The Weekly Extract: May 4, 2020

  • Alex Jimenez
  • May 04, 2020

The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.

Future of Financial Services Digital Transformation

We spent a lot of this past week discussing the future of digital transformation in financial services.  We agree with the CEO of ServiceNow, Bill McDermott who said this past week: “Around the world, we see that customers who are farthest along in their digital transformation are better equipped to manage this crisis. Companies lagging behind are realizing that they now have a burning platform. Accelerating digital transformation has become a business imperative.”

Another appropriate quote is from Robin Murdoch, the global Software & Platform lead at Accenture:

“Now more than ever, businesses will need to put their customers and their experience at the center of attention, make business frictionless by deploying digital technologies, and equip them with insights. AI is one of the technologies, which, when deployed correctly, can help reduce friction, build efficiencies and help ensure a seamless customer experience.“

While these insights are applicable across industry in general, they seem to be so much more pressing for financial services. 

A recent survey from Harris Poll for the Austin fintech Kasasa, notes that “79% of consumers find it important to have a complete digital experience when selecting a financial institution.”

These findings show that the importance of digital transformation isn’t just an accident of the current shelter at home situation. The trends that existed prior to the crisis will accelerate the need for digital transformation in financial services.

Per the same study “the importance of online and mobile channels is even higher among younger adults compared to older adults (84% each ages 18-34 and 45-54 and 90% ages 35-44 vs. 72% ages 55-64 and 66% ages 65+).” If we are to consider that younger customers who haven’t built a relationship with a financial service company are the ones more likely to be shopping, these are dire numbers for digital laggards.

Professor Enrique Dans, from IE Business School, writes in Forbes “if you haven’t got(ten) (a)round to implementing a digital strategy yet, you have a serious problem, and if you do not move quickly, your very existence could be in danger. If your digital transformation is still on the drawing board, you’ll have to move fast to implement it, which will mean taking more risks and, in many cases, having no safety net. My advice? Get some expertise in. “

He cites a quote from former Intel CEO Andy Grove “Bad companies are destroyed by crises; good companies survive them; great companies are improved by them.”

We wonder how many “bad” financial service organizations will not survive COVID and it’s aftermath.

PPP and Core Competencies

The crisis and specifically the PPP loan program has exposed differences between big banks and community banks and CUs.

The big banks’ technology capabilities allow them to developing PPP portals quickly. Sam Maule of UK consultancy 11:FS notes in PaymentsSource: “The biggest banks have teams that could stand up a mobile app for PPP applications in a matter of days, but lots of smaller banks don’t have the most modern systems or that level of personnel, so they’re at an extreme disadvantage trying to stay competitive in processing these loans.”

In the meantime, community organizations exhibited their community and customer focus despite their technology shortcomings. ConsumerAffairs CEO Zac Carman describes in Tulsa World how he tried to apply for a PPP loan with his large regional bank, but the lack of communication drove him to try a local community bank, Oklahoma City-based Chickasaw Community Bank. T.W. Shannon, chief executive officer at Chickasaw Community Bank, notes” “That’s the advantage that we offer as a community bank. We know each and every one of our customers. They are not a number. They are not a file that’s never looked at. We know them personally.

As noted in the PaymentsSource article, partnerships between banks and fintech firms have also shone during this time. Atlantic Union Bank partnered with Temenos “to rapidly process PPP loan applications for small businesses.” Meanwhile, NH-based fintech Bottomline built an application process in about 48 hours and offers it for free to banks of any size. Brian Drozdowicz is quoted “We opened this up to any bank interested in offering PPP loans — existing or new customers — and we’ve had about a dozen takers.”

As we continue to stress the need for community organizations to develop and execute a digital strategy, we hope these hard learned lessons will open the eyes of community bankers. Technology capabilities, whether in-house or from partners, and the heart and soul of community banks and CUs are a combination that is hard to beat.

With that in mind, we were encouraged by Jack Heath of Washington Trust Bank on this Q&A in Federal News Net: “The Paycheck Protection Program has been a rallying call for our organization. It’s broken down barriers and silos in the bank that we have worked for years to try to accomplish in weeks. It’s also changed the way I, and many others, look at remote working. Everyone is still interacting and collaborating, despite being distant. It’s certainly changed my perspective.”

While we are still seeing smaller organizations struggling with moving employees to work from home, we noted that Chase reportedly has 70% of their employees working from home. Video communications have allowed face-to-face communications with affluent private banking and investment clients.

Chase’s Jeff Papa indicates “Our bankers have been calling clients and walking them through online banking and making sure they know all the resources available to them and at times have walked them through setting up the app via the phone.”

PPP and Loan Forgiveness

On a troubling thought about PPP, Reuters had an article on the difficulties business may have in getting their loan forgiven.

The article states “In principle, the forgiveness terms are straightforward: borrowers must spend 75% of the loan on payroll costs, such as salaries, tips, leave, severance pay and health insurance, within the first two months. The remaining 25% can be spent on other running costs, such as rent and utilities.”

At face value that seems simple but there are many circumstances where the rules aren’t clear. The banks seem to be confused and when asked they agree that the rules are confusing.

Josh Mason, founder of Maryland catering company Vittles Catering notes “I have read all the guidelines, but I wouldn’t be able to say exactly how much will be forgiven and not forgiven. I think that ambiguity is going to create a little bit of a mess when all of this comes to a close.”

Unfortunately, the shortcomings of the program continue to be put on the shoulders of banks and credit unions, despite the initial confusion between the SBA and the Treasury Department. Let’s hope that this is addressed soon.

Growing Interest in Cloud

In the past years, we have seen a great change in the attitude of banking IT teams towards cloud storage and cloud computing. We attribute that to the pressure of overall digital transformation and an increase in hiring IT resources from other industries.

Recently, we have had more discussions with clients and others in the industry about the need to move from a strict data warehouse strategy to include more unstructured data and data lakes. This change becomes crucial as organizations begin to think about using AI to analyze banking data.

According to an article in ItProPortal “unstructured data accounts for anywhere from 70 to 80 per cent of all enterprise data, and it’s growing, but this data has proved difficult to analyse.” Data stored in the cloud is easier to access and increasingly becoming easier to use with newer technologies available, such as Amazon EMR, Amazon Textract, Google BigQuery ML and Azure AI.

An article in PYMNTS notes: “Many [FIs] have taken measured approaches by shifting to hybrid cloud models, wherein they rely on a combination of privately held and public cloud services that allow them to reap benefits while mitigating risks,” the report states. “These efforts seem to be paying off, with 87 percent of FIs that utilize hybrid architectures reporting that they outperform their competitors.”

PYMNTS further warns, that FIs need to change their cultures, be willing to adopt new technologies, and become confident in the cloud as part of their digital transformation.

“The decision time has arrived for the digital transformation of FIs. Between the pandemic disruption and everyday market dynamics, digital banking is here – ready or not.”

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