SNC Spotlight

Insurance can be complex. Turn to our blog for up-to-date, relevant content to help you make the best decisions for your financial institution. With expert knowledge from seasoned industry professionals, we simplify insurance topics so you can get back to business.
All Posts

Relationship Banking in a Digital Age

 

In partnership with State National, Filene’s Center for Emerging Technology is exploring the future of digital financial services.

Relationship Banking in a Digital Age: Reducing the Human-Technology Divide

Guest Blog From Filene Research Institute's Bill Maurer, Scott Mainwaring, and Taylor C. Nelms

The era of neighborhood branch gathering places may no longer be tenable as a new era dawns on self-and curbside service, constant online connectivity, and conversation in virtual spaces. In partnership with State National, Filene’s Center for Emerging Technology is exploring the future of digital financial services.

Are credit unions and community banks ready for the digital future of consumer finance? The answer to this question can be found in how to connect — rather than divide — humans and technology.

In 2020, in response to consumer demands for curbside access to financial services, the digital transformation of banking jumped ahead, accelerating in some estimates by 3-5 years in as many months. Nonetheless, challenges remain — and, in many cases, have deepened — for many organizations. The low-hanging fruit of digital adoption and adaptation are past us; now it is time to look beyond immediate needs and begin planning for a fully and truly digital business.

The expectations of consumers of financial services have risen as they have increasingly relied on and embraced technology to say connected or to re-connect with family, friends, and co-workers. Group videoconferencing platforms are being used for family brunches and virtual happy hours; DJs are performing live on Instagram or getting Zoomed into late-night parties; proms and church are going online. These experiences will set the standard by which financial services will be judged: connection, simplicity, intuitiveness, real-time access and insight.

The desire for high-quality experiences and relationships will not disappear. And so, because people no longer separate “virtual” from non-virtual worlds, instead using technology to navigate a mixed-up physical and digital world — one that is both on- and offline — “digital transformation” requires doing more than simply “converting” to digital processes and procedures designed in analog for face-to-face or paper-based interactions. It requires tackling head-on the question of how to do relationship banking and how to serve a community banking function in a digital age.

For credit unions and other community-focused financial institutions, this is a challenge that is especially fraught. Technology-enabled, self-service channels are especially difficult to tune for financial services, because of the high stakes and uncertainty of financial decision-making. Money produces anxiety, and anxious people want reassurance from other humans. This can lead to lower satisfaction and lower trust.

What’s more, it is becoming increasingly clear that relationship-building is hard online and especially hard when service is automated. The rise in the use of digital financial services is underscoring the experiences and quality of service that, as of now, cannot be replicated through digital channels. At the same time, for this reason, there is a massive opportunity for credit unions and community banks to figure out how best to marry high-tech channels with high-touch service and find ways to replicate in-person interactions and relationship-based service in digital and mobile environments.

The cascading effects of the COVID-19 pandemic, including the ongoing struggles of millions of U.S., households, raise the stakes of this challenge and offer insight into ways to take advantage of this opportunity. The relevance of the credit union and community banking mission of service to consumers’ financial well-being is growing. How can this mission be sustained even as online becomes the dominant way these financial institutions deliver products, offer support, and work with members to solve problems?

One area of growth and innovation is in the use of so-called artificial intelligence techniques to support “natural” conversations, though text, voice, and/or graphics, between people and artificial agents that more or less pose as people in enacting a service. Amazon’s Alexa and Apple’s Siri are well-known examples, through financial service-specific versions have also launched. Bank of America’s Erica is perhaps the most well-known version, but credit unions are also getting into the “virtual assistant” or “conversational agent” game, from Michigan State University Federal Credit Union’s Fran, to Royal Credit Union’s Val, to University Credit Union’s Royce.

Virtual assistants are not simply a new channel to access services. They require that we forge new social norms — about privacy and security, work and leisure, and especially the intimacy and empathy of human-technology relationships. How do people experience such systems? How do they expect them to behave?

