Rebecca Engelberg:
So, I’m Rebecca Engelberg, Product Marketing Manager at Flybits. Today we’re going to talk about the new frontier in banking experiences. Now is a pivotal time in financial services. We’re just a couple of months into the new circumstances that have emerged as a result of COVID-19, and while we’re still a few months in, in fact, there’s still a high degree of uncertainty where we’re still unsure how this disease spreads, and how long it’s going to be prevalent. In effect, it’s impact towards businesses and global markets. So, what we can do is take a look at the previous months that have passed, and see what trends have occurred and how could that inform our strategy going forward. So that’s exactly what we’re going to discuss today.

Rebecca Engelberg:
First, we’re going to take a look at the current context. What trends have emerged that can inform our strategy? Then we’re going to take a look at opportunities to innovate, and how different financial institutions are innovating during this time. Then finally, we’ll take a look at how different institutions are re-imagining their digital channels, and particularly how Flybits’ customers and partners are re-imagining their channels as well for customer interaction.

Rebecca Engelberg:
So starting off with looking at the Current Context. Many of you have probably looked at the top reports and analysis in the market that have essentially predicted how this pandemic will unfold. By in large, analysts have bucketed it into three categories. A survival phase, a continuity phase, and then a return to normal.

Rebecca Engelberg:
In the survival phase, this is really about prioritizing operational continuity, as well as risk mitigation. So this is about figuring out how to navigate an emergency time. Then we’re starting to see lockdown measures ease, and it’s hints of entering the continuity phase. So most regions are starting to allow people to start working more in person, as well as opening businesses. However, this is going to be a really slow transition because, well, people are able to return to an extent and open up their businesses. What we’re seeing is reduced traffic because people are still fearing being close to each other, and there are still measures in place to reduce foot traffic in person within a store. So, that’s why we’re still in the middle between this survival stage and entering the continuity stage.

Rebecca Engelberg:
But continuity is going to be about identifying what the new areas of growth will look like, and reprioritizing the institution, the bank or the credit union, towards those new growth opportunities, as well as new cost structures. Then finally, the last stage, return to normal. Whenever that may be, depending on how long a recession pans out is going to be characterized by implementing these new business models.

Rebecca Engelberg:
So, let’s take a closer look at the past few months, the survival stage where financial intuitions have been focusing on operational continuity and risk mitigation. What we see is pressure on two fronts. So on the revenue side and the cost side, and we’re seeing is that old revenue and cost structures are starting to become obsolete, in terms of revenue compression as well as operational expenses. So let’s double click into revenue compression and take a closer look at which revenue streams are slowing down.

Rebecca Engelberg:
We can categorize that into two. So first are fees and commissions. We understand that spending has dropped significantly, and with that, card interchange revenue has dropped as well. As well as, ATM fees. People don’t want to manage cash, they’re not going to touch keypads and get cash because they can’t really spend it at stores like they used to. So what we see is that ATM use has dropped significantly in 2020, compared to different years, and we see that on the right hand side in the chart. So in the black line, that represents ATM use in 2020 compared to previous years. In addition, there’s been increased COVID relief measures, which has been great. A lot of financial institutions have stepped up and started to waive fees like overdraft fees, transaction fees, account servicing fees. As a result, this fee revenue has declined.

Rebecca Engelberg:
On the net interest income side, we’ve seen interest rates from central banks lower in order to attract people to engage in more loans. However, because risk portfolios have completely shift, there’s now higher credit qualifications for loans. So lending in itself has decreased, but in addition to that, those individuals that want to take out a loan, they’re going to need to meet much higher criteria. Then as well, there are new COVID relief packages, in terms of payment holidays like deferrals and mortgage holidays. So this is also reducing revenue streams on the lending side.

Rebecca Engelberg:
Now, when we look at the operational side, that has now increased and that’s because of loan losses and collections. So there’s been a rise in delinquencies and unfortunately, more loans going into collections, which is a process that we definitely don’t want to happen because that’s very expensive. We never want to seize physical assets, but unfortunately this is the reality. As a result, top institutions have reported multiple hundred perfect increases in loan loss provisions.

Rebecca Engelberg:
So, unfortunately, the expenses on the lending side has increased as well, in addition to digital operations. So, before the crisis in financial services, an average of 5% of people were working from home. Whereas today, that’s upwards of 70%. So there’s been an increase in supporting remote work and security, as well as a huge increase in network support because customers are now flocking to digital channels and requiring more support in order for them to access your channels. Finally, digitizing processes. Digitizing these key processes that customers need access to when they cannot visit a branch in person.

