The Fast Track of Digital Banking

Banks are spending billions on digital banking, balancing customer demands for speed and safety.

Branch banks may be the public face of banking, but PNC reports, for example, that in the last five years, teller-assisted transactions have declined by 50 percent. Photo by Dennis Keim

As the coronavirus spreads, online and mobile banking is expected to grow exponentially as bank customers look for alternatives to in-person banking and physical exchanges.

Anticipating an increase in digital banking, the Federal Financial Institutions Examination Council recently ordered U.S. banks to test their capacity to handle an increase in digital banking demands and called for “increased reliance on online banking, telephone banking and call center services,” in addition to remote working.

Nick Willis, Greater Alabama regional president for PNC Bank, the seventh largest bank in the country, says the change from walk-in and drive-through to digital was underway far before the coronavirus outbreak.

“That has probably been the most pronounced change in client behavior over the last five years,” Willis says. “Over the last five years, our teller-assisted transactions declined by roughly 50 percent, and that accelerates every year. On a transaction level basis, about 71 percent of our checks were deposited in some form of electronic tool versus over-the-teller window in 2019.”

And as banks and other financial institutions become more digital and use customer information to generate revenue, bank officials say customer trust becomes a key concern, as customers are asked to trust their banks with their data, as well as their money.

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Andy Hernandez, chief digital officer for Regions Bank, says trust and safety are crucial in getting customers to believe in digital banking and what lies ahead.

“Here is what our research tells us,” Hernandez says, “If you look at our values and our mission statement, what you will see is that at Regions we are trying to make life better for our customers and make it easier,” adding that customers “are speaking out loud and clear: Keep me safe.”

Hernandez says Regions “has put a lot of energy this year” into proving that digital banking is safe, and it works. Also, Regions is seeing a higher percentage of growth in people opting for mobile deposits rather than ATMs or branch offices. “So more and more people are trusting it. It really goes back to education,” he says.

“I think about a day not long ago. We’ll call it the late ’80s and early ’90s, when we were having these same conversations about making a check deposit in an ATM. People were saying there is no way I am a going to put a check in a big machine in a wall. We had to educate them and show them that it was safe.

“Another example: paying a bill online the first time. That was leap of faith for people, so we had to show them and prove to them that it was safe. Once a customer tries it and starts to believe in it and says, okay, this really works, and the bank really does have my back, I can do this.”

PNC’s Willis says his bank focuses daily on building client relationships and services.

“That is evolving into much more of an omni-channel approach,” he says. “Simply put, we are trying to humanize the digital world. This includes branch delivery, ATMs with enhanced capabilities to perform most basic teller transactions and service channels, including in-person, phone-based, text-based and we are actually beginning to explore video tellers.

“Think about a traditional ATM machine like you would use today but having the option to hit a button and then have a remote teller come live on the screen and help you work through that transaction and provide additional information and possibly provide information about a product that wouldn’t traditionally be available through a teller machine — a mortgage or a financial investment product. Those are things we are beginning to explore.”

But such innovation is expensive.

“Those approaches take a tremendous amount of capital investment,” Willis says, “both upgrading the back end of the bank and the front end in client-facing technologies. For example, last year we spent about $2 billion on technology upgrades, and the 15th largest bank in the country made about $2 billion, so as the industry begins to digitize the experience and provide different channels for both products and client service access, it is going to take tremendous capital investment to keep up to those changing trends.”

At Regions, one emphasis is on artificial intelligence, or AI. “We have been studying this and using it for some time,” Hernandez says, “and it is allowing us to do things that historically would only have been possible with a human interaction. Things like advice, guidance and education. Through AI, as an example, I might know that you have three Netflix subscriptions. Maybe you should only have one. Or I might know that you are three months into a trial membership with one of your providers. Are you sure you want to continue this trial membership? Think about how many people sign up for trial memberships and forget that they are getting charged for it?

“Here is what our research tell us: If you look at our values and our mission statement what you will see is that at Regions we are trying to make life better for our customers and make it easier.”

Willis says some of the transition to digital banking, such as remote deposit, has been limited based on dollar value so customers still have to go to a teller window to deposit larger checks.

“Those limits change and increase each year as fraud tools and protections get better,” Willis says. “Some of that traffic has been governed just by transaction size limits, and some of that is just being people getting comfortable with the technology.

“The biggest trend we have seen is when clients go into a branch, often they are self-serving at an ATM inside the branch, which is similar to going to a teller window.

“Certainly the nature of transactions will continue shifting to electronic means, and check and cash transactions will continuing declining,” he says. “In fact, last year, for the first time, card-based transactions exceeded 50 percent of overall transactions in the U.S., so that is up from about 30 percent five or six years ago.”

