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Jan 15, 2021

Summary: We're living at the speed of digital banking these days, and the pandemic seems to be pushing the gas pedal to the floor. While the banking industry needs to continue to embrace digital banking, they also need to be mindful of how far to swing the pendulum to ensure they've got that equilibrium between what's best for the consumer and best for the bottom line.

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Scott Anderson:               00:15                     Hello everyone. Thank you for joining us today on this episode of Commerce Now. I would like to welcome today's guests, Alyson Clarke, principal analyst with Forrester Research and Jeff Bender, who leads our digital solutions team here at Diebold Nixdorf. Alyson, great to speak with you again, and Jeff, so glad you have participated in this session of Commerce Now.

Alyson Clarke:                   00:34                     Thanks for having me, Scott, much appreciated.

Jeff Bender:                       00:36                     Thanks, Scott. Happy to be here.

Scott Anderson:               00:38                     Perfect. So today I want to explore a hot topic. We're living at the speed of digital banking these days, and the pandemic seems to be pushing the gas pedal to the floor on this. The banking industry has been on a digital evolution path for a while now, and the payments mix continues to evolve with sentiment and behavior changes around cash. Consumers have adapted to this new normal and the FIs have pivoted to accommodate. So, I think what we want to unpack is, is this simply an acceleration of further digital evolution or is it really a revolution? Let's look at what this might mean for 2021 and beyond. We can't ignore COVID and the impact it's having on the banking landscape. So, what transformational accelerators have resulted from the pandemic? Alyson, why don't you kick us off? Why do you think the environment was ripe and ready for this?

Alyson Clarke:                   01:26                     Well, I'm actually going to say the opposite. Banks weren't ready for this, and that's part of the challenge, right. I and myself and many in the industry now, we've been talking digital transformation for years and years till we're blue in the face and talked about the urgency of it.,And I think we've gotten to the point of digital transformation fatigue before COVID. We saw a lot of firms that had been delaying projects that they needed to do, like digitizing loans and other kind of operational improvements to digitize the back office and the way they serve customers.

                                                                                What COVID did was really, really expose their flaws and where firms had been falling behind. And as a result, of course forced them to do things really quickly and hurry and do things like digitize loans in weeks and even sometimes months, but usually weeks, as opposed to how long it would typically take them, which could be many, many months or years even. So I think we've got this kind of environment where it exposed the flaws. At the same time, I think it's forced banks to react and it's great because it's pushed through some of the hurdles that were blocking firms before. Some of the governance and hurdles that have slowed implementation down. So I think certainly in that front I would probably challenge it and say that I don't know that the industry was ready.

Scott Anderson:               02:51                     Fair point. Fair point. Jeff, any perspective from your side of the equation?

Jeff Bender:                       02:56                     Yeah. I mean, it's certainly accelerating things. I think that's right. The fall before was, there was a fatigue around digital transformation. You did see digital solutions, things like that becoming an optional. It was something that a bank would like to have, but it wasn't as critical or necessary as other initiatives. And I think certainly in the pandemic we've seen that change. As much as we like to talk about consumer behavior changing over time, we saw it radically change through the pandemic. But I do think there was a lot of technology foundation that was already in place there. And now what we've seen is consumer behavior is starting to drive an accelerated adoption rate of that technology. So I mean, even in our personal lives the way we order groceries, the way we order food. When we go to restaurant, we scan a QR code now to get a menu. Those have all changed the way that we operate.

                                                                                And it's forced us to start to do things differently. I like to tell the story about my father. He's an elderly man. Technology is his enemy. He's literally a guy if, when he doesn't use his cell phone he turns the thing off, so no one can even call him. But during the pandemic, I called him, and sure enough, the guy eating nachos and drinking margaritas and I'm like, "Where'd you get that?" Well, he ordered it on Uber eats. I mean, he never would've done anything like that. But now he's trying these new experiences and realizing that, "Hey, not only are they not bad, it's actually pretty good."

