Digital transformation has been a catchphrase for the past few years, and the banking industry has seen more of that transformation than just about any industry out there. It's the perfect storm of increasingly high consumer demand for all things app, fintech's disruption of the marketplace, and the pandemic ushering in more reliance on technology as branches closed their doors and customers stayed home.
It has meant that banks have invested in new technologies, and if they haven't, they're on the cusp of doing it right now.
How technology is transforming banking
You are likely seeing your financial institution's digital transformation happening every day. Here are some ways technology is impacting the industry.
Customer preferences. There's no question that the general desire in society for all things digital, from an app to control your home to watching the news on your smartphone or keeping fit by counting your steps, has created a demand for digital financial options. That demand, in turn, is transforming the entire banking industry. The pandemic prevented people from conducting their banking in their local branch, but truth be told, even before the coronavirus, customers were gravitating toward a more remote style of banking. A robust, easy-to-use app is a must for customers now, with options like remote deposit capture, bill pay, money transfers, account opening options and more.
Cost reduction. Banking technology's greatest impact will be in reducing costs, according to a recent report by Business Insider, which also noted that 48% of FI executives say blockchain and AI will give banks the greatest cost reduction. While that may be true, blockchain and AI come with a hefty upfront investment. We see technology helping to reduce costs at a more granular level in terms of the day-to-day functions of any given bank. If many or most customers are doing their banking digitally, how many branches do you need? How many hours or days do those branches need to be open? How many employees? By reducing the number of branches, the hours of those branches, and the number of employees, you'll see operations savings without upfront costs. Without conducting layoffs, it's possible to repurpose and retrain employees to fill different roles and functions as well.
Digital-only banks. Many of us remember the days when local bankers knew their customers by name. Today, many younger people are choosing digital-only options. Chime, the largest digital-only bank in the U.S., is projected to hit 19.8 million account holders by 2024. That means local banks have to play to win in the digital space in order to keep their customers.
Utilizing technology investments to drive earnings and improve efficiency
Digital technology is here. What's the best way for banks to make the most of the investments they're making in digital transformation? Here are a few suggestions:
Chatbots. Banks are using AI like chatbots for customer interaction. According to Juniper Research, the operational cost savings from using chatbots on websites and apps will reach $7.3 billion globally in just two years.
Mobile banking. Business Insider research tells us mobile banking is a top 3 must-have option for both B2C and B2B banking; nearly 80% of consumers say mobile is the primary way they access their bank accounts. With the rise in digital-only banks, it’s vital for community banks to step up their mobile game and offer customers a robust mobile solution.
Performance management tools. Technology isn't just about the customer experience. Tools like Banker's Dashboard are building new efficiencies into day-to-day operations. Banker's Dashboard can help you:
- Capitalize on daily financial performance metrics, quickly respond to changing market conditions and/or competitive pressure and know when it’s time to revise your plan.
- Produce a more accurate budget in less time and without the use of spreadsheets. Create multiple budgets and rolling forecasts, test your assumptions, and model capital planning inside of a dedicated tool.
- Maximize NIM performance by identifying which accounts are helping or hurting your margin (branch, officer, product level).
- Add discipline to loan pricing by incorporating your rolling cost of funds, the ever-changing yield curve and establishing a target ROE.
- Quickly analyze the potential impact to earnings by raising or lowering CD rates.
It's crucial for banks to invest in technologies that will streamline efficiencies, reduce costs, allow for staff changes and boost their bottom lines. At Deluxe, we're dedicated to helping community banks do just that.