The State of digital banking

Banks have accelerated their investments in digital transformation to meet changing consumer expectations for a better customer experience and to keep pace with or stay ahead of challengers and retailers encroaching on the banking sector. But have the investments made a difference, and how much more needs to be done? In this session, we will discuss results from recent research conducted by American Banker among business leaders at banks and credit unions that looks at the state of digital banking maturity today, how progress is enabling growth and the tech and tools that are critical to advancing digital initiatives.  

Transcript:

IVR (00:08):

Please welcome to the stage Janet King, Vice President of Research Arizent, and Nate Skinner, CMO, Onfido.

Janet King (00:27):

Hello everybody. Thank you for joining us. It's hard to see you all, but I can tell there are bodies out there and I know we've got the experts after this, so we're looking forward to a fun 30 minutes. So I'm Janet King, I'm the VP of Research from American Banker and the host of today's event. And this is Nate Skinner, who's the CMO for Onfido.

Nate Skinner (00:50):

Thanks for having me, Janet. It's good to be here.

Janet King (00:52):

Welcome. Thank you for joining. So we're really excited to be here today to talk about some of the new research we just completed at American Banker on the state of digital banking. And this was research that we conducted in April of this year, among 200 management level respondents from a mix of global, national, regional, and community banks as well as credit unions. And our goal was really to better understand where banks across the sector are on the digital banking journey and understand how that progress really matters to all of you as you work to position your institutions for growth. So just a little background, a majority of the banking leaders that participated in the research were VP level and higher titles. All of them are personally involved in leading or executing on those initiatives. And we had banks that spanned all sizes. So they were small, medium and large banks, but we had four in 10 from that mid to large size banks with assets of 20 billion or more, and at least half of those had assets of a hundred billion or more. So I'll give you all of that background just to say that I think the results really are very reflective of the opinions of digital banking stakeholders from banks across the ecosystem. That all being said though, Nate, before we dive in, I was hoping you could just take a few minutes to talk about why on Onfido wanted to partner with us on this research. I think that context would be really helpful for the audience.

Nate Skinner (02:17):

Yeah, I mean, for one, your objective, right? So you're going into the conversation engaging with these bank leaders and their answers to your questions are more likely to be reality. If a vendor like Onfido goes and tries to do research like this directly, there tends to be some suspicion around the intention. So clearly you guys are the experts in having your research team and yourself involved is just a benefit for us. The second point I'd say is just we want to understand deeply where our customers are and what's driving their kind of strategy, how they're thinking about the challenges they face. And so producing this kind of research gives us a lot of insights into how we can better serve the customers that we serve in America.

Janet King (03:01):

Absolutely. And it's true, we do have the relationship with all of our readers, which is great. It makes them often eager and willing to talk to us about these topics. So let's dive in and let's start by looking at the progress that's being made in digital banking. So if you look at institutions across the sector, we kind of see a tale of two banks here where you've got global, national and regional banks who are leading the charge when it comes to execution and credit unions. And maybe to a lesser extent, community banks are most often characterizing their progress as nascent or developing. So how do we define that? What does that mean? Banks who are nascent or developing in their digital banking efforts are those who are really just starting to get out of the gates. They mostly all have mobile apps, but they're really focused on primarily enhancing physical and online experiences with mobile rather than taking, let's say a mobile first approach that drives measurable impacts. And those would be the banks in the middle, those transforming banks, which make up about 40% of the people that we surveyed. And then the most digitally mature are those who are classified as leading. That's that top 27%. And those are the banks that are really using mobile to create new services or reinvent business models to drive growth. So I think it's really interesting, Nate, that we seem to be in a place where some banks have turned the corner and are extracting real value to the business from their digital initiatives, and others are still approaching the first turn, if you will. So what do you think might be holding some banks back?