Hernandez offers two different views on the decline of face-to-face banking.

“In terms of transactions that people will do,” he says, “depositing money, checking balances, transferring funds, paying bills, we will put that in a bucket that is services. North of 50 percent of our transactions will happen in what we will define as digital, online or mobile.

“The second part is opening up an account. When you think about opening up checking accounts online, credit cards online — really, any deposit account, loans — we have seen 30, 40, north of 50 percent year over year growth in terms of our customers who are choosing to open up these new accounts digitally, and it is not by accident. When I think about 2019, we spent a lot of energy getting input from our customers on redesigning a process that has been existing now for several years, to just make it faster. And that customer experience is driving some of the growth that I am talking about.”

Both Willis and Hernandez say they think the banking industry will continue to evolve digitally, a view shared by much of the banking community. A report from Accenture says, “Banks can’t simply digitally enable their business as usual and expect to be successful.”

“New technology will emerge that does not exist today,” Willis says. “When you think about the iPhone and the impact it has had on our lives, that’s only been around since 2007, so roughly only a decade or so.”

Willis says he thinks the payment process will continue to change and will become more secure and will probably include biometrics, such as fingerprinting, retinal scanning and voice recognition. “We are doing some of that already on the client service side to validate clients when they call into our call centers. I think that will become more and more prevalent at the point of sale, as those technologies become cheaper and more readily available,” he says.

Hernandez calls the evolving digital banking “continuous improvement” and uses Uber as an example. “A lot of people thought they were done innovating. Well, they announced they are the first company to allow you to reach a 911 operator number via text. So we have been calling 911 for all these years and it takes a company that did not exist not long ago to be the first with that innovation. I call that continuous improvement, so we are continuing to look for ways to innovate — mobile deposit, for example, isn’t new, so can we find a way to make it faster? Can I get reliability on those check images up to 100 percent? Can I take what is now a five-minute process to open up a checking account to three minutes?”

Another issue banks face is open banking, also known as “open bank data,” which allows third-party financial service providers open access to financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).

“Open banking is certainly the new frontier, with numerous participants, namely FinTech, is the most common phrase that encapsulates it,” Willis says.

FinTech, shorthand for financial technology, competes somewhat with the traditional delivery of financial services. It is an emerging industry that uses technology to improve activities in finance, such as smartphones for mobile banking and investing services. A report two years ago by Accenture stated, “new entrants to the banking market — including challenger banks, non-bank payments institutions and big tech companies — are challenging the competitiveness of traditional banks.”

But, says Willis, “Ultimately PNC is responsible for protecting our clients’ financial assets, and just as important, their data. That is a foundational responsibility of our company and industry, and one that we do not take lightly. I think consumers should understand how, when, where and for how long third-party providers will use their data, including geo location. These providers are for-profit companies similar to other social media sites. They do not operate for free; they monetize the business by a combination of subscription fees and app ads and selling client data, potentially sensitive data.

“As non-deposit takers, these entities do not receive the same industry regulatory oversight as traditional banks. Certainly they are emerging tools to help consumers manage their financial lives, and we absolutely support consumers having greater clarity, control and insight to help achieve their financial dreams. We must educate clients and balance protecting their data with potentially positive impact with these tools.”

Willis says FinTech has been a boon to the banking industry “and PNC has certainly warmly embraced them as a partner to help make banking easier for customers. We have partnered with many of them and invested in some of them, and we are always focused on how they make transacting business easier for our customers. A few years ago, we launched a subsidiary called Numo, a technology incubator focused on incubating and commercializing technologies, and they partner with academia and other developers of ideas to accelerate the technology investments and actuate them and bring them to life.”

In the end, says Hernandez, “What I have noticed in the 30 years I have been doing this, back to the ATM and before the internet was commercially available, 30 years ago, customers still wanted speed and ease of use convenience like they do today. Maybe today you would argue security is more relevant than it was 30 years ago. The difference is, they are redefining what it means.”

Hernandez says companies like Facebook, Google and Amazon have raised “customer expectations for what it means to be fast, easier or convenient, and we are learning from some of these great technology innovators and building some of those same solutions into what we offer our customers.”

At this point, Hernandez says, he doesn’t see them as competitors for established banks like Regions.

“No, actually we visited Amazon. They have a digital innovation function in their home office in Seattle. We have visited them and a number of other companies, even internationally, to understand how others are innovating, respect who they are and know that they have a hand in financial services.

“I will admit that my take is biased, because I have been in or around bank technology my entire career. What customers are expecting in speed and convenience is not possible without these technologies, so technology is not harmful, it is helping us meet or exceed customer expectations and helping us grow our business.”

Bill Gerdes is a Hoover-based freelancer for Business Alabama.

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