There's no denying we are in a mobile-first era. Smartphones are rapidly becoming the primary gateway for consumers to monitor and manage their finances. But financial services strategists risk making a big mistake if they interpret that trend to mean making "mobile-mostly" technology investments.
The reality is that the online channel remains the most vital touchpoint in a financial institution's relationship with its customers. The online channel is No. 1 in adoption, No. 1 in active engagement, and it will play a leading role in delivering the personalized digital relationship that is essential for long-term profitability. Even mobile-first Gen Y customers log in to online banking regularly. In fact, 25- to 34-year-old consumers regularly use 3.4 channels when banking, more than any other age group, according to Javelin Strategy & Research data.
And yet, the mature online channel sorely needs an overhaul. Already, many financial institutions — notably JPMorgan Chase and Wells Fargo in 2016 — are applying mobile design elements to freshen and streamline the online experience.
Such efforts are essential, but the steps financial institutions have taken to date are cosmetic. They fall short of what it will take to remodel the online channel to enable its role guiding customers on their financial journeys, while at the same time positioning financial institutions as trusted advisers.
One ambitious way to achieve that goal is to rebuild the online channel on a foundation of time-tested personal finance principles and then guide customers with every login to make wiser decisions about how they spend, save, borrow and invest. These principles cover essential themes such as "save early, save often, save automatically," "take on 'good debt' and minimize 'bad debt,' " and "take advantage of youth and compounding."
From there, we should reframe online banking to make it about managing money — viewing a full financial picture (in other words, let consumers pull in their other bank accounts), executing transactions and taking long-term steps to achieve financial well-being. This approach is a blueprint for addressing financial needs today while also focusing on financial preparedness and personalized product selection.
One key premise is that financial institutions can often exploit what's already in their tool chests, such as direct deposit, subaccounts, alerts and transactional data.
Imagine the case of how a Gen Y consumer utilizes direct deposit.
Today, most banks and credit unions frame direct deposit as a convenient way to deposit a paycheck. But innovative financial institutions will instead recommend using direct deposit to initiate and automate a lifelong saving habit. They'll note the necessity of an emergency fund, and they'll proactively personalize the advice by calculating a goal based on the individual's income, bills and other transaction data. Those savings will be diverted into a subaccount that can be tracked with notifications every payday.
Once a service like this helps the consumer save enough for an emergency fund, institutions can then recommend that customers continue their successful savings habit to achieve other goals on the journey to financial well-being, such as buying a car, saving for a down payment or investing for retirement.
Javelin's 2016 online banking scorecard of the nation's top 30 retail banks highlights the industry's challenge. On the one hand, Navy Federal Credit Union deserves kudos for ranking as the overall online banking leader. The institution provides a powerful combination of features that not only empower its six million members to handle financial chores confidently but also positions the nation's largest credit union as a lifelong financial adviser. On the other hand, Navy Federal earned only 67% of the available points in the scorecard — underscoring that much work has yet to be done.
This transformation starts with making online investments that take advantage of capabilities that financial institutions commonly have in their tool chest today. Success will hinge, though, on augmenting such capabilities with improvements in aggregation, categorization, data mining, predictive analytics, credit- or financial-fitness scoring and gamification. And once financial institutions tailor the right set of features, they must position them prominently to present them to customers as they tackle financial chores online.
To be sure, no financial institution can spend as much as it would like on digital upgrades. Even in a mobile-first era, however, the online channel demands an investment that not only transforms the customer experience but also positions a financial institution to win when customers shop for additional banking products and services.
Mark Schwanhausser is director of omnichannel financial services at Javelin Strategy & Research.