                                                                                It's pretty nice and that's changing consumer behavior from that. And we see that in the banking industry, starting now as well, where organizations, we're starting to see a lot more mobile deposits now than we ever saw before. People are forced to use that. People are forced to go to self-service. They're forced to go through the ATM channel to get cash because they're not going into branches as much as they used to. And so I think that consumer behavior change has been monumental as an outcome of the pandemic activities.

Alyson Clarke:                   04:51                     I was just going to add something. It's interesting though, because what we've seen in terms of business priorities, accelerating the shift to digital business is now one of the top three priorities post COVID. It was number 11 pre COVID. So it's shot up to the near top of the list. And on the opposite side, when we talk about consumer behavior and consumers don't think digitally and consumer experience we're actually seeing the focus from firms in terms of their top business priorities for the next 12 months, improving the experience of customers has dropped dramatically and it's not in the top five anymore. So it's interesting how, what we're seeing playing out and then what we're seeing firms saying their priorities are. I think there's a problem there.

Scott Anderson:               05:39                     So, tell me a little bit about how you perceive and maybe, Alyson, you can kick off. How are you perceiving any differences or deltas either on a regional basis or even at the size of the financial institution or firm? Is there a difference here? Is there a delta, or is everybody facing this?

Alyson Clarke:                   05:59                     Look, I think everyone's facing it, but in different ways, depending on where they were pre COVID. That's what I mean about COVID really kind of putting a microscope on the areas that were behind and the holes, digital transformation strategy. So we're seeing digital acceleration happen globally, but clearly the banks in some regions were better prepared than others. Some larger banks were better prepared than smaller banks. In terms of regions, Europe, for example, was already way ahead of North America for video chat and video banking. Now we've got North American firms scrambling to catch up and figure out how to use video.

                                                                                In Europe, they have been miles ahead on contact less payment take up and usage for years because it's been around a lot longer, whereas it's relatively new in North America. And so, whilst we're seeing that massive take up or we're seeing an increase in take up here in North America of contact less payments. It is COVID that's driven it. So again, I think the difference in regions and the difference in size of firms is reflective of where they were in their journey and the technologies they were already adopting pre COVID. COVID has kind of highlighted those gaps. And as I said, it's kind of forcing everyone to play catch up on stuff they thought they had many more years to build.

Scott Anderson:               07:23                     Jeff, you've mentioned a great example with family member, Uber Eats and certainly a great example of how we're embracing digital. Any specifics you're seeing in banking that you can point out?

Jeff Bender:                       07:35                     Well, certainly you think when we looked at consumer behavior and adoption and usage of those types of technologies. It's been dramatic shifts. Citibank saw an 84% increase in mobile deposits throughout the course of the pandemic. They saw a 10 fold increase in the use of Apple Pay. So it was starting to see digital payments, touch less payments, kind of starting to come into the mix. We've started to see that massive shift. Our data now coming out of kind of a prediction of a post-consumer world is saying that 55% of consumers are less likely to visit branches as they go forward, and 26% of them don't want to have a face-to-face interaction at all.

                                                                                So challenge now becomes if that's the new norm for consumer behavior then what can you do as an FI to start to embrace technology and not let that technology dis-intermediate your relationship with the customer. So as Alyson said, things like how do you adopt video technologies through some self-service channels? Those things become very, very important to organizations, A, to respond to today, but also B, to prepare themselves for tomorrow.

Scott Anderson:               08:42                     It's interesting and Alyson touched on this at the beginning where I think some of the FIs were caught a little off guard, even though digital and in transformation was finding its stride. When we look at some of the output from the 2021 Forrester prediction report, there appears to be an industry focus or response to potentially mistakenly pivoting to digital only. And as we're seeing more and more FIs adopt this, I kind of look back and look at moves that Google has with their Google Plex and wonder, "Do we really think consumers are ready for this bank of virtual experience?" Alyson, again, I'm going to pick on you first, what's your opinion on this?

Alyson Clarke:                   09:22                     Yeah. So look, I think it's not a one size fits all answer. I think some consumers are definitely ready for that digital experience. And we know this because we've seen around the globe, the take up of consumers for digital challenges like Monzo and Revolut and Chime. The problem is that, well, it's not a problem necessarily, but those digital experiences tend to be really simple with maybe just a checking or savings accounts. Some may have a credit card. And so those kinds of simple digital only solutions are more appealing to younger consumers who have simpler banking needs or those that are perhaps looking to try something new. And in that case, it's probably a secondary account, not their primary accounts. So, you think of this challenge. Your customers get older and, or they get wealthier, both potentially. And what happens then is, when things get more complex, human interaction becomes critical.

