Survey Identifies 5 Trends Shaping Digital Strategy at CUs, Banks

Credit unions and banks are in the midst of their digital transformation journeys, but still face a long road ahead – when asked to rank their current position in their digital transformation journey on a scale of one to 100, the average respondent in a recent survey gave an answer of 58.

The survey of 152 bank and credit union executives, conducted by digital banking solutions provider Alkami Technology, also pinpointed their three top digital transformation strategic priorities: Optimizing processes and operations (41%), gaining a competitive advantage (31%) and increasing top-line growth (29%).

And when asked about the biggest roadblocks they’ve encountered along their journeys, legacy systems led with 68% of respondents naming it as an obstacle, followed by organizational resistance to change (51%), lack of digital literacy (41%), security concerns (38%) and lack of clarity (32%).

“Banks and credit unions often struggle to define their digital transformation requirements and what they need on the back-end to support it,” Alkami Chief Marketing Officer Allison Cerra said in a whitepaper detailing the survey results, which the Plano, Texas-based company released Thursday. “For many, their back-office processes can hamper their ability to digitize the customer experience.”

In addition, the top five digital and mobile banking features being requested by the survey respondents’ customers and members were digital account opening (73%), loan applications (63%), peer-to-peer payments (59%), financial wellness (51%), chatbox/voice banking (40%) and cryptocurrencies (26%). Financial institutions striving to reach their strategic priorities, and provide their customers or members with the digital services they want, must find ways to do so as efficiently as possible, the whitepaper noted.

“The banking leaders of the future will be those that can harness data for the best use, gain a holistic view of their relationships, and meet the rapidly changing needs of digital consumers,” Cerra said.

The whitepaper also detailed the following five trends taking shape at banks and credit unions in pursuit of meeting consumer digital banking demands:

1. Rapid growth of cashless and contactless payments has resulted in successes and opportunities. When asked how customer/member use of cashless transactions has changed in the past two years, nearly 80% said these transactions had increased, and of those, about 60% said they had increased in volume by more than 20%.

Despite the lack of human contact typically involved in a cashless and/or contactless transaction, their increase has led customers/members to interact with their institution more often compared to when they visited a branch, according to Alkami. The company said in order to take advantage of this increase in customer/member engagement, and to strengthen their position in the digital economy, credit unions and banks should focus on making technology upgrades both in the front and back office, investing in new tech developments and in tech talent, and considering a “unified redesign of payment architecture” – while warning against making tweaks to their legacy core processing systems.

“As financial institutions scramble to meet constantly evolving regulatory obligations, many of them settle for modifying or reconfiguring their legacy core processing systems,” the whitepaper stated. “The unfortunate result of tinkering with core systems is that the user interface and product offerings may not be robust or reflect a clear vision. These systems can also end up fragmented and disorganized, with shallow support, all of which hinders the financial institution from adequately reacting to regulations or compliance mandates as they emerge.”

2. Use of cryptocurrency is growing slowly for customers/members of traditional financial institutions. Forty-nine percent of respondents said their customers/members were not requesting Bitcoin products and services, while 21% said they were and 30% weren’t sure. And when asked if they believed adding Bitcoin products and services to their digital menu would give their institution a competitive advantage, 35% said yes, 25% said no and 39% said they were unsure.

“Banks that are investing in cryptocurrency capabilities are taking a cautious approach,” the whitepaper noted. “As guidance and regulations surrounding cryptocurrency are still evolving, many banks are reluctant to go all-in. Instead, they are finding ways to incorporate portions of the cryptocurrency landscape into their practices, or they are acting as go-betweens for customers entering the cryptocurrency marketplace.”

3. Fintechs are both competitors and partners to banks and credit unions. When asked an open-ended question about how they’re leveraging fintechs to stay competitive, many said they were partnering, or considering partnering, with fintech companies to attain a certain functionality, while others said they were not partnering with them or had no interest in doing so, according to Alkami.

Some common ways financial institutions are teaming up with fintechs include deploying white-labeled fintech products, allowing customers/members to use apps like PayPal and Venmo directly from their sites, and acquiring fintech companies.

“Those not in a position to acquire a fintech company are creating their own fintechs or attempting to transform internal operations to align with fintech advantages,” the whitepaper stated. “While both options require investment in innovation and talent, a bank that combines the speed and responsiveness of a fintech with the existing assets and trust of an incumbent institution could be well positioned to succeed.”

4. Banks and credit unions could be doing more to leverage hyper-personalization. Just 24% of survey respondents said they were using hyper-personalization to gain a competitive advantage; 66% said they weren’t and 10% said they weren’t sure.

While financial institutions already utilize a type of personalization in their fraud-fighting efforts (for example, by tracking a member’s typical behaviors in order to flag a potentially fraudulent transaction), there are a number of business-building use cases they could be leveraging, such as making product and service recommendations and giving financial wellness advice, according to Alkami. The company emphasized that in order to successfully leverage hyper-personalization, an institution must optimize both its user interface (the physical space where the account holder meets the banking product) and user experience (the quality of the user’s participation with the product).

5. Using artificial intelligence, banks and credit unions can capitalize on their mature data. Lucky for traditional financial institutions, their customers/members have been using their services for a long time, meaning they often have a slew of “mature data” at their fingertips. With “delivering a better customer/member experience” being an objective for 86% of respondents who are leveraging data to reach their digital transformation goals, leveraging mature data with help from AI technology can help banks and credit unions reach that objective – as well as level the playing field for customers and members with varying income levels.

“We are now at a place where technology has democratized financial advice and counsel,” Cerra stated. “It is no longer just the privileged upper class who can afford to get financially fit and prepare for the future. AI feeds the ability for those who have typically been marginalized or underrepresented to understand how financially fit they are and engage in their own economic futures.”