COVID 19 – Changing the Digital Banking Landscape: Part 2

In my previous blog, I highlighted that different banking “personas” have differing goals with respect to digital banking.  The large, national financial institutions envision digital banking as being a fundamental competitive differentiator they need to continuously build upon.  The smaller community banks and credit unions are looking to continue to provide an attractive, local alternative like they have done in the past, while meeting the growing digital requirements within their budget constraints.  Meanwhile, new, online-only entrants are making a bet that their future banking clientele do not require any physical presence, particularly in the millennial market.

This blog delves deeper into the strategies and tactics being deployed by the first group, the large national players.  With the financial wherewithal to invest in new technology, these institutions strive to provide the widest array of banking options and features to attract and retain customers, while also improving efficiencies within their companies.

As early adopters of online and mobile banking services, the national banking institutions enjoyed an advantage over their smaller competitors when the pandemic hit and physical access to bank branches became limited.  Not surprisingly, the J.D Power 2020 Retail Banking Satisfaction Study found that these large financial institutions had both a greater penetration of digital customers and a higher customer satisfaction index of their customers, using more advanced online and mobile capabilities to achieve this advantage while increasing revenues, managing costs and improving service.

Many large national banks have increased revenues and grown market share largely by focusing on customer experience as an essential component in attracting clients from large and small competitors alike.  By increasingly using human-centered design techniques and mobile banking services to tailor technology to the needs of the customer base being served, these banks have rolled out highly effective online and mobile platforms that leave customers feeling good about their experience. This approach often includes faster onboarding, simplified payment processing, and easier access to account and transaction information with digital signatures and mobile check deposits reducing the need to come to a branch to create a new account or conduct many common transactions.

Reducing foot traffic into branches has not reduced the ability to grow revenues by selling more products, however, as the national players have increasingly leveraged artificial intelligence to mine their data to determine which customers are likely candidates to purchase certain products, and then following up with targeted online marketing campaigns to promote those products and make signing up quick and easy via online banking.

Despite the obvious technology costs of deploying digital banking capabilities, the large players have found ways to use digital banking to reduce two of their largest expenditures: labor costs and fraud losses.  Like most companies, the largest expense for a bank is their human capital costs.  Technology has successfully enabled the large financial institutions to serve more customers with fewer employees.

Using robotic process automation, more and more activities previously performed manually by bank staff are now computerized.  Chatbots and Voice Assistants are also being used to allow customers to get answers to questions or to process certain transactions with less need for interaction with a human employee. As an example of the magnitude of this labor cost reduction, in an interview with CNBC in October, 2020 Brian Moynihan, CEO of Bank of America (BofA), stated that through the adoption of technology, BofA has reduced its workforce in the past decade from 288,000 people to 204,000, a 29% decrease.

While the increased use of digital banking has led to efficiency in bank operations, it has also increased the risk for bank fraud.  Online and mobile banking provide new gateways for criminals to defraud businesses and consumers.  Fortunately, artificial intelligence and machine learning platforms have provided a means to combat these criminal activities and reduce the losses associated with bank fraud. As the sophistication of these systems have grown, they have become more equipped to recognize emerging trends and behaviors to identify additional transactions of concern.  In the past, one common mechanism to mitigate risk of a potentially fraudulent transaction was to simply deny an application. Today, using artificial intelligence, fraud losses are being mitigated with less impact to approval rates.

Finally, with respect to improving service, a growing trend particularly popular among younger customers is the concept of digital self-service.  Self-service is the ability for customers to get answers to questions and process transactions without the need to wait for a service representative to help them.  According to Salesforce’s “State of the Connected Customer”, 59% of consumers and 71% of business buyers say self-service availability positively impacts their loyalty.

Features like Frequently Asked Questions (FAQs), videos about banking products, or financially-related knowledge articles have been added to bank websites and mobile apps as part of this self-service.  Combined with Chatbots and Voice Assistants mentioned above, customers are now getting the answers they are looking for much quicker than they were when waiting for a customer service representative on the phone.

These digital banking technology investments have provided the large financial institutions a strategic advantage over their smaller, less well-healed competitors.  So, what are these community banks and credit unions doing to counter this advantage?  Stay tuned for my next blog in this series.