                                                                                I always say that if you have something that's either high value and, or emotional and or complex, any combination of those, that's when people want human help and guidance no matter what their age. And if I look at something like Google Plex, which is this banking marketplace that Google's due to launch next year. I think there's definitely going to be an appeal to consumers with simpler banking needs, so maybe younger consumers or those wanting to try new things. And there's certainly those that will want to try it for the convenience factor because the way it's going to be integrated with Google Pay and some of the tools that Google say they're developing.

                                                                                The challenge is going to be that as these consumers grow. And I think some of the banks are, the way they're going into this relationship with Google Plex is they're setting up separate accounts, a brand new digital checking or savings account that will go on to that marketplace. And what I'm not clear and perhaps they're probably unclear off too, is how do those separated new products for Google Plex integrate back into the bank's own digital services and human support? Will they even integrate back in at all? And so that kind of becomes a challenge then, if you're using Google Plex, if you're a bank using Google Plex to say, "Hey, I'm going to attract a new customer base and get some deposits. And then I'm going to use that to deepen my relationship with their customer base." How are you going to do that?

                                                                                And certainly the human element will be critical in that, in some way, shape or form. It might not be branch. It could be video. It could be... There's many different things. And so, when I think about this in the branch scenario, we've got potentially firms pivoting to shut down branches completely, or some of them are pulling back. I think some of them might get short-term benefits, but I think many will regret it later on. Because what we do know is when we look at consumer behavior, the location and availability of ATMs and branches is one of the key considerations when choosing who their primary bank is. So, those that pull back on that human element and branches too far, it could be a very costly mistake.

Scott Anderson:               12:23                     Jeff, any points of view?

Jeff Bender:                       12:25                     Yeah. I agree with that. I think it's about striking the right balance. I think if you're a financial institution, you built your brand based on establishing robust relationships with your customer, to turn around and kind of pivot and say, "Okay, tomorrow we're going to be a digital bank and compete with the likes of Chime." I don't think that's smart. So I think it's about striking the right balance. I'm a huge supporter of the digital only channels. I literally have been kind of a digital banking customer for the past 15 years. Probably stepped foot into a branch, I can count the number of times on one hand. But I still have the need for some of that physical interaction. There are times when I need cash. I need to go to an ATM and get some cash.

                                                                                There are times when you have complex customer service issues or you need advice, and those things are still very personal types of interactions and they still require that personal connection. And so, I think in today's world that still takes place through that in-branch experience, but that's definitely evolving.

                                                                                And in with regards to technologies like Google Plex, I think on the one hand that can be seen as a threat, but on the other hand it's also, I think a significant opportunity for organizations to partner with some of these technology organizations and see how they can deliver services more effectively, more efficiently. One thing we've got going on right now in the kind of this post pandemic world is we have historically low, unprecedentedly low interest rates and that's impacting the financial institutions bottom line. And so they're looking to reduce costs, but also open up new revenue streams. And so, are there opportunities to do that?

                                                                                And I look at someone like Google with a healthy dose of a mindset around some of the analytics side as well. If you think about the potential there, you can start simple, and you can start to gain access to consumers and their spending habits and their behaviors and so forth. But as you go forward, you can see how that can become very personalized and a very personalized experience through technology from a company like Google. Maybe Scott, and I know everything about you, every transaction you've made, because you're doing that through a Google platform. I grow and I extend or I offer products through that platform maybe from other more traditional financial institutions, which adds value to both sides of the equation.

                                                                                And you can even get into things like conversational AI. If I know all this data about you and when you pick up the phone, I can go, "Great. How are you enjoying that new car you just bought last month?" Now, we're at a different level where I have this personal connection and as a consumer, how do you leave that? How do you leave that and start over someplace else? So I think they're laying the groundwork and the foundation for something that is very significant in the industry.

