. Typically, functionality is either payments based, allowing a third party to leverage the bank’s payments APIs, or account information based, allowing third parties to access their mutual customer’s bank transactional data.
These large banks are hoping to create a new revenue model and keep customers using their core services like payments, by offering this open architecture to fintechs. This also allows the banks to better integrate with innovative apps that also leverage the bank’s platform. These arrangements allow financial institutions to bring cutting-edge products and services to market, without spending a lot of time and money on development and support. More banks are using open banking and open architecture to innovate faster than ever especially with the pressure COVID-19 has created. For example, those FI’s with modern, flexible, digital infrastructures for lending were best positioned to serve their business customers during the deluge of PPP loan applications.
Digitalization is changing the relationship customers have with their banks, and how they want to manage their money. Part 2 of this blog series will cover how banks are harnessing the power of data analytics to provide personalized services and to predict customers’ behaviors, and why cyber-security remains a top focus of digital investment especially given the “new normal.”