The below article was originally published June 23, 2019 in American Banker.
Facebook, fintech velocity, race for deposits: Digital Banking’s big ideas
AUSTIN, Tex. — Facebook’s cryptocurrency plans dominated much of the discussion at American Banker’s Digital Banking conference here last week, with bankers wondering if the Libra digital currency could really help the social media giant challenge the role banks play and redefine the future of money. The reveal underscored the event’s themes of digital transformation and competition.
Many banks continue to struggle with how to serve the customer in the digital-first age, including simplifying access to products, speeding up account opening and approvals, and improving the user experience. But there were reports of successes too, with some institutions embracing fintech partnerships, while others innovated on their own.
Attendees noted a shift in the purpose of technology use — how many banks were moving beyond the need to digitize services, and looking to new processes to help them increase accounts and deposits instead.
Following is a summary of some of the key ideas and themes presented at this year’s conference.
Doubts about Facebook’s Libra
Facebook’s crypto plans got a cool reception from bankers and pundits at the conference, with many calling into question its potential stability and whether it could withstand regulatory inquiries.
Pam Burch, director of product and service delivery at the $1.9 billion-asset Northwest Financial in Arnolds Park, Iowa, predicted that financial regulators would thoroughly scrutinize the Facebook Libra project.
“For that reason, I don’t see banks supporting this anytime soon,” she said.
Brad Leimer, co-founder of Unconventional Ventures, a venture capital firm for fintechs, took a wait-and-see approach to Facebook’s new project.
“They’ve been trying to do payments for 10 years,” he said. “The reason why payments in Messenger didn’t work was because they didn’t realize what Alipay and WeChat realized early on, that you have to make payments ubiquitous.”
Big Tech’s shadow
It’s not just Facebook that worries bankers, however. Some predict that Amazon and Google will soon try to open a bank or credit union.
“It’s a matter of not if, but when,” said Salman Syed, vice president of business development at Marqeta.
And unlike Facebook, which has trust issues, consumers may well welcome the other big tech firms with open arms. Roughly 42% of recent and prospective homebuyers are
potential supporters of having tech companies as mortgage providers, according to a survey released Thursday by PwC.
“That would become a great challenge for financial institutions,” said David Schiff, a principal in PwC’s financial services advisory practice.
Schiff said consumers embracing tech companies for something as complicated and important as a mortgage is a direct result of them turning more to alternative lender over the years, especially online players such as Rocket Mortgage.
The survey showed that 34% of borrowers use online lenders, and consumers under 35 are more than twice as likely to use such a company.
“Digital is an option to help banks engage earlier, understand the needs of a particular individuals, and proactively help them meet their goals,” PwC said in the report accompanying the survey results.
Incumbents maintain an advantage in mobile …
… But fintechs’ share of personal loans has exploded in recent years
Time really is money
Several small banks are struggling with whittling down onboarding times for new customers and products.
Several attendees said they were in search of fintech partners that could help them create a smooth and speedy sign-up system that sill weeds out fraud.
The objective of many companies is to get the time spent opening an account below three minutes, said David Mitchell, president of the core systems provider Nymbus.
“There are a lot of people out there starting digital banks,” said Greg Bynum, president of the $306 million-asset Lead Bank in Garden City, Mo. “The goal is to touch customers where they are, then direct them to deposit products. … The issue is onboarding.”
Always keep customers in the forefront of innovation
Despite the focus on digital banking in Austin, executives relayed a real concern about the lack of a human touch with customers within a rapidly changing industry.
“Over the years banks have invested significantly in technology around the customer, and in lot of cases, those technologies have created horrible customer experiences,” Cort O’Haver, the president and CEO of Umpqua Holdings in Portland, Ore., said in a speech Wednesday.
Umpqua and Citizens Financial Group, among others, shared their vision for how best to blend a human touch within a digital setting.
O’Haver discussed Umpqua’s work with the Go-To mobile app, which enables the bank’s customers to interact with actual bankers, instead of a chatbot, if they need help. That same approach extends to the Umpqua’s branches, which features a phone customers can use to speak directly to senior executives, including O’Haver.