Nate Skinner (04:42):

Yeah, I mean, this is not surprising for us when we talk to customers at Onfido. The thing that I think holds banks back it, you have to be where your customers are. So community banks, not quite as far along, for instance, as a global national bank, well, are they trying to attract customers from other parts of the country or other parts of the world? Probably not. So it's not a surprise then why a digital transformation project or initiative might not be a top priority. I think ultimately this also is a reflection of capacity and people in a building, if you're a global national bank and you have an IT organization and a tech team and a chief digital officer taking on these kinds of opportunities to do transformations are pretty straightforward. Versus a community bank or a credit union where you have less resources and less opportunities to take advantage of some of these things. I think one of the things that's going to come through later, but this slide really highlights it, is the need to understand what is the objective? Are you trying to have an app to have an app? Of course not. You're trying to do something. Usually it's engaging customers, acquiring new customers, fraud prevention, something that's driving the need. And I think you're going to talk about that later, that those two together makes a lot of sense.

Janet King (05:59):

Absolutely. And we are going to talk about that. So in fact, what we see is that despite where banks are sitting on that digital maturity curve, what we really see is it's clear that those efforts are being driven by a bit of a relentless focus, I guess, on the customer, on the part of most banks. So what we see here in that little call out box is that two out of three bankers that we surveyed report that customer insights are driving their digital banking strategies. And those strategies are most often focused on key outcomes like new customer acquisition, improved customer loyalty, keeping pace with competitors, and reducing friction. And I think some of those second tier if you want drivers are not too surprising. Keeping pace with competitors. We know that a lot of the newcomers to the market are often prioritizing those digital first CX focused kinds of initiatives. So that's kind of forcing traditional players to adapt to survive. And then of course reduced friction is something we talk about a lot. So I think it's important to note that these results were pretty similar across banks of various types and sizes. So I think that tells us that the customer demand for better, more seamless banking services is really a key driver for change no matter where you are in the ecosystem. I think this validates what most banks already know, that understanding customer needs is critical to having a successful strategy, but I think the challenge is identifying what those needs are. So in your role, from where you sit with conversations, what do you think the customer needs are that most banks are centering their strategies around?

Nate Skinner (07:45):

I mean, it always comes back to customer experience. And I mean, that's a kind of amorphous thing. We say those words and then we don't really know what we're talking about. There's a really good, most folks are probably familiar with this guy opened 17 accounts, different bank accounts in the UK. This is a number of years ago. And he tweeted about it. Does anybody know what I'm talking about? No. Okay. Well, he tweeted out that I opened 17 banks at the largest banks in Europe and counted the clicks that it took to open the accounts at each one, at each one. And then he ranked them, and you can search on Twitter ranking the clicks to open an account and you'll find this will be the first thing you see. Anyhow, there was some pretty lengthy experiences where you click, 26, 27, 29 clicks to get an account. And why does that matter? And how it's related to this is that is a painfully slow and very difficult experience for a end user if you're going through 27, 28 screens to get an account open CD, checking an account, whatever. And companies that are challenging the space, the revolts of the world, the kind of pushing the edges of the envelope are doing this in six clicks or less. And so this just validates that. I mean, you add up the new customer acquisition and improving customer loyalty. How do you do that? You reduce the friction, increase the opportunity for customers to engage in a seamless and frictionless way as possible. That is the customer experience. And what I think the post covid world has, there's things that have stuck around, right? Telemedicine, digital banking obviously. And what we learn is that the last experience we had that was really, really great becomes the new baseline for what we expect going forward that is hard to chase. And so when you're looking at ways to kind of take on a strategy, what do you want to do? Focusing on the customer experience, reducing that friction and increasing the opportunity for customers to get in quickly, it's a no-brainer.

Janet King (09:42):

Yeah, and that dovetails really well for anyone who was here for the keynote earlier. There was a lot of discussion around that and looking at experiences outside banking as well to really see how we can elevate that?

Nate Skinner (09:55):

For inspiration.

