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The December launch of an open payments network built by community banks points to an industry investing in technology to keep local lenders competitive, industry observers say.
And some of these investments coming in the next year could include enhancements to digital onboarding, internal processes and artificial intelligence, with some of these enhancements coming out of bank collaborations.
“In the user experience – the front and center capability – community and regional banks are moving on par if not faster than the rest of the broad financial services industry to introduce these really innovative techniques,” said Sarah Biller, co-founder of FinTech Sandbox and a member of the Massachusetts Fintech Working Group. “That’s a tremendous attribute to the banking industry that it is keeping pace with the expectations of its customers.”
For and By Community Banks
Collaborations to build technology have long been common with big banks – working together on solutions such as The Clearing House and Early Warning Services – and credit unions that share technology through credit union service organizations.
Community banks have started to collaborate as well, with a group of five banks, including Arlington-based Leader Bank, partnering with Burlington-based fintech ZSuite to develop an escrow banking product in May of last year.
A new open payments network called Chuck came out of Alloy Labs Alliance, a consortium of more than 50 U.S. community and regional banks, in December. About 10 of those community banks, including Reading Cooperative Bank and Southbridge-based Savers Bank, partnered with Payrailz, a Connecticut technology company, to create a payment system to compete with products like Zelle.
“This is a network for community banks, by community banks,” Reading Cooperative President and CEO Julieann Thurlow said in a statement from Alloy Labs Alliance announcing the launch of Chuck. “The first product we are launching is an innovative approach to peer-to-peer (P2P) payments. We have an extensive roadmap of applications that will provide community banks with the fast, flexible infrastructure they need to remain competitive over the long term.”
Biller expects that community banks in the coming year will also see back office and core technology enhancements. These will include another collaboration called JAM FINTOP Banktech, a $150 million investment fund that partners with more than 60 community and regional banks to help accelerate the adoption of technology.
“A lot of that innovation is happening in the plumbing of the banking sector,” Biller said.
The Massachusetts Fintech Working Group launched its own initiative this year, the Mass. Fintech Hub, a public-private partnership that provides resources to the state’s financial technology startups. Membership has doubled in the six months since the initiative launched, Biller said. The group looks to provide resources to members, while creating a diverse talent pipeline by encouraging college students to learn about different career opportunities in fintech.
“As an innovator, you spend a lot of time knocking on a lot of doors,” Biller said. “For Mass. FinTech Hub to accelerate those conversations, to put individuals at the table who can mutually and respectfully solve one another’s problems is a meaningful outgrowth of this initiative.”
New innovations sparked by the Paycheck Protection Program will help lenders humanize their digital onboarding processes and apps.
Humanizing Digital Onboarding
The pandemic and the Paycheck Protection Program led to enhancements in the technology customers use to apply for accounts and loans online, and Biller expects community banks to continue to adopt innovative front-end technology.
Improvements to digital onboarding processes and apps will include a trend toward humanization, said Darryl Knopp, a senior director at predictive analytics company FICO. Beyond just personalizing the experience by acknowledging an applicant’s name or location, humanizing the process engages the user in a way that makes the application more intuitive, Knopp said.
While a service’s onboarding process does not need to provide complete transparency, he said, steps such as explaining why the applicant needs to provide a piece of information or identification could help reduce friction and the likelihood that a user will abandon the process. It could also give the customer more choices.
“Humanization is really creating this connection with people and engaging them, showing them that you care,” Knopp said. “A lot of what we’re seeing for trends in 2022 are investments to achieve some of this right, as well as still making sure that we’re using the right level of automation that people can get in and out of channels that they might want to get into – not everyone wants to go through a digital onboarding experience necessarily.”
With digital, rather than the branch, now at the center of banking, reducing digital friction has become key for improving the customer experience, Knopp said. He added that FICO research has shown a correlation between a positive customer experience and increased revenue.
Sometimes intuitive steps could lead to a longer process, Knopp said, but a conversational and compelling experience balances out the additional time.
Community banks and credit unions already have an advantage over other financial institutions in centering the customer and the customer’s experience, he added, and using this approach with digital banking apps and processes will bring value to the customer.
Data and Artificial Intelligence
Another trend Knopp is watching for in 2022 is “responsible artificial intelligence.” With banks and other industries increasing their investments in AI and finding benefits for the data, Knopp said, institutions will be better able to explain the data and understand biases related to AI. He also pointed to growing opportunities in the coming years to combine human and artificial intelligence to add context to data.
Diane McLaughlin
Whitinsville-based Unibank is looking at gathering and analyzing more data to better understand its customers in 2022. The bank had transitioned to a new core just days before the pandemic started in March 2020, said Unibank CEO Michael Welch, and has since adopted several technology enhancements.
“That’s important to be able to help us identify where folks may need us in their lives,” Welch said. “It’s part of the reality of life today – a continuing enhancement of data.”
Welch added, though, that technology is just a tool for community banks. He pointed to the role community banks have had in helping customers throughout the pandemic.
“We’re choosing to be technologically sophisticated, while not abandoning the personal dimension of life,” Welch said.
