For financial institutions, focusing on digital operations 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.
The Importance of Digital Transformation for Financial Institutions
PaymentsJournal The Importance of Digital Transformation for Financial Institutions
Digital Payment Shifts
In 2020, many financial institutions had digital road maps that were five years out. The pandemic consolidated them into two years. “The pandemic really sped up digital adoption, whether it was how they were digitizing how their employees run the organization, or how their front office staff was dealing with customers digitally,” said Russell. “It also sped up how they were showing up digitally in their channels, whether it was online banking, mobile banking, or even channels used to acquire customers digitally.”
Traditionally, banks saw digital as more of a way to retain existing customers versus as an essential channel to attract new customers. Branch networks and call centers had been thought of as the bank’s primary infrastructure. “Almost overnight, it went from branch networks and call centers to digital being the primary channel for consumers,” said Russell. “That requires working to improve every digital experience consumers have with you and personalizing those interactions. You can actually use digital to build relationships, which is a brave new frontier for many of us in financial services.”
Digital banking has increased among all demographics, becoming the dominant way people bank. According to Russell, this has been something of a surprise. “If you asked me in 2020, I would have told you that we still were struggling with older customers. For that age group, there was always intermittent usage, but not primacy in that usage. We’re now seeing overwhelmingly that all demographics prefer to use digital.”
Part of the draw for some people is that biometric identity verification makes it easier to log in. Murphy noted this in his own experience. “One of the reasons that I personally moved from online to mobile is that it’s easier to sign in because you just use a thumbprint. I don’t have to remember all these passwords,” he said. Fiserv considers biometrics part of the future of payments. “The idea of using biometrics or password list authentication in these channels really ups the game from a security and cyber prevention perspective,” said Russell.
Value of Digital Engagement Study
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 study leveraging a combination of Fiserv payments data and internal financial data from a 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.”