Janet King (09:56):

For Inspiration, right? So it's really interesting and there's a lot of opportunity for change, and I think all of this really matters because what we see in the research is that where you sit on that digital maturity curve has some important implications for your business. So for example, we noticed that there was a strong correlation in this data between digital maturity and customer orientation. More specifically, what we saw is that the data shows that for most banks, there's a tendency to prioritize and invest in experiences that serve your existing customers. That's the chart on the left. And you can see about anywhere from two thirds to three quarters of banks from those that are leading to those that are developing or are kind of all looking at that. But if you look at that green bar for a minute, what you see is that the more digitally mature institutions are really looking beyond those existing customers. So it's existing customers and I guess if you will, and they're prioritizing other key segments. They're prioritizing high net worth individuals, small business customers, younger generations, younger customers, which is giving them a bigger platform or new opportunities I should say, for creating engagement and acquisition. So with that all being said, where do you see the banks who are a little more sophisticated in their approach of pulling away from the pack?

Nate Skinner (11:20):

I mean, I think you're the blended kind of new customer acquisition plus expanding wallet share. I work a lot with HSBC personally work with them a lot. And we can't have a conversation about their strategy without talking about new customer acquisition and expansion of wallet. How do we get customers who are already here to do more with us and how can you help? So I think, again, your data speaks for itself, but it basically says you can't do one and not the other. You have to think about both. And then I love the audience because there is a generation of people who this is their expectation. Their expectation is that they will never speak to a human being, they don't want to. And so how do you reach those people in a way that reduces the friction for them to become a customer and expand the relationship you have with them over time?

Janet King (12:11):

And we've been doing a lot of research, and you're going to see more of it here this week, but we've been doing a lot of research on the generational targeting in banking and in wealth management. And it's interesting. I mean, it's not a focus for many organizations, right? But it needs to be.

Nate Skinner (12:30):

I'll add one more thing I hear a lot about that kind of is in this data, if you tease it a little bit, is the digital experience in the branch. What we've done online, we want to recreate in a physical location. And a lot of, not just even in banking, to your point earlier, borrowing inspiration from other industries. BT is doing that in London where the retail stores are all digital. So we see it all the time now where we're getting a tip to death on these POS machines. Yeah, that's all changing the way we experience these services.

Janet King (13:07):

Yeah, definitely. So tech, let's talk about tech, right? Because tech alignment is most certainly a key ingredient to fostering digital transformation. And digital transformation in banking in particular is being fueled by technologies. A number of technologies that banks see is really enabling them to better serve their customers. So these are the top 10 that the bankers who participated in the research identified as things that they see critical to providing state-of-the-art, digital banking. And at the top of the list, the things that are really taking up space in their minds this year. Things like digital and real time payments, enhanced security and fraud mitigation, digital identity, and then realtime data access and analytics. So any big surprises for you here?

Nate Skinner (13:55):

I think the one that surprises is not, it's a surprise because of when this study, when you did that, I think you said April, you concluded the study, the AI and ML would probably be higher if you had done this in May. I mean the rampant kind of attention to chat GPT and these large language models is kind of changing the conversation very quickly. Absolutely. So that one's surprising. That's so low. I think it's just a function of when the study was done, and then I'd be remiss if I didn't say, I'm glad that I see so many of these are in the wheelhouse of Von Vito. We help our customers do most of those things.

Janet King (14:31):

Absolutely. And I wonder sometimes too, with the AI and machine learning, I think sometimes that gets bundled up in real time data access and analytics as well. I mean there's so connected, right? And also automation too comes into that play there. So if you were to net that all out, it would probably float a little higher on the list.

Nate Skinner (14:48):

And there's so many good discussions happening at this subject. So clearly that one's a little bit of a surprise.

Janet King (14:54):

I know chat GPT is fun as how many people are using chat GPT and part of their got a few hands. Oh, quite a few hands. So it's interesting,

Nate Skinner (15:02):

The app on the mobile phone is crazy.

