Digital Banking Providers Need to Get Out of The Way

As the industry moves towards an open banking model, financial institutions should demand more from their digital banking providers.

The competitive advantage of any financial institution is its ability to recognize, target and meet the specific needs of its target audience. That’s how they thrive in an era defined by consolidation, fintech pressures and other existential threats.

But to keep pace and stay competitive with megabanks, digital banking providers must help empower retail community banks and credit unions to take greater control of their brands’ online experiences.

Most interactions have, by and large, migrated to the digital channel, forcing financial institutions to elevate their individualized approaches out of the branch and into the browser. However, the digital banking marketplace has traditionally been dominated by closed, inflexible, one-size-fits-all platforms, and the last thing a financial institution can afford is to make compromises in user experience and customer or member service.

The problem is simple: Digital banking providers make software for dozens or hundreds of financial institutions, but each banking provider serves its own unique community. A few may have custom development teams, but such efforts are inefficient by definition and require sizable investment. Few financial institutions have the resources to create complex financial workflows from scratch that are capable of integrating with their existing digital and mobile experiences.

Stanford Federal Credit Union in California faced this exact problem. Stanford FCU works with partners across Silicon Valley, including Google, Tesla and others. However, the team at Stanford FCU wanted to double-down on its relationship with Stanford University and focus on bringing in new student members. It felt it could leverage a referral program to great effect, but needed the ability to conduct a quick experiment to verify whether or not students would engage in such a service. Its digital banking provider had little in the way of ready “out-of-the-box” solutions that addressed the specific needs of its member base.

With the usual lengthy custom development timeline, Stanford FCU would have waited months for a student referral workflow that was vital to its business. Instead, the financial institution’s provider enabled Stanford FCU’s development team to take on the work themselves so they could shorten the development time-frame and validate the product themselves. Stanford FCU’s own developers quickly produced a branded referral form — one perfectly tailored to their needs, and that fit seamlessly into the existing platform. The initiative produced hundreds of new accounts immediately following its launch.

Stanford FCU had its student referral workflow live in weeks instead of months, and was empowered to create even more ambitious experiences for its members by utilizing universally available development tools instead of a complicated, one-off solution. In addition to launching quickly, it’s also able to track the success of its product more quickly and easily to make the necessary adjustments to improve it moving forward. The success it found represents a radical shift in the relationship between community financial institutions and their digital banking providers.

The digital banking industry has done an admirable job of transitioning financial institutions into the digital era. But providers can and must do more to help banks and credit unions compete with megabanks and their massive development organizations by opening their platforms and empowering their clients to take full control of their customers’ experiences. It starts with software: Good development tools allow a client with existing internal resources to make full and efficient use of them, and encourage other clients to begin building that asset.

But digital banking providers can do more than provide code, APIs and tech support—a true open architecture fosters a community of accessibility and knowledge-sharing. We serve a business well-suited for cross-institutional collaboration: Developers drawn to work for community financial institutions instead of Silicon Valley tech titans often have an intrinsic desire to do good.

The open-source approach has been proven time and again in the history of computer science. Fostering a supportive development community that champions its members, solves problems and shares best practices benefits multiple clients as well as the provider, which gains critical insight into issues and new solutions that can improve its broader platform for all of its clients.

Most importantly, open architecture leads to a reinvention of the relationship between a financial institution and its digital banking provider—technological expertise is no longer the sole domain of the provider. Adapting to this paradigm will require a big culture shift at some companies. Providers may be reluctant to relinquish control of a lucrative custom development process, or fret about security, support and legal issues. Financial institutions may protest that their business is finance, not software.

But the promise is remarkable: Open architecture allows for a quick start and rapid iteration instead of endless meetings and negotiations about requirements, pricing and acceptance criteria. Problems or defects in functionality are no longer irritating speed bumps the provider must rush to smooth to keep the financial institution and its users rolling—they become challenges that are overcome together as partners. Banks and credit unions are ready to retake control of the experience they deliver… but first their providers must let them.

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