In part two of the “Biggest Banking Trends of 2022” special episode, Sean and Gina take stock of what’s on the minds of banking leaders in these unprecedented times. They look at ways banks and credit unions are making banking better for people as they navigate post-pandemic uncertainty, especially through a focus on financial wellness. Institutions are also making headway by looking at their organizations through the lens of a challenger, understanding that change doesn’t have to come through fintech-style innovation. Future-focused banks are successfully leveraging their existing strengths, like locality, and augmenting them with smaller formats and hybrid tools like ITMs. So, as banks get more efficient, they also can amplify customer experience at the same time.
Intro: This is Believe in Banking, a podcast series for decision makers, influencers, and leaders featuring experts taking on the financial industry’s most pressing issues with insight and empathy. The podcast features information and conversations designed to enlighten and empower. Here are your Believe in Banking hosts, Sean Keathley and Gina Bleedorn.
Gina Bleedorn: Welcome to our Believe in Banking podcast. I’m Gina Bleedorn, Chief Experience Officer at Adrenaline. For our November podcast, we’re going to do a second installment of the biggest banking trends of 2022. We’re going to look back at some of our conversations about how banks and credit unions are making banking better today, and future-proofing for tomorrow. Right now, one of the things we’re seeing is there is a real need that consumers have, especially post-COVID, for education and wellness around their finances. Institutions are stepping up big time by meeting consumers where they are. That means they’re giving them financial advice with mobile apps and at the branch. Smart banks are even using social media like TikTok in some fun, unexpected and unconventional ways. Speaking of unconventional, we will also discuss embracing the mindset of a challenger. But before you are thinking we’re talking only about technology, we will flip that script.
The reality really is that the most innovative institutions aren’t just solely focused on fintech-y approaches to banking. Instead, they’re going beyond that, beyond digital, to look at more meaningful ways across the board to deliver experience. Doubling down on who you are is actually a challenger strategy if you can do it in different and innovative ways. Finally, as financial institutions are very much looking to rightsize, to optimize and to even transform their branch networks, we’ll talk about strategies to decrease headcount and operating cost while increasing experience and even outward facing impact. And, we’ll discuss newer solutions like ITMs, that are being very heavily adopted by financial institutions of all sizes, that are changing the relationship between how digital and physical play together in retail delivery, really dot-connecting between larger branch formats across their service areas with very low cost. We hope these conversations about themes and trends that we’ve covered can give you some good food for thought as you think about your organization and how to build resilience for the future.
Gina Bleedorn: Financial wellness has been around, it’s not a new thing, but I think the resurgence in need is new. It is something that is now top-of-mind, but they’re not turning to their bank or credit union necessarily for that empowerment. They’re turning elsewhere. Nearly half, 47%, are getting it from what they call personal financial websites. 34% are getting it from financial advisors and 25% are getting it from TikTok, which is shocking in a way, but also completely intuitive. On the other hand, only 29% are saying they are getting it from their bank or their bankers or financial institutions. All that said, over half, 54%, want their financial institution to give them the help and give them the information. They’re just not getting it, so they’re going elsewhere.
Sean Keathley: Well when I have a car full of 14-year-olds headed to a travel baseball tournament, listening to their conversations, often I ask, “Where did you hear that? Or where did you learn that?” TikTok is the most common answer. But seriously, you do think about this workforce as getting younger and there is a generation that has grown up with a phone in their hand. Information is at their fingertips. We’re also in unprecedented times in terms of headwinds from an economy because we have been through a hundred-year challenge with the pandemic. Inflation is high and people are thinking about their dollar is not going as far as it did. There is a real thirst for people to learn more and be savvier with their money, and I think that’s an incredible opportunity for the financial institutions to fill that hole.
Gina Bleedorn: Recently, FNB Community Bank, they are a commercial bank in Oklahoma, went viral, super viral with a post on TikTok about Venmo financial education. Basically just saying, Venmo is making money off of your balance in Venmo, so you should move it to your financial institution. It was designed to be education. It was that. It got nearly 4 million views and about 8,000 new followers. That is significant. Whether people take it as, “Oh my gosh, I’m going to now never keep a balance in Venmo.” Or, “Actually I don’t care, I’ll leave my balance in Venmo.” Or, “That’s fascinating and I’m appalled Venmo would do that, but I’m not going to do anything.” Whatever their reaction was, the point is that a bank gave them that information and empowered them to have the right to do something about it, if they wanted to. A great example of serving up information to people where they are in a way they actually want to consume it, and are even slightly entertained by it because they did it in a TikTok way with a person with a funny face and music. That’s a brilliant example of using a channel in an effective way to get a message about financial education across.
We have all heard the term, and we’ve talked on Believe in Banking, about the idea of challenger banks. Mostly in relation to fintechs and certainly big bank technology that smaller banks can’t keep up with and the idea of partnering with fintechs, instead of trying to one-up them in the very areas of which they’re experts. But today we want to reframe the idea of being a challenger. It’s not just about tech partnerships. It can be about so many more ways to innovate, to compete. Knowing who you are, what you stand for, doubling down on that in ways that meet people where they are and with what they want, the experiences they want.
