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

Markel Style With State National

After Pandemic Interruptions, Markel Co-CEO Richie Whitt Describes His Long-Awaited Return to State National Headquarters

Much to Be Thankful For

State National Executive Vice President Trace Ledbetter Reflects on the Bounty of the Season

Bringing Partnership to Life

How State National’s Client Advisory Council Creates a Virtuous Circle At State National, client experience is the foundation of everything we do. We don’t see our client relationships as static; each one is dynamic and evolving as a living, breathing entity. And it’s vital that we prioritize and nurture our client partnerships as we do with the other foundational pillars of our company. One the most effective ways we do this is to collaborate with our clients. We talk to our clients, we ask them what they want, and we include them when crafting our business strategies. We have always considered actively getting feedback from our clients as an integral and critical part of our strategic planning. It’s why we conduct our Annual Survey of Service Quality as well as other surveys measuring other aspects of our service delivery. Our #1 goal is to help our business partners succeed, so finding out what they want and need, and how we can better provide it to them, is always top of mind. Taking the Quest for Feedback to the Next Level In 2018, we went a step further and created the State National Client Advisory Council (CAC) to convene a group of some of our top clients to discuss issues that are critically important to them and to us. It’s a forum to share information, gain consensus on key topics, and collaborate with peers and partners to creatively pursue problem-solving strategies and growth opportunities for their institutions As I said in my last CAC blog, our intention in establishing the State National CAC was, and still is, to listen carefully to the voices and concerns of our clients, foster an atmosphere where collaborative insights can emerge, and allow our strategy and product development to be guided by those who will actually be using it every day. Specifically Designed to Add Value — For All Yes, the CAC is of great benefit to State National, because it gives us opportunities to deepen relationships with some of our closest partners, and align our organization more precisely with our clients’ perspectives. We get to hear both what’s working well as well as challenges they’re facing, not only in our area of expertise, but in all areas of their institution. As we’ve been known to say a time or two, we’re successful when our clients are successful — so anything we can contribute to help them grow and succeed ultimately contributes to our own success as a company. But it’s definitely not all about us! Our council was created with a true desire to provide members with tangible, real-world benefits that not only make it more than worth their time but also add tremendous value they don’t get from any other partner. But don’t take it from us — here’s what some of our current CAC members have to say: “By having open conversations about what’s going on in the marketplace with other credit unions who are going through the same things, I’m able to learn how others are attacking certain problems and I’ve absolutely taken some things back to my credit union and implemented them.” ~ Mike Shockley, VP of Lending, True Sky Credit Union, Oklahoma City, OK “It’s great to talk about emerging technologies or other ideas we can bring back to our specific credit unions and share with our leadership team — ideas we might otherwise not have been exposed to. The volume of information at a very high level that someone can obtain by joining the CAC is wonderful." ~ John Cotner, VP of Commercial & Mortgage Lending, Horizon Credit Union, Boise, ID “When it comes to topics like innovation and technology and AI, I think I've learned more from the CAC than I have by going to conferences and things like that, because you can really have more intimate conversations with your peers at the council, and State National does a great job of bringing in great presenters that really position the topics well, so it's easily understood as we're reviewing certain new innovations.” ~ James Bolin, SVP & CMEO, Silver State Schools Credit Union, Las Vegas, NV “One of the benefits of being on the CAC is not only meeting some of the participants from different parts of the country and having discussions, but I have also been able to take away two specific strategic business initiatives that directly impact the credit union that came about through my participation on the CAC, including one that is a multi-year strategic initiative.” ~ Steve McIntire, SVP, Enterprise Risk & General Counsel, SELCO Community Credit Union, Eugene, OR State National is a great partner. I'm glad they asked me to join the CAC because it gives me an opportunity to keep that partnership active and very vibrant. And I enjoy the fact that I get to see what State National is doing and what’s on their horizon and how it’s going to benefit not only my credit union, but the credit union industry. So it’s been really awesome.” ~ Karen Hoeppner, Chief Lending Officer, My Credit Union, Minneapolis, MN A Real-World Example of CAC Value The council’s 3rd quarter 2021 meeting provides an illustration of the tangible benefits of this ongoing collaborative sharing of ideas and insights. The council met in August in Irvine, California, headquarters of Filene Research Institute. Filene is an integral thought leadership partner for State National, and that partnership further extends directly to our CAC members. The business portion of the event was held at Filene’s innovative West Coast outpost. Dr. Bill Maurer, professor at UC Irvine, Director at the Institute for Money, Technology, and Financial Inclusion, and research fellow at Filene’s Center of Excellence in Emerging Technology, conducted a working session called “The Pandemic as Practice for a Less-Predictable Future.” Group discussion led to shared best practices on how credit unions can automate communication regarding the notice cycle, which improves their member perception of CPI. Participants also explored other risk mitigation strategies credit union peers are using and how they are approaching risk mitigation overall in light of the uncertainty and turbulence caused by the pandemic and other economic shifts. Relevant, Actionable Insights Following Dr. Maurer’s presentation and discussion, CAC members and SNC directors formed working groups to discuss business challenges related to highly relevant credit union hot topics, including data governance, AI implementation, and digital automation, including mobile. After a lively conversation and sharing of experiences, each working group was tasked with conducting further collaborative research into their group’s subject area. With their curiosity sparked, CAC members made plans to dive in together to produce real-world insights they can share with other decision-makers in their credit union. The groups will also present their findings at the Q4 CAC meeting in November. Personal Connections When the day’s work was over, members joined State National representatives for an enjoyable and relaxing evening outing. After the mental stimulation provided by the day’s deep dive into important credit union topics, it was nice to move to a casual setting on the water and interact on a more personal level, while enjoying excellent conversation and lots of laughter. Then, the next day, it was time to head back to their credit union homes, bringing knowledge, insights, advice, and inspiration with them as they work on their findings and look for openings within their institutions to leverage what they’ve learned. Discover More Are you a curious credit union professional, always looking to grow and give back to your organization? Do you enjoy bouncing ideas off like-minded people in your industry and get a little thrill when you see these synergies expand what’s possible for you and for them? Are you a believer in true connection with those you work with and mutually beneficial partnerships with your service providers? Contact Heather Clyde, State National’s Client Advisory Council Program Manager, at HClyde@StateNational.com to explore the possibility of council membership. “The CAC has exceeded my expectations. On a fun note, the group is great. My colleagues on the CAC and the staff at State National are all very enjoyable and very professional. State National does a wonderful job of putting the events together. They’re well thought out, well organized. I think it’s a great two-way relationship, the CAC. I think we’re benefiting State National, and they are certainly benefiting us.” ~ John Cotner, Horizon CU   “State National has always considered our clients as more than just clients — we truly do see each and every one of these connections as an authentic partnership. Our goal for client relationships is always more than transactional; we’re always going for a win-win situation and strive to evolve all of these partnerships to serve the long-term strategic business goals for both parties. Our CAC is growing to be a vital component of State National’s overall corporate strategy, and it’s very gratifying to see that it is already helping to serve the long-term strategic interests of our CAC members and their credit unions.” ~ Heather Clyde, Client Advisory Council Program Manager