Rebecca Engelberg:
So, when we take these trends and compare them together, on the revenue side as well as on the operation side, what we see is that some of these changes are in fact going to be more permanent than others. So to take an example, card interchange. We understand that this is temporary, business will come back and spending will increase. However, some of these trends, for example COVID relief, so waiving overdraft fees, waiving transaction fees, account servicing fees, as well as allowing payment deferrals on loans. These are going to be much more difficult to reverse because now we’re affecting customer expectations in a time when they need financial assistance. In addition to digital operations, increased network support and digitizing process is also setting a precedent for customers that are now expecting support when they want to access their banking services remotely. So what this means is that people’s expectations will be squeezing margins and minimizing old revenue streams for financial institutions. In fact, top consultancies and thought leaders are seeing the same.

Rebecca Engelberg:
So recently, Accenture performed a study and what they found was that an average of 5% of retail income is at risk, globally. In addition, 6% to 7% of retail income in the US. This retail income that’s at risk is tied to opaque fees, so these overdraft fees and account management fees, as well as fees tied to bad financial habits.

Rebecca Engelberg:
When we look at the operation side, what we see is that BCG, or BCG conducted a recent study and found that one in four customers is in fact planning to use their branches less, or stop visiting branches all together after the crisis. So, what we can conclude here is that there will continue to be pressure on the revenue side as well as on the operational side. Which brings financial institutions to a new mission that they have to wrap their head around, which is, they will need to find new streams of revenue while maintaining lean business operations.

Rebecca Engelberg:
Which brings us to the next section, Innovation in a Time of Crisis, seizing new opportunities to implement change. So, we mentioned this new mission that financial institutions will need to find new streams of revenue while maintaining lean operations, but that’s really easier said than done. Banks are focusing not on innovation right now, but on business continuity and they’re leaving innovation on the back burner.

Rebecca Engelberg:
So, McKinsey recently released this study, and what it does is looks at business executive’s priorities in terms of innovation before the crisis, as well as after the crisis. The black bar shows that business executives before the crisis, had a high degree of prioritizing innovation. So across communication services, healthcare systems, consumer packaged goods, financial services, of course, and retail. Whereas the blue bar chart today is showing how innovation has dropped significantly, with the one exception of pharma and medical supplies, which has inversed, which may not be a surprise to us, and quite a relief that there’s a lot of innovation happening there.

Rebecca Engelberg:
But when we double click on financial services, what we see is that financial services executives were prioritizing innovation significantly before the crisis. Over half of them reported that innovation was a priority, where that has dropped today to only 7%. So, innovation today is very important but it’s difficult to do when you have customers that need help and that are waiting on the line for up to three hours to speak to somebody. What I find helpful and really interesting that I would like to share with you, is how innovation looks in normal times and why it’s so important in a time of crisis.

Rebecca Engelberg:
So, taking a look at normal times, in fact, doing nothing has the least amount of friction. That could hold true in our personal lives, as well as on the business front. So the reason why doing nothing has the least friction, especially for public companies, is that shareholders demand quick returns. This goes against widespread test and learn, and taking risks to innovate, because by taking a risk on a new innovation, you’re unsure of what return that will provide your organization. So, shareholder pressure actually hurts widespread innovation and test and learn. As well as customers. So customers are really slow to change, so even if you did provide this big innovative technology or feature, it’s going to take a while for customers to adjust and adopt to it. So even in the customer side, there’s low urgency and low pressure on an organization to innovate.

Rebecca Engelberg:
Then the organization itself. So organizational culture, and we know that this can be very true for financial services, tends to have deep silos, which is not conducive to innovation. It’s not conducive to agile and it’s not conducive to cross department collaboration. So, these three factors, essentially make the opposite of innovating, but business as usual, the easiest path.

Rebecca Engelberg:
If I can bring you back to your business 101 course, you may remember the innovation adoption curve. That’s a pretty smooth curve, and in fact, typically buckets adoption by different types of customers. So you have early adoption or the first adopters to be the innovators at the beginning, which is a very low share of your consumer base. Then it slowly increases to early adopters and then to the majority. Only once the majority adopts it, will 75% of people be onboarded and using this new technology. Then finally, the late adopters. This process typically takes years to unfold, however, when we look at times of crisis, this completely flips.

