How the banking crisis is affecting banks' digital plans

At American Banker's Payments Forum 2023, Whitney Stewart Russell of Fiserv and Editor-in-Chief Chana Schoenberger sat down to discuss banks' digital transformations and the pressures on the industry right now. 

Transcript:

Chana Schoenberger:

Hello everyone.

So while you're enjoying your brownies over here on the innovation stage, we're going to be taping a live leaders interview for the Arizent Leaders Forum. So I'm Chana Schoenberger, the editor-in-chief of American Banker. I think I met most of you this morning from the stage. And I have with me here Whitney Stewart Russell from Fiserv. Welcome.

Whitney Stewart Russell:

Thank you. Glad to be here.

Chana Schoenberger:

So this is very exciting. This is actually the first time we've tried this in the middle of a snack break. But thanks for joining me here at Payments Forum. Just start off by telling me a little about who are you, how did you come here? How did you become a payments leader?

Whitney Stewart Russell:

Yeah, I head up digital banking at Fiserv, but I've been kind of a payments geek my whole life. Had lots of different jobs in banking, working for brands like Discover and technology companies, and I think I started in the original payment company, actually checks. I started at Deluxe Check printer and I just fell in love with the idea of electronification of payments and there's just so much you can do in this space and I found just a wonderful opportunity and career to do lots of different things in and around the space. And I think it's never been a more exciting time to be in payments. And this conference has been a good example of all the different facets of change that we're dealing with and opportunity that exists to make it better for consumers and businesses.

Chana Schoenberger:

You can actually still pay by check. That's still a thing.

Whitney Stewart Russell:

You can, believe it or not, all of our predictions were totally wrong, but I feel like we're on the verge and I think Covid helped us get there in terms of being on the verge of being able to be digitally independent. Well, the fax machine still exists too.

Chana Schoenberger:

The interesting thing is now if you ask a child to do someone our age, if you ask them to do a phone, they'll do this.

Right. And if you ask a child to do a phone, make a phone call. They do this because it's FaceTime. Yep, absolutely. So the digital world is here. It's here for us. Okay, so let's talk a little bit about the craziness of the last couple of years in FinTech. And of course we've had an interesting little banking crisis going on here in 2023, but this was sort of the capstone of the pandemic. So for the last three years, everything changed in America and worldwide. And one of the things that has been really different is consumer trust and consumer convenience. People want what they want and they want it now. During the pandemic, they wanted to do that without interacting with another human. So what does this mean for a payment system? What happened?

Whitney Stewart Russell:

Yeah, I think we saw during the pandemic a flight to convenience, and really out of necessity. So we actually saw huge chunks of consumers that would respond to our research or others to say, I don't care if it's a bank or if it's Google or Apple or whoever.

I want the convenience to manage my financial life, whether it was payments oriented or planning or savings or what have you. But we've actually seen that's, so that was in late 2020, early '21 and we've actually seen that swing back in late '22 into '23 where this idea of trust around a financial institution is really driving choice, especially in the digital world, which I think is just a really interesting challenge for all of us is that if we're in the financial industry, whether you're a bank or a credit union or a financial service provider to, to be able to leverage that trust at the same time, bringing the right convenience to the consumer to keep them engaged and to really provide that convenience that they might have gone elsewhere to seek during the pandemic is critical. But we're seeing it in spades. And as it's become the primary channel for consumers and small businesses in terms of wanting to transact digitally and wanting to really build relationships digitally, I think it creates a huge opportunity for us to think differently about how we interact and the tools we provide consumers around not only payments, but data and advice and guidance to really make the channel prominent.

Chana Schoenberger:

It's more personalization.

Whitney Stewart Russell:

Personalization, and I think we've had lots of failure of personalization in the digital channel, but I think the opportunity now is really to think about not only personalization, but how do you find, provide contextual guidance and advice and really develop relationships digitally. And that it sounds kind of crazy to think about, I'm going to develop a relationship around a payment, but I think you have to establish that trust and to establish breadth of relationship. I think on your comment earlier, it's such a dynamic industry right now with things that are happening with failures and flight to quality, if you will, that there's a real opportunity for those that are innovative in how they provide guidance around payments, managing your finances all digitally we'll have a real anchor to build upon because it doesn't mean that it's going to be a people list exchange that we have with consumers are small businesses, but it means that you need a strong anchor of trust, functionality, convenience to build on.

