The Weekly Extract from Extractable is a condensed roundup of digital experience news for financial services institutions, and our take from San Francisco.
This week we look at US neobanks launched by retail banks, digital banking for neophytes, and what it takes to have a mobile-first banking strategy.
Successfully Deploying Fintech Strategy in Retail Banking
In September, EFMA released a report by Therese Torris on traditional banks that have launched their own challenger banks. As a follow up, EFMA asked Extractable’s Chief Strategy Officer, Alex Jimenez, to write an article looking at American banks that have launched their own neobank brands.
Jimenez notes that:
“While Goldman Sachs’ Marcus and JP Morgan’s Finn are mentioned in the study, there are no leading examples of successful US challenger banks launched by traditional retail banks.”
The key in that observation is the word successful. Jimenez reminds us that Wells Fargo launched a mobile-first banking app called Greenhouse in 2017. He also notes JP Morgan Chase’s launch of Finn, in 2018. Both of Finn and Greenhouse have been abandoned this year.
Jimenez notes that in both of these cases, the banks “seemed to have only launched these ventures as a way to test or gauge the desire by the American public to bank with a neobank.”
Jimenez detailed that whatever the strategy may be, culture was the ultimate demise of these tests.
“The real truth lies with the internal friction between the existing traditional organization and the innovation function that launched the challenger bank”
Other neobank brands noted are Citizens Bank’s Citizens Access and Union Bank’s PurePoint Financial, which seem to be deposit-gathering strategies and not full neobank players. Another strategy Jimenez examines is non-retail banks entering the retail banking space through a neobank brand, such as Goldman Sach’s Marcus and Texas Capital’s Bask Bank.
In the US market, Jimenez asserts:
“Banks are more focused on applying digital technologies to the existing models, innovating at the edges, rather than a wholesale change to the model.”
The ones that are bringing new models are the fintech firms that are becoming banks.
As reported by Jeff John Roberts in an article in Fortune, the OCC “has granted conditional approval to lending and fintech company SoFi to receive a national bank charter, a designation that will allow it to receive deposits and make loans on its own.” Roberts reminds us that Varo received a similar approval in August, while Square received conditional approval from the FDIC in March.
Morris and Roberts believe that it won’t be many. They state:
“A lot of these players look a lot more like features than full-blown financial companies. The perks that once defined them, like overdraft notifications or spangled debit cards, have been copied not only by their upstart competitors but some old-line banks too.”
They write that “their business model faces major headwinds.” Morris and Roberts point to a recent essay by Andeesen Horowitz noting:
“The Federal Reserve’s low rate policy means it’s no longer viable to offer high interest savings rates to poach new customers. The venture capital firm also notes that the pool of clients that can be acquired on the cheap is shrinking, while fewer of those customers are transferring their direct deposits over to challenger banks.”
Roberts and Morris quote Robert Le, Fintech Analyst at Pitchbook “it’s a really crowded space, and I think a lot of the smaller players will go out of business. Those with a good customer base will get acquired.”
If Le is correct, the strategy for traditional banks should be to copy whatever bells and whistles the neobanks offer — and acquire any winners that built a healthy customer base.
4 Tips for Building Digital Banking for Seniors
It was once common sense to say that digital banking was meant for younger customers. This was before Millennials started to reach middle age, and the next generation Z was so off the radar they had yet to be names. It was also before a pandemic kept us away from branches for months.
At Extractable, we’ve seen that digital savvy customers come in all ages. We have seen the data, so it is not anecdotes or conjecture. The pandemic has forced many holdouts, including seniors trying digital banking. Holdouts have found many organizations entirely unprepared to welcome the tech latecomers.
“The coronavirus has brought about shifts in consumer habits, and seniors are more comfortable with online transactions than ever before.”
He adds, “this means there is an unprecedented opportunity for credit unions to adopt technological and educational tools that are geared toward bringing seniors online.”
In the past, bankers have steered away from older customers when thinking about digital banking under the assumption that they not only aren’t inclined to use it, but that they don’t have a way to access it. Ishay notes that:
“Most seniors already have access to the channels they need to start banking online. Pew Research showed that 81% of banking customers over the age of 65 (whose annual household income is over $75,000 annually) own smartphones.”