Rebecca Engelberg:
So in times of crisis like today, doing nothing is actually perceived as being risky and has more friction. So shareholders today are not expecting growth, rather, if you operate the business as usual, it raises question marks for shareholders that you’re not adapting to what’s happening. In addition, customers are forced to try new things. We’re really seeing that today in financial services. We’re going to take a look at that more closely in the next few slides. In addition, organizations are also forced to do new things. In this context, some of those measures are enforced by government, some of that as well is to protect employees and to make sure that you have a workforce that can service customers. So what happens is if you take a look at this curve, the people that were in the majority bucket suddenly shift forward to innovators and early adopters. The timeline that it takes to adopt this innovation goes from many years, actually to a couple of months.

Rebecca Engelberg:
So, taking a closer look at how customers have changed their behavior. Just over the past few months, we’ve seen that digital usage has skyrocketed. So, customers have been forced as we know, to bank from home. Not only has banking from home put them on your digital channels, but customers that were previously checking their bank account every month or every week, started to check it repeatedly, multiple times a day sometimes because now they’re waiting to see, did their stimulus package arrive? Are they getting their unemployment check? As well, do they have the finances to cover their bills? So, all of this has put a lot of traffic towards your digital channels. In fact, has created many outages when it first happened because banks were not prepared for a 20 fold increase in their network usage.

Rebecca Engelberg:
When we take a look at the statistics, and here are a couple from April. There was in fact a 200% jump in new mobile banking registrants, and an 85% increase in mobile banking traffic. These are unprecedented numbers. Then if we also look at general digital access, so mobile and PC access for first time users, that has significantly increased as well.

Rebecca Engelberg:
So McKinsey recently released another study breaking down industries by digital access, and then showing the regular users that access digital, as well as the first time users in black. We see that the industries that had the highest digital adoption also had the highest first time users and that was banking, entertainment, and grocery. In banking in particular, first time users made up 21%. Again, these are unprecedented. So people that were in the majority bucket are now being pushed onto digital channels and becoming innovators and early adopters.

Rebecca Engelberg:
Now, taking a step back to last year, digital was not such an urgency. Adoption rates were not so high. In fact, 47% of US customers almost never used their bank’s mobile app. So while most institutions had digital underway, it was not a huge urgency like today, even though we all know that it’s much cheaper to transact on digital channels than in person. So the cost difference between physical and digital is quite substantial. A transaction in a branch costs on average $4, whereas on a mobile or online is $0.19, and $0.09, respectively. This represents as much as a 95% to a 98% decrease in cost. So, the business case is there but when customers aren’t adopting it there’s not an urgency to significantly shift business models.

Rebecca Engelberg:
However, we have seen some example of institutions that have made big strides, and I want to take a look at an example to see how they fared when COVID hit. So, here’s another recent study on new account openings during COVID. If we take a look at the statistics, the industry average for new account openings dropped by 23%. Then Bain took a look at the top three performing and the bottom three performing banks compared to this industry average. The bottom three performing banks did as bad as a drop in 71% of new account openings, but the top three banks were very interesting. In fact, the third best performing bank had a neutral impact, where the top two actually increased their new account openings, which is surprising during a crisis.

Rebecca Engelberg:
So when they dug deeper into why this is, what they found was that these two institutions invested heavily in their digital account opening process. So reducing the number of clicks to open an account, as well as reducing the amount of fields and repetitive data inputs, in order to do it online. In addition to that, they communicated the advantages of digital account opening to their customers, thus increasing adoption. So, there are examples we can look to, pockets of examples where there were institutions that really accelerated certain digital episodes and actually benefited from it in the recent months. What we can conclude is that in order to retain revenue and minimize costs, investing in your digital channel is really the only strategy in order to emerge from this in a more healthy state.

Rebecca Engelberg:
That finally brings us to the last section, Re-imagining Digital Channels, how banks are re-imagining their digital channels for customer interaction. So, what we’re seeing is that financial intuitions are looking to scale personal services beyond the branch. What they’re doing in order to extend those personalized services, is invest in what you might call the digital sales stack. This is to prepare for new streams of revenue, lower operational costs, and at the same time provide personalized services that would’ve been provided in a physical channel, and ensure that that personal experiences extended into the digital channel.

Rebecca Engelberg:
The types of services that financial institutions are investing in are around the same types of activities that you’re currently performing in your other channels, like marketing and engagement, product recommendations, third party product recommendations, usability and delight, product application, and fulfillment, as well as when assisted sales and support needs to be there doing a seamless handoff so that they can go from digital to a physical channel when they need.

Rebecca Engelberg:
But in order to provide these services seamlessly through a PC or a mobile device, it requires effort in the digital sales stack. The digital sales stack could be described in layers. So we’re going to start with the bottom layer, which is the data layer. This is in your core processing, so your transactions, your accounts, demographic data. This data is then tied to an ID so that you can identify who are these customers that have your products and services.

