By Nathaniel Harley and Benjamin Conant
(Continuing our look at predictions for the new year, today we consider challenges and opportunities ahead for banks in the areas of innovation and technology. – ed.)
Omnichannel banking will be critical to meet customer demands. Seamless omnichannel servicing is necessary to create an excellent customer experience in today’s banking landscape. Bankers must meet consumers and businesses where they want to bank—whether it’s in-person, online or mobile—and deliver the same experience across all channels.
If a consumer can open a checking or savings account in less than three minutes online, there is no reason that the process should take longer in a branch. Businesses must be able to quickly and easily open accounts online. The next step in customer experience is bringing parity to human-to-human interactions. Banks must elevate their customer service by ensuring that processes can start, resume and be completed across any and all channels with minimal friction and with full transparency for their customers and teams alike.
Small businesses will become the new retail banking customer. With fintech firms driving innovative experiences and national banks pouring resources into new products, this means that community banks and regional banks are fighting an uphill battle for the consumer market.
In 2022, community financial institutions will prioritize providing core services for small business customers as this banking segment becomes the new retail customer. In Mantl’s 2021 Banking Impact Report, 92 percent of small business owners agreed that community banks are as or more vital to the U.S. banking system as large banks. By prioritizing offering innovative digital products that cater to the needs of the modern business owner—such as invoicing, online account opening and digital lending—community banks will build upon the goodwill they have earned with the small business community to retain and expand business banking relationships.
Online account opening is table stakes for banks of all sizes in 2022. We saw several new banking trends, like cryptocurrency integrations and buy-now-pay-later functionality, take financial services by storm in 2021. However, these advanced features are not appropriate for financial institutions that are still in the early stages of digital transformation, and customers do not expect banks to offer them. Banks of all sizes must align their digital roadmap with the features that consumers and business owners expect. For many institutions, this means doubling down on the basics.
More than half of consumers (58 percent) and small business owners (57 percent) will not do business with an institution that doesn’t offer online account opening, regardless of whether they prefer to open an account online or in-person. Currently, 43 percent of community banks do not offer online account opening for consumers and that figure is even higher for businesses. The message is clear: Online account opening is no longer a nice-to-have feature and the opportunity cost of not modernizing is now a matter of survival.
Smaller banks will embrace open banking technology to remain competitive. Widely utilized overseas, the global open banking market is forecast to grow to $43.15 billion by 2026, boosted by a surge in adoption of new applications and services. Open banking is poised to make a significant impact in the U.S. because it opens the door for many opportunities that can benefit consumers, fintech firms and, most importantly, financial institutions grappling with digital transformation.
Open banking can democratize the digital experience and empower smaller financial institutions to compete with the top five banks. In 2022, we’ll see community banks and credit unions partner with fintech companies who use open-source technology responsibly and effectively to overcome their legacy infrastructure challenges and provide better digital experiences at a lower cost of maintenance and development.
This includes using the vast amount of online data to quickly verify customer information, enabling easier account funding through instant account verification and real-time reading and writing to the core to eliminate batch processing. Smaller banks that embrace innovation and harness the power of open banking will be well-positioned for future growth and resilience.
Investments in data analytics will drive growth and inform strategy. Historically, bankers have been reluctant to embrace technology innovation because it is viewed as an expense rather than an investment. Burgeoning data collection opens the door to utilizing customer data in meaningful ways, and we will see more banks adopt data analytics technologies to inform strategy—identifying new markets, product offerings and potential customers. Data plays a critical role in helping financial institutions build trust with customers, from retention and activation to attraction and onboarding.
Data is critically important in the onboarding process. Modern know-your-customer systems can reduce friction and manual input during the onboarding process with augmented backend customer data, creating a streamlined process that converts more customers and builds strong relationships at the first touchpoint. Success will be found by financial institutions that invest in technologies that help them grapple with all of this data now.
Incumbent banks must adopt a microservices-based architecture—or risk falling behind. The banking industry and U.S. financial system at large are lagging behind other industries pretty dramatically when it comes to software innovation. Software systems that are built on a microservice architecture benefit from receiving faster and more reliable updates and improvements, as well as higher degrees of scalability. This is why microservice-based architectures have become the industry standard for technology companies such as Google, Facebook, Netflix and Microsoft. This is also why consumers may turn to neobanks and decentralized finance, which typically leverage a microservice-based architecture and offer significantly better customer experiences. Incumbent banks that want to improve time-to-market and gain the ability to quickly deliver new features and product updates to keep pace with neo-banks must start adopting modern software development practices, like a microservice-based architecture, or risk falling behind.
Nathaniel Harley is CEO of MANTL, where Benjamin Conant is CTO.