Based on research by The Finance Foundation, Ishay writes, “the main reason seniors often avoid online banking was that they ‘want people, not machines’ (86%). Other reasons included fear of making mistakes or concerns about fraud.” Ishay recommends addressing these key issues:
- Producing and sharing easy-to-follow digital banking lessons and videos, including tutorials and how-tos for common services
- Adding more seamless access options, such as biometric fingerprints and facial recognition, instead of cumbersome passwords
- Embedding more seamless security verification options, such as automatic photo ID and digital signatures
- Offering on-phone agent guidance so that seniors can receive clear and patient guidance at a distance as they complete digital forms or processes
“Although seniors are making more use of financial technology, many may not be aware of just how much has shifted online since the COVID-19 pandemic began.”
Borzykowski describes four technologies that are being adopted by seniors that are likely to remain going forward.
- Video meetings with bankers
- Signing documents virtually
- Depositing checks via mobile phone
- Digital payments.
As noted in an article in Traverse City Business News by Rick Haglund: “Banks have seen a rapid shift in the use of digital banking services even among older people who formerly had shied away from the digital revolution. In August, the percentage of American seniors using online or mobile banking was as high as 80%, according to Deposit Accounts, a bank account comparison service.”
As we continue to be impacted by the pandemic, banks that haven’t addressed seniors’ digital needs may see their more loyal users lured away by digital banking leaders.
Moving from Digital-First to Mobile-First
A few years ago, future-minded bankers began to talk about moving from branch-first banking to digital-first banking. In some ways that thought seems a bit quaint today with many of us unable to visit a branch amidst the COVID-19 pandemic. Digital leaders, like Bank of America, Huntington Bank, Provident, and USAA, have reaped the benefit of not only moving to digital-first but mobile-first. The results of such a switch are covered in a FinXTech and Bank Director study focusing on the role of mobile apps driving sales in banking.
The report notes:
“The value proposition for mobile is easy to appreciate. Take a growing channel, use it to attract mobile users — who have been shown to be the stickiest, most active and most profitable customer segment for a bank — then subtract all the money not being spent completing transactions through less-efficient, physical channels. The result is increased revenue and savings.”
Bank of America reports that during the second quarter of 2020 “almost half (47%) of all sales at the bank now take place over (digital) channel(s) — of that, almost 60% of digital sales were completed on a mobile device.” US Bank says that “46% of loan sales occur digitally.” The report adds that “evidence suggests that the uptick in digital adoption will have staying power within banks and among consumers.”
The report covers more results from these banks as well as a case study from Huntington Bank and lessons from USAA and Arvest. There is a particularly useful run down of key mobile banking features and functions:
“Viewing account information and moving money are the most-used functions within a mobile banking app. But these capabilities are transactional and quick. To improve engagement, banks must move past a transactional focus and approach their apps as a channel for relationship-building.”
It further adds, “beyond providing information and moving money, a bank’s mobile experience should be built to facilitate engagement that leads to conversions. Innovative banks are leveraging notifications, targeted offers and proactive advice to accomplish this.”
“Allowing customers to set up their own notifications and alerts strengthens their relationship with the bank. Notifications empower customers to take more control over their finances and create more opportunities for the bank to have positive touchpoints with the customer.”
Reich adds, “it’s active engagement. Instead of trying to sell you something, [the bank is] reassuring you that [it’s] looking out for you when you’re not paying attention. That’s a pretty profound message.”
As far as targeted offers, Reich says that when they get the ads correct, “the click-through rates are just crazy.” He was skeptical of the use of targeted offers during COVID. However, the “coronavirus-related campaigns…saw click-through rates of between 10% and 15%.” Reich suggests that banks have an executive focused on impressions.
“You need someone — almost a digital ad chief — in your own bank that is held accountable to show up and say, ‘How many impressions did we get? What converted well? What converted poorly?’ It’s going to be a hard change in mindset, but if you want to win the game that’s where you need to concentrate.”
The report notes that proactive advice “helps to build trust with the customer and drive them to take advantage of other features.”
Our own Chief Data Strategist, Mark Ryan, is quoted:
“A lot of banks are implementing features to help with financial planning, but they are not thinking about how visitors adopt these functions. It’s often surprising to see financial institutions invest significant budgets in features such as expense categorization, only to find that 5% of the app users are utilizing it.”
“It would be useful in the mobile context to (use) AI to look at a customer’s transactions and notice that they go to Starbucks a lot, and then offer them a discount when they walk into one of the coffee chain’s locations.”
He adds, “All of that technology exists today. You can do that through any number of different vendors.”
We encourage our readers to download the study and take the assessment included in the back. Do you need help on defining the roadmap for your mobile-first strategy? Reach out to us.