Keep it Human: Engaging Consumers Where They Are
October 3, 2023 | 1 min read
The Inside Scoop from Javelin Strategy & Research on Top Questions about Gen Z, Digital Banking, and More
MX recently sat down with Mark Schwanhausser, Director of Digital Banking at Javelin Strategy & Research to talk about key trends impacting financial services and digital banking in 2022. The discussion drove several key questions from our audience — check out the answers from the Javelin expert below. You can also go back to watch the full Javelin Strategy & Research discussion with MX at 2022 Digital Banking Trends and Predictions.
Question: Why do you think Gen Z has fewer relationships with traditional financial institutions?
Mark Schwanhausser, Director of Digital Banking at Javelin Strategy & Research: Historically, financial institutions have maintained transactional relationships based on money movement. Today’s consumers want and expect more. They expect financial institutions to help them solve their financial problems, such as saving money or building borrowing power. Unfortunately, financial institutions are not effectively helping fulfill their financial needs. In addition, P2P is driving younger consumers to non-banks. As they move money back and forth to friends (for pizza or whatever else they might be sharing or buying), it does not seem any different than having a checking account. So why would they go to a bank if they already have a money movement solution that solves their problems?
Question: Can you expand on how APIs will impede and not enhance the mobile experience?
Mark, Javelin Strategy & Research: This section of the report discusses how financial services providers must integrate and effectively expose functionality throughout the mobile banking experience. Today, many financial services providers have created siloed, bolted-on experiences that lack personalization. For example, often, Zelle is not integrated effectively with the checking account ledger. It is not displayed in alignment with bill pay and transfers. Zelle is a perfect example of taking something critical and important and burying it within the mobile application, which creates a fragmented consumer experience. Unfortunately, if consumers cannot intuitively find new functionality — if it is not integrated properly into their daily lives and digital banking experiences — it becomes an afterthought, resulting in single-digit adoption.
Question: How do you define a primary banking relationship?
Mark, Javelin Strategy & Research: From a technical point of view, the primary banking relationship is based on where consumers have their checking account. Most of the time, the primary institution is a bank or credit union. However, if consumers are not buying the next product or service from the primary institution then the relationship is primary in name only — for example, if a consumer has an auto loan or mortgage with a different financial services provider. Personalization presents an opportunity to connect consumers’ financial lives, strengthening your relationship through advice, insights, offers, etc. “Share of mind” wins “share of wallet,” which wins the primary banking relationship.
Question: Is gamification just a fad?
Mark, Javelin Strategy & Research: Gamification is no more of a fad than having conversations with consumers in a branch. It is essential. It is a mechanism for starting meaningful conversations through digital channels. It represents a critical tool for the next phase of financial fitness — the evolution from self-guided to bank-guided relationships. Financial institutions traditionally have catered to the self-aware, financially literate, committed money manager. Gamification has the potential to usher in a new era of bank-guided relationships defined by digitally-delivered personal insight and advice.
Question: How do banks and credit unions overcome the challenge of delivering meaningful transaction and balