Unfolding Higher Possibilities for the Digital Mobile Banking Landscape

Dan Armstrong, Chief Digital Officer, Customers Bank

Although web banking was launched in the mid-1990s, and mobile banking as early as the early 2000s with WAP and application platforms like NTT DoCoMo’s i-Mode, modern customers have come to expect these tools from their bank as “table stakes.” With the launch of smartphone banking apps, some younger customers never even visit a bank branch at all and bank completely digitally.

Paradigm shifts like these can be extraordinarily challenging for smaller regional banks and credit unions, withlimited staff and budget, and limited access to high-quality IT professionals. The conundrum in banking is that if a small financial institution does not at least have basic digital tools, its customer base will diminish and simply age out.

Vendors to the rescue!

Given the requirement of banks of all sizes to maintain digital channels like web and mobile banking to be considered a competitive banking choice, many have turned to third-party vendors to supply and maintain these tools. However, the business drivers behind each actor can sometimes be at odds, with customers paying the price for the mismatch.

Third-party technology suppliers’ business goals are achieved by standardizing as much functionality as possible and providing limited customization capabilities in order to maintain a standardized codebase, support managing functionality and security upgrades in an organizations fashion, and to support scale.

At the same time, while banks and credit unions may respect those goals and understand their value from a security and sustainability perspective—their business goals are achieved by carving out some sort of differentiated customer experience. The conversations small banks are having is that customers find banking is boring, a commodity activity, perfunctory. “Why would I choose you over the bank on the corner? What is the difference in experience I am going to receive?”

"Banks already face challenges in bringing together disparate systems, so with different platforms, data in various places, and different workflows, all must be brought under one platform to ensure the best consumer experience possible"

In survey after survey, customers state that they expect their bank to look to the future, pay attention to trends, and protect their information and their money. Most customers are even willing to pay for this, or at least agree that it should be a part of how a bank spends its operating budget. Without some sort of investment in current and future technology and innovation—modern banks, no matter how small and trusted, may not stand a chance.

How much is too much innovation for a community bank?

Some larger banks have committed wholeheartedly to technology, as well as reduction in branch costs, innovative and customized web and mobile app experiences, often spending substantial marketing budgets to position these capabilities to customers. A few have completely re-designed their branch strategy to match this, and some have abandoned physical branches altogether. Such shifts tend to be expensive though.

On the other hand, waiting to see what happens next, and doing nothing except for “keeping up with the Joneses” in the banking innovation space has its own risks. A similar strategy would be to decide to pursue an innovation strategy that is fully complete and worked out in detail. By the time that happens (if it is even possible), technology has surely changed, and the strategy will need an update. One can imagine this cycle repeating and repeating.

For small regional and community banks and credit unions, one answer might be to simply pick a few key innovation battles. Based on the bank’s position in the community, customer base, any specialized products or services—a bank can maintain baseline technology, but identify a few key areas that they could invest in, learn from, and also promote (not unimportant). Blockchain, AI/ML, cryptocurrency, predictive analytics, IoT banking, advanced authentication, chatbots, biometrics—some of these technology buzzwords may be useful in some way, but I argue that such activities can be far more effective if used in conjunction with a bank’s customer segments or segment goals.

AI/ML might be impactful to an agriculturally-focused bank, when combined with tools to help farmers track market pricing trends. Video banking done correctly might be impactful to rural banks finding it hard to be cost-effective with physical branches in all locations. IoT banking might be impactful to seniors (if they can learn to be comfortable with Alexa). Chatbots might be interesting to first-time mortgage customers.

Is small regional and community banks and credit unions simply pick one or two areas to invest in, modestly jump into some form of technology innovation, the benefits could be substantial to their organization and customers alike. Benefits for the bank include experience with working actively on technology innovations, the ability to identify what works (and probably more importantly, what doesn’t work), and to build some institutional knowledge and momentum. For customers, they’ll see the bank working on innovation for them, looking to the future, and ensuring that they both won’t be left behind. 

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