We are already intimate with our smartphones. These personal and personalized devices are our constant, daily, bodily companions. Add an always-available virtual assistant to chat with, and our relationship with our phones — especially in a time of social distancing — becomes even closer. In financial services, virtual assistants promise to enhance personalization, especially when it comes to personal financial management and financial well-being. Take BofA’s Erica. Via your smartphone, she can help you plan a spending path, manage your expenses, alert you to when bills or other recurrent payments are coming due, give you your FICO score, and even provide rudimentary credit counseling.

The “intimacy” offered by virtual assistants rolled out by big banks is threatening to credit unions and community banks precisely because these organizations have historically prided themselves on the quality of their customer service and their knowledge of their members. If interactions with financial digital assistants are to replace person-to-person conversations with customer service agents, is the credit union system back in a familiar position of trying to play catch-up with the big banks and their big pockets?

Not entirely. For example, consider another dimension to the intimacy of smart devices: constant data collection, surveillance, and sale to third parties, often without the user’s knowledge or explicit consent. Companies want to imagine that as our intimate partners new AIs will evolve towards a lifelong, genuine, and beneficial connection, but they also tend toward insidious inescapability. Despite their female voices, Alexa and Siri could eventually come to be viewed like a bad ex-boyfriend who’s always creeping around, or at least a friend who we mostly enjoy the company of but can never really trust.

Indeed, in a report on the future of banking technology, Accenture reminds us that “black-box personalization” is all too common but leaves consumers feeling “out of the loop and out of control.” That feeling is the opposite of the promise of personalization, which ought to offer opportunities for transparency, participation, and agency over one’s experience.

The origins of the English word “intimate” are instructive. The Latin intimāre means “to put or bring into, drive or press into, to make known.” It even once meant “to declare war.” Intimacy today implies familial closeness. But we have to remember that intimate partner violence is so challenging to address because of that closeness, and the ability it confers on an abusive partner to do real harm.

Contrast intimacy to another word we’ve heard a lot in discussions of AI: empathy. To empathize is to project oneself into another’s circumstances so as to be changed by that other person’s state of mind or feeling or circumstances. Empathy is a useful term of credit unions. Credit unions live by the philosophy of people helping people, and in fact, credit unions emerge not from intimate relationships so much as affinity relationships. We may not be family, but we all share something in common.

How can credit unions and community banks choose empathy over intimacy in designing digital financial services that meet their mission and elevate their value proposition and market differentiation?

In the short term, here are some ideas to consider.

  • Step 1: Put technology to work in facilitating curbside service. Do you have digital signature capability for completing loan applications, or do members still need to come to your branch to complete a transaction? Accelerate technological solutions to reduce even curbside visits. Facilitate remote conversations ahead of required visits to minimize contact time but maximize relationship-building and opportunities to impress and even delight members. With online pre-work out of the way, the curbside visit itself can offer a personal and caring, not clinical, feel.
  • Use technology to improve human-based service delivery. Online analogs may always pale in comparison to real human-to-human connection. Find ways to use technology to protect, make use of, and enhance the customer-facing staff. How might you use automation not to replace human service interactions but instead give consumers a map to guide them through your website and digital systems? How can technology be used to prioritize consumers who need to talk to staff so that limited time can be made as mutually satisfying as possible? And what back-office tools or dashboards can you provide staff to allow them to “see” and serve consumers better?
  • Focus on the hand-off. The transition from automated to human interactions is the most critical point in your service value chain — the make-or-break moment that, done right, will drive loyalty and, done wrong, will produce disengagement and churn. Here’s baseline: anything a consumer has offered up about themselves and the job they are seeking to accomplish to an automated system must be available to the human service rep that consumer is now talking to.
  • Put financial well-being at the heart of your service value proposition. In moments of uncertainty and flux, people need tools to help them plan and prepare, and the best tools offer both personalization and contextualization: personalized products and contextualized delivery and guidance. Demand for personal financial management (PFM) will thus continue to grow into the future. PFM provides consumers a financial well-being toolbox with budgeting and expense-tracking technologies, income smoothing and savings apps, bill negotiation, loan repayment and credit management and repair, and investment and portfolio optimization. Putting PFM at the center of credit union offerings and operations gives credit unions the opportunity to deepen relationships by connecting different parts of consumers’ financial lives.
  • Use remote channels to facilitate member communication preferences. One strength of remote channels is their ability to provide as much or as little engagement with members as they desire. Sometimes members prefer to not involve a human. The privacy and perceived anonymity of mobile banking can provide a welcome alternative for members from having to have uncomfortable conversations with customer service agents.
  • Find ways to bridge “digital divides.” Credit unions and community banks have long been at the forefront of financial inclusion efforts, but they will be challenged to ensure that access to digital banking and payments services is equitable and their benefits communicated clearly to members. One survey of U.S. adults at the end of March 2020 found that while 73% of respondents overall reported being more likely to use digital financial services during the pandemic, that percentage fell to 64% for households with incomes under $50,000 and 62% for consumers with a high school education or less. It is unclear whether these disparities are due to differences in internet access, awareness, or distrust in digital channels, but they indicate the potential for a gap in financial service provision that could deepen patterns of inequality. We know that access to high-quality broadband internet is not evenly distributed. In 2019, the FCC estimated that 5 million U.S. Americans live in digital deserts. They are disproportionately elderly and poor, and they tend to have lower levels of education and live in rural areas. We must meet members where they are. Consider creating compelling “low tech” solutions for users of pay-as-you-go phones or for consumers living in conditions of low-quality broadband connectivity. Look for ways to better handle member communication (when appropriate) through email, text messaging, or direct messages on social media. When it comes to technology access, one size does not fit all.

