It's Time for Banks & Credit Unions to Embrace Change

As I travel across the country, visiting financial institutions in the midst of their annual planning cycle, it is like a trip down memory lane. While the technology and distribution channels have changed, banks and credit unions are still faced with the many of the same strategic challenges we talked about 20 years ago.

As a long time banker and friend, Michael Bencic said, "Improving the customer experience, embracing change, deriving value from data, building strategic partnerships, leveraging technology, ensuring privacy and security, cutting costs and generating fees is like deja vu all over again."

I agree. While the details behind these goals have changed, why have the overarching themes stayed the same? Is it because the planning process usually begins with broad financial requirements and many involved in the process simple dust off last year's plan and hit the restart button? Or is it because, despite a lot of talk around embracing change, the industry (and the regulators) frown upon the potential risk associated with innovation and doing things differently?

In a new report just published by KPMG entitled, Reshaping Banking in a Dynamic Business and Regulatory Climate, the author emphasizes the importance of getting out of 'survival mode' and embracing change, creating new strategies, crafting new infrastructures and focusing on the customer. While there is no denying the importance of each of these issues, this report is not much different than similar reports I read in the 1990's. The primary difference is that the risk of ignoring these issues has far greater implications.

Dusting off last year's planning document and making small alterations is not enough. It will take more than simply finding ways to 'do more with less', cost-cutting and operational improvement. According to Brian Stephens, national leader of KPMG's banking and capital markets practice and author of the report, "There must be acceptance among the entire leadership team that the rapid, unpredictable, and profound change we are witnessing is structural -- not cyclical." He continues, "The debate in not about the need for change, but what changes should be made."

As in the past, the issues that must be addressed are many. The difference is that today, while the issues may look similar to the past, the issues are more interconnected than ever before and the environment where these changes need to be made is evolving at breakneck speed.

The KPMG report provides a perspective into the following critical areas as banks and credit unions plan for 2014 and beyond:

• Culture of embracing change – In today's environment, change is constant, so banks must be nimble and innovative. "Banking leaders must choose to adapt and evolve, or risk irrelevance," says KPMG. "In the future, when banks look back on this time of change, an organization's resilience will not be measured by how much adversity it endured throughout the financial crisis and this period of recovery; rather, it will be measured by how well it adapted to it." The challenge is a tradition of rigid internal resistance to change and a consequent inability to execute. The change in culture must come from the top, starting with the board and senior leadership. And it must me more than just words.

Lipstick on the PFM Pig?

In an industry that is sometimes slow to innovate, Personal Financial Management (PFM) is one of the few banking applications where innovation has outpaced consumer demand. A 'hot' topic for over a decade, the ability to help consumers better manage their money through applied analytics, contextual design and visual tools has provided a battleground for financial institutions and direct-to-consumer applications.

With a quest to be at the center of account holder's lives, developers of PFM applications are moving from add-on applications to integrated solutions that can help define lifestyle segments. At the same time, the definition of PFM has evolved to include everything from basic visualizations to advanced engagement tools.

The question remains however . . . will these innovations capture the consumer's attention or simply be lipstick on the PFM pig?

In the newest in their PFM Insight Series entitled, Designing PFM Tools With The Customer in Mind, Mapa Research investigates the latest and most innovative PFM developments from around the world. Featuring in-depth quantitative and qualitative research from 60 banks, with examples from 23 banks and interviews from leading providers, the study hopes to provide guidance for banks and credit unions trying to decide if a business case for PFM can be made and if so, what should be the focus of development?

Building on the findings of the second edition report from Mapa Research entitled, Is PFM Still Worth Considering, the newest research found the following themes emerge:

• Customer centricity is as relevent as ever: A number of banks have integrated PFM within the overall digital experience, delivering added value through intuitive functionality.
• Leveraging new technology for cross-channel integration: While there are still only a few examples of exceptional integration across the online, tablet and mobile channels, more seamless tablet and mobile experiences are evident. Visuals have been improved, with more interactive tools including some available pre-login.
• Development and innovation must continue: For those banks and credit unions committed to PFM, more must be done to provide real time and even future views that help customers understand finances and improve their overall financial performance.

PFM offerings have expanded and have the potential to become increasingly important as a financial literacy tool, account aggregator, financial performance tool and in some cases, a non-interest income opportunity for banks and credit unions. 

Acceptance of PFM

You'd think that with the rapid adoption of smartphone and tablet technology, people would quickly embrace digital money management. Especially given the fact that spending on the development of PFM tools is expected to double between 2010 and 2015, according to CEB research.

Nothing could be further from the truth according to recent research from Aite Group, Javelin Strategy and Research, Celent and Forrester. The challenge for banks and credit unions is that, in reality, most customers do not proactively monitor or manage their finances, and few look to their bank for support.