Janet King (15:05):

It's going to change a lot of things. I've certainly found it to be useful for writing copy and things like that, generating headlines. But what we also know is regardless of where you are on that journey, whatever technologies you're using, progress always comes with challenges. And so the hurdles to implement and analyze digital improvements are really weighing on financial institutions from small community banks all the way up to the biggest firms and the biggest names on Wall Street. And what we see is that banks are reporting challenges with everything from outdated core systems that make it difficult to improve or customize digital offerings to challenges, maintaining regulatory compliance to finding the right talent and then remediating fraud in cybersecurity threats. And the other piece of that is even once organizations are executing on a key digital goal, whether it's something just like adding a new feature to their mobile app or something more in depth, many lack the metrics they need to accurately measure the incremental value of those digital investments to the bank. So there's some challenges there too. So what are your thoughts on this?

Nate Skinner (16:12):

I mean, this is the, what's it called when you sit on a oh, See saw act. The need to balance fraud posture and fraud protection and reduce risk to the institution, balanced against acquiring customers as quickly as we possibly can at the lowest possible cost. And how do you do those two things at the same time? Right at the top, right, you've got those two challenges show up almost immediately. So that's not a surprise. What I think is ultimately the question you asked about the thoughts on the challenge is as a business, which ones is your most important priority? Even if you have to get to a conversation around what is the risk we are willing to accept, we work with a lot of financial institutions that are very large and Revolu and HSBC, and a number of others. And this is always a subject of the conversation. They can't do one without the other, but ultimately there they have a fraud tolerance that allows them to get more customers as quickly as they can. Just make sure that they're the people who they say they are and that you're not introducing undue risk. But yeah, those are always going to be, that's not a race you win, you just got to keep running it.

Janet King (17:24):

You got to keep balancing it. Any thoughts on the compliance side? The regulatory compliance piece?

Nate Skinner (17:29):

Yeah. It's become, in the last couple of years, so much more of a focus of the conversation for every company, especially those that are global and operating in multiple countries. I mean, in this country, every state has different rules. You can, and not necessarily in, well definitely in banking, but especially in betting draft King and FanDuel, you have regulatory intervention has gone to another level. And that makes sense. I mean, we all moved online in 2020 and we stayed there. And so if all the money is online and all the transactions are happening online, then that's where the bad guys like to go. That's where compliance and regulatory policies have to stand up to defend and protect consumers. And so that's not a surprise at all, and it's really an important balancing act as well.

Janet King (18:20):

Very important. And we did ask that question. We don't show this today, but we did ask that question about the balance between acquisition and mitigating fraud and security. And it was an exactly even focus, right? Yeah. They were like, we need to do both. Can't do. Overwhelmingly, that was the answer. We need to figure out the magic recipe for doing both. So cybersecurity to your point, has become an even more important priority for institutions of all sizes. I think we're seeing more frequent and sophisticated instances of hacking and phishing and identity theft that have prompted organizations to continue to really beef up their efforts across the security landscape. And just to orient you to this chart, what you're looking at here is the percentage of folks who are identifying these technology initiatives as high priority for their digital banking strategy. And you're looking at all banks in blue, and then you're looking at that top 25% who are leading, who are really using their digital banking strategies to drive growth and enable new business models. And right at the top of the list, you see things like secure ID verification, advanced security and fraud alerts, seamless digital account openings, real-time card controls, and then P2P payments or money transfers. So those were among the top five for everybody, but you can see the become even more important for those leading banks who are a little further along on the journey probably. So it's a seesaw like you said, but how can banks practically really balance those efforts to mitigate fraud and cybersecurity against those customer acquisition initiatives?

Nate Skinner (19:54):

Yeah, I mean, it's one thing to meet regulatory compliance guidelines or frameworks, and you should absolutely have to do those things. But then there's your own organization strategy. And again, the comment I made earlier about your fraud tolerance, there are plenty of technologies out there, obviously on FETO is one of them that can help you with these kinds of things where you're balancing, because for instance, you don't have to, if you're a multinational organization trying to serve customers in lots of different countries, every country may have a different regulatory policy. And so you want to create workflows that allow for that country's citizens to join your services. While the other country might be different in the United States, it might be state by state. And so how do you orchestrate that kind of workflow while keeping in mind that if you introduce too much friction, the customers will bounce and your competitor's only a browser tab away. So I think it has to be baked into your strategy. If you're not thinking about how you do both of these things together, then you're missing opportunities. Right? And most banks that your research shows are prioritizing these two things near the top.

