Editors Note: We have a reached a pivotal moment in digital banking. Regional and Midsized banks have to decide whether they are going to try and keep up with the big banks who are attracting the digital savvy user or get left behind. If these banks want to continue to stay relevant, they will need to adopt digital strategies that replace their current "me too" offerings.
Never has it been more important for midsized and regional financial institutions to establish a digital strategy. Those banks and credit unions who "stay the course" are not likely to be operating under the same name in the future. Yet, many institutions continue to wait on the sidelines while the giant Financial Institutions and some innovative mid-tier organizations take the steps necessary to control their own destiny in the digital future. Why are so many standing by and watching? Inertia created by a number of different sources.
For some, the inertia is primarily related to cost. Replacing legacy, disparate digital banking systems requires a material investment of time and money. But the cost of continuing to maintain a "me too" offering may be greater. To start, a financial institution should consider the fees they pay for their current set of digital solutions. One midsized financial institution with 70,000 online users pays $1.10 per month for each online user, plus an average $0.50 for bill pay transactions an an additional $1.50 for mobile banking users. When the fees they pay for PFM, person-to-person and account-to-account services are considered, the institution is paying more than $4 per user per month. An executive from this institution stated that it was cheaper to serve his customers at the branch than to give them all the digital access they wanted.
Still, moving from a "me too" approach to a strategy that offers competitive differentiation is non-trivial. For many banks, doing so will mean undertaking the largest project their organization has faced in recent history. The executives leading these institutions understand that the hesitancy associated with making the move may come from the fact that it is easier to pay a few dollars a month to keep their existing systems than it is to invest the millions of dollars required to overhaul an inefficient, complicated and costly legacy digital environment. However, making such an investment is not optional for an institution that wants to control its digital destiny.
This is especially true when you consider that there is another set of organizations who are not banks who are defining the parameters of this battle and have a material level of influence regarding who will be a victor. Included in this group are the likes of Amazon, Apple, and Google. These companies are the ones that have taught all of us who are customers of the financial services what an acceptable digital experience should entail. To get a feeling for the benchmark shopping by these companies consider the experience of shopping on Amazon versus using most digital banking services.
Amazon uses data to personalize the shopping experience while creating a low friction purchase environment. While certainly Amazon is not flawless in their execution, they do a very good job of making it seem to consumers that the experience is tailored for them. Most banks struggle to approximate this type of experience because the data related to their customers is isolated in disparate, legacy systems that are not built for the kind of contextual value-add personalization required. Yet, there are regional and midsized institutions meeting this need. Arvest Bank, based out of Arkansas has done just this with their BlueIQ™ rebranding making them a good example of an organization that understands its competitors in the broadest sense.
There is a Catch 22 for regional and midsized institutions who "get' what they must do and are ready to take the step. To deploy innovative digital banking services that offer a consistent, personalized user experience and offer the kind of API-based, modern tech stack necessary to sustain a long term strategy, means doing business with new companies whose track record may be limited. Enter risk. Bankers do not care for risk. Their preference is for technology partners that are large, stable, publicly traded companies with dozens, if not hundreds of installs. On the surface, the risk profile with these companies is much more comforting than that of a new company that has a couple of systems live, if that.
However, the fact is that the risk is not less with a big incumbent, only different. The size and success of the legacy providers of digital solutions limits their ability to react to market conditions. They cannot offer solutions that position financial institutions for the digital future in a timely manner. Waiting for this seemingly safer choice to deliver what regional and midsized banks need to be competitive in the digital arena is inherently dangerous based on historic precedent. That is why more and more financial institutions must look for ways to work with smaller companies with newer technologyand the ability to deliver innovation sooner because they are more nimble.
As the biggest banks continue to siphon off digitally sophisticated customers from their regional and midsized rivals, will those rivals begin to adopt digital strategies that lead to the replacement of their "me too" offerings? They will if they want to be relevant in the future.