Rebecca Engelberg:
Then, there’s the analytics layer. This enables you to create segments and to see patterns of people so that you can target your credit card customers, your lending customers, to ensure that they’re getting the right messages. Then you have the marketing operations layer. This is identifying the channel and the frequency of interaction and what that interaction may look like. So in traditional sense, this would’ve been direct mail, email, but in where financial institutions are investing today, that’s now turning to digital. Which brings us to the interaction layer. So how can you surface messages to your end consumer? What does that look like in your mobile app and your PC? So ensuring that you have that infrastructure there is very important.

Rebecca Engelberg:
Then finally, the sales fulfillment layer and the engagement analytics layer. So ensuring that a customer can engage on the interaction layer to open a new account or buy a product, and make that trigger a workflow, which in fact, results in an open credit card account, and then that being mailed to that customer’s home address. At the same time, capturing that engagement and feeding that analytics back so that you can keep improving your engagement and keep improving your segments so that as your customers are using it, their experiences are becoming more meaningful and more valuable to them.

Rebecca Engelberg:
Now, this sales stack is nothing new for financial institutions, and in fact, most have already started on their journey. When we take a look at various financial institutions and where they are in their journey, on the right hand side we have a chart. This measures financial institutions by their ability to provide personalized financial guidance either on web or mobile. What we see is that 35% are either with no plans to go digital or currently static. So little to no personalized services through their digital applications. They’re really in a tough spot right now, reaching their customers through their call center or through email, because these traditional channels are difficult to scale and be proactive.

Rebecca Engelberg:
But we do see that most financial institutions are in the emerging bucket, the 60%. Today they’re offering basic levels of personalization, but they have plans for more. So this is already on the radar, and what we have to think about going forward is, how do we prioritize and what do we create an urgency around to ensure that we’re meeting customer’s needs in this new market context?

Rebecca Engelberg:
So, what that brings me back to is the three stages. Survival, continuity, and return to normal. When we take a look at the survival stage, financial institutions today, as I mentioned, they’re focused on operational continuity and risk mitigation. So, I would like to share with you some examples of how our partners and customers are engaging on their digital channels, and how they expect to use their digital sales stack in the next phases.

Rebecca Engelberg:
So let’s take a look at operation continuity. What we’re seeing in the market is to bolster operational continuity. Banks are now investing in onboarding new digital users as well as providing important service updates through their digital channels. So to give some examples, onboarding these new digital users. So, ensuring that they understand how to do check capture on their mobile device by taking a picture, or to enroll for an e-statement, or how to use the tap function, or download a mobile wallet and install their card.

Rebecca Engelberg:
On the other side, in terms of important service updates, letting them know new hygiene practices, or a branch update of when they could access an agent or book an appointment, as well as extended service hours. These are all examples of how our partners are investing in operational continuity and essentially relieving frontline staff to focus on more strategic episodes, more strategic help for customers that have a bit more of a complex situation. At the same time, empowering customers so that they can bank at home and they’re not reliant on a physical channel or on an agent to help them.

Rebecca Engelberg:
Then when we take a look at risk mitigation, this falls into reaching key segments with specialized financial relief, or providing personalized guidance. So what our partners are doing is identifying key segments that they want to proactively reach out to and provide them with offers and information. For example, taking an extra 30 days on their loan, or offering them a penalty free investment withdrawal, or letting a customer know when they’re coming near their credit limit and that they could increase their credit limit.

Rebecca Engelberg:
On the guidance side, they’re surfacing information around government programs and support, or how to navigate unemployment insurance, as well, how to apply for an SBA loan if you’re a small to medium sized business. What we see is that they’re essentially trying to prevent credit erosion and protect the risk portfolio and reduce delinquencies because again, that’s a very expensive process. It’s key that we ensure that risk portfolios remain healthy to ensure business. In addition, this reduces pressure on frontline staff because now customers understand the resources they have available, they’re more educated, and this allows frontline staff to do less discovery work on their end because customers now better understand their situation.

Rebecca Engelberg:
So, going back to the three stages. This is how the digital sales stack has been working for our customers and partners so far, but it really lays the foundation to enter the next phases of the market. So when we enter the continuity stage, it’s going to be key to identify new sources of revenue, and as well, invest in new digital self service tools. Only through a digital sales stack where you’re able to interact and surface products and services to customers, can you actually execute and shift revenue streams onto digital. This requires as well, fine tuning the segmentation strategy because without the data, you’re essentially just continuing mass marketing onto your digital channel. So it’s key that data is being unlocked and being leveraged so that your messages are reaching the right people are providing a meaningful and relevant experience.

