For financial institutions, focusing on digital transformation has become extremely important. The shift to digitization accelerated during the pandemic when many people weren’t stepping foot into physical bank locations, keeping most of their interactions with banks virtual.
PaymentsJournal recently sat with Whitney Stewart Russell, President of Digital Solutions at Fiserv, and Steve Murphy, Director of Commercial Payments at Mercator Advisory Group to discuss Fiserv’s recent study and the key findings from it, as well as the advantages that financial institutions may have, and why trust is crucial to their success.
Digital Behavior Shifts
Financial Institutions have historically enjoyed a high degree of consumer trust, but during the pandemic more consumers were drawn to the convenience that fintechs provided when it came to digital banking.
“It’s interesting,” said Russell. “One stat that I often share with customers as we’re talking about this change is from a study. Millennials were asked who they would feel most comfortable banking with, and it actually swung to fintechs and big tech because of the convenience those organizations can provide.”
“Maybe I don’t trust them as much, but I’m willing to migrate to them because of the convenience factor,” she said.
Now the pendulum is swinging back, largely because banks are following the lead of fintechs and upping their digital capabilities. “We’ve actually seen that swing back in our most recent research, where the trust factor associated with banks and credit unions is outweighing what was perceived as a competitive advantage from a convenience factor,” said Russell. “And we’ve also seen banks and credit unions make digital investment a top priority. So they’re starting to even the playing field. When you have an even playing field, you’ve got the advantage of trust.”
Financial Institutions are also adding new features to help extend the banking experience, with real-time payments and financial planning tools. By having all those tools in-house, integrated in a smooth digital banking experience, there is no need for customers to go elsewhere.
Financial planning tools offered by financial institutions can help customers “develop good habits around money management and card management,” Russell said. “They can also help them track how much they’re spending, where they’re spending, and what controls they have in place to keep track of their budgets with this challenging economy.” Having a digital banking suite for customers to actively manage their spending can help banks keep their customers.
As real-time payments become more mainstream, financial institutions will need to include them in their digital banking offerings. Having that service can help drive engagement elsewhere. “You have to have real-time payments, regardless if it’s a money-maker,” Murphy said. “If you don’t, you might not have the opportunity to get all that additional revenue through all this engagement. It’s one of those services that consumers are expecting for free, but it’s driving other businesses [as well]. And you might lose customers if you don’t have it.” Overall, the more digital engagement, the more likely customers are to stay, and the more valuable those relationships become.
Value of Digital Engagement
To better understand the correlation between a consumer’s digital and payments usage and the value to the financial institution in terms of net profit, product holding, and relationship primacy, Fiserv conducted a recent study leveraging a combination of Fiserv payments data and internal financial data from a large regional financial institution. Fiserv examined how the level of digital engagement among customers correlated with other behaviors.
“The consumers that we consider highly digitally engaged were 29% more profitable than those that were not, which is a huge number. That same group had 48% higher balances,” said Russell.
Part of the increased profitability is that those customers didn’t go to bank branches often, which minimizes costs for the banks. Digitally engaged customers also differed in regard to the amount of loans they took on. This is important because loans are very lucrative for banks.
According to Russell, “the highly digitally engaged customers were aggregating more deposits with those financial institutions and were 11% more likely to have a loan. Their loan balances were almost 40% higher than those that were not digitally engaged.”
According to Murphy, one of the early drivers for moving to online and mobile was the need for cost reduction including reducing the number of branches. But he notes that there has been a shift from conserving cash to generating new revenue. “If banks can get a bit more nifty in the way they can engage with customers, they’ll see increased profits,” he said.
Russell agreed. “We’ve been talking a lot to banks and credit unions just about this pivot in the industry, and really using the digital channel to grow relationships.”
In summary, to succeed in a digital world, banks need to focus on developing world class digital solutions, which match the features and convenience provided by the fintech competition. The most digitally engaged customers are some of the most valuable. To retain those customers, banks need to focus on making payments as seamless as possible on their apps, and include solutions such as real-time payments and financial planning tools. Fiserv has taken a leadership role in helping banks make these digital transitions.
Part of the transition is strategic. Transacting payments isn’t enough anymore as a business model. Financial Institutions have to provide value-added solutions for customers to retain them. These solutions, combined with the trust that people traditionally have banks, will help financial institutions thrive in the years to come.