Technology has both enhanced and hindered the financial industry. While many institutions have used tech to modernize consumer experiences and streamline office processes, many institutions have fallen victim to “shiny object syndrome” and adopted solutions that have complicated their operations or simply don’t work as they should.
This year’s Bankers as Buyers report explores technologies that bridge information silos, help gain customers and keep our data safe. If you haven’t read part one of our Bankers as Buyers series, make sure to check it out before reading ahead.
The Elusive 360 Customer View: Data Management and Analytics
Data management offers both opportunities and challenges for financial institutions. Many banks do not have a centralized data system, and many existing technologies lack communication. This pairing makes it difficult for banks to obtain a holistic customer view.
In 2023, banks will invest more in data-related technologies to understand their customers better with better insights. This technology is crucial to better serve small business customers by providing valuable insight into their strengths and weaknesses.
Investing in versatile cloud-based systems can give banks the flexibility to integrate with various technologies and better understand their customers. While replacing the core system is incredibly costly and slow, breaking down the silos to incorporate data and technologies successfully is essential.
Segmentation: Fighting Fragmentation and Endorsing Specialization
It’s critical for banks to not only focus on the most profitable customers but also seek opportunities to serve underserved and underbanked communities. Studies have shown significant disparities in consumer spending based on factors like race, ethnicity, income, and financial health tier, emphasizing the need for fair and inclusive financial practices. Institutions must prioritize financial health and collaborate for better economic outcomes that cultivate a better financial future for everyone.
Banks will put more emphasis on segmentation and specialization in the future by investing in CRM, marketing platforms and data analytics tools to better identify audiences, tailor their offers and determine potential new channels for customer acquisition. While marketing segmentation has become more precise, the cost of implementing highly refined distribution strategies tends to be higher and more feasible for larger banks. Community banks are advised to stick to “off-the-shelf solutions” that can be tested and expanded upon cost-effectively.
Open APIs are helping community banks combat financial fragmentation and offer a wide range of products and services comparable to larger institutions or nonbank competitors. Other banks are choosing to become sponsor banks, partnering with fintechs to expand their reach and offerings.
An Enhanced Spotlight on Cybersecurity
Cybersecurity threats and techniques are becoming more sophisticated, and recent attacks have sparked a widespread focus on strengthening cybersecurity measures. Notably, the three most significant cyberattacks of 2022 all involved ransomware demands, highlighting the severity of this threat. The fourth largest cyberattack involving Uber resulted in threat actors accessing the company’s virtual private network, including G Suite, Slack, Windows and more. This attack revealed that vulnerabilities exist in something as widely used as two-factor authentication.
Banks face the challenge of securing customer accounts while ensuring a user-friendly authentication process. One concern is the repetition of authentication requests across different bank departments, even after a customer has been verified once. Step-up authorization, commonly used for unknown device logins, is a particular area where friction arises.
According to BAI, most financial institutions use multi-factor authentication as their primary protection against unauthorized account access. However, Mark Riddle of BAI stressed the importance of allocating resources to employee training and customer education when saying, “An educated customer is your best defense against fraud.”
Improvements in Customer Experiences
Another notable technology investment will be in solutions that enhance the consumer experience. Contrary to popular belief, this focus is driven by the recognition that digital experiences in the banking industry are still in their early stages.
Like all technology, expectations surrounding digital banking experiences vary on a generational level, with younger generations prioritizing omnichannel experiences more. Mark Riddle from BAI highlights the challenges banks and credit unions face in making customer experiences more seamless, particularly in online account opening, which has high abandonment rates. Banks plan to invest in analytics and data systems to address these issues and gain better insight into opportunities for improvement.
Additionally, banks want to provide connected experiences by partnering with various parties to give the customers “one-stop solutions” and simplify complex processes, such as mortgage applications. Financial institutions are exploring using customer experience (CX) technology to deliver personalized messaging and marketing. Banks leveraging this technology have achieved positive results quickly without adding additional staff.
Advancements in technology and customer expectations are driving significant change within the banking sector. Financial institutions with a comprehensive approach to data management, customer segmentation and inclusivity, cybersecurity and customer experiences are better positioned to navigate the challenges of today’s landscape while creating a more prosperous future.
Stay tuned for the final installment of this series, where we will delve into further progressions in automation technology, cooperatives and branch enhancements. Access your copy of the full Bankers as Buyers report here.