If every executive who worked at a bank or credit union could wave a wand and transform their institution into what they think it should be, would they go digital-only?
Not likely. They would, however, likely find more creative ways to balance digital delivery and the human touch. The digital side would have to be much more powerful and effective, while the human side would play a very different role from the typical customer-facing staffer at today’s bank or credit union — empowered with new tools and data.
The Basic Business Model: How Banks Make Money
Net interest income and transaction fees has been the revenue foundation for most banks and credit unions since forever. But Julie Esser, Chief Engagement Officer at CULedger believes the traditional model must evolve because revenues continue to be squeezed. Rising interest rates have been a factor lately, but such economic factors ebb and flow. A bigger concern is the steady increase of nontraditional financial competitors powered by digital technology. This long-term trend significantly impacting legacy banks’ current and future business.
“Certainly technology can be used to improve operational efficiency,” says Esser, “but banks and credit unions have to be creative in looking for new streams of revenue.”
The model for community banks and credit unions in particular has to move away from reliance on generic loan and deposit products, says Matt Johnner, President of BankLabs. Fighting against megabanks and alternative providers, smaller institutions need to find ways to tailor products for consumer segments that are neglected and overlooked — those that the bigger players don’t serve well
He cites several small-business examples among the building trades, including plumbers, electricians, and roofers. Johnner adds that tailored products should be digital to make them as convenient as possible. TransPecos Banks in Texas, for example, has set its sights on the young doctor market under the digital-only BankMD brand.
Debbie Bianucci, the CEO of BAI, believes U.S. financial institutions have made breakthroughs in innovation in the past year, but she doesn’t see the retail banking revenue model changing for most banks and credit unions.
“Many financial institutions don’t want to play in one niche,” says Bianucci. “They want to have some diversification in their business, even within retail banking. And the driver of profitability and growth for these banks and credit unions still very much revolves around lending” Technology, she adds, enables them to continue that strategy by reducing operating costs.
The Human + Digital Strategy
Joe Salesky, CEO of CRMNEXT, sees a very different banking model evolving. He calls it “The Bank of Service.” Artificial intelligence and automation will transform front-line staff at banks and credit unions into relationship managers, with each customer having one.
“These relationship managers will be the knowledgeable front line that uses science and conversation, much like a doctor, to know the consumer and become their “personal financial assistant,” Salesky explains.
Continuing with the medical analogy, a general practitioner has a broad view of the patient’s needs and has the ability to provide both good counsel and the services the patient needs; some serve an average of 2,500 patients each. Salesky says the comparable figure for an efficient staffer working at a bank or credit union would be around 500 customers today. But by harnessing technology, Salesky asserts retail banking providers could triple that figure.
Bianucci agrees. “Technology enables the personalization of information that could drive a relationship,” she explains. “There are there many different ways that those interactions can take place that go beyond face-to-face with a teller or a personal banker in the branch, or on the phone with a call center rep.”
People still need access to subject matter experts for more complex questions or problems. But this could be technology enabled, says Bianucci.
A lot depends on the specific transaction and how the parties have done business together before. “Digital solutions definitely can work,” says Johnner, “if you already have a trusted relationship outside that digital solution.” Trust can involve a number of things, he adds, including “What are you going to do with my data?”; “Do I know the person or the company?”; “What’s my recourse if there is a problem?”
The Digital-Only Option
The debate over the best distribution channel for financial services is misplaced, Bianucci insists. “Start with the consumer and figure out how to make the interactions that they have with our financial institution easy and perceived to be fairly priced. Both of those things are really important.
“In reality,” Bianucci continues, “most account opening today still happens in a branch because the technology tools for account opening don’t work very well. When they start working well consistently, there will no longer a need for that account opening to take place in the branch.” She urges banks and credit unions to find ways to develop relationships with customers based on what they need without a branch network. Over the long haul, such networks will be cost prohibitive.
“Most account opening still happens in branches because online tools don’t work very well.”
— Debbie Bianucci, BAI
Much depends, however, on the type of product involved and type of customer, observes BankLab’s Matt Johnner. “The shift from taxis to Uber and Lyft happened pretty quickly,” he says, but loans and deposits are another matter. “Would I be comfortable taking out a half-million loan via Venmo? Definitely not. Probably never.”
“One of the great strengths in the U.S. is our true, in-market, relationship-based banking approach, where you can talk to a real person down the street,” Johnner states. “That may not necessarily need to be in a branch. I could just as easily go to a banking kiosk in a WeWork facility.”
Joe Salesky sees it this way: Relationship management will be delivered by the same staff both in-branch and virtually using video and screen sharing on mobile devices.
The Bottom Line: The Top 3 Strategic Priorities
Matt Johnner, BankLabs:
- Build a custom strategy. Know your market and tailor deposit and loan strategies to that market.
- Deploy mobile tools that help you add value and differentiate from the big guys.
- Find a way to be innovative and nimble — “forward thinking” — while simultaneously not being distracted from the “ground game” of strategy execution.
Debbie Bianucci, BAI:
- Put the customer at the center of all you do. Use analytics to customize solutions and create relevancy.
- Find ways to deepen customer relationships and build trust.
- Determine how to attract and retain the top talent required to better meet customer needs.
Julie Esser, CULedger:
- Differentiate through financial inclusion. But don’t just open accounts. Provide services such as education and mentoring that truly benefit unbanked consumers.
- Partner with reputable, trustworthy fintechs to stay up with technology innovation.
- Focus on cybersecurity. At the heart of cybersecurity for the banking industry is authentication.
Joe Salesky, CRMNEXT:
- Fight “Big Tech” with collaborative service (personal financial assistants), not just the “table stakes” of digital convenience that all can offer.
- Cross-train, license, and pay your staff to be able to handle all products. Banks and credit unions cannot hire in this tight labor market, so empowering your team to handle growth is needed.
- Use credit reports and transaction data as the foundation of a “whole customer” approach to service — e.g. open a “relationship” not an “account.”