Can Small and Mid-Size Financial Institutions Survive in Today's Digital Economy?

November 15, 2017

Larger financial institutions have the means to develop digital innovation that is attracting consumers. Smaller institutions must innovate.

Image: Shutterstock

Tier 2 banks, mortgage companies and credit unions need to be far more interactive and responsive to their customers in order to survive in the digital economy. Consumer expectations are growing rapidly when it comes to how they interact with their financial institutions. They have seen world-class customer service from companies like Amazon and Google, and they want that digital experience in the financial services sector too. 

Image: Shutterstock

The tremendous technological power that consumers can access at the touch of a button, thanks to their smartphones and the high-speed internet, is changing what was previously deemed impossible and made to seem normal. 

Many global financial institutions are falling behind in meeting online expectations, according to the Innovation in Retail Banking 2017 report, and are ‘wrestling to meet consumers’ digital expectations’. The larger institutions are faring better as they are better able to process the data they collect and analyze it effectively for actionable insights to deliver value to consumers.

In a section of the report entitled Major Trends in Banking, a distinguished panel of experts concluded that “the collection and application of consumer data, use of advanced analytics, ability to personalize the customer journey and improving the customer experience were among the issues at the forefront of their predictions.”

These process elements – and how well they are handled – are where consumers make their choices about which financial institutions meet their needs. 

There was also broad agreement that financial institutions will continue to expand into new areas using new technologies, such as the Internet of Things and open-source APIs, in order to integrate more deeply with the functioning of the digital economy. 

An excellent summary article in the Financial Brand blog pinpoints five key areas for small banks and credit unions to consider:

  1. Personalized Engagement: Can your bank provide ‘contextual, personalized insights and solutions to consumers’? That’s what consumers are looking for in a world where mobile payment solutions are freely available, and global giants like Amazon or Google have shown how a deep knowledge of consumer habits can be harnessed.   
  2. Enhancing the Customer Experience: When it comes to Customer Experience (CX), it all boils down to ease of use and accessibility. This is an area where the larger banks are pulling away from everyone else. 35% of respondents to the survey indicated that CX was their most important area of focus. 
  3. The use of New Media and Digital Marketing tools: Research shows that millennials, in particular, build up an image of a financial institution based on how it uses social media and digital marketing. Customer acquisition going forward requires the adoption of new media techniques. The smaller financial institutions are succeeding here, which is a surprise as their barriers to entry are lower, and they have the opportunity to deliver a more personal experience. 
  4. Onboarding: Simple, digital onboarding processes, as well as upselling services online are hot trends in finance right now. Customers want quick access via their trusted devices and resent making a trip to the branch. “Friction at the time of account opening and in the onboarding process [leads to] sales abandonment, with the potential customer getting frustrated and testing alternative financial institution options.”
  5. Deploying Advanced Technologies: The growing use of automation and artificial intelligence (AI) will change many of the current processes we use, particularly in back-office systems. Once again, the larger banks are making investments in AI, while the smaller players are hamstrung by costs. “The report looked at the state of AI deployment by the size of organization, and found that close to half of the largest financial institutions (those over $50B) have deployed at least one AI solution.”

All of these new contact points are fundamentally changing the relationship between consumers and institutions, and providing users with more flexible financial arrangements that better fit their lifestyle. It’s an exciting moment for digital banking as large institutions are well equipped to manage a transition smoothly, while the smaller players have the technology to develop nimble, unorthodox solutions. 

Many technology startups and disruptors are choosing to focus their attention on niche areas of digital finance, such as blockchain, digital banking, mobile and the sharing economy.  They use data and analytics to drive the development of responsive products for younger consumers who no longer require many of the traditional banking services that the legacy financial institutions were built on.

It’s a time of enormous disruption in every sector of the economy, and “winners will be determined based on the ability to use data and insights to deliver exceptional digital experiences,” predicts the Financial Brand blog.

As a business focused on delivering insight and automation solutions to companies, AI Foundry has done extensive research regarding the fundamental business processes that can be streamlined and automated. For instance, in optimizing mortgage origination and onboarding, AI Foundry discovered that streamlining the mortgage application process is a huge priority for banks, mortgage companies and consumers, and enhancing a company’s capabilities through steps such as the advanced capture of loan files, document management, and an integration framework can lead to huge gains in their digital transformation efforts. 

In a recent solution brief entitled Agile Mortgages: The Complete RPA Enhanced Digital Mortgage Solution, AI Foundry laid out a comprehensive strategy on how to “transform organizations by accelerating internal processes and providing a fantastic customer experience that will foster loyalty and repeat business.”

Download the Solution Brief here

Smaller banks and credit unions which are setup to efficiently capture and classify any forms of documentation, before extracting all the necessary data to automatically populate a variety of internal systems can thrive. Their decision-making processes improve dramatically and, over time, they start to compete with large financial institutions. 

Access to searchable, clean data delivers insights that can drive innovation, and measure if there is progress being made. 

The transformation of the economy is creating multiple opportunities for new companies to compete in the financial sector. Larger organizations have definitely taken a head start, as they have the resources to build new systems alongside their existing services. But smaller banks, mortgage companies and credit unions can partner with digital-first organizations such as AI Foundry to find new and innovative ways of competing, which can lead to more accessible niche financial services that better serve digital consumers both young and old alike.