Getting real-time payments right in terms of availability, customer experience, and security is crucial for the success of banks, especially community banks and credit unions. The introduction of FedNow later this year aims to expand the reach of real-time payment services and increase risk management. It is expected to speed up person-to-person, person-to-business, business-to-business, and business-to-consumer transactions. It will also improve the availability of funds for small businesses and provide better visibility of transactional information. With the speed of real-time payments, banks must address the trade-off between speed and security, implementing safeguards and monitoring capabilities to ensure transactions are genuine and authorized. Hopefully, banks’ planning for the introduction of FedNow is well underway since it will quickly become an important competitive factor.
A recent JD Power consumer survey reveals that high inflation and banking sector instability have negatively impacted the financial health of bank customers. The number of “financially unhealthy” deposit customers has risen by nine percentage points in the past year, while at the same time only 21% of bank customers reported receiving financial advice from their banks. But those who did were more likely to open new accounts. The research also shows a shift in customer funds, possibly due to poor satisfaction, deposit insurance concerns, or a search for better interest rates. Almost a third of primary bank customers have moved an average of 37% of their deposits to secondary providers.
JPMorgan Chase CEO Jamie Dimon critiques the banking industry and proposes a nine-point plan for improvement in his annual letter to shareholders. He warns of further fallout from the recent banking crisis and criticizes accounting rules and federal stress tests. Dimon also addresses the growing influence of nonbank competitors and suggests that traditional banks may need to cede some activities, such as mortgage lending, to them. He emphasizes the need for thoughtful and forward-looking regulation that avoids knee-jerk reactions and maintains the strength of the US banking system. Dimon’s nine-point plan includes strengthening regional and community banks, ensuring banks support clients during tough times, and making banks attractive investments.
The bank-run crisis is creating significant changes in the banking industry, with depositor inertia no longer being taken for granted and the stability of deposit portfolios becoming more important than cheap deposits. These changes will prompt financial institutions to reevaluate their business models and adapt their strategies to attract and retain deposits. Relationship banking is expected to gain momentum, with banks focusing on providing convenience and helping customers achieve financial goals. Traditional community banks will need to upgrade their digital experience to maintain their edge. In addition, more banks are expected to create digital-only brands to serve as separate deposit-based channels, offering higher rates to attract customers without impacting their main strategy.
Working backward in digital transformation is the emphasis Arvest Bank’s CTO Laura Merling. This involves deciding on an end goal and then determining the necessary steps to achieve it. Merling’s approach focuses on practical applications and touches on every aspect of the bank. By understanding the audiences and their needs, Arvest can implement new products and processes using technology as a means to achieve its goals. Merling’s digital transformation efforts follow a five-year plan, with a graduated model revealing more visible changes to customers over time. The plan also accounts for flexibility, keeping an eye on industry developments, and conducting ongoing technology assessments.
Digitally mature financial institutions can leverage data, analytics, and technology to drive business growth and improve customer experience. Despite this, most banks and credit unions struggle to deliver effective customer communications. Investments in digital channels such as mobile banking apps can help financial institutions engage customers and drive sales by offering personalized offers, simplified access to services, and targeted notifications. Chat functionality is also a valuable tool for customer engagement, support, and account management. Conversational AI, like ChatGPT, is expected to become more widely adopted in the banking industry over the next few years, but the pace of adoption depends on functionality advancements, customer preferences, regulatory requirements, and technological limitations. The future of digital engagement and selling in banking will be influenced by AI, machine learning, social media platforms, virtual and augmented reality, and mobile commerce optimization.