According to Ron Shevlin, senior analyst at Aite Group, "Almost half of Americans say they don't look to their primary financial institution for help managing their finances and therefore don't care if the FI offers tools to help them do so. In fact, 80 percent of households don't even do budgeting."

According to a September survey conducted by Aite Group, 58 percent of U.S. consumers have not used online PFM tools and don't plan to. Another 14 percent said they planned to do so, with 15 percent saying they use PFM tools exclusively at their bank or credit union site. The rest said they use a non-financial institution site or multiple sites. A Celent research report was even more dismal, with only 4 percent of online banking customers being active PFM users.

Interestingly, the percentage of users by age category in the Aite Group study skewed towards younger consumers, with 44 percent of PFM users coming from the Gen Y segment, 28 percent from Gen X, 16 percent being Baby Boomers and 15 percent being seniors. This may indicate the take-up of mobile tools is exceeding online PFM applications.

Credit Card Satisfaction (and Confusion) Increases According to New Study

Despite being confused by the myriad of changes made by many institutions around rewards structures and terms, consumer satisfaction with their credit card issuer increased for the fourth straight year according to a just released 2013 U.S. Credit Card Satisfaction Study from J.D. Power.

According to the study, American Express continued their dominance of the credit card satisfaction ratings for the seventh straight year, with Discover Financial Services being ranked second followed by Chase at third.

The study, which surveyed 14,000 credit card holders in May and June of this year, found that overall satisfaction with credit cards rose 14 points in 2013 from 2012, to 767 on a 1,000 point scale. This was the highest level of satisfaction since the study was initiated in 2006. Satisfaction is measured by examining six key factors, including interaction, credit card terms, billing and payments, rewards, benefits and services and problem resolution.

"The fact that the economy is improving and consumers generally feel better about their personal financial situation is certainly helping to improve satisfaction with credit card issuers, especially considering there was such instability in the industry just a few years ago", said Jim Miller, senior director of banking services at J.D. Power. 

The study found that 27 percent of households reported being better off this year, up from 23 percent in 2012 and only 20 percent in 2011. Only 17 percent said they were worse off which was significantly better than 23 percent last year and 29 percent in 2011. In addition, fewer card holders saw rate increases in 2013 (5 percent), compared with 6 percent a year ago.

Another potential reason for the increased satisfaction could be recent regulations surrounding disclosure and credit practices. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act, signed in 2009 banned egregious billing practices, capped fees and limited interest rate hikes. It also required clearer disclosures.

"I think we can attribute much of the overall satisfaction to the CARD Act", says Ruth Susswein, deputy director of national priorities at the consumer advocacy and financial literacy group Consumer Action. This is supported by the finding that the largest improvement in satisfaction was in the category of 'credit card terms', which improved by 18 points from 2012 levels.

Top 10 Mobile Banking Mistakes

There’s plenty of great information out there for consumers about the dos and don’ts of mobile banking—password protect your device, use caution with what apps you install on your phone—but there are also plenty of mistakes financial institutions make when it comes to mobile. 

Let’s look at what may be considered to be the top ten.

By Danny Tang, Worldwide Channel Transformation / Front Office Solutions Leader, IBM Global Banking & Financial Mkts

10. Not going for 100% mobile banking adoption  The adoption rate for mobile banking should be 100% of those customers who have a mobile phone. And yet, many banks choose to limit themselves by requiring users to activate in online banking or enroll at a local branch. This reflects the fact that mobile is still an afterthought for many banks.

9. No Balance Between Security vs. Usability  Can’t we have both? It’s remarkably easy to lose your mobile phone, which makes it especially important for banks to safeguard user information. While banks should absolutely secure mobile banking beyond just ID and password, it shouldn’t be impossible to use, either. Does it really make sense to ask users who their favorite teacher was in elementary school, or require everyone to carry another device just to log in to mobile banking on their smartphone? Risk-based authentication, geolocation, biometrics—these and many other technologies are available to help banks find the right balance between security and ease-of-use.

8. Cutting Corners in Education  Should we assume that all smartphone users are smart? This is especially true for security. No technology today (that I know of) can prevent a user from writing down his/her ID and password on a paper attached to the back of the phone. An educated user is your best defense against fraud and loss of privacy. If you teach customers the value of security features—and how to use them—they’ll be happy to see those authentication layers instead of cursing at them.

7. No Consistency in User Experience Across Platforms  Does your Android app look like it’s from a different planet than your iPhone app? People shift between platforms, and lack of consistency is confusing—and annoying. Banks should invest in a MEAP (mobile enterprise application platform) to help teams ensure a consistent user experience between environments. A MEAP such as IBM Worklight can enable write-once-deploy-across-many-platforms that both saves cost and improves user satisfaction.

