There is a downside to agility. The ability to quickly develop and implement new digital banking technologies has become a necessary — even vital — characteristic for financial institutions to remain competitive. But institutions that throw off the constraints of legacy technology by assembling their own “open” platform from multiple fintech providers can be putting their future at serious risk if they lack the right talent and business plan, warns Doug Brown, SVP and head of Digital Banking for NCR.
The exec, who ran digital and mobile for FIS and helped launch mobile banking for Bank of America, is a big proponent of banks and credit unions making use of open technology platforms, enhanced developer tools and APIs (application programming interfaces) that provide the flexibility to partner with fintechs and even to design their own applications.
There is a one big responsibility, however, that comes with that kind of flexibility: The assembled system must integrate fully with the institution’s core system, ensure security, and be easily upgradable.
“Some institutions pursue a path that we call, ‘roll their own,’ or custom build,” Brown tells The Financial Brand. “They typically go out into the fintech ecosystem and negotiate with a group of players that are brought together to create a banking infrastructure.” Some institutions can pull that off. But for many that might be attracted to this free-wheeling approach, the danger, says Brown, is that such models can “fail really hard after a stretch.”
One reason is that when an institution chooses go down “a raw technology track,” as Brown puts it, they can become “too open.” That can leave them vulnerable on security issues, forcing them to go back and rearchitect the system, a costly exercise.
The risk of being too open with technology, a seldom-heard caution in the bank technology space, was one of several insights Brown offered in a lengthy interview.
‘I’ve Never Seen Anything Like It’
As a bank technology vendor, NCR saw firsthand the incredible surge of digital transactions across the banking system, particularly in mid April, during the height of the national stay-at-home period. “I’ve been in the digital banking business a long time and I’ve never seen anything like it,” says Brown.
Looking at peak digital banking traffic during the week of April 13-17 the vendor saw an increase of 260% to 320% over prior peak activity. “I still can’t get my head around this demand surge coming in real time because people were so desperate to get information,” Brown states. “We saw mobile check deposit increase 70% at a number of institutions on a daily basis because of branch closures and people’s fear of using an ATM to drop off a check.” Mobile banking overall went from about 55% of digital banking volume to 70%-75% during the COVID crisis, he adds.
Don’t Exceed Your Capabilities
As a supplier to about 630 banks and credit unions in the U.S., the majority of them community banks and credit unions, Brown believes that community financial institutions can compete with the largest institutions.
Evidence of this came during the COVID crisis when community institutions processed SBA Paycheck Protection Program loans at a much greater rate than the largest banks and were willing to take the loans on book. “Community banks and credit unions compete on a relationship model and a connection to community that’s very different from Bank of America. It was the Main Street banks that stepped up in a bigger way to help support their communities,” Brown notes. “That epitomizes their competitive differentiation.”
However, it’s not enough.
Differentiation also requires having access to technology that allows a bank or credit union to partner with the fintechs or other providers that are most relevant to their market. Some experts have observed that community institutions depend too heavily on their core processing vendors, which restricts their ability to innovate. Brown acknowledges that “there are some core technology players who pursue a strategy of ‘hostage taking'” and that some financial institutions get stuck with them.
To those institutions not beholden to a particular vendor, however, and inclined to “roll their own,” as noted earlier, Brown recommends that they be sure they know what it’s going to take and that they’re up for the task. “You need to know what your true capabilities are,” he states. Some institutions think they can just assemble the tech stack themselves, but that model doesn’t work as easily as it would seem. For example, Brown states, “are you in a market where you can hire the talent needed to have an IT development staff?”
Ego can be behind such independent-minded technology decisions, but Brown cautions against betting too much on such a critical area for financial institutions. “To a great degree, ‘digital’ is the bank, and is the credit union,” he maintains. “If that wasn’t the case before COVID-19, it certainly is now.”
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What COVID Has Changed
The global pandemic, most observers agree, has forced the issue of digital adoption, rewarding institutions that had moved aggressively early on, and impelling the others to rapidly upgrade.
“COVID-19 has been an accelerant for things like PPP loan processing and other digital capabilities,” Brown states. It’s much like how check imaging really got started right after 9/11 when the Federal Aviation Administration shut down air service and checks couldn’t efficiently be transferred around the country, he adds.
In NCR’s first quarter 2020 results, Brown says that the crisis produced “eye-popping” gains in three areas the company supports. One was PPP software and processing, another was Zelle person-to-person money movement, and the third was remote-agent licensing for live-chat and ITM support as consumers sought to get help renegotiating a loan or getting advice on a particular product.
Mobile video banking — as distinct from the video used in drive-up ITMs — has also seen an uptick in interest, Brown notes. He believes mobile video is very relevant and useful for specific banking functions including onboarding and providing service to high-net-worth customers. However, he also says “It’s really tough to cost justify a video-for-everything model.” The reason, he says, is because with live video a teller or banker is tied up one to one with the customer they’re working with. By contrast, messaging capability like text or email can be much more efficient.
In addition, video banking requires a new skill set. “A standard call center agent is not really a great video rep,” Brown states. Nevertheless mobile video can make sense in certain applications, and indications are that consumers love it, according to Brown.
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Voice Banking and Wearables. Not Quite Up to the Hype
Having been a proponent of voice banking using smart speakers for some time, Brown has since adjusted his outlook, though he remains a supporter.
“Voice banking by smart speaker got a little ahead of itself,” he believes. “It’s like Google Glass — it’s a cool application, but the use case didn’t materialize.” While he’s still excited about voice, Brown says a key element is still missing — secure authentication — which has kept banking using Amazon’s Alexa or Google Home from being a home run.
“If you can’t hard authenticate the user,” states Brown, “it limits what banking you can do. I don’t want my ten-year-old son executing trades on my Fidelity account, for example, because he’s just talking to a machine he thinks is fun.”
Voice technology is evolving, however, and Brown firmly believes voice banking will see its mainstream day and achieve mass adoption.
Regarding another much-hyped new channel for banking — wearable devices such as smart watches or rings — Brown is even more circumspect.
“You’re not really going to get full digital banking on a wearable device,” he declares. “You’re going to get some alerts and pay for some Gatorade while you’re jogging. Those are great use cases. But scheduling your interest-only mortgage payment from your watch? That’s just not what people are doing.”
Wearables have proved to be the popular tool for health monitoring, he says, but not so much for banking. Brown acknowledges, however, that these hype gyrations are just part of the game in the evolving digital experience mix.