Janet King (21:04):

Can you point to any best practices around some of these secure ID verification, some of these advanced security and fraud alerts? What are two or three things you think banks should be thinking about?

Nate Skinner (21:15):

I mean, you can verify someone is actually who they say they are in a lot of different ways through various signals without actually introducing a friction of a doc check or a face biometric check. Although in the UK that's something that most of our customers love. They love the doc scan your passport or your driver's license and to do a quick selfie check. We have a technology called motion that lets you know that you're, not only is it your face, but it's not a picture of your face because these complex fraud things are synthetic fraud and all these other things are really on the rise. But you don't, just because you don't have to do that in America doesn't mean you might not want to. I mean, if it's an easier way, a lower bar of friction to have someone take a selfie and turn their face left and right, then doing some sort of record check or you're not confident that the record checks are going to be accurate, why not try it? Do it in a test and see if it works for you. I think too often the conversations we have with customers, a lot of times it's what they're required to do balance with what they want to do on behalf of their customer. And you have to take both of those into account.

Janet King (22:19):

And it's always hard to figure out what those unmet needs are and how can you delight customers, right? No matter what vertical you're sitting in. That's a really hard challenge.

Nate Skinner (22:26):

Exactly right.

Janet King (22:27):

So I think that the trying it out is a good one. So I think as we think about wrapping up this conversation, then maybe we'll have a few minutes for questions. We know that leaders at financial institutions have really come to see digital transformation as a journey. It doesn't really have a true endpoint, it's never finished. So we're dealing with an ever-changing landscape of tech. And the banking industry itself is evolving, which means that institutions we're are always going to be reacting to something new. You're always going to be forced to react to a new technology or a new need from your customer base or a new competitive threat. But what we're seeing is that despite the fact that technology's so key, a lot of banks are still really slow to adopt new technologies. And you can see here in that kind of pink red bar, about half of the folks that we surveyed are late adopters or laggards when it comes to new digital tools or technologies. So what advice, Nate, would you have for banking leaders who are looking to make tech investments that can advance their digital capabilities? How can they start to move a little faster?

Nate Skinner (23:33):

Yeah, I mean, one of the things that we come back to a lot is do not try to do everything all at once. Pick a strategy, maybe it's fraud. Your fraud posture could use improvement, focus on fraud and take in a particular city or region or country and solve for that issue and then move on to the next one. I think it's too often we have conversations where the strategy, it's all over the place. We need to acquire new customers at a lower possible cost and be compliant and reduce fraud. It's like, okay, good luck with that. You're trying to boil the ocean all at one time. So what we have a lot of successful customers do is pick one, we can help. Your partners can help their own employees understand, especially customer experience. Go open your app and see how useful it is. If you can't do it, how do you think somebody that doesn't know your business is going to do it? And maybe that's where you start. But I think ultimately my last kind of parting comment on this particular slide is pick one thing that you feel like can move the needle, whether it's on your top line or your bottom line or your security or your compliance or your fraud, and tackle it in a way that you can prove the result was meaningful and then give your teams a win.

Janet King (24:43):

Yeah, it's interesting. It's just what the keynote said today about listen, learn, launch. Yes. So that was great, right? It's a pretty bulletproof approach, but again, it speaks to that need to have that really strategic orientation and really understanding what your North Star is, where you're going with your digital initiatives as you move forward. I know that we have something to look forward to in a little while, but we do have a few minutes for questions if anybody has one. Any questions out there tonight? Sure, go right ahead.

Nate Skinner (25:21):

She's got a mic for you.