Rebecca Engelberg:
Then finally, the return to normal phase. So this is when the foundation is there and now you can accelerate digital transformation efforts so it will be much easier to surface new features and new products through your channels that you’ve already set up. Therefore, you can revisit cost structures to identify where the cost savings lie, and which you can now save on through more lean operations on digital channels.

Rebecca Engelberg:
So, to recap what we reviewed. Firstly, old revenue streams are being compressed. Some of these, especially related to fees and bad financial habits, may never return to previous levels. Operations will also have to evolve to support new customer expectations for remote service. Finally, now is a pivotal time for innovation. The digital sales stack is one strategic way that financial institutions can optimize business models for the next stages of the market.

Rebecca Engelberg:
So, thank you very much for your time today. I’d like to turn it over to any questions you may have.

Ben Smith:
Thank you, Rebecca. That was great. Right now, I’m going to read out a few of the questions that we have and we’ll get to as many as we can, but if we don’t have time to answer all the questions, well will followup with you shortly after.
Ben Smith:
So, one of the first questions that we have is, are there differences between regional and national bank approaches?

Rebecca Engelberg:
So, the differences in the approach between regional and national banks aren’t necessarily related to bank size, but rather, what we see is that regional banks tend to outsource certain functions that national banks don’t. So they have to consider their existing partnerships. One example is core processors. So it’s really important that when you’re building out the digital sales stack, that you’re also considering your partners and the services you’re outsourcing because it’s important that any additional vendors that you’re bringing on to support you can integrate seamlessly. Because, when they’re not flexible, this could really increase the timeline to actually develop your stack, as well as your budget. So that’s really important, but in fact, the approach tends to be more similar than different.

Rebecca Engelberg:
The similarity is essentially, each institution will need to do a gap analysis. They’ll need to understand, what does their product portfolio look like? What are the profiles of their customers? Because that will essentially help them prioritize which features and messages will be most relevant to their customers, based on who their customers are and their product.

Rebecca Engelberg:
So, to sum it up, the approach will essentially have to depend on each unique bank’s or credit union’s product portfolio and customer segmentation.

Ben Smith:
Great, and another question that we have is, what are your customers doing differently since COVID-19?

Rebecca Engelberg:
So that’s a great question. What we’re seeing is the way that they were interacting with customers before were more around surfacing special offers. So merchant offers, for example, or providing messages on that individual’s benefits and perks depending on what products they had. In addition, product recommendations, so trying to cross sell customers. That activity has changed significantly because if those messages were continued, it would appear tone deaf because customers are stressed right now and in crisis mode, not necessarily thinking about the new perks on their credit card.

Rebecca Engelberg:
So, what we’re seeing is that rather, and I mentioned some examples earlier, that our customers are looking to how to onboard new digital users to the features that they have, making sure that they understand them, that they can use them, and they’re empowered to bank from home. So, this is a key difference, as well as service updates because things are changing so quickly and you don’t want to inundate your customers with multiple emails as things change. So it’s a less interruptive mode of interaction when you’re able to surface this while they’re in the mobile app, rather than sending more and more emails.

Ben Smith:
Perfect, thank you. One more question, which technology layer should you invest in first?

Rebecca Engelberg:
So, that’s an interesting question and I don’t think that there’s one where that needs to be prioritized first, because each of these layers need to be there and work together in order to actually provide meaningful experiences. To give an example, let’s say you have the interaction layer available but it’s not integrated with your core processor or the analytics that you have in place. Then essentially you’re just doing more mass marketing on your digital channels because you’re unable to segment your customers and act in real time on customer events. So it’s really important that you have a strategy that considers all the layers. Part of that is looking at vendors that are not point solutions but actually platforms, that have considered all the layers and therefore enable you to work seamlessly across your stack.

Ben Smith:
Perfect, okay. So I think that’s about all the time that we have for questions, but I’d like to thank everybody so much for joining and attending all the way through this webinar. Thank you so much, Rebecca, for all of the great stuff that you’ve shared. Again, if anybody has further questions, feel free to reach out to us at any point, we will follow up with you directly, as well for the questions that we did not have time to answer. We will followup with you shortly after with those. We will also be sending a recording of the webinar to everybody who registered and attended.

Ben Smith:
So, thank you so much, everybody, for joining. I hope that you have a good day.

Rebecca Engelberg:
Thank you very much, and if you would like to continue the conversation further, my email address is listed below. I hope this was valuable for you and take care, have a great weekend.