The need for banks and credit unions to embrace digital channels isn’t new. Incumbents were treading water when it came to meeting consumer demands and competing with fintech firms well before COVID-19 put digital lending on the emergency fast track.
It was a digital accelerant no lending institution could have predicted, but that’s little consolation to the banking and credit union executives now scrambling to keep up.
What’s keeping them up at night? Let's take a look at the top three challenges and what to do about them: member experience, operational consolidation, and share of wallet.
Banks and credit unions are under tremendous pressure to adopt new digital technologies to better serve their customers, especially younger consumers, as well as to remain competitive with fintechs that don't have brick-and-mortar locations to consider.
Since fintechs don't have to spend on overhead, they're able to invest in developing digital solutions that make financial services more accessible to consumers. Rather than a one-size-fits-all approach to loan applications, fintechs provide consumers with modern lending and account opening experiences as well as personalized loans that offer the right balance of speed and security.
Contrast that with legacy financial institutions that still maintain systems developed 30 or 40 years ago and run complex proprietary software that doesn't integrate with modern third-party applications.
Not to mention that these legacy systems don’t adequately respond to the demands of modern finance, including making sense of the massive amounts of data that's being collected every day that could enable banks and credit unions to give consumers what they want: easy and secure access to services.
Is it any wonder these executives are sleep deprived?
On average, legacy financial institutions run more than 80 disparate systems—silos of information housed in different departments that can't share information between them.
This hinders efficiency and growth and may cause a number of issues, such as duplication of effort, faulty decision making and missed opportunities, and create hundreds and even thousands of points of failure.
Many banks and credit unions accept applications from a variety of channels, including in-branch, online and through call centers. And they likely maintain disparate systems for these difference sources, meaning they also have multiple vendor relationships for lending and account openings.
These disparate systems can't keep up with the exponential growth in transactions and inquiries brought on by digitized banking, including making use of the latest advancements in technology, such as the Internet of Things, artificial intelligence, and machine learning.
Training employees on these disparate systems is time consuming and costly. It normally takes time to onboard new staff members and get them fully up to speed. However, training them on a complex network of systems can take 10 times as long for them to learn the processes as well as how to work with each user interface and where to get the information they need. And as Ben Franklin said, "Remember that time is money."
But it's not only staff members who have to deal with these complex and disparate systems. This lack of operational efficiency also affects the consumer experience, resulting in a less-than-ideal customer journey.
Share of Wallet
"Banks spend an incredible amount of time and money on acquiring new customers, but so many of these relationships fall short of their potential," according to the PWC report, "Why banks should focus on share-of-wallet initiatives now."
That happens, in part, because lenders are competing with digital competitors for new customers and would do better to target their existing customers with share-of-wallet initiatives, according to PWC. In fact, PWC estimates that banks and credit unions can generate a 70% return on initiatives that target existing customers.
To compete with fintechs, banks and credit unions need the capabilities to streamline loan applications across in-branch and online channels. However, that won't happen if financial institutions don't embrace digital technologies and consolidate operations to meet the needs of their customers.
Overcoming these Challenges: Download the eBook
These challenges are not going away. In fact, inaction will only make them worse. Credit union and bank executives are well-advised to explore how these issues are impacting the bottom line and to seek out the best path forward for their organizations.
Our latest eBook, “Top 3 Challenges Keeping Credit Union & Bank Executives Awake at Night” explores in-depth what these three major challenges mean for banks and credit unions and, more importantly, how to solve them so their executives can finally get some sleep.