Alyson Clarke:                   15:05                     I'll just add that I agree with that, and I agree with certainly the personalization that has to happen for those digital touchpoints to create that emotion and that loyalty that comes with that connection. And you're right, it does make it harder to move. That little thing going off in the back of my mind, that just goes over and over and over is, you can't forget the human. And I actually, you know what? I'm going to go out on a limb and actually say that I think what's going to happen post COVID, this is my personal view, is there's going to be a craving for human connection. I mean, how many of us are really kind of sick to death for social distancing and not being able to interact with people? I think potentially when this is over and we're vaccinated or whatever and that could be a year from now, whatever. There will be potentially swing back to craving this human connection in many things.

                                                                                And I don't think banking is not included in that. I think banking is included in that, and it is about getting that guidance and advice to help me improve my financial situation. I think it's about re-purposing the branch to be this engagement center for customers and employees. And yeah, if you want to get the cost savings, there might be less of them. But it's also that better using technology in those branches, being smarter about the footprint, being smarter with the technology and shifting to paperless and cashless branches. So I think you can squeeze some of those benefits out of it without losing the upside from that human connection.

Scott Anderson:               16:33                     So Alyson, and I know we've talked about this in the past and your point of view through the consumer's lens is give them choice, don't force them. I think the pandemic has done a little bit of forcing for obvious reasons. But you're feeling fairly confident that consumers are going to want to have that full range of engagement capability again too, once we're through this pandemic and once people are comfortable again engaging directly.

Alyson Clarke:                   16:59                     Absolutely. And just to clarify, in terms of full range, I don't mean they want to do everything in person. Not that sort of full range, just to kind of clarify. When you say full range, I interpret that as, they want to have a choice. Don't force me down a path. In fact, we see this time and time again in our customer experience index, which measures how good experiences are, and then how that translates to loyalty and revenue. And firms that do really well are certainly growing faster than their peers, in terms of revenue and so forth. And what we find is that through that data is that when customers are forced to self serve, they're not having a great experience. It doesn't mean they're not happy to, if they want to have a choice. And I think in the spirit of driving down costs, a lot of firms have taken that choice away in certain parts of the customer journey and I think that's where the pendulum can go too far as well.

Scott Anderson:               17:56                     And that really builds then on what Jeff's point is, let's use technology to really personalize the experience and use that personalization and that data to ensure that every interaction, whether it's in-person or through a digital means, is empowered with that content in that context. And I think that's where there's probably going to be some huge benefit.

Alyson Clarke:                   18:17                     Yes, absolutely.

Scott Anderson:               18:19                     So, now all of this conversation around embracing the transformation and going digital and all of this investment, I'm a CFO, and I'm a CIO at a bank and I'm staring my board in the eye or I'm staring my shareholders in the eye and looking at the huge investments that I've made or I'm being committed to make this year and next for digital transformation. How can we capitalize even further and increase the value of that spend? Maybe, Jeff, we'll start with you in your view, how can or should financial institutions monetize this investment in 2021 and beyond?

Jeff Bender:                       18:54                     Yeah, well, like I said previously, I think they've got to strike this balance of trying to cut cost, streamline operational expenses, where they can by also better positioning themselves to open up new revenue streams and better engage with the customers. And I think right now, tactically short-term, I think the way for people to maximize their dollars is to invest in those technologies that do allow a more engaging experience through the digital channels. So if you've invested heavily in that ATM channel, bring marketing capabilities into that. Start targeting people who are using your ATMs that maybe are not a member today and offer them incentives to switch banks. Add video capabilities to those same ATM, so you can interact with customers in a way that is more meaningful and more personal and emulates that human interaction that they're missing today.

                                                                                And I agree with Alyson that they're craving it today. I think we will crave it for some time. But I also think we have to beef up some of our other capabilities, too. We look at the behavior changes that have taken place and you think about even things like, "Oh, we're doing more deposits now", and whether that's through a mobile channel or through an ATM. I need to make sure that those self-service experiences are robust. And I need to invest in those areas so that when a customer or consumer comes in and wants to use that self-service channel, because they don't want to go into the branch for whatever reason, they have a way to do that, and it's a good experience. And I think what we've found through the pandemics, when we have those good experiences, we continue to use them. We continue to adopt them and that's beneficial both for me as a consumer, as well as the business I'm engaging with.

