Asset Based Lending
Chief Investment Officer
Commercial Loan Automation
BirdsEye Viewbuilding the bridge between digital and physical distribution
BUILDING THE BRIDGE BETWEEN DIGITAL AND PHYSICAL DISTRIBUTION
We claim – with some justification – that banks are the most trusted financial institutions in the country and the world. If we really believe it, we should be able to transition customers effectively from the branch to digital and other forms of service consumption channels IF THEY SO CHOOSE without meaningful customer attrition.
The large banks have proved – through disproportionately growing their market share – that even suboptimal digital experiences attract a large chunk of consumers and businesses. Their inferior service, branch closings and brand challenges have not negatively impacted their growth in the consumer space. In fact, the opposite is true.
We should ask ourselves the question: “If we really believe that community, supercommunity and regional banks have brands that are more trusted than the universal banks, why can’t we leverage that trust across all channels to achieve superior growth in customer acquisition and better retention than the large banks?”
I think this is the key question for management teams across the country, and it’s time to find ways to execute on our value proposition. We don’t need and generally can’t offer superior technology, but we can be thoughtful about building a bridge between traditional and newer distribution channels to create a better customer experience and justify the trust they put in us through different methods.
Our ultimate goal should be to offer robust experiences and functionality across channels such that all our customers and prospects will find a path to strong satisfaction and a full range of services from us. Branch closures should become non-events, as other channels, including personal service (but not through a traditional branch), should fully meet customer needs in a delightful way.
This is a tall order which no bank has done effectively. Many have embarked on the journey, though. This transformation is not optional; it’s simply a matter of time. There is significant opportunity cost to being a laggard as the marketplace transitions, and less risk in missteps than in the past.
The thoughts below might be helpful as you contemplate these challenges.
1. Transform the workforce in the branch. We have been talking about this for years, but the reality hasn’t change much across the board. Focus on value-add services and proactive approach to the customer rather than order taking and passive responsiveness. Our bankers need to know more and share their knowledge with our customers. They should also help customers adopt technology and not compete with it. Examine your incentive programs to ensure you do not codify channel competition; instead, create symbiotic relationships across channels to yield fully satisfied and happy customers.
2. Create cross-channel experiences. Examples: booking appointments with bankers at the branch online (I especially like this one); Interactive Teller Machines offer a human interaction using technology; Creating books of business for call center bankers; offering a chat facility; cardless cash access; bill-pay kiosks at the branch.
3. Shift organizational resources from physical to digital. The branch isn’t dead, but digital is certainly the future. A typical bank’s resource allocation process does not reflect this necessary transition. A good goal to have is automating as many non-value-add transactions as possible.
4. Make sure Digital experience is seamless – test your apps across all devices. All too often the solutions we buy work for some devices but not others. The app looks great on Android but not the iPhone or the iPad. Make sure you test everything in advance. Companies like Sauce Labs automate this type of testing. This is a small but significant point, because if the app doesn’t work you likely won’t get a second chance.
5. Use the Agile methodology to all process mapping, evaluation and improvement. This is especially important for Product development and Management, where small changes and incremental victories are the name of the game. Shooting for perfection will kill your creativity and nimbleness. Further, give up the waterfall approach to development. The concept of sequential development is slow and suboptimal. Test different things concurrently, learn from the customers’ reaction and continue changing. PS Agile is just another word for Iterative Development, but it sounds better)
6. Assemble stable, cross-functional teams that are self-supporting and project-driven. One of our biggest problems is the fractured organizational structure we have, where development occurs in one place, customer insight is generates in another and the line gets the final result without an opportunity for early input. Consider changing this through creating collaborative teams representing all the important parties to the process, and always include both digital and physical representation. These teams can function in a standalone fashion, working together toward a predetermined desired result. By bringing all the relevant parties to the table you save the sequential time loss as well as the lack of ownership that is often associated with a fractured development process. Work together and concurrently to achieve timely and better results.
7. Use daily scrums in all your teams for clarity, development, short-term execution orientation and focus. Sales huddles have been a staple in our industry (and others) for decades. Remember the Ritz Carlton’s daily 5 minute huddle to discuss one of their 20+ value statements daily? The current word for the same process is “scrum”, where the entire team discusses the day’s goals, desired outcome and the path to get there. Think Rugby, where everyone mobilizes together to get the ball. Or, alternatively, think about tanks, where a team of four people must act as one to survive.
8. Socialize the concept of turning things on and off across all distribution channels. Banks have the hardest time stopping anything. They are quick to take on more product, customer segments and marketing campaigns, but slow to shed what isn’t working or products, ideas and processes whose time is now gone after being relevant and appropriate for years. We must get better at stopping things more quickly. My perception is that we are spending too much time and effort on the planning stage of a new product, process, app – whatever – in order to vet the ideas and ensure success. Then, when despite all our good efforts the ideas flops, we are slow to pull it off the shelves. I’m all for reasonable scrutiny before we launch a new product or process, but think we need to be faster to market and faster to withdraw. That acceptance will help transform the branches faster as well as facilitate building the bridge between the branch and the digital world.
9. Use technology to “mask” or “skin” your core to facilitate faster, better change in the customer experience. Use screen scraping and screen skinning to create the look and image you want without transforming your entire back office or core systems. Sounds like a Band-Aid? Perhaps, but it’s faster and cheaper than the alternative. Today’s technology does allow you to make arcane processes transparent to the customer by putting in front of those processes an easy, customer-friendly app that masks the ugliness behind the scenes. Remember when CheckFree started marketing its bill pay service as a fully electronic process? In reality they had people writing checks – but the customers didn’t know it. Our account opening process is a perfect candidate for this approach.
10. Scale is not needed to be successful. I constantly hear from our forum attendees that they can’t compete with the big banks because they can’t outspend them. I agree with the last half of the sentence. We can’t spend $9B on innovation like Chase does. At the same time, there are thousands of companies looking for bank partners to make them viable while offering expertise and solutions we are looking for at reasonable prices. Let’s not use Vendor Management as the reason to avoid utilizing resources available in the marketplace to achieve important competitive advantages. The resources are available. We should capitalize upon them.
11. Start with process mapping. Codifying a broken process won’t fix it. There is no reason why every one of us shouldn’t take a critical look at our key processes and streamline even before we engage the technology. Our Millennial employees are especially helpful in taking a fresh look at what we do and asking why. Give them the opportunity to innovate how we do things.
12. Increase the weight of efficiencies and simplification in your decision making matrix. As a director of banks I am keenly aware of the importance of risk management across the board – building an appropriate risk appetite statement, looking for risk mitigation etc. I’m not advocating the abandonment of these excellent disciplines. Rather, one should evaluate also the risk of doing nothing, of putting important technological development off (e.g. ApplePay, Zelle), and of resisting change. These could be at terminal as a bad credit underwriting process.
13. Find partners that give you flexibility by offering the full range of partnering options. For example, LendKey offers a modular digital origination system where you can select one or all of the following: underwriting, balance sheet holding (or not), branding (or not), pricing decisions, collections etc. This is the credit card model which has been widely adopted throughout our industry. It’s time to employ the same model – a modular approach to service consumption – in other areas of the bank.
No one can opt out of the digital world. How we get there, though, is key. We can’t abandon our non-digital customers, nor can we ignore the growing number of digitally-oriented customers and prospects. Planning this transition of distribution to include digital seamlessly is a top strategic priority for all of us.