Credit unions and banks are in the middle of their digital transformation journey, but still have a long way to go – when asked to rank their current position in their digital transformation journey on a scale of 1 to 100 , the average respondent in a recent survey gave an answer of 58.
The survey of 152 bank and credit union executives, conducted by digital banking solutions provider Alkami Technology, also identified their top three strategic priorities for digital transformation: optimizing processes and operations (41%), obtaining competitive advantage (31%) and increase line growth (29%).
And when asked about the biggest barriers they’ve encountered along the way, legacy systems came out on top with 68% of respondents citing it as a barrier, followed by organizational resistance to change ( 51%), lack of digital literacy (41%), security concerns (38%) and lack of clarity (32%).
“Banks and credit unions often struggle to define their digital transformation requirements and what they need back-end to support it,” said Allison Cerra, chief marketing officer of Alkami, in a white paper detailing the results of the investigation, which the company based in Plano, Texas. released Thursday. “For many, their back-office processes can hinder their ability to digitize the customer experience.”
Additionally, the top five digital and mobile banking features requested by customers and members of survey respondents were digital account opening (73%), loan applications (63%), peer-to-peer payments ( 59%), financial wellness (51%), chatbox/voice banking (40%) and cryptocurrencies (26%). Financial institutions striving to achieve their strategic priorities and provide their customers or members with the digital services they want, must find ways to do so as efficiently as possible, the white paper notes.
“The banking leaders of the future will be those who can make the most of data, gain a holistic view of their relationships, and meet the rapidly changing needs of digital consumers,” Cerra said.
The white paper also detailed the following five trends that are emerging in banks and credit unions in an effort to meet consumer digital banking demands:
1. The rapid growth of cashless and contactless payments has brought success and opportunity. When asked how the use of cashless transactions by customers/members had changed over the past two years, almost 80% said that these transactions had increased, and of these, around 60% said they had increased in volume by more than 20%.
Despite the lack of human contact typically involved in a cashless and/or contactless transaction, their increase has led to customers/members interacting with their institution more often than when visiting a branch, according to Alkami. The company said that to capitalize on this increase in customer/member engagement and to strengthen their position in the digital economy, credit unions and banks should focus on upgrading technology both in the front and back office, investing in new technological developments. and in technology talent, and envisioning a “unified payments architecture overhaul” – while cautioning against changes to their legacy core processing systems.
“As financial institutions strive to meet ever-changing regulatory obligations, many are content to modify or reconfigure their legacy core processing systems,” the white paper states. “The unfortunate result of tinkering with core systems is that the user interface and product offerings may not be robust or reflect a clear vision. These systems may also end up fragmented and disorganized, with superficial support, which prevents the financial institution from responding adequately to regulations or compliance mandates as they emerge.
2. The use of cryptocurrency is slowly growing for customers/members of traditional financial institutions. Forty-nine percent of respondents said their customers/members do not request Bitcoin products and services, while 21% said they do and 30% were unsure. And when asked if they thought adding Bitcoin products and services to their digital menu would give their institution a competitive advantage, 35% said yes, 25% said no, and 39% said that they weren’t sure.
“Banks investing in cryptocurrency capabilities take a cautious approach,” the whitepaper notes. “While guidelines and regulations surrounding cryptocurrency are still evolving, many banks are hesitant to go all-in. Instead, they are finding ways to incorporate parts of the cryptocurrency landscape into their practices, or they act as intermediaries for clients entering the cryptocurrency market.
3. Fintechs are both competitors and partners of banks and credit unions. When asked an open-ended question about how they leverage fintech to stay competitive, many said they partner or plan to partner with fintech companies to achieve a certain functionality, while that others said they did not associate with them or had no interest. doing so, according to Alkami.
Some common ways financial institutions are partnering with fintechs include deploying white label fintech products, allowing customers/members to use apps like PayPal and Venmo directly from their sites, and acquiring fintech companies. .
“Those who are unable to acquire a fintech company are creating their own fintech or attempting to transform their internal operations to align with the benefits of fintech,” the white paper states. “While both options require investments in innovation and talent, a bank that combines the speed and responsiveness of a fintech with the existing assets and confidence of an incumbent institution could be well positioned to succeed. “
4. Banks and credit unions could do more to take advantage of hyper-personalization. Only 24% of survey respondents said they use hyper-personalization to gain competitive advantage; 66% said they weren’t and 10% said they weren’t sure.
While financial institutions already use a type of personalization in their fraud-fighting efforts (for example, tracking typical behaviors of a member in order to flag a potentially fraudulent transaction), there are a number of cases of business development uses they could leverage, such as making product and service recommendations and giving financial wellness advice, according to Alkami. The company pointed out that to successfully leverage hyper-personalization, an institution must optimize both its user interface (the physical space where the account holder encounters the banking product) and the user experience (the quality of the user’s participation in the product).
5. Thanks to artificial intelligence, banks and credit unions can capitalize on their mature data. Fortunately for traditional financial institutions, their customers/members have been using their services for a long time, which means they often have a wealth of “mature data” at their fingertips. With “delivering a better customer/member experience” being a goal for 86% of respondents who leverage data to achieve their digital transformation goals, leveraging mature data using AI technology can help banks and credit unions to achieve this goal – as well as level the playing field for customers and members with varying incomes.
“We are now at a place where technology has democratized financial advice and guidance,” Cerra said. “It is no longer just the privileged upper class who can afford to prepare themselves financially and prepare for the future. AI empowers those who have traditionally been marginalized or underrepresented to understand their financial capability and engage with their own economic future.