Early in 2020, just weeks before the coronavirus closed businesses around the world, news articles on bank digitalization underlined shareholder impatience with financial institutions for “betting billions of dollars on digital transformations they hope will catapult them to higher growth rates in the 2020s,” and for “spending wildly on the latest tech.”
What a difference a pandemic makes.
By May 2020, PNC Bank said coronavirus countermeasures had boosted its digital sales activity from about 25% of total sales to 75% as early as April 2020. Also in the first months of the pandemic, market-analysis firm William Mills Agency said 73% of US banking customers were using digital-banking services, specifically in light of the coronavirus pandemic. And at about the same time, telecom giant AT&T said it had been working overtime with banks to integrate proprietary and third-party digitalized services.
Taking your digital plans past the “thinking about it” phase
With this surge in view, where is your bank in its journey toward digitalization? “If it’s still in the planning stage, you’re not alone among bank and credit union executives, who sometimes prefer incremental buildup to rapid change,” says Dmitry Voronenko, CEO and co-founder of TurnKey Lender, a banking-tech innovator with operations on five continents. “As understandable as this stance may be in the context of community banking, an entirely passive mindset won’t meet the needs of your post-pandemic customers.”
In plain English, now is the time to make digitalization a priority. Wait just a year or two, and banks without digital capabilities will be relics of the past, stuck on a creaky treadmill of manual tasks and imprecise hunches about their customers habits and preferences.
Let’s set down some definitions, starting with what digitalization isn’t. It isn’t “digitization,” which refers to the process or result of converting data and documents into formats that can be reformatted, shared and analyzed to support specific tasks or answer specific queries. Our topic, digitalization — note the “al” in there — involves converting business processes to digital technologies instead of relying on manual-input spreadsheets, paper, and whiteboards.
Some benefits of deeper, faster, and more inclusive customer service
Broadly, additional advantages to banks of digitalization include:
- New contact points for customers that can boost loyalty and brand awareness, and keep client-service costs down. Digitalization can also improve internal and external communications and facilitate distance collaboration
- Positive optics. A bank with digitalized processes sets itself apart as a business that’s forward-looking, adaptable and customer-centric. This contributes both to its marketing and recruiting efforts
- A digitalized business encourages innovation by boosting its staff’s understanding of, and ability to respond to, new tech trends and innovations
- Proprietary data arrays that grow over time and improve executive-level decision making
- Opportunities for positive disruption by nimble, data-driven players of all sizes. Scalable processes can equip smaller banks to compete with larger competitors, including global banks
- Curb appeal. With post-Covid M&A activity expected to highlight “mergers of equals” in bank deals in 2021, a digitalized bank will attract more buyers keen to add or augment digital services
These advantages have grown more apparent as we contend with a public-health crisis requiring social distance, low- and no-touch services, closed hobbies, and working from home.
Reasons not to wait to make your bank or credit union more competitive
But the biggest hurdle to digitalization at the community-bank level may be cultural inertia Voronenko mentions above. Business leaders and institutions prone to this form of paralysis tend to think innovation equals turmoil, and view the status quo as an ideal.
But a go-slow stance is at odds with unfolding events. Consumer-intelligence tracker JD Power indicates that less than half of consumers will return to “banking as usual” once the pandemic is over or substantially abated. Mind you, this survey was conducted during the first wave of coronavirus closings in the US. In the months since, it’s likely bank customers have grown even more comfortable with digital processes.
For David Potterton, director of strategic initiatives at digital-banking platform provider Alkami, this insight goes straight to real estate. “That statistic mirrors a trend we’ve been talking about in financial service for a long time,” he says. “It begs the question, How many branches do we need?”
In the example of Capital One, the answer is, fewer than you might think. As the top bank in JD Power’s most recent “customer satisfaction” banking survey, Capital One has “46% fewer branch offices than it did five years ago,” a reduction enabled by providing “a consistently strong digital customer experience,” according to the research firm.
A fully digitalized bank is a much more competitive lender
Through the lens of lending, a core activity for many community banks, success in digital banking shows up in a number of productivity-enhancing aspects, including:
- Higher loan-application completion rates
- Higher conversion rates due in part to alternative credit-scoring capabilities
- Faster time to funding
- More responsive messaging and communications around loan repayments and delinquency monitoring
And, more generally, the advantages of digitalized banking services show up in:
- Faster fulfillment times due to apps and other communication channels
- More net promoters as customers tout the benefits of digital banking services and enhance the bank’s word-of-mouth marketing
- Superior analytics for measuring key performance indicators and helping banks make better marketing decisions
Community banks benefit when they can lean on outside technology partners
In addition to these advantages, banks that opt for a third-party technology partner to support their digital efforts don’t have to worry about their technology going out of date. With multiple institutional clients, companies like Alkami and TurnKey Lender — which recently joined forces to enhance banks’ lending operations — have to keep well ahead of the curve, especially when it comes to advanced capabilities stemming from innovations in artificial intelligence and machine learning.
For TurnKey Lender’s Voronenko, the journey to digitalization doesn’t have to be a series of stop-gap measures taken in response to what competitors are doing. “The pandemic and its aftermath will prove to be an equalizer among banks,” he says.
In this view, “The scalability digitalization confers is truly remarkable, especially when it’s augmented by rapid advances in AI,” according to Voronenko. “While it takes thought and planning for a community bank or credit union to join the ranks of digital banking-service providers,” he adds, “these institutions don’t have to do it alone or operate in the dark when they have partners like us and Alkami in the mix.”
Reach out to learn more.