For financial institutions, doing what has always been done is no longer enough. The landscape of the financial industry is shifting. Yet, too many institutions fail to recognize that staying the course is burdening them with inefficiencies that hold them back. To find ways to thrive, rather than merely survive, community and regional financial institutions must correct these inefficiencies and balance superior customer experiences with long-term profitability.
The impetus for changing processes immediately is the number of closures, mergers and acquisitions among financial institutions. For the last 30 years, the number of commercial banks in the U.S. has been shrinking. There are less than half the number of banks and savings institutions there were in 1990 – a drop from 12,343 institutions in 1990 to 4,880 today, according to . Data from the paints a similar picture for credit unions, which have shrunk from 5,036 federal charters in 2007 to 3,477 today. By comparison, the total assets held by banks quadrupled in size between 1990 and 2018, from to .
One way to navigate the pressure to boost sales revenues and reduce costs is to focus on operational efficiencies, suggests a report from . But where should financial institutions start? And once they identify a starting point, how can they streamline their approach?
The answers to these questions must begin with a clear understanding of today’s consumer. If increased efficiencies do not support true front-end customer experiences, then making progress will be counterproductive.
Delivering Customer-Centric Experiences
Consumers have grown accustomed to seamless, on-demand experiences across nearly all facets of their lives. From shopping sites that save credit card information to streaming services that make recommendations based on viewing habits, technology makes much of life today more convenient.
User-centric experiences are, in fact, so pervasive that consumers, unsurprisingly, expect their banks and credit unions to provide the same seamless level of engagement. Consumers are less interested in traditional product-focused communication than they are in engagement that focuses on their needs. In its 2018 Banking Industry Outlook, underscored the point by writing, “Long-term sustainable growth in the banking industry seems only possible with a radical departure from a sales- and product-obsessed mindset to one of genuine customer centricity.”
Many financial institutions seem to recognize the importance of creating customer-focused experiences, but few are prepared to make the change. When surveyed banking executives, the vast majority (92%) said a customer-centric model is very or somewhat important. Yet in the same survey, only about one in six executives (17%) feel prepared to develop such a model.
For larger financial institutions, meeting these high consumer expectations is easier. They are able to deploy significant resources to optimize their digital capabilities and streamline operational costs. But for regional and community institutions, finding a way to compete without raising costs is more complicated. At the same time, change is possible.
By examining traditional approaches through the new lens of today’s consumer expectations, financial institutions can begin to identify the largest inefficiencies that impact the customer experience. Each financial institution will be different, but there are three problem areas that could prove to be effective starting points.
Inefficiency #1: Online Applications
Online applications are often time-consuming and ask for information that a financial institution already has about the current or prospective customer. In our convenience-driven world, requiring credit-worthy individuals to fill out these applications complicates the process unnecessarily and increases the time it takes for a customer to access the rates and terms for which they already qualify. A perception of inconvenience could lead customers to abandon their application, or to rate shop and apply elsewhere based on a potentially lower teaser rate, forcing the financial institution to invest more resources to convert or retain the customer.
Inefficiency #2: Single-Product, Single-Channel Pre-Approval Campaigns
Lending institutions that use conventional single-product, single-channel, one-touch direct mail and/or email campaigns to market their pre-approved loan campaigns face a series of budget constraints. Each standard campaign requires costly credit pulls to establish credit-qualified target audiences. The financial institution must then pay to create and distribute promotional materials that generally include teaser discount rates, which further cuts into the campaign’s revenues.
Inefficiency #3: Seasonal and Propensity-Based Targeting
Conventional pre-approved loan campaigns depend upon two factors: 1) a customer’s estimated propensity to accept a loan and 2) the seasonality of the product being promoted. For example, offering auto loans in the spring. Budget constraints require institutions to limit their audience and the number of campaigns they can run, so more often than not, only a small number of credit-worthy consumers are targeted. Instead of taking this traditional approach, financial institutions need to find new ways to work smarter and maximize marketing ROI.
Finding a technology that integrates with existing systems and provides a way to deliver real-time offers is an essential step to increasing operational efficiencies. Instead of communicating to the masses hoping a few households have a need is not nearly as effective as using timed campaigns based on identified needs.
Institutions need streamlined processing technologies that facilitate increased lending volumes, greater back-office efficiencies, and a stronger ROI. Without powerful platforms to shepherd the process, it will be difficult for regional and community banks and credit unions to compete with larger peers, while still offering customers the personalized service they expect. But with the right technology, there are key back-end efficiencies financial institutions of all sizes and geographic reach can achieve.
Efficiency #1: Automation
Technology, especially when equipped with automation features, can enable financial institutions to use their time and resources more efficiently, serving more consumers and growing their business. One example: sales and marketing platforms that integrate seamlessly with an existing loan origination system. In our experience at , this type of integration reduces the work of migrating data from one system to the next and allows the financial institution to nurture prospective leads more effectively because it can access all data about an individual prospect from one platform.
Efficiency #2: Activation Instead of Application
A second opportunity for efficiency is to leverage technology to show current and prospective customers the full array of lending products for which they qualify. Instead of asking customers to complete lengthy applications, financial institutions can use credit scores and other customer information on file to present customized, perpetual, pre-approved loan offers.
Once the consumer has seen the offers, they can simply activate the product they want, instead of applying and waiting to hear about approval. Approaches based on activation instead of application often increase loan volume without any need to significantly increase the resources dedicated to the campaign.
Efficiency #3: Faster Loan Processing
By achieving automation and switching to loan activation, financial institutions can significantly reduce the days-to-fund without adding more resources. In addition, team members gain the bandwidth to process more loans and get trained in new skills. To further add value to the institution, loan officers are more readily available to help customers with applications that need detailed evaluation, including those not automatically approved by the system.
Financial institutions are facing challenges that are growing in complexity. But with new approaches that focus on providing outstanding customer experiences, and technology that streamlines back-end processes, institutions of any size can successfully navigate this new seamless, on-demand reality and attract and retain customers in greater numbers.