At Citizens Financial Group, the company is using a combination of technology and face-to-face interaction to help clients with their investment needs. SpeciFi is a robo- advisory platform designed for customers seeking to invest a minimum of $5,000. The platform creates a customized investment portfolio based on a client’s financial goals and risk tolerance.
However, SpeciFi users still have access to a financial adviser should they need one.
“You can do that type of investment online, but also have access to a financial adviser,” said Monica Herlihy, Citizens’ head of retail banking. “It’s not an either-or conversation.”
A key reason for digital-only banking
As Wells Fargo was developing a digital-only bank offering, it came to the realization that conventional banking is no longer meeting consumer needs, said Peggy Mangot, senior vice president and head of Greenhouse development in the Innovation Group.
“Day-to-day money management for many Americans is a growing problem,” Mangot said. “Consumers are having trouble balancing and staying on top of their money.
“They’re employing a number of tools, tricks and hacks to do that. So we decided to make that a digital experience.”
But for many institutions, there’s still refinement needed in the information delivered, said Mark Schwanhausser, director of digital banking at Javelin Strategy & Research.
Increasingly, banks are trying to merge day-to-day banking with a customer’s wealth building path, he said. The longstanding example is Bank of America’s attempt to lay the path for a customer to travel from their first checking account to being a Merrill customer.
Through data insights, “banks are initiating advice in a new way, but banks have to think about what they are actually advising a customer about,” Schwanhausser said. “They’re good at telling you about your transactions. But what’s the advice for a kitchen table CFO?”
Schwanhausser said banks have to evolve beyond giving customers data and help them figure out what to do with the insight.
Back to deposits
Goldman Sachs’ digital-only bank Marcus has enrolled more than 4 million customers, with $40 billion in deposits in the U.S. and the U.K. Additionally, it has originated over $6 billion in loans in the U.S.
“Deposit growth,” said Joe Salesky, CEO of CRMNext. “Everyone’s getting back to that.”
The jockeying between digital-advice firms to offer high-interest savings and checking accounts underlines a new emphasis on deposits, attendees noted. Wealthfront markets a savings account with a 2.51% rate, which has reportedly brought in as much as $1 billion in assets since its launch in February.
“We saw a big problem: Too many individuals have cash sitting in very low interest accounts, which can hurt their ability to meet their financial goals,” said Dan Stampf, vice president of Personal Capital Cash. The hybrid adviser recently launched its own cash account offering and claims it amassed $80 million in deposits in its first two weeks.
The rise of robots?
Attendees loved Pepper, the cute robotic greeter that HSBC debuted in the U.S. at its its flagship Fifth Avenue branch in Manhattan in 2018.
Jeremy Balkin, the head of innovation at HSBC USA, said it was an example of what banks can accomplish through partnerships, not just with fintech, but across industries.
“Innovation often comes at the intersection between industries,” he said.
“Look at what we’re doing,” Balkin continued. “We’re a British bank, with an Asian name, based in New York, and we have a partnership with a Japanese robotics company for a robot designed in Paris with the engineering team in San Francisco. Look how we’ve transformed the customer experience.”
Pepper is built by SoftBank Robotics Group. Pepper offers basic information about products and services to customers and then alerts employees when customers have more in-depth inquiries.
Balkin also mentioned HSBC’s work with Samsung and experimenting with smartwatches that branch employees can use to quickly communicate with each other to help customers.
“If you’re not collaborating, I don’t think that’s a winning formula,” Balkin said.
The take from 2019’s Digital Banker of the Year
Having sampled a variety of panels at the conference, Ankit Bhatt said it was clear that banks need to focus on building the connection between the human and digital experience, said Bhatt, senior vice president of omnichannel experience at U.S. Bank and American Banker’s 2019 Digital Banker of the Year.
Echoing many of his peers, Bhatt said that connection will be aided through continued work on improving the digital account opening experience, and shifting a focus on how product development is conceived.
“Products are commodities,” Bhatt said. “They alone don’t gather new accounts. How do you make that experience better? That’s how you get deposits.”
Bhatt predicted more work in integrating voice into the customer conversation and supplemented by artificial intelligence, an approach that he said should be platform agnostic.
“That’s the new interface,” he said.