Regional banks are well positioned to transform the commercial experience, argues Mark Atherton, group vice-president – Americas sales at Oracle Financial Services
By all accounts, large regional banks should be enjoying halcyon days. Economic indicators and performance are strong, interest rates are rising, regulatory relief is at hand, and regional institutions stand to reap significant benefits from recent tax reform.
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Look deeper, however, and the skies are not quite so clear and calm. In 2017, regional banks underperformed the broader market, despite being uniquely well positioned to drive valuation and fundamental performance going forward.
And the current climate is expected to resurrect merger and acquisition activity.
Serious headwinds
While the fundamentals are strong, regional banks face some serious headwinds. As a whole, many regionals are losing ground with retail customers to nationals and challengers.
The real growth potential for regional powerhouses is in the commercial sector, including small business. Capitalising on this opportunity will require banks to bring new urgency and a tailored focus to their efforts to modernise the customer experience.
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By GlobalDataThe theme song from the 1980s hit sitcom Cheers, titled Where Everybody Knows Your Name, reminds us of our innate desire to be known. However, knowing a customer’s name – whether in the retail or commercial sector – is nowhere near enough to reach profitability in today’s banking industry.
The focus must be on a holistic understanding of the customer as an individual, anticipating their needs often even before they do, and making it all look and seem easy. That is a tall order for any organisation, even those with the deepest pockets.
In this quest, regional banks find themselves sandwiched between the handful of megabanks – with the resources to support modernisation at scale and the customer base against which to leverage these huge investments – and challenger organisations, including fintechs, which are ‘digital natives’ and can, figuratively, innovate on a dime.
Unique strengths
Regional banks have their own unique strengths that are difficult for national institutions and newcomers to replicate.
First and foremost are a strong community presence, regional expertise – which in many cases includes industry-specific expertise that is unique to a specific area – and long-standing relationships that are both a foundation and incubator for the next generation of customer understanding.
Dr Moorad Choudhry, former head of business treasury, global banking and markets at Royal Bank of Scotland, aptly reminds us in his classic text, The Principles of Banking, that “banks are going to win business by engaging their customers.”
While he wrote this statement in 2012, it continues to ring true, and regional institutions are ideally positioned to elevate engagement to new levels. Digital is an essential part of the answer, but is not a complete solution, as evidenced in the JD Power 2018 US Retail Banking Satisfaction Study.
This year’s study revealed that 28% of all retail bank customers are now digital-only, and that they are the least satisfied among all customer segments in the study.
Digital divide
In the press release announcing the findings from the study, Paul McAdam, senior director at JD Power’s banking practice said:
“There is no doubt that digital banking channels give banks an enormous opportunity to reduce costs, but the risk is that those cost savings come with lower levels of customer engagement.
“Right now, retail banks need to address the growing digital divide that is emerging within customer segments. Successfully navigating that transition will require banks to provide better, more personalised advice that is consistent across both digital and branch interactions, and to ensure that customer needs are met, regardless of channel.”
The study also found that the lower satisfaction scores found among digitalonly customers are largely driven by weaker performance across three factors in the study: communication and advice, products and fees, and new account opening.
Enhance, not replace
Regional banks have a unique opportunity to blend digital and personal for a unique ‘have it your way’ customer experience that is inherently faster, frictionless and intuitive.
The key is determining where to focus, and then finding ways to leverage the investment and foundation to support modernisation of other aspects of the customer experience.
Originations is an area ripe with transformation potential, and this is often banks’ first point of interaction with a business customer.
While the window for making a great first impression is short, it is here that banks must demonstrate their understanding of the customers’ needs, treat them uniquely and deliver a ‘wow!’ moment.
Done correctly, banks stand to profit from up-sell and cross-sell opportunities. Cumbersome applications and complex account-opening processes – with multiple hands-offs spanning several days – often leave commercial customers frustrated, and banks end up losing good business.
The situation is comparable to a customer visiting a supermarket, filling up a shopping cart but leaving the store without buying anything because of serpentine billing queues or because the billing process took too long or was too complicated.