Chana Schoenberger:

It's interesting because the tension here is that of course most Americans are not terribly financially literate. They're basically innumerate. They're often living paycheck to paycheck. And the rise of frictionless payments has been amazing for the consumer, but it's also a little terrifying because there's no real budgeting or no real thought when you click two buttons on your Apple watch and then you've bought whatever it is you see or on your phone, buy things right off of Instagram. And especially for younger consumers, it's a little scary for them because the money just vanishes without a thought. How do financial institutions get involved in slowing it down a little bit?

Whitney Stewart Russell:

It's such a good point. And if you look at how many times consumers or even small businesses engage digitally with their financial institution, it's astronomical. It's 10 to 20 times a day. And I think checking in on your mobile app has become the new form of budgeting, which is also a little scary.

But being able I do that. Yeah, yeah, everyone does, right? But I think being able to provide tools around that and even kind of warnings is an over overstatement, but guidance to say you've spent X on going out to dinner this month, that's 10 times more than you've ever spent. Are you sure you want to do that next transaction? When I was a banker, we did lots of research around overdraft and debit card usage, and I had one consumer in a focus group say, I wish there was an audible debit card that could warn me when I was about to swipe and I was too close to my budget.

Chana Schoenberger:

Danger, Will Robinson.

Whitney Stewart Russell:

Exactly. And I think we've gotten to the point where especially as embedded as contactless payments have become, we can provide guidance at the point of sale at the point of inquiry so that there's a lot of opportunity for us to help guide these consumers that are largely living paycheck to paycheck.

Chana Schoenberger:

Yeah, it's an interesting sort of question to think more about digital transformation. So this is an area where you, you've spent a lot of time, I spoke to a community banker recently and she was saying to me a lot of the coverage in the industry and the conversation that people have is around digital transformation as if people are iterating on it, as if we're in the second or third wave of this. Whereas a lot of community banks haven't even started. They're really doing things not necessarily manually, but using not very new technology. And they have not integrated, they haven't really have cores that necessarily work. They don't have APIs, they can't work very well with fintechs, and those are the majority of the institutions in the country.

Whitney Stewart Russell:

Yeah, you're absolutely right. And many of those smaller institutions rely on companies like Fiserv to try to help them provide the technology toolkit to be able to think about digital transformation.

And I think oftentimes, and this is probably episodic of what you have this discussion around is that a lot of times financial institutions will think, oh, digital transformation, that means my digital channel. That means digital banking. But I think to get it right, you really have to think about all the functions of your organization and digitizing them, I think especially around payments. So to have a wonderful real-time payment experience in your digital channel, but for your risk and fraud and operations team to not be able to respond in a timely manner breaks that. Right? So we have to think about the whole organization, the whole experience, and we have to build bridges not only for our staffs, but also for consumers. I think Covid was very interesting because going into Covid, we had about 45% of our banks and credit unions that used Fiserv technology that did not have the capability to open accounts digitally.

Chana Schoenberger:

Wow.

Whitney Stewart Russell:

45%. So imagine the rush to try to establish that and even establishing it, you couldn't think about that in isolation. You really had to think about if I have an account originated digitally, how do I support it digitally? How do I make sure my underwriters understand that it was acquired digitally? My fraud teams understand that? My fulfillment teams understand that? So it's just been a transformation. I'd say in 2020, 45% of our customers were not able to originate digitally. That number has dramatically changed and that experience has gotten so good. You not only can open an account online, you can get your card provisioned to your wallet on your phone at the same time. So I think we're catching up, but it is just the tip of the iceberg of what we could do from a soup to nuts kind of digital transformation journey.

Chana Schoenberger:

So how about financial planning and as you were saying, guidance more generally? So you, we've heard a lot of, especially the bigger banks in the last earnings season, which was over the last month, talk about wealth management as a gateway towards a richer customer experience because wealth management's very sticky. And I have, this is soft spot in my heart for wealth management because I used to run our Financial Planning magazine before starting at American banker last year. So I love to hear about this stuff, but how can financial institutions use financial planning and especially digital tools for that as a way to get deeper into customers lives?

Whitney Stewart Russell:

I think you have to find the right place. There should be micro moments, micro experiences where you can draw the consumer in with value to be able to plan in this channel. And I think there are lots of fintechs out there doing really interesting things with data and payments and planning tools.

And I think it's no longer like your digital banking experience should have a PFM and you should encourage people to use it. I think nobody's going to do that. It has to be this micro moments of advice and guidance and tools to be able to advance that experience. And we're just super excited with some of our partners. We have a partner called Savvy Money that really does some interesting things around managing and planning your credit score for major life purchases. How do you improve your budgeting towards a major purchase? So I think there are many companies like them and others that are just doing really interesting things in kind of niche areas that I think will allow for the idea of planning and wealth management. Not to just be for the 2%, but to be a broader application. And I think this kind of democratization of planning in the digital channel can be done at a way that it's low cost, but also allows a financial institution to differentiate when you can really help someone.