    How Does State National's Focus on Technology Impact Credit Unions?

Taylor Nelms, Filene
Taylor Nelms, Filene
As an anthropologist, Taylor sees the chance to join Filene’s research team as the perfect opportunity to fuel his passion for understanding people and culture. Taylor is dedicated to building a groundbreaking research agenda—and to translating that research for consumer finance professionals, policymakers, and the public to see what kinds of positive impacts it can have. When it comes to finance, Taylor’s method is to take a broad view across time and space, positioning new developments in social and historical context.

Related Posts

How Guaranteed Asset Protection (GAP) Mitigates the Risk Caused by Record High Auto Prices

Now, more than ever, it is critical to protect your auto loan portfolio with GAP Vehicle values have been at historic highs for the past year If you considered purchasing a vehicle this summer, you likely experienced some degree of sticker shock. New and used vehicle prices skyrocketed earlier in 2021 and are only now showing signs of a slight slowdown. How did we get to the point where Edmunds.com reported the average trade-in value of used vehicles was up 75.6% Year-Over-Year (YOY) in June? Simply stated, it all began last year. The manufacturing shutdowns of early 2020 left dealers with low inventory levels as shelter-in-place orders lifted and consumers, armed with stimulus funds and a desire to spend, went auto shopping in droves. The resulting low dealer inventories meant that would-be new car buyers were often forced to consider used vehicle options instead. Both new and used vehicles prices started rising in response to this unusual surge in demand. Despite seeing some stabilization of vehicle pricing in late 2020, things took a turn for the worse this year due to the global shortage of microchips. According to TrueCar, a Consumer Reports partner, there still remains an inadequate allocation of microchips for automobile manufacturers, exacerbating the inventory shortages that began in 2020. With inventory down as much as 50% in some areas, willing and able consumers are paying significantly more, with 20% of all new car purchases in May 2021 transacting at amounts above MSRP. This phenomenon has not been limited to new car purchases only — CNBC shared earlier this month that the average price of a used vehicle was up 21% YOY with a 10% increase from Q1 2021 to Q2 2021. What does the future hold for car values? July witnessed a slight reduction in the rate at which vehicle prices were increasing YOY. However, Carvana’s CEO, Ernie Garcia, warns that the cost of used cars will not normalize until manufacturers can produce inventory at pre-2020 levels. Supply chain challenges are likely to cause “some lasting” impact on used car prices, said Garcia on an August 6th CNBC’s Squawk Box. Black Book, in their 2021 Vehicle Depreciation Report, paints a slightly less optimistic picture, projecting “residual forecasts to return to pre-COVID 19 valuation levels in 3 years.” How will this valuation normalization impact lending portfolios? For a variety of reasons, many consumers found themselves paying in excess of MSRP or NADA for a vehicle over the past 18 months. This reality will not change overnight — it will take the automobile manufacturers replenishing and maintaining inventory levels on a consistent basis for prices to normalize. Whether that be in 2022, or in 3 years as predicted by Black Book, the reset of vehicle valuations has the potential to negatively impact your auto loan portfolio. Black Book’s annual vehicle depreciation rates averaged approximately 13% for each of the 9 years prior to 2020, when it dropped to just 2%. As vehicle valuations fall back in line with more historic depreciation models, loans already on the books as well as loans written through the remainder of 2021 will reflect inflated sales prices. In the event of a future theft or total loss at a time when vehicle values are back to pre-COVID-19 levels, primary carrier Actual Cash Value (ACV) settlements will result in unprecedented deficiency balances. And that is where GAP can help. Essential protection for you and your borrowers GAP has always been an important risk management tool. However, in today’s economy when vehicles are still selling above MSRP or NADA, it is especially important to lenders and borrowers alike for collateral to be protected against the changes in valuation expected over the next several years. Private Passenger Auto carriers settle total loss claims based on the ACV of the vehicle immediately prior to the loss, regardless of the original sales price. Inflated sales prices mean inflated loan balances on the date of loss, resulting in increased deficiency balances — the exact thing GAP is designed to protect. Not only will your potential charge-offs be reduced with GAP protecting your collateral, but your borrowers will also be better positioned to finance their replacement vehicle without the burden of having to satisfy a large deficiency balance on their original loan. How State National's GAP is different The State National GAP product provides unparalleled flexibility in the marketplace, primarily given our unique position as the direct sales force, underwriter, and program administrator. With options to protect amounts up to 150% of MSRP or NADA, you won’t need to worry about future deficiency balances resulting from today’s extraordinary market conditions. Additionally, you can rest easy knowing your pricing is not inflated to cover agent costs or, worse yet, that you will be part of an across-the-board rate adjustment because another lender’s program is not performing as expected. If you’re looking for the most efficient GAP claim submission process (it’s true — we really do not require any supporting documentation to initiate a GAP deficiency balance claim) and fastest claim settlement time (2 to 3 days, on average), isn’t it time you consider State National for your GAP Program? Contact us today to start protecting your consumer loan portfolio from the effects of inflated auto prices — driving a more positive experience for you and your borrowers.     Contact us today to receive more information about GAP from State National. Francine Gagliano, State National Director of Client Services 817-265-2000 x1247 or fgagliano@statenational.com

'

State National Employees Crowdsource to Give Their Company Blog a Name When we launched our State National blog in 2020 as part of our company’s newly redesigned website, we had a few goals in mind: To provide valuable thought leadership and educational content that could be of help to our clients, potential clients, and anyone else in the industry whether they ever became a client or not To add even more transparency (one of our main core values) around the way we do business To help others in the industry get to know more about the thoughts and insights of some of our experienced subject matter experts and assist in building relationships To share more about the company culture we’re very proud of with those in the industry and with potential future employees And of course (speaking of transparency), because we are in business — to share benefits and features of our products and services and show credit unions, banks, and finance companies how we can serve them and help them be more profitable and successful The blog has been a great success so far, and we’ve received really positive feedback about the value people are receiving from our content — thank you!

4 Things to Consider When Buying Your First Car

The biggest mistake many first-time car buyers make is that they don't understand the true cost of ownership before purchasing a vehicle. A car will always cost more in total than its sticker price, and many new buyers act on their emotions rather than logic. Acting on emotions when purchasing a vehicle can lead to poor decision-making, an expensive learning experience, and/or buyer’s remorse. This article explores several topics to help you better understand the purchase process and not financially overextend yourself.