The Value of Innovative Digital Banking Platforms for Community Banks

innovation in banking for small community banks

Local and regional community banks need to embrace digital innovation — not just to remain competitive but to survive. Research conducted by The Financial Brand indicates the digital transformation accelerated by the 2020 worldwide pandemic shows no signs of slowing down. They looked at relevant Google search trends to determine some consumer mindsets around banking. Among the notable takeaways of the research:

  • Customer experience strategies show the importance of the Customer Journey. As competition increases in retail banking services, banks and credit unions will have to focus harder on more efficient, effective and enjoyable methods of engagement.
  • The threat from digital-only banks is real. Fintech firms that offer internet-only financial services, such as Sofi, Chime and Varo are on the rise. As this trend continues, these so-called neobanks will have a massive impact on legacy banks and credit unions.
  • Mobile banking is critically important. Since 2015, the search interest for branches has been trending downward. Searches for mobile banking have risen significantly since 2011 and are likely to exceed bank branch searches very soon.

The key here is the more seamless and integrated your digital and legacy banking services are, the more competitive your financial organization will be. As the U.S. and global economies recover from the 2020 lockdowns, it’s natural to want to believe that the return to normal will yield the same business practices before the pandemic ensued. However, the more likely scenarios involve following significant consumer expectations to provide digital services. According to Entrepreneur magazine the most successful banks and credit unions will be able to address their end users’ financial needs from end-to-end and solve them in a frictionless way. Some of the continuing digital trends over the next five years include cardless payments, micro-personalization and competition with non-banks.

Serving the Community Better

Research conducted by Cornerstone Advisors titled “What’s Going on in Banking 2021” highlighted the top five technologies in banking as driven by consumer demand:

  1. Digital Account Opening. This continues to be the most requested and popular technology for the fourth consecutive year. Almost half (44%) of banks and a quarter of credit unions expect to add or replace consumer digital account opening systems in 2021.
  2. Application Programming Interfaces. With roughly one in four financial organizations planning new investments, more local and regional banks and credit unions are embracing the digital trend.
  3. Video Collaboration. One in four financial institutions are planning to invest in this technology to meet their users’ demand for virtual interactions.
  4. Person-to-Person Payments. The Cornerstone study is forecasting about 25% of banks and 20% of credit unions expect to add or replace their P2P platforms.
  5. Cloud Computing. About half of credit unions are already using some form of cloud computing in order to take advantage of potential faster speed-to-market and lower total cost of ownership.

Focus on User Experience
Banks and credit unions that focus on personalized interactions via digital innovations create more powerful user engagement. In turn, this increased engagement induces more users to provide personal data and information. According to Accenture, 63% of end users say sharing data should result in personalized banking experiences and advice. These more engaged users have three times the transaction activity, purchase 1.9 more products and are 16 times less likely to churn.

Survival Differentiator

According to a 2021 study of banking trends by Accenture, “[The year] 2021 will see the launch of next-generation neobanks that will up the ante again for digitally immature traditional banks.”. The 2021 market leaders will continue to combine the new and the old around a banking business model optimized for the post-pandemic new normal. The study goes on to say that banks and credit unions that fail to adopt — or those that do so slowly — are likely to suffer the most.

Even More Value From Digital Banking Investment

According to FIS Global, one in five users started using a new banking provider since the pandemic began. Users are clearly searching for a more ideal relationship with their bank or credit union. Of those new banking relationships, 37% chose a large national or global bank, 18% chose a credit union and 10% picked regional community banks. “COVID-19 has been a huge catalyst in driving new consumer behaviors … All of this change spells opportunity for banks and credit unions to advance their digital offerings and loyalty programs to meet these changing needs and capture new customers,” said Rob Lee, head of digital and banking at FIS Global.

Effective banks and credit unions will focus on segments and niches where they already have a differentiated advantage. This might be a specific demographic segment, geographic footprint, product offering or proven digital partner — where your digital banking partner can give you access to industry-leading, cutting-edge online banking technology. Interest rates are likely to remain low along with margins over the foreseeable future. Consequently, banks and credit unions need to focus on efficient and streamlined operations. This includes deepening relationships with existing users, increasing automation, optimizing delivery networks and leveraging technology to support your marketing and customer service. 

By optimizing your digital innovation in your banking services, you help distance your organization from the adoption laggards already losing users. “Over the past three years, the megabanks’ share of new checking account applications increased from 36% to 51%. Digital banks tripled their share over that period of time. At the same time, smaller regional banks, credit unions and community banks have seen a drop in new applications from 51% to 25%,” said Ron Shevlin of Cornerstone Advisors. 

Digital change is clearly upon the financial industry, the long-term success of your organization can be greatly enhanced by aligning yourself with an industry leader. Take action today.

Marty Aquino has been a passionate writer on venture capital, technology, forecasting, risk mitigation, wealth and entrepreneurial topics since 2009. He is the founder of Carbonwolf Energy, a venture-capital firm specializing in world-changing and status-quo-defying technologies and people. 

Sources 

The Financial Brand – 2021 Google Search Trends in Digital Banking, Payments & Fintech

Entrepreneur – 8 Ways Digital Banking Will Evolve Over the Next 5 Years

Cornerstone Advisors – What’s Going On In Banking 2021

CU Times – 5 Ways to Create More Meaningful Digital Experiences With SKU-level Data

Accenture – Banking in 2021: Top 10 trends to watch

The Financial Brand – Will Regional Banks Survive in the Digital Future?

Pymnts.com – Lumin Digital Tapped By Fort Financial To Provide Digital Banking Tech

Forbes – How Banks Can Grow Like Bank Of America, Chase, And Wells Fargo: The Reacquisition Imperative