6. The “X2 Button” Tablet App  If your iPad app strategy is to tell users to push the X2 button, you’re missing an opportunity to provide customers a richer banking experience. You’re also providing an interface that’s downright clunky. Tablets aren’t going anywhere soon, so don’t waste the screen real estate your clients have paid a premium for—invest in a tablet-friendly user experience with dedicated features such as spending analysis and retirement planning.

Today's Mobile Banking Apps: Table Stakes or Cutting Edge

There is no disputing that the U.S. mobile banking landscape is changing rapidly. Larger banks are setting the stage for broader market trends, while smaller banks (and even some regional players) play catch up in the development of new functionality.

What are some of the top U.S. banks doing that is innovative and what has quickly become table stakes in a game of mobile app one-upsmanship? And is mobile banking innovation becoming a value-added differentiator that can drive new revenues?

Over the past 18 months, mobile banking applications have evolved beyond the basics to include specialized functionalities, improved user experiences and an expansion of platforms supported. A year ago, mobile remote deposit capture (RDC) was live at only five of the top 13 banks. Today, it is a 'must have' banking application that has the potential to drive revenue. Similarly, P2P is now taking center stage at most banks despite some logistical hurdles, with five banks adding this functionality in the past 12 months.

How are banks keeping up with consumer demands? How are they keeping up with each other? What's next? In the third report in a series on the state of mobile banking released by the financial research and consulting firm Celent, a review of new application development is provided along with a glimpse into the future. 

In the 44-page report, The U.S. Mobile App Landscape: An Annual Evaluation of Mobile Banking at Top U.S. Banks, Celent found that larger banks tend to out-develop and out-adopt smaller institutions by a significant margin. “The channel is still relatively new, but leaders in the digital channel space are beginning to take offerings into the realm of value-added services that are context-sensitive, timely, and utilize big data", says Dan Latimore, senior vice president of Celent's Banking Group and coauthor of the report. "There’s a large disparity among digital offerings—industry leaders are light-years ahead of the laggards.”

Below is Celent's view of the mobile landscape as it continues to evolve. As can be seen, Emerging Capabilities include a more advanced stage of interaction with more knowledge-driven tools and analytics. While some of these may not be pursued by every organization, Celent believes most will be tomorrow's standard. Interestingly, some of the functionality in the Future Focus is already being implemented on a global basis (see previous post 'Banks Accelerate Mobile Banking Innovation', June 2013). 

While the future may be considered speculative, some components are beginning to appear at the more progressive institutions (U.S. Bank and BBVA Photo Bill Pay) and at some of the new players such as Moven, Simple, GoBank and BlueBird (see 'Challenger Brands & Disruptive Ideas: Learning From The NeoBanks', Financial Brand, August 2013).

Current Evolution of Mobile (Celent, June 2013)

Rethinking the Multichannel Banking Experience

In response to customer demands, banks continue to invest in increased multichannel functionality and set a goal of delivering a consistent customer experience across all channels. The result is an environment where consumers have little incentive to choose one channel over another and where banks have are faced with increasing complexity and costs.

A better solution may be for banks and credit unions to limit the functionality of all channels and to instead simplify the process of moving a customer from their preferred channel to the 'best' channel for different needs, thereby improving the overall customer experience.

As I visit banks across the country, the majority are seeking to stem attrition and maintain customer satisfaction by providing consistent, integrated services across all channels and encouraging customers to self-select channels according to personal preference. In fact, nearly two-thirds of executives interviewed by CEB TowerGroup agreed that delivering a functionally consistent customer experience across all channels was a priority.

With over 60 percent of multichannel experience customers reporting that both web and branch service offerings were consistent, it seems early efforts are paying off. However, this accomplishment has come at a price: trying to develop an 'omnichannel' experience is causing customer preferences to converge and overall transactions to increase, further increasing the complexity of channel maintenance, resulting in higher costs and amplified risks without the customer experience benefits desired.

Growing revenue, reducing costs, and improving customer loyalty demands that retail bank executives consider a more strategic and nuanced approach to multichannel development according to recent research from CEB TowerGroup, entitled "Rethinking Multichannel Strategy: Improve the Customer Experience Through Channel Differentiation and Proactive Guidance'. The research recommends three steps that bank and credit union executives should take to improve their multichannel strategy:

1. Differentiate channel functionality
2. Proactively guide consumer's choice of channels
3. Formalize the process of evaluating channel performance

Storify Recap of 'The Future of Banking' TweetChat

On August 1, dozens of financial industry leaders participated in a TweetChat to discuss the future of banking. Discussion was very fast paced, with the discussion ranked #1 as a trending discussion. 

Topics included technology, innovation, compliance, customer experience and the structure of banking. Thanks to the American Banker for hosting this lively discussion.