Digital Banking Innovation Now Mandatory, Not a Competitive Differentiator

The accelerating evolution of innovative digital technologies confronts traditional financial institutions with a new reality. Survival demands that they redefine what they do and how they do it.

Digital innovation has rewritten the rules of consumer financial services, creating entirely new competitive dynamics and expectations — and disrupting even the most agile financial institutions.

However, traditional financial institutions that introduce the right digital solutions that solve pain points won’t be overtaken by nonbank newcomers. Increasingly, consumers care less about rates than about banking experiences that make their financial life easier to manage.

Two Pain Points to Consider:

In CapGemini’s World Fintech Report 2020, 50% of consumers reported that their financial services provider didn’t deliver a personalized banking experience, while 48% of consumers were frustrated by the narrow range of products and services offered.

Successful digital banking solutions need to engage consumers in ways that seamlessly adapt to their changing needs, without disrupting their banking experience. Simply offering a digital banking service no longer differentiates institutions from competitors.

This is a pivotal moment for financial institutions. Some longstanding incumbents may feel under siege, but many institutions are already restructuring, refocusing and rethinking who they are and what they do for their customers.

Powering Innovation Through Disruption

In a place where natural disasters can regularly impede access to financial resources, finding ways to manage disruption is an everyday endeavor at Puerto Rico Federal Credit Union, which is open to the entire island community.

Puerto Rico Federal’s commitment to members was put to the test in the wake of both 2017’s Hurricane Maria and the pandemic — events that demonstrated how unforeseen disasters can limit Puerto Ricans’ access to financial resources when they’re critically needed. Management realized a robust, digital banking experience — with a dual-language interface — was essential to remove barriers and keep its members connected to their finances anytime, anywhere.

That realization lead Puerto Rico Federal to examine its digital channels and devise new disaster-proof digital services for members. Among new features are real-time payments, money movement and account alerts. Associated mobile features include no-click quick balance, mobile capture, and the ability to attach an image to a transaction to better track spending activity.

Additionally, members can utilize financial management tools to allow approved users such as family members to access their profiles, establishing entitlements around which features can be viewed and used. Around-the-clock support is also offered to help members when and where they need it.

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New Insights on New Markets

Meeting the growing demand for personalized services requires developing data-driven insights into customer behaviors. For Wisconsin’s Horicon Bank, the quest to deliver personal services created an IT environment fraught with inefficiencies. The bank was stuffed with third-party software that couldn’t share data.

“We were doing a lot of manual entry every night, just to get the core system updated with accurate data,” explains Mark Nelson, senior vice president and CIO. “The only way we were going to achieve the service levels we needed was through integrated systems.”

Horicon’s data analytics tools were clunky and unintuitive to use. Queries had to be highly specific and precise, and parameters were rigid. By contrast, the new system is visual and interactive. “You can make a query and then change the parameters as you’re viewing the result,” says Christine Oelke, Assistant Vice-President.

One example of how Horicon Bank has harnessed this strategy is in its recent branch expansion. The bank is growing in new markets. While it had some customer relationships in those areas already, it wanted better insights into the solutions and services Horicon’s new branches should focus on.

“We wanted to understand what our new customers could look like, so we examined the customers we already had in those counties,” says Oelke. The bank looked at such questions as: What types of products they had? Where were they in relation to where the new branches might be? Were they younger, older or in mid-life?

Taking transformation to the next level, Horicon Bank expanded its digital vision by acquiring fintech Monotto, whose mission was improving Millennials’ financial literacy and planning. By offering an automated savings tool, for example, Horicon can address real pain points consumers face and help them achieve important life goals.

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Challenging Digital Innovation is Banking’s New Normal

For financial institutions, enhanced data analysis is a key element of meeting consumers’ needs. Next-generation apps and tools are the other part of innovation, the aspect that consumers themselves uses.

Fulfilling all of these needs remains a challenge, especially for institutions with closed legacy systems based on decades-old technology. Institutions like Puerto Rico Federal and Horicon Bank have opted for more open, scalable and extendable core systems, giving them the flexibility to evolve without having to overhaul their infrastructure every time they need to develop a new digital offering.

Undoubtedly, uncharted territory still lies ahead. To navigate it successfully, credit unions and community banks need to recognize a universal truth — the best way to predict their future is to make it.

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