                                                                                So I think, it's as Allison said a little bit earlier, it's kind of about choice. It's about making sure you're allowing those consumers to bank with you and interact with you, when and where they want. And I think it's about making sure you've got a really very, very strong customer focus. So as an FI, you can respond to those consumers because I do think there's different dynamics, different banks, different regions, small banks, big banks, credit unions, etc, and I think all of those dynamics are different. You have to take all that into account.

Scott Anderson:               20:58                     Alyson, any other opinion on a secret sauce here to make this work?

Alyson Clarke:                   21:02                     So I would definitely say, absolutely focus on leveraging the technology you have. I mean, in any economic downturn or tough economic conditions, it's always hard to get funding to do the stuff you need to do, let alone the stuff you want to do. But time and time again, I see a lot of firms that have technology that's completely under utilized. They get CRM technology, personalization tools, some of the marketing stuff that you spoke about. It's like in some cases, people have gone out and bought the Tesla and they're only using it as a cup holder. Some of you may laugh if you heard me use that analogy before, it's one of my favorite because I just, I see it so often. There's so many more ways to leverage and use the technology we already own. So I think that's the first thing to look at because at this economic time it's smart to be cost conscious.

                                                                                But the other thing is when you're thinking about prioritizing what you do, try not to get completely stuck in prioritizing things that reduce costs. Not to say that you don't want to focus on that. But the real priority at this time, and this is always the advice during an economic downturn is, focus on getting closer to your customer, not further away. So things that you're talking about there around forcing them to self serve, or I would say making it hard to contact a person, that won't get you closer. We do know in economic downturns that firms that invest in deepening relationships and adding value above and beyond the product and showing those customers that they're valued instead of spending their energies focusing on trying to sell them a product. Remember it's an economic downturn. They might not be buying as much.

                                                                                Those brands that focus on getting closer and deepening engagement create the loyalty and the [RO One 00:00:22:48] that loyalty and the benefits will be rewarded for years to come when those economic conditions improve. And in fact, when the up to it happens, they will grow at a much faster rate than those firms that didn't focus on getting close to their customer and still we're trying to cling onto survival and how do we sell more product. So I guess that would be my kind of bit of advice there.

                                                                                The second thing I kind of linked to that is around keeping an eye to the future. If you are investing in things and building things out, think about a longer term, think about the world post COVID and position the firm for the future. And I talked about video before, that's a great example. North America is very much behind Europe and other regions. That video chat, video banking are a right way to engage customers. And I know many are accelerating that with COVID. Sometimes not always in a good and secure way. There's probably more work they can do. But it's a great technology that will solve some challenges now, but help you get closer to customers and positioning you for the future.

                                                                                Similarly, with a lot of firms that are building digital loan origination, or even any kind of digital account opening and digital sales and purchasing experience. The wrong way is just to build it for the customer self serve. The right ways to think about how do I leverage this? How do I get more out of it? And that is embed human support along the way for the customer. Allow for handoffs to agents and frontline staff, because we know customers move across touchpoints. And also, allow agents to use the same great technology. So if the customer does choose to call, they're still getting that same great experience. So, leverage in that case as well, across touch points and interactions.

Scott Anderson:               24:31                     Fantastic insights, Jeff, Alyson, really, really appreciate you spending time and giving us some opinions on some of these topics that are probably a top of mind for a lot of financial institutions, as we hope to come out of this global pandemic. If anything is certain, we're living in this phase of where digital transformation has been accelerated so significantly. And while the banking industry needs to continue to embrace digital banking, we also need to be mindful as you both pointed out, of how far to swing the pendulum to ensure we've got that equilibrium between what's best for the consumer and best for the bottom line. We've clearly outlined here today they may not always be aligned.

                                                                                So thank you to our listeners for tuning into this episode of Commerce Now. To download a free copy of the 2021 banking predictions report mentioned during our discussion, please visit to download your complimentary copy now.