I think when you can really help someone, it goes back to that building trust and being able to advance the relationship.

Chana Schoenberger:

Well, that that's not even new. I mean, that's sort of the original idea of community banking, which is the banker on Main Street, and you would walk into the office and the guy would put his arm around your shoulder and you would work together on how to get a small loan to open a restaurant or talk about how you wanted to save for your first house. This is 1950s stuff.

Whitney Stewart Russell:

It really is. I think it's just moving it to this channel and doing it in a way that you instill that trust. And I think you're right, especially in the small business space, what an opportunity to free small business owners and leaders up to really focus on what they love, which is creating a product or service for an end user and not having to be bogged down with money management.

I think that's a huge opportunity for all of us. And no one's getting it right yet. No.

Chana Schoenberger:

Well, I mean, you know that because what is the stats? Something like some huge percentage of Americans don't have an emergency fund or couldn't meet a $400 expense if there were emergencies. So clearly we're not helping them financially plan.

Whitney Stewart Russell:

It's a huge opportunity. And I think when you help someone along their financial journey and help them in a point where it's really tough, we see that loyalty product and deposit aggregation just goes off the charts. We do digital engagement studies with several handfuls of clients every year, and we see that those take advice that regularly transact and are engaged digitally are so much more valuable to financial institutions. They're more profitable, they drive more deposits, they take more products, and you are able to turn that around and use it to really invest in that relationship.

Chana Schoenberger:

That's fascinating. So this idea that people should be able to shop for financial services, so this is sort of the tension between traditional banking and credit unions and FinTech. So I guess the simplest economics way to think about it is banks were not offering what consumers wanted either because they couldn't, didn't want to, or regulatorily were not allowed to. And so a lot of fintechs came in and they said, Hey, here's a one particular thing I'm going to do for you. This is a niche I'm going to fill because your bank isn't doing it. And then now there are a lot of them, and they're increasingly competing with banks and customers don't necessarily understand the difference between a bank and a FinTech because to many of them it's just an app. So an app is an app. What does this app do for me? What does this mean for banks?What can they do to sort of close this gap?

Whitney Stewart Russell:

I think there's an opportunity for banks to actually incorporate some of those really great experiences into theirs. So we at Fiserv have actively gone out and built a network of fintechs that are doing things we think are cool and that you should consider partnering with. So I don't necessarily know that it needs to be competitive. I think a great example is things like teen cards or children's cards, whether --

Chana Schoenberger:

I have one of those for my teens.

Whitney Stewart Russell:

Oh boy do I as well. A lot of money goes to it. But we have a partnership with a company called Goal Setter that we integrate into our digital assets so that rather than having to go find a FinTech, we bring that FinTech to the user through their financial institution to be able to fill those gaps. I think that we have such wonderful creative people working in working on payments innovation across the world that for a financial institution to think they have to build it all is wrong. I think that we really have an opportunity to connect the dots and connect the players and take the best of these experiences across the world and really drive something truly different so that the consumer, or even more importantly, the small business, doesn't have to hunt for their own ecosystem of solutions, which is really hard to manage.

Chana Schoenberger:

What's the coolest thing you've seen recently that was not at your own company?

Whitney Stewart Russell:

What a good question. We're spending a lot of time around small businesses and trying to aggregate services for small businesses, and we came across an inventor, not a company, but an inventor that's finding a way to aggregate across PayPal, Venmo, Square, Clover in our case, and aggregate those things into a common dashboard and allow for money movement to happen, which I think is a game changer for small businesses.

Chana Schoenberger:

Wow. So you could get paid through Zelle, but it could go out the other side through PayPal.

Whitney Stewart Russell:

Or it could all that could aggregate into your dashboard at your financial institution. You could manage cash flow. Whereas today, those small businesses are going company by company trying to aggregate it, managing complex spreadsheets to manage cash flow. I think that could be a huge game changer because I don't think it'll change. We all as consumers will find different ways to pay, and I think we want that as an industry, but I think from a small business that has limited resources, being able to aggregate that in a way that allows them to get on with their job, figure out what money they have to spend on materials could be a real revolution for them.

Super interesting. Well, thank you so much. Really appreciate you having us here, and I now return you to your regularly scheduled brownies. Thanks so much.