In the last 270° View installment, we discussed how remarkably things have changed since the Stanford Federal Credit Union became the first financial institution to offer online banking. As noted in that blog posting, these changes have not necessarily been for the better in all cases.
The earthquake, which created a digital device tsunami in 2007 otherwise known as the introduction of the iPhone, caused much of the change. However, how banks and credit unions reacted to that event, and similar ones that followed, contributed materially as well.
What has resulted is a digital banking environment in the U.S. that features an inconsistent user experience across the various devices customers use and limited access to the data required to personalize and monetize the products and services offered to those customers by financial institutions.
As you might expect, there is no shortage of opinions on what financial institutions should do to address these challenges. Most of these opinions fall into one of the three following categories:
- Core Processing Renewal: Some believe that converting aged core processing systems that are account-based to a more customer-centric, modern option is the way to go. While there is no doubt that there are a lot of core processing systems in need of renewal, such a high risk and long term project does little to simplify access to the data analytics needed to offer a personalized level of service across disparate digital channels. Even if a modernization of the core could achieve that goal, the time required to complete the project would make the use of this strategy a non-starter given the pace of change on the digital banking landscape.
- User Experience Portal: This approach has a flaw similar to the "core renewal" approach, in that constructing a user experience layer to sit between disparate digital systems and the member does nothing to create Amazon-like e-banking. If that deficit were not enough, then surely the fact that this strategy leaves in place an array of vendors providing products and services is fatal. All these vendors have their own set of costs associated with them and many insist on controlling the data they accumulate or provide it in a fashion that only further exacerbates the data access issues financial institutions face.
- Multi-Channel: This approach to digital banking is based on the belief that multiple solutions (e.g., online banking, mobile, tablet, PFM, et al) are required to optimize the user experience for each digital endpoint (e.g., laptop, smartphone, tablet). Customers, the argument goes, use each digital device differently and, therefore, a product or service must be built to accommodate those tendencies. Advances in technology and the fact that consumers typically multiscreen when completing many tasks are counterpoints to this logic. In addition, the economics to this approach are non-viable in the long term given the multiple license and maintenance fees associated with supporting it.
- Data Driven Digital Strategy: This is a material departure from how the majority of financial institutions approach digital banking today as it requires banks and credit unions to make easy access to a comprehensive view of customers’ activities in digital channels primary. Many institutions are so pre-occupied battling the complexity and costs inherent in their fragmented digital landscape, this might seem like a luxury most cannot afford to be distracted by. However, I would argue that it is a mandatory requirement for any bank or credit union that hopes to be competitive in the digital era where personalized, comprehensive, omnichannel financial services is a baseline. To deliver Amazon-like digital banking requires offering a comprehensive set of banking services deliverable to any device with the ability to analyze all the digital activity of every user. The data analytics has to be the foundation of the solution. It cannot be easily added later. Retrofitting that capability is a painful, time consuming and risky adventure.
To implement a data driven digital banking strategy, a financial institution must be able to automate data analysis and be able to segment it into actionable information. As a starting point this means a bank or credit union must change from a stakeholder view of their business to a customer-based view. Never mind that a lot of organization claim to do this. The fact is that too many still think of and organize their businesses by the very silos that have become the problem meaning they default to a stakeholder, i.e., siloed view, of their work. Addressing this tendency can be difficult not only because changing it is “unnatural” to many bankers but also because many compensation packages at banks and credit unions often reflect a siloed worldview.
If financial institutions are willing to abandon their existing infrastructure in favor of a user-centric view, they will need to look for solutions with a modern architecture that is both API-based and built on a “data first” foundation. These types of solutions are not plentiful. The few that meet these requirements belong to relatively young companies still establishing their reputation in the FinTech marketplace. This may cause many banks or credit unions to take a wait and see position relative to such organizations, which are often seen as more risk inherent. However, some financial institutions, the ones that understand the more substantial risk to be the rate of change in the digital world, will find ways to engage with these companies that offer true innovation and game changing functionality.
Whether your institution has chosen its digital banking strategy or is still trying to decide, the fluidity of the landscape means flexibility and speed are critical to any organization that plans to be a leader. Delivering an Amazon-like digital banking experience should be the goal of every financial services organization. Organizations that achieve this goal will be the ones more likely to retain current customers and attract new ones. Failure to achieve that goal will result in a number of institutions becoming digital dinosaurs trapped in the mire of their own legacy systems and solutions.