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Tech's Lesson: Meet Consumer Banking Expectations Every Step of the Way

By Rich Fusinski, SVP & CIO, Flagstar Bank

Rich Fusinski, SVP & CIO, Flagstar Bank

“One false step anywhere in the chain, and you’ve lost our confidence forever.” That’s how a Gen Z-er described to me how crucial it is for banks to deliver technology flawlessly. While we all know that keeping pace with consumer demands by offering great user experiences is critical for banks, we also need to provide perfect execution, soup to nuts.

"Gaining efficiencies is the name of the game in banking today, and there’s a lot to think about in this space"

Younger consumers grew up in a world of Instagram, Amazon, and instant gratification. If technology doesn’t work, they are unforgiving. For older generations, too, if they’re going to experiment with technology, it’s got to work. Otherwise, they’ll never use it again, not with you, not with anyone. So I don’t think high banking expectations are necessarily age-specific.

It’s fair to ask how small and mid-size banks can compete in this environment. Larger banks can disproportionately invest in technology. They can afford to build their systems and sink the kind of money into R&D that makes creating great solutions a slam dunk. Meanwhile, small and mid-size banks have to depend heavily on off-the-shelf solutions with less control and limited capability of customization.

To compete, smaller banks must be focused on how they deliver technology, and this inevitably means tradeoffs when it comes to functionality. When you are on a budget and resource-constrained, providing all the bells and whistles in online banking, for instance, is difficult, given that you need a product that is easy to use, visually appealing, and most important: reliable. Outages—planned or unplanned—have to be minimized; you have to have a solid high-availability strategy and the right resources and contracts with vendors to ensure stability. Focus is key.

On top of the basics, banks need to home in on their differentiators so they can be significant where it is most critically important. These differentiators must be tangible, meaningful, and aligned with your bank’s business strategy. What makes my bank different from the bank down the street? What’s my secret sauce? These questions can be challenging for any bank to answer, but the answers yield critical guidelines when it comes to investing your technology dollars.

Does all this focus on digital mean branches are dead—as has been predicted for decades? If I had my crystal ball, I would say in the future there will be fewer full-service branches, but branches don’t go away. While digital banking has become more common, the digital space still has limitations. Mobile phones even can’t print cash, every bank has limits on ATM cash withdrawals, many businesses need a place to drop off money, and not everyone accepts digital payments.

Plus, many consumers still want a physical presence. Even for millennials, I think it’s a fallacy to say that they don’t wish to branches. We’ve talked to younger folks, and they tell us that while they do want access to an office, what they don’t want is the traditional branch model. And that’s where technology comes into play. Millennials wish to interaction on their terms, which means not even the perception of high-pressure sales tactics, and they aren’t comfortable when a banker immediately engages and steers them into a cubicle.

An appealing solution is a hybrid branch environment. Banks can deliver the desired experience by providing interactive, self-service kiosks with limited, on-premise full-service, traditional banking options. Then they can close the loop by using video technology to deliver centralized lending expertise.

Even better, they can do this in a way that allows them to expand with smaller-footprint branches while simultaneously reducing staff and saving on cost. The hub-and-spoke model is an example. Here banks can deploy full-service branches farther apart with self-service micro-branches in surrounding areas. Technology provides the flexibility to tailor the size and capabilities of a chapter to the needs and demographics of the local population.

In a university town, for example, you might open a micro-branch with just a kiosk or two and staff it with one person who provides a concierge service that involves pointing customers in the right direction. And depending on the environment, maybe the branch is all self-serve.

With all of these possibilities, banks that ignore technology in branches are limiting the potential of one of their best assets and the changing needs of their customers. Banks need to consider the advantages that the intersection of technology and their branch footprint might create, and how they can broaden their footprint while shrinking their costs through self-service and automation.

Gaining efficiencies is the name of the game in banking today, and there’s a lot to think about in this space. Banks need to trend toward channel consolidation—having your mobile banking, your online banking, and your ATMs on one software stack so that customers can start and finish transactions across environments. This helps create economies of scale without significant capital investments while providing an omnichannel customer experience.

Banks are also looking at core banking in the cloud to gain efficiencies, particularly when volumes are unpredictable or the processing is choppy. Core banking as a service is also an emerging trend that merits consideration, with the promise of significantly reducing the complexity of delivering one of banking’s most critical systems.

Of course, there’s the classic rebuttal that says, “You can’t put this stuff in the cloud because the regulators will never let you; it will never be as secure—you’re sacrificing too much control.”

Regulators, however, have been open to the cloud with the right level of security and controls, and it’s something banks need to take a hard look at. For small and mid-size banks where there are varying levels of robustness in information security, the cloud may be more secure. It is also expected to be more stable than what most in-house capabilities can deliver.

Technology in banking today is a rocket ride. The pace of change is drastic and dramatic. Those banks that understand how to align their differentiators with the new technologies to get more efficient will survive and thrive in an often unforgiving environment.

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