Janet King (25:22):

She Is bringing a mic.

Audience Member (Eric) (25:28):

So full disclosure, although we don't really have a background, we did meet, but we work for separate companies and we even compete in some ways. So I did want to bring up the topic of friction, which you brought up I think in a few different slides in. To me, that's something that's really important when it comes to the customer's experience, the UX, you look at companies like Amazon and their famous one click patents, and to me, that really kind of took them into another place. Same thing with Apple, and they didn't really get into payments until they kind of nailed down the biometric experience. So things like that. So I was curious to hear if you had anything more to say about how Onfido is improving that customer experience when it comes to a frictionless experience.

Nate Skinner (26:22):

Yeah, great question. Thank you, Eric. Ultimately Onfido is middleware. We're the SDK or the API of your business's software. So HSBC, Revolut, any of these companies, the customers don't even know it's us. We sit inside of their service and what we offer is the ability for those customers to build a workflow, a kind of journey that is completely unique to their own business. So my example earlier, you can orchestrate the customer's experience in the UK differently than Canada, differently than the US if you wanted to. That's one way we help, but ultimately the best way is to test it with customers. One click package thing is good, except how many people, what's that meme about? Drunk buying stuff on Amazon? You're drinking wine, next thing you know, got a refrigerator delivered to your house. There's negatives to that too, right? So the first thing, the last thing I'd say about that is just get it in front of people and have them check it out and test it and try it. And the good news is if you work with a partner like Onfido or other providers, you can orchestrate that experience and try different things and move pieces out, move pieces in, see where you get fall off, see where people struggle and adjust.

Janet King (27:38):

Thank you. That was great. Anyone else? Oh, go right ahead. Oh, bring the mic over to you.

Audience Member 2 (27:50):

I'm very curious about your opinion or views on where digital identity and bio authentication are going in the banking industry. As we think about the aperture of risk around digitization, it probably has to be top of everyone's mind. And I see in the survey it's not yet. So where do you think we're heading?

Nate Skinner (28:08):

Yeah, that's a great question. So again, this is a kind of country by country answer in the US We've noticed that comparatively our customers in the UK and in Europe are further along with biometric and verification that way. There's just more of a understanding that when you walk through an airport or you walk up to a bank, you can look at it and they'll know who you are. Here. There's all kinds of, depending on the state, there's reasons for people that don't want that, right? They don't want, you have to get consent, you have to verify that you don't store their picture somewhere. So I think the answer in short is we have to get to a regulatory level playing field where everyone understands what you can and cannot do around biometrics, and ultimately it should be in the hands of the end user. We just made an acquisition of a company called Airside, which puts the power of your identity in your pocket on your device. Why that matters is because now you control who has it and who doesn't. You can rescind it if you've given it to someone. Anybody check into a hotel, not this one, and they scan your passport or they take a photocopy of it. What happened to that? Where'd it go? Did they like put that in a file cabinet somewhere? Is my ID sitting in some guy's desk drawer? That's scary to think about. We've been doing that to each other for decades now, and what I see happening is biometric unlocks a lot of the, who argue who you say you are. As long as we protect the end user's information and don't let that stuff go. Flying around and putting it on your device is why we bought Airside. Yeah, It's a transform. It's changing. I mean, you're a great question because every day something else comes along that pushes the envelope forward, and I think most of the customers we work with, especially in a mirror, are a little bit kind of watch and see while we navigate this.

Janet King (30:06):

It's exciting though.

Nate Skinner (30:07):

It is. It's fun.

Janet King (30:09):

There's a lot coming our way, which is great. Yeah. So I just want to thank everybody for spending time with us. You can find Nate at their booth, which is number 521.

Nate Skinner (30:19):

Yes.

Janet King (30:20):

Yes. You'll be probably, when you go back to see the experts, you'll have an opportunity to find Nate and I'll be around for the next couple of days. So feel free to find us and ask us questions. Thank you.

Nate Skinner (30:34):

Thank you.