The Future is Digital
The banking industry is in the middle of a great transformation. Digital giants like Amazon have made doing business so easy it’s almost effortless and people are coming to expect that same experience in all interactions – including their bank experience. Digital banking is more than building mobile app and a web site, it is a fully integrated, dynamic experience that seamlessly supports multiple touchpoints. Consumers and businesses want the ability to open and access all types of accounts online, including loans.
They want speed.
They want transparency.
Banks must use the data they collect to reduce customer effort and create a more customized experience. Banks face many challenges in their journey to meet these new far reaching customer expectations and in some instances the biggest challenge might just be accepting the change itself.
The Changing Banking Relationship
According to The Economist, 10,000 bank branches have closed down since the financial crisis. This has a serious impact on financial services that aren’t managed as easily online like the small business loans traditionally offered by banks. A 2014 study by Hoai-Luu Nguyen, now at the University of California, Berkeley, estimates that when branches close, new small-business lending falls by 13% in the surrounding area. In low-income neighborhoods, lending contracts by nearly 40%. All of this contributes to the $70 billion funding gap impacting small businesses.
Banks and credit unions are still important pieces of the community across the US. Physical bank branches are declining, but this doesn’t mean technology is replacing relationships – it’s only changing them. Speed and efficiency are important, but so is the human connection. The banks that understand how relationships are changing and change their business strategy and technology accordingly will win in the long run. Barlow research reported that over 70% all bank customers visited a branch more than 14 times in the last year, and more than 70% millennials visited a branch more than 10 times. The traditional branch relationship isn’t dead, but it is changing rapidly.
As touchpoints for the banking relationship increase, the importance of digital is ever growing. With only 26% of all transaction based touchpoints occurring in-branch compared to 63% electronic activity, users are gravitating to convenience and efficiency. This changing dynamic forces traditional institutions to focus on serving their customers across all touchpoints and cements the importance of a fully integrated digital experience that connects customers to the bank seamlessly.
Exploring the Customer Journey
The current small business loan application process is time consuming, taking most borrowers 30 or more hours to complete. Most traditional lending institutions have not streamlined their application at all, while a few have gone digital by adding the loan application as a pdf accessible. The key to creating a winning lending experience is efficiency (time & money) and transparency. To accomplish this, banks need to look at their customer journey in a whole new way asking the question, “Does this create a better customer experience?” when making decisions.
For example, it’s important for banks to communicate the upside of being a regulated entity (FDIC insurance, own payment rails, low cost of capital or lending, trusted brands, etc.), but the burden must be invisible to customers. To accomplish this requires more data feeds, dynamic online routing and one spot to house all communications on the application. For many banks it seems impossible to accomplish this type of efficiency with their existing technology – and they are right.
Around 81% of Banking CEO’s are concerned about the speed of technology change. In anticipation of digital transformation, many banks have decided to partner rather than compete with FinTech companies. The financial services industry is experiencing a revolution with $17.4 billion in global venture investment in FinTech last year and 650 deals in the US. Through the use of APIs banks can quickly connect to third party resources and bring innovative solutions to the market faster and more efficiently.
All customer needs are rarely met through one institution and many believe partnerships are the future. In fact, 87% of banks that have partnered have been able to cut costs. The outdated systems traditional banks are founded on have created a huge roadblock to innovation at a time when keeping up with customer expectations is critical. By partnering with third parties banks can quickly provide a modern experience with minimal investment and man-hours compared to completely re-building their current technology.
Modern Relationship Banking
Relationship banking traditionally involves a single touchpoint between customer and lender: the loan officer or relationship manager. In today’s dynamic ecosystem, the touchpoints between customer and lender reach far beyond a single human point of interaction, the touchpoints include every connection to the brand, digital
Mirador partners with banks, credit unions and CDFIs to implement a single solution to support customer acquisition, digital loan application, and data gathering and digitization. With an average implementation timeline of less than 45 days banks can create a completely modern loan experience in less than two months.
With small businesses being such a vital piece of the economy ensuring they have access to capital is critical. Mirador helps traditional lenders reach the people that operate local shops and growing businesses to have affordable loans. There is a significant portion, about 22%, of loan applications that go to alternative lenders because they create the easy experience that people are looking for. Unfortunately, alternative lenders are unregulated, have egregious rates and often confusing terms. Traditional regulated financial institutions can compete when they partner with FinTech solutions like Mirador to create efficiency and remove friction from the customer experience.