Abandonment rates for online banking applications remain high; multiple clicks, screens or visits to the branch in person to complete the desired process all contribute to this. Originating an account and establishing a new customer is universally considered to be one of the most expensive processes for banks.
Typically underpinned by a patchwork quilt of technologies resulting from the use of different systems for different product types and different regulatory requirements for different types of customer, origination procedures cause bottlenecks, hamper decision making and adversely affect customer experience.
Borrower-centricity
Collections is an area often overlooked when it comes to customer experience transformation.
It can, however, have a powerful impact on the bottom line and the ability to foster longterm customer relationships. One Midwestern regional powerhouse was looking to transform its collections process with an eye toward making it less adversarial, more collaborative, and ultimately more costefficient and productive.
The bank decided to pursue a true borrower-centric approach. It knows that if a customer is late on one loan, there is a risk that delinquency will cascade to other loans the customer has with the institutions.
Customers, however, do not want to be contacted multiple times for different loans, and it is also expensive for the bank to contact the customer using an agent. In transforming this process, the bank wanted the ability to look at all the loans a borrower has with the bank and solve any issues with one agent or self-service interaction.
The bank standardised on a single platform that provided a complete view of the borrower as well as intelligent segmentation. The bank can now create customised strategies based on any number of risk and non-risk factors, including routing lower-risk borrowers to self-service portals.
The bank also rolled out API access for the customer to self-heal without an agent interview, which boosted collection rates by 15%.
With these capabilities, the bank is moving to an 80-20 model, where most low-risk borrowers are able to self-heal versus having to talk with an agent. The end result is a better customer experience, lower costs and improved collection rates.
Anticipate my needs
Digitisation in the form of machine learning and artificial intelligence has the potential to further transform the commercial customer experience by empowering banks to become better listeners.
Listening, both figuratively and literally, is essential to a complete understanding of the customer as a unique organisation. Listening can take many forms: in-person interactions, customer surveys and transaction patterns to name just a few. The key is the ability to recognise important messages or signals, capture them, and act appropriately on the information gleaned.
For example, a customer might mention to a representative at their local branch – or post via social media – that they have just secured a new large manufacturing contract. The ability to capture that information, integrate it into a bank’s total understanding of the customer, and deliver tailored offers based on that data – such as a business loan or line of credit to support new equipment purchases or manufacturing facility expansion – opens new opportunities to expand financial relationships and create greater customer intimacy.
In another instance, consider the transaction demographics that are posted to and from customers’ accounts. This might include the type of transaction, its originator, frequency and amount. The ability to analyse this data can yield vital insight into how, why and where consumers are using their funds.
Looking externally, financial institutions are wise to monitor their customers’ online reviews for insight. In such instances, customers are not incentivised to give feedback; therefore, they are providing comment of their free will and are likely to be candid and honest.
The ability to mine these comments provides a trove of information about a customer’s honest feedback and can illuminate direction for future banking improvements and initiatives.
The path forward
Regional banks, by their nature, are well positioned for success in the era of the individual. The key is to leverage digital innovation to both accelerate transactions and enhance the personal touch and not replace it.
It is time to move forward with modernisation – taking a progressive approach. This has long been the ‘elephant in the room’ that banks need to address. With the emergence of cloud-ready platforms and flexible open architecture, there are a number of progressive ways that banks can deploy a truly modern core architecture while managing risk.
Beyond core systems, banks should look toward seamlessly integrating transactional and analytical applications. This will help maximise use of data to drive future improvements and initiatives, and further enable frontline employees to effectively use data insights. There is no need to go it alone.
Banks should focus on their core competencies and look to the digital ecosystem to tap innovation. Opening the bank to a digital ecosystem will help it stay relevant to customers in the long term.
The good news is that financial institutions embarking on this journey have the experience of other industries to build on an ever-growing ecosystem of potential digital partners and cloud-ready solutions that enable progressive modernisation to achieve immediate gains – while avoiding unintended operational disruption.
