Problems At The Core

Many financial institutions – particularly smaller banks and credit unions – are severely limited by the core DB systems they run. You can have grand plans and good intentions to transform the banking experience, but an aging core system presents a major roadblock. Many banks and credit unions are way overdue for a new technology platform. Yet a core conversion is a massive headache and no one has a taste for it, but at Informa we say it’s time to bite the bullet or risk getting left behind, and this you do not want to do!

Retail financial institutions have grossly underestimated the technological changes necessary to thrive in a digitally dominated world. In October of 2012 according to Celent, an international financial research and consulting firm, a significant majority of banks and credit unions are ill prepared for the tech upheaval being thrust upon them.

In a report from 2012 on tech trends affecting financial institutions, Bob Meara, Senior Analyst with Celent’s Banking Group, says more and more banks and credit unions are heading down the right road, but perhaps not fast enough. Furthermore for the first time ever, the majority of financial institutions now view online channel as strategically more important than that of the branches. Even though it took nearly two decades’ for this role reversal to occur, it does still reflect a dramatic shift in thinking.

Who would have thought that today online account opening and loan origination systems are becoming more popular, and for good reason. When integrated with online, branch, and call center channels, customers may start the process online and finish with a quick chat or call session originated online. It is all about saving time and money and staying ahead of the curve in order for the financial industry to survive. Efficiency gains are usually tied directly to the use of multi-channel technologies. For example, a major bank notes their “Efforts to decrease the cost to serve” are directly linked to “Better leveraging a multi-channel focus”.

Another major bank states their objective is to grow from “40% to 75% of all transactions via remote channels”, and links their goal of a “50% improvement in labor productivity”.

How are they achieving these results? In the United States, banks and credit unions are using automated deposit of checks and cash to shift transactions from tellers to the ATM.

A question to ask ourselves is this…Will Online Channel Dethrone the Branch?

Modernizing Branches… One Step at a Time

For branches, the status quo is unsustainable – a fact slowly sinking in to North American financial institutions. Nearly one in five banks plan say they are very likely to reduce the number of operational branches they maintain, but only 7% of credit unions plan to cut back on branches.

Over the past three years, it was reported by Celent that they have seen a noticeable increase in technology investments intended to improve the in-branch sales and service experience, specifically CRM platforms, customer analytics, and campaign management systems.

Reality Check: Deploying new branch technologies does absolutely no good if you don’t affect the operational, cultural, sale and staffing changes that come along with them.

Two years ago, the bulk of branch channel technology spending had been check imaging. With those projects largely completed, banks have focused on eliminating other forms of paperwork. In 2010, 22% of banks and 47% of credit unions surveyed had automated deposit account origination systems. In the 2012 survey, adoption grew to 28% and 52% respectively.

It comes down to this, the more digital banking becomes, the less important branches are. And so we ask you, are you ready to move ahead of the curve.

“It may be a journey and not a destination,” Meara says. “A growing number of financial institutions at least have their bags packed and are ready for the trip.”