What is it that defines a bank? It used to be good rates, friendly tellers, lenders who knew everyone’s business. Sure, those things are still important, the way good grooming and manners are important in a boy picking up your daughter for a first date. That is, they’re important to someone in authority, but they may not be what’s firing the pheromones for the person at the center of the transaction.
What defines a bank these days is its geekification. It’s not the finance guys, or the retail banking pros, or the lending hotshots who are mapping out business strategy like this is Game of Thrones. It’s the tech and IT guys, the ones who are trying to figure out how to move the bank to cloud computing while simultaneously building an impenetrable fortress around all that ethereal data.
It’s true that good old-fashioned bank branches remain important to most consumers. And great rates and friendly bankers are certainly attractions. But it’s also clear that the future of banking is going to be won or lost on the battlefield of technology. Jimmy Stewart was a heck of a nice guy, and his Bedford Falls bank would have my business if it wasn’t imaginary – but only if it allowed for real-time online account look-up and bill pay. I’m sentimental, but only to a degree. Generational Shift
The problem for most bank leaders is trying to figure out what their customers want. Is it branch banking? ATMs at every corner? Mobile banking apps? Online banking tools? High CD rates? Low mortgage rates? Yes.
Consumers want all of that. What’s confusing for many bankers is that some of their customers put more value on one type of banking, while others want something else – and all of the consumer cohorts are important to the bank.
Gen Y consumers are particularly troublesome. They’re the demographic most in demand right now: still young enough to be making their brand choices, but old enough to be forming households and accumulating wealth. For a head-swiveling take on them, just sit down with the annual Fiserv Consumer Trends Survey.
This group is highly likely to visit a branch. It’s also highly likely to do a lot of online banking. It wants knowledgeable bankers in the building. It also wants them available for pop-up chats at the keyboard. Gen Y customers are more likely to call a bank with a question, and they’re also more likely to use an ATM, according to the nation’s largest provider of bank technology services.
But more than 50 percent of mobile banking is done by Gen Y consumers (who will account for an estimated 40 percent of financial transactions by 2014). Moreover, about 27 percent of Gen Y consumers reported owning a tablet device- – more than any other generation — and they said they want to be able to do their banking on them.
Clearly, banks need to be at the cutting edge of technology in order to keep customers engaged. But many of the region’s older banks are heavily invested in core-processing systems that they own. Each of these systems represents millions of dollars in physical assets, but most of them are rapidly falling behind in the technology race. Banks don’t want to jettison these assets not only because of the expense, but also because they’re the backbone of their institutions. They’re what keep all the accounts in order. So any change in core processing is a really big and scary deal.
There are a lot of institutions that have gone to centralized providers, such as COCC, Fiserv, Open Solutions and FSI. That’s a great step (no less scary to convert, though). But it’s important that whoever is CEO is listening to the CIO about how the future is changing. Costs At The Core
Or maybe they just need to hear what their forward-thinking peers are doing. Take, for instance, Dave Plantier, president at MassMutual Federal Credit Union in Springfield.
MassMutual FCU still serves a limited field of membership. That means it only serves MassMutual employees (present and past) and their families. The credit union isn’t a big marketer. Its best chance to sign up a member comes at new employee orientation. It has a total of two locations: one in Springfield at MassMutual’s headquarters, the other in a tiny suburb of Enfield, Conn. But from those small spaces, it serves nearly 12,000 members.
MassMutual – the real one – has employees and their families scattered across the country. MassMutual FCU has to find a way to serve those people, with limited physical presence.
“We really need to think of our outreach the way ING Bank does,” Plantier told me recently. “We have to give them great products, and we’ve got to do it in an online environment.”
So MassMutual FCU has been passionate about “right channeling” customers, getting them to buy into bank products delivered via the channel that’s best for them. For most members, that’s online.
“I was just looking at our costs,” Plantier said. “And our online banking costs are now more than our core-processing costs. But I guess that’s what we should expect these days.”
It’s a scary, changing consumer environment, and in the end, most bankers should expect that their costs are going to go up, not down, with the implementation of new technologies. There are options. COCC has a nifty new suite of banking apps that can be licensed, and Fiserv has strong mobile banking options available. But such approaches only mitigate the mounting expense, they don’t eradicate it.
About the only thing that doesn’t look like it’s here for the long-term are legacy, stand-alone core-processing systems. “Castles in the clouds” used to be a euphemism for grand fantasies. But these days, if banks want to keep customers and keep their information safe, it’s what they’re going to need to be building for real.
Vincent Michael Valvo is CEO of Agility Resources Group LLC. He can be reached at vvalvo@agilityresourcesgroup.com.
