So far, the evolution of financial technology hasn’t been good to credit unions or small regional banks. Non-bank start-ups have done well because their pure-digital strategy keeps costs very low. The big banks have also thrived because they have massive resources to throw into their digital banking platforms. The J.D. Power 2019 U.S. Retail Banking Satisfaction Study showed that they’ve been remarkably successful in attracting users from smaller competitors and locking them down, with a strikingly low 4 percent of Americans changing their banks last year.
The question, then, isn’t whether you need to compete with them in the digital space. The question is how you can compete successfully, and how you’ll measure that success.
Banking Technology Holds Promise for a Substantial Payoff
So what can you reasonably expect to gain from your investment in new technology? Industry studies indicate that consumers have higher expectations than ever and that meeting their expectations with the right digital offering can sharply improve your competitiveness.
For example, a 2018 survey conducted by Salesforce Research found that:
- 80 percent of consumers said the experience a company provides is as important is its actual services;
- 67 percent of users said that their standard for good experiences had gotten higher;
- 51 percent said that most companies fall short of that standard;
- 57 percent said they had switched from one company to another because the competitor provided a better experience;
- 67 percent expressed a willingness to pay more for a superior experience; and
- 72 percent said they share their good experiences with others.
The survey also provided insight into what that experience might look like:
- 84 percent said being treated as a person rather than as a number was “very important” to winning their business;
- 59 percent wanted personalized, tailored engagement based on their past interactions; and
- 70 percent identified seamless transitions between platforms and channels (i.e., online to branch) as very important.
Finally, consumers want real-time support that goes beyond the call center. Respondents identified a range of potential channels, including real-time messaging and self-service tools, as being important to them.
Refreshing the Core Credit Union Message
Survey results like these paint a surprisingly positive picture for credit unions. Putting members and community first has always been at the core of credit union messaging, and that member-centric message aligns beautifully with consumers’ wants and needs.
Credits unions have always been relationship- and community-driven, so being “a person and not a number” is already central to their identity. A good digital platform can reinforce that ethos and extend it by drawing on transactional history to suggest products and services that are both timely and highly personalized.
An intuitive, consistent software product that’s tightly integrated across platforms and that offers access to the full range of services your credit union provides fulfills most of the other wants and desires expressed by consumers in surveys like this one. If your digital platform also includes high-quality user service, you’ll be well-positioned to retain your members and capture new users from major and mid-tier regional banks.
Calculating the Return on Your Investment
Scaling up a digital strategy can require a significant investment, one for which your board and users might reasonably demand justification. Doing that effectively will require a big-picture look at how you’ll assess your ROI.
The formula for calculating ROI in the abstract is deceptively straightforward. Subtract the initial cost of your investment from its current value and divide that by the initial cost of the investment. The resulting percentage or ratio represents your return.
When you’re evaluating ROI on an IT project, you’ll need to be more creative in identifying and quantifying the gains you make from your investment. Some of those metrics are measured in dollars and cents and are both straightforward to track and comfortably familiar for anyone in banking. Others — measurements of a site’s effectiveness in reaching consumers, for example — are less obvious to those who aren’t in IT or digital marketing. To get an accurate expression of your returns, you’ll need to account for both sets of factors.
Quantifying Your Investment
You can’t determine your ROI without first having a clear picture of your total investment. This isn’t simply the contracted cost of the software platform you choose. There will also be costs associated with the rollout and with conversion from your existing digital platforms.
Support is another gray area. Your new vendor may provide support for your IT team and end users as part of the package, but if not you’ll need to train and maintain a support staff. All of these expenses should be accounted for.
Finally, don’t forget to include the time and effort you’ll put into doing due diligence before your software purchase, and into marketing it before, during and after the launch.
Quantifying Those Returns
The next step is to identify the returns you expect to see from your investment so they can be monitored and quantified. A good starting place is your goals for the project. What do you expect to get in return for your investment in banking technology? Your primary focus might be user recruitment and retention, improved consumer satisfaction metrics or improved revenues per user, but you’ll need to account for all of those and more to arrive at an accurate ROI.
Broadly speaking, those returns can be grouped into three classes.
Efficiencies and Cost Savings
As a starting point, your digital banking platform will likely provide you with some efficiencies and cost savings. Staffing is an obvious example. As more of your users choose to transact their business digitally, your need for staffing at the branch level will decline. That frees up already-trained personnel to staff new branches or to fill gaps left by departing or retiring workers. This represents a reduction in your recruitment and training costs.
Some costs may be avoided completely while others are reduced as more of your users choose to transact their business online. If you plan to expand your geographic footprint, for example, you may find that it requires fewer and smaller branches than you previously would have calculated. That represents both an avoidance of capital cost (unbuilt branch locations) and a reduction of capital costs (smaller branches), while the lower staffing levels and lesser square footage reduce operating costs as well.
Revenue and Other Quantifiable Metrics
Some IT projects revolve entirely around cost savings, but you’ll probably expect your new banking platform to have a positive impact on your revenues and other key metrics as well. These are relatively intuitive and can include the volume and value of business you do with each user as well as clearly quantifiable numbers, such as increased membership or revenues.
One core calculation you’ll need to perform is the lifetime value of a user. You can mine your existing consumer data to determine how long they stay with your financial institution, and what dollar value of business results from the relationship. From that, you can also define both median and average values. The whole exercise sets a benchmark you can use to evaluate the impact of your new digital platform. Good software enables efficient, highly targeted marketing, and a data-fueled increase in the dollar value of the user relationship or its duration clearly factors into your ROI.
You should also benchmark your own organization against its peers within the banking industry as a whole. The numbers you need can sometimes be found in industry publications and surveys, but they can also be inferred from your competitors’ annual reports. A common aphorism says that “a rising tide floats all boats,” but the reverse is also true. A marginal year-over-year improvement in any given metric can represent a genuine triumph if your peers are posting losses.
The subtlest benefits of your investment in technology are the intangibles, the benefits that aren’t always — or at least, immediately — obvious on your balance sheet. These include metrics such as user satisfaction, which eventually yield more quantifiable numbers, like your retention figures.
There’s also the question of demographics and how they play into your bank or credit union’s long-term strategy. Do you want to target baby boomers, who are more tech-averse but typically have more assets? A digital platform that’s more intuitive and easy-to-use may provide you with a key competitive advantage. Does your strategy call for deeper penetration into the younger, digital-native millennial and Gen Z demographics? A fast, secure mobile-centric app can help you achieve that goal.
These are things that won’t show up in your quarterly figures, but they will have an impact over time if you’re playing the long game.
Cribbing from the worlds of IT and digital marketing can help you assess how much traction you’re getting with your new digital platform. Not only will this help in mapping out your follow-up marketing plans, but these early indicators of success can help ease tensions in the boardroom. They don’t represent money in accounts just yet, but they give you reason to be confident that the money will follow.
Among these performance indicators are the numbers of unique visitors and total visits, daily and monthly active users, ratio of first-time visitors becoming repeat users and time on site. Collectively, they’ll tell you how well you’re doing at attracting and holding users’ attention.
A Custom-Tailored Platform
Choosing the strongest possible platform — one that provides maximum functionality and avoids many of the “pain points” consumers experience with other banks — is crucial to a successful digital strategy.
Lumin Digital is exactly that kind of platform. It’s a fast, feature-rich, highly secure cloud-native product, with an intuitive, modern interface that’s consistent across both web and mobile platforms. It also features tight integration across products and services, giving you the data you’ll need to personalize your offerings to each user.
Contact us today for a demonstration and an opportunity to learn how Lumin Digital can help you stay competitive in an increasingly digital-first marketplace.