Here’s a tale of two companies you’ve heard of: Instacart and DoorDash made their debuts early last decade. The delivery services were among the first to cater to what some call the “on-demand economy,” and saw steady growth over much of the last decade.
Then 2020 happened.
Instacart’s customer base jumped to 500,000 by mid-year and when DoorDash went public at year’s end, they controlled fully half of the food delivery services market.
These aren’t just success stories – thanks to the pandemic, they’re stories that represent a fundamental shift in the way customers interact with companies and what customers have come to expect.
Banks and credit unions are no different.
Digital First Is Here... And Here to Stay
“What we’re seeing is the greatest acceleration of digital banking in history,” said Wells Fargo Securities analyst Mike Mayo in an American Banker article from June 2020.
Citizens Bank saw the same writing on the wall: when they debuted their Banking Experience Survey last year, half of the consumers polled said COVID changed how they interacted with their bank. For businesses, the percentage of those changing how they interacted with their bank was 73%. Additionally, 69% of those same consumers said they preferred banking online some or all of the time.
The trend isn’t just for the stereotypical glued-to-their-device Millennial, either – a survey by FIS Global found nearly half of the baby boomers they surveyed had made use of digital and mobile banking since the start of the COVID pandemic. Like food delivery and shopping, customers increasingly like buying (participating in the economy) where and when they want to.
What Digital First Means for Lenders
“Most financial institutions have gotten feedback from their customers. I’m sure COVID-19 created phone calls to financial institutions that didn’t have a digital presence from their consumers who needed to borrow money, open a checking account and so on,” says Pat Rushenberg, Key Account Director at MeridianLink.
Put simply, for banks and credit unions who either don’t have or have a limited digital presence, now is the time to make the jump into the marketplace their customers are coming to prefer. Customers are unlikely to go back to pre-COVID, strictly brick-and-mortar ways of doing business; firms who are slow to adapt are likely to lose those customers to firms who offer a more convenient experience.
“Really, my advice is you have to start somewhere. It’s not ‘do we have to start,’ it’s ‘yes, you have to start somewhere,’” Rushenberg says. And it doesn’t have to be a ground-up reworking of your bank’s way of doing business – it can be as simple as finding an avenue that works for you (such as an online loan application) and continuing with it.
However, making that first jump can be somewhat tricky.
“Banks and credit unions know they need some kind of digital presence. It’s just that they’re paralyzed not knowing what the next step is,” Rushenberg states.
Data Access Makes Knowing Your Customer Easier
“I think one of the biggest hesitations with small banks and credit unions is they don’t think that it’s safe. They think that there’s a larger, more elevated risk in a digital solution,” Rushenberg says.
Passed as part of the post-9/11 Patriot Act, “Know Your Customer” laws require banks to repeatedly verify who their clients are as part of an effort to fight money laundering, terrorist funding and other security risks. KYC laws also help banks by providing a “high layer of authentication that ensures you know who you’re talking to, and that lowers the risk,” Rushenberg says. “It’s getting people to understand that there are several very, very good solutions out there that help them mitigate the risk digitally.”
Customer Data Visibility & Digital Marketing
But security reasons aren’t the only way bankers should be more interested in data – in an age where customer relationship management (CRM) software is becoming commonplace, data visibility can allow banks to both tailor their services to what their customers want – and may need in the future, giving smaller banks and credit unions a way to compete with larger financial institutions.
“At one point in time, the only info you had about that consumer was about what they told you. You wanted to have four or five references, you wanted their names, their address, their telephone number,” says Rushenberg. “Now, with the digital experience you can just gather that information online.”
As for finding the data, Rushenberg suggests getting to know their firm’s marketing department – marketers have made heavy use of CRMs since the programs were launched. “My advice to anyone, whether it be a lending manger or chief lending officer, is to knock on the marketing department’s door. They might not be monitoring that data, but the data and information can be obtained.”
Evaluate Your Peers
Rushenberg also recommends lending institutions on the fence about going digital look at what others are doing – particularly if they’re in a peer group with them. Every day, he sees banks and credit unions without a digital solution for opening accounts or loans experience negative growth. It’s an opportunity to learn. If a financial institution has a strong digital presence, they are remaining relevant.
A Touch-Free Personal Touch
For years, smaller banks and credit unions have relied on the personal relationships they’ve nurtured with their customer base. But what happens when face-to-face business isn’t possible?
Digital banking and lending offers alternative ways to maintain a personalized customer experience. “What COVID-19 did is it magnified that need for me to talk to you, only not in a face-to-face environment,” says Rushenberg. “When somebody walked up to their financial institution’s door, and the door was locked because the lobby was closed, they had a choice: get in line at the drive-up window and ask a question there – or call the bank on their phone,” he says.
Being able to do that digitally is a huge efficiency, and not just for the consumer. Rushenberg uses QR codes as an example – a bank customer whose brick-and-mortar bank is closed can still get most if not all of the services they need if they’re given a simple code that links them to the digital forms they need. “The customer can sit in their car and access the application right then and there on their mobile device,” Rushenberg says.
Avoiding Application Abandonment
Rushenberg is also cautions that just having a digital solution isn’t enough – it also has to be efficient. “As more institutions adopt digital lending solutions, the time required for completion of the application from start-to-finish will be a real differentiator, as majority of consumer loan applications is taking more than 5 minutes to complete,” states Rushenberg.
“Application abandonment is a real problem where people who find you and want to do business with you, but because the application is cumbersome, they might abandon it and go someplace else where it’s easier.”
While personal relationships, efficiencies and security are all possible with a digital first approach, one of the biggest stumbling blocks can be cost. So how long does it take to see results for a digital first approach?
Time-to-Value Takes Time, But It's There
“Smaller institutions have to live in a solution and be willing to make a five-month investment knowing that time and value will come,” says Rushenberg. He cautions that smaller firms have a longer time-to-value period than larger firms do but, if the digital solution is done right, they can expect a reasonable time-to-value period.
“In year two there’s a real possibility for a shorter time-to-value,” he says.
The greatest value of going digital? It allows smaller banks and credit unions to play on the same field as large financial institutions. Please view our previous webinar, Why Being Proactive for Digital Lending and Account Opening Pays Off, for various value calculation models, including time to value & cost benefit.
Digital Lending Technology Is the Great Equalizer
“If I’m a $500 million bank and I have nine branches, I’ll never compete with Wells Fargo,” Rushenberg says. “But at least in the markets I serve, when my customer says, ‘I want a car loan,’ I can compete with Wells Fargo because I have the same kind of solution they need.”
Data visibility comes into play as well, according to Rushenberg. “For example, if you live in a rural area, and you google how to get a loan in your area, usually the first three or four hits that come up don’t have a brick-and-mortar presence in your area.”
This can be a huge disadvantage for banks who do have a presence in that area, as a lot of search engine users tend to click on the first or second option. “Being able to have a direct link from your website to your application with good keywords that link to it will increase your ability to be at the top of searches,” advises Rushenberg.
“The biggest thing a digital solution does for a smaller financial institution is that it helps level the playing field,” he says.
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