To that end, there was a recent article on Insider Intelligence that flipped the script a little bit on keeping up with the challengers. They did it by looking back at disruptors in the wealth management space like robo advisors, low no commissions, automated trading and where we are a decade later. What they found is that the startups were, yes, innovative, but they could not outcompete larger incumbents. Established players, institutional players like Vanguard, Fidelity, Schwab, they actually incorporated technology in their business model and emerged as the winners. They rolled out the same services on a bigger scale. They had the ability to do it more cost effectively, and as such, the innovators weren’t the winners, the institutional players were.
What’s more is that these challenger neobanks are actually struggling to reach profitability. Less than 5% of them are even breaking even. There was a 28% drop in fintech funding in Q2 of this year. That leads us to what is there in traditional banking that matters that can be disruptive. Simultaneously, ICBA just put out a consumer survey finding that nearly 7 of 10 US adults cite the importance of banking with a locally based institution. 70% also cite the importance of personal banking relationships. This is new data that supports an ongoing certainly premise that we believe at Adrenaline and have talked about since the inception of Believe in Banking. To double down on who you really are is a challenger strategy if you do it in innovative ways.
Sean Keathley: Well, Gina, if you asked in that same consumer survey a follow up question, “When you think of those two things that are important to 7 out 10 of you, would you think those apply to fintech?” I think a hundred percent of those people would say no. fintech does not lead with local and community-oriented. So back to what is the right version of being a challenger? Well, to the point of the definition, according to the Fintech Magazine, it’s usually a small bank. The biggest reason for that being the case is larger organizations often struggle with legacy infrastructure. It’s harder to innovate. Taking it out of the technology lens, and thinking it more of a brand personality, a challenger bank is someone that can think like a challenger but have roots in the local branch locations, the neighborhoods they serve. I think of a bank we know well that comes to mind, who’s been on this podcast, that’s Origin Bank.
Origin Bank has been on an incredible journey and they are moving from being a local Louisiana-based bank, proud of serving Louisiana, but now serving Mississippi and Texas. They’re doing so in an entirely different way. They are opening a new location and a high end market in Dallas. The brand is being further elevated to help people in different financial situations. I think it’s an example of someone that is keeping the spirit of being community minded, but using technology and personal service to serve a much broader service set and consumer base as you start thinking about a multi-state strategy.
Gina Bleedorn: That idea, Sean, is one we’ve started to help more and more clients with as they’re thinking about network rationalization and making some of these hard decisions to become more efficient. How can you, in a way, reduce and take out operating costs, but appear in action and in service model to be reinvesting in the communities?
Sean Keathley: Well, exactly. Gina, you’ve talked on stage and in thought leadership before about the idea of the network effect. The other thing that’s truly here is the idea of all branches aren’t equal. The idea that you can use different size formats, and often in those examples where maybe there was two branches that became one and it was the receiver branch and it is a bit of the flagship of that market, it can actually be supported by smaller formats or even just ITM only. ITM drive up only, that are completely disconnected from a branch. So Gina, part of these upgraded facilities, they’re including more and more technology these days. We’ve mentioned it and I think you should maybe talk about ITMs and smaller formats and not only what we think, and we’ve got a great research paper out there, what our clients and everyone’s saying, but certainly this was a hot topic at Future Branches.
Gina Bleedorn: Yes, it was probably the most talked about topic, ITMs. The biggest, both in a way the biggest question and challenge in determining how to address them and what to do right after the people factor and the talent war we just discussed. Everyone seems to be in varying stages of either their actual experience with ITMs, or in an initial pilot stage trying to figure out what to do. Everyone knows they need to be at least thinking about them as an option. And actually, the research we conducted recently published in our white paper on ITMs revealed, really two-thirds of institutions are in either partial or full adoption. Those that are even in initial stages of adoption are planning to move to full adoption over the next three years or so. It does seem to be something that’s taken off.
Really what we have learned, one commonality among really anyone that’s deployed them, is that they are taking longer to be adopted, most notably training of staff to help customers adopt. However, once they are adopted, and I heard one financial institution at the event say, “you have to force them,” meaning customers. But once you have them experience it, then they like it and the experience is largely favorable and our consumer research revealed that as well.
Sean Keathley: Gina, I agree with all those comments. I will say, however, I don’t think the curve is going to be maybe as steep as technology adoption has been in the past. When ATMs entered the market much, much different. This is not pre-internet, pre iPhone, and now millennials are middle-aged. You’ve got people in the prime of their careers that have grown up with technology in their hand. I do think that once the idea of convenience, when you learn that there is a big set of things from the teller line that can be accomplished. Especially as people deploy these, not just next to a branch but in spokes, it’s going to raise the awareness.
Outro: You’ve been listening to Believe in Banking, a podcast series created to empower decision-makers, influencers, and industry leaders in financial services. Be sure to also join us on our flagship site, believeinbanking.com.