Adapting Banking Interactions in Today’s Shifting Financial Services Landscape

We are seeing an increase in digital transformations, which has only been accelerated by unprecedented events like the pandemic. This holds especially true for the recent evolution of financial institutions. With inflation and conflict, rising interest rates, the growth of neo-banks, synthetic identities and deepfakes, credit union leaders must account for these threats and impacts as they work to provide the best experience for their members.

Today, building a secure and convenient end-to-end experience has never been more important. While digital transformations are quickly accelerating, the return to in-person interactions has begun to rebound since 2020, and banking is one industry in particular where offering physical options remains valuable. The ability to accommodate both in-person and digital transactions allows credit unions and banks to seamlessly cater to different consumer preferences – serving as a competitive edge over new-age financial service providers that have risen in recent years. Financial institutions must consider the member journey and their desires first, providing a secure, easy-to-use experience for all of their banking needs.

Evolution of Banking

Digital banking is now a non-negotiable. Credit unions had to rush to digitize features from account opening to bill payments and card issuance. This also made it apparent that financial institutions need to update many of their services. As credit unions move to digital, it exposed a chasm between old processes and new ones – some financial institutions struggled more than others to upgrade their technology as many were years, or decades, behind the technology that would make them successful during a remote era. We began to see new credit union opportunities unfold.

Just a few years ago, credit unions mainly looked at their competition as a local credit union or bank down the road and in the same town. Now, we are now seeing an influx of different kinds of alternative finance providers, many without any physical financial footprint, such as Klarna and Affirm. While these providers do not offer the sense of community that comes with a local credit union, they can still be valuable partners to credit unions. Today’s shifting financial services landscape enables new ways of accessing credit without actually needing an account or even a credit union in order to begin spending money. These emerging companies are playing by a different set of rules than financial institutions are used to – and banking needs to be able to keep up with these new digital demands.

In order to succeed and compete with new digital experiences, credit unions must ensure and fortify consumer trust and understand the different desires and unique needs of their members to better serve them. This could mean still offering physical cards to members who don’t want to use mobile, and offering mobile-only options for members that don’t want to travel to a credit union.

Establishing a Hybrid Strategy

Financial institutions must meet members where they are. A recent survey conducted by GOBankingRates found nearly 30% of Americans ages 25-34 use online banks, a higher percentage than any other age group. Further, credit unions need to be sure not to leave behind older generations, many of whom will have more assets. In fact, 69% of consumers still prefer a physical card for offline transactions, according to an Entrust eBook.

Digital banking solutions provide financial institutions an unprecedented opportunity to engage with consumers more frequently and via lower-cost channels, but it also introduces new security risks and challenges, and not every consumer wants a digital-first experience.

Financial institutions can no longer afford to be just physical or digital only. Keeping physical and digital in their own silos prevents these tools from reaching their full potential, especially when it comes to member security. A hybrid experience allows financial institutions to meet consumers where they are, whether that is in-person, mobile, mail or even at a banking kiosk.

For instance, in credit card security, multiple clouds can be used to connect the credit union and member information, confirm credit limits, embed data in the chip of the card and then distribute the information. This creates a hybrid, digital-first experience, enabling digital account onboarding through identity verification and authentication, and delivering both a digital credit card along with the physical credential to provide the member with secure, accessible options.

Further, while a digital experience meets the members where they are, a physical card can still serve as a tangible reinforcement of the credit union’s brand and driver of member loyalty. As credit unions move to a more hybrid experience, there will be fewer touchpoints to the credit union itself – yet a physical card can still be a great opportunity to deliver a visible representation of the financial institution that is used frequently for transactions. Innovations to the physical card (like flat card) will continue to position the credit union as innovative and improve the member experience.

Improving the Member’s Experience

In addition to providing the right member experience based on where the member is, in order to remain competitive, credit unions need to provide convenience and establish member trust. There are three guiding pillars when it comes to improving and considering the member’s experience:

Access: The experience has to be easy to use and understand. There is a surge in online services, including consumers preferring to open their credit union accounts without visiting a branch. However, with a hybrid approach, the branch footprint is still important, and financial institutions are able to use the ability to speak with a representative in person as a competitive differentiator from virtual-only companies.

Privacy and Security: Members need to be sure their data and money are safe and secure. Today’s members are security-conscious and a lack of security can have damaging consequences, especially with the increase in recent breaches. However, it is important to remember that while members want enhanced security controls, if it has too many additional verification steps, they could abandon the application and change their financial institution.

Compliance: The banking methods need to follow government rules and regulations. Compliance is fixed for any company; there is a list of rules and regulations to follow or there will be heavy fines. This is generally fixed for all financial institutions and consumers want the confidence that their banking method is FDIC- or NCUA-insured.

Looking Ahead

Not only did the pandemic accelerate the digital transformation in financial institutions over the past few years, but younger generations will continue to influence the adoption of new technologies and consumer preferences in a major way.

The blending of physical and digital will be especially important in the coming years. The recent launch of FedNow, a central instant payment system in the U.S., continues to encourage speed and convenience and represents how the financial services landscape is continuing to evolve. Financial institutions need to be ready to provide consumers with the experience they want while also providing the security they need.

Jenn Markey is Vice President of Product Marketing, Payments & Identity at the Minneapolis-based security firm Entrust.