Best practices to prepare for the future of digital banking

With digital banking is on track to become the norm, community banks and credit unions will need to embrace new technologies and strategies in order to succeed.

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The COVID-19 pandemic has radically altered how we live, work, shop, and communicate — and even changed how we access day-to-day banking services. Yet before the crisis began, the global finance sector was trending toward greater incorporation of technology into end-to-end operations.

In fact, per EY’s 2019 Global FinTech Adoption Index, the rate at which internet users adopted fintech and digital banking solutions nearly doubled in the preceding two years. 64 percent of internet users worldwide used fintech and digital banking in some capacity, a number that is likely to increase in the coming years. A consumer study from Qualtrics XM Institute supports this, finding that 80 percent of people who began to use online banking services during the pandemic are either somewhat likely (27 percent) or very likely (53 percent) to continue using those or similar digital services after the pandemic subsides.

With digital banking on track to become the norm, community banks and credit unions will need to embrace new technologies and strategies in order to succeed. Here are a few best practices that will help smaller financial institutions prepare for a rapidly changing market in the coming years.

1. Focus on serving small businesses

One of the strategic advantages of regional banks and credit unions is that they tend to be smaller, and therefore nimbler, than large financial institutions. This enables them to act with greater innovation and responsiveness. For instance, community banks can use digital banking solutions to grow deposits and empower small businesses in ways that money center banks cannot.

Take Cross River Bank, a community bank based in New Jersey that became one of the top Paycheck Protection Program (PPP) lenders earlier this year. Cross River started with only $2.5 billion in assets, but with the help of MANTL’s online account opening software, the bank was able to raise and process $250 million in new deposits in just 15 days. Ultimately, Cross River gave out more than $5.5 billion in PPP loans.

Cross River focused on providing loans to small businesses; the bank’s average PPP loan was around $38,000, a figure far lower than the typical $100,000-200,000 loan from the other top lenders. Ultimately, Cross River made more PPP loans than every other institution except financial giants Bank of America, JPMorgan, and Wells Fargo. The community bank was able to achieve this feat through strategic implementation of digital banking solutions that allowed it to scale its lending program on extremely short notice.

Another community bank that has demonstrated its innovation and agility is Quontic Bank in New York. With a mission to support local families and businesses — including immigrants who often face greater barriers to accessing financial services — Quontic Bank was one of the first regional banks to leverage technology to benefit its community during the COVID-19 crisis. In response to the financial impact of the initial round of lockdowns, Quontic launched the #BetheDrawbridge campaign, a keystone of which is the Drawbridge Savings Account, which matches interest dividends with financial relief payments for New York City communities.

This project also came together very quickly. Over one weekend, Quontic worked with MANTL to design and deploy the Drawbridge application platform, making this community-oriented initiative a reality.

2. Implement real-time transaction monitoring

The big banks are now shifting toward real-time payments (RTP) and transaction monitoring, which provide an extra level of insight that many community banks and credit unions lack. As real-time payments become more common, community banks and credit unions will need to participate in transaction monitoring in order to compete with these large institutions.

With real-time transaction monitoring, banks are better able to prevent fraud, mitigate costs, and stay competitive. These capabilities have often been prohibitively expensive for smaller institutions, but as demand increases and the cost structure comes down, credit unions and regional banks are more able to invest in real-time transaction monitoring.

3. Develop comprehensive strategies for fraud reduction

While online channels have historically seen higher levels of fraud, digital innovations in banking offer a new set of options and tools for fraud reduction. Digital solutions like MANTL’s online account opening platform allow financial institutions to combat fraud without negatively impacting customer experience. For instance, MANTL has found that asking customers for a driver’s license number during the account opening process lowers conversion rates by about 15 percent and decreases fraud by only about 1 percent. Similarly, collecting a driver’s license picture causes a 29 percent drop in conversions, with just a 1.5 percent decrease in fraud. Therefore, instead of asking customers for their driver’s licenses as they open an account, MANTL relies on comprehensive data to verify a user’s identity.

Further, with the right software and tools, banks can automatically assess whether specific transactions follow legitimate patterns for an account, as well as whether the account has committed fraud in the past. This enables banks to reduce the risk of fraud without the need for extensive manual review or putting a hold on legitimate transactions. MANTL’s platform, for example, runs user account data through four different data sources, reducing instances of fraud by 67 percent.

From customer on-boarding to ongoing transaction monitoring, fraud prevention should be a continuous part of every bank’s digital strategy. Fortunately, MANTL offers banks and credit unions the data they need to reduce risks, identify fraud, and improve outcomes.

4. Invest in adaptable, innovative software

The best way for banks to prepare for the future of digital banking is to find the right partners and products that meet their needs and allow them to be fast and adaptable. Choosing partners that provide flexible services, features, and tools is an important part of empowering credit unions and community banks to succeed in financial markets dominated by money center banks.

MANTL’s account opening platform is one such example, beginning with a straightforward and intuitive way for customers to open new accounts in less than three minutes. MANTL offers superior tools and analytics, as well as a consultative approach that helps banks maximize returns on digital account opening. Plus, the software’s real-time configurability allows banks to adjust rates and product mix to respond to rapid market changes, which enables them to up their competitive game. MANTL also uses automation to onboard customers at a fraction of the typical cost — with up to 92 percent of KYC decisions now fully automated. Further, the platform has helped banks increase their conversion rates by 380 percent.

The future is now

Ultimately, the right digital banking solutions should enable community banks and credit unions to expand their reach and build long-term relationships with consumers. By following these best practices — and leaning into the advantages of innovation and staying nimble — smaller institutions can become the bank of choice for today’s customers.

The future of digital banking is happening now, and community banks and credit unions should be prepared to take action to be ready to meet it. Fortunately, banks can go live with MANTL’s platform in as little as 90 days, enabling them to quickly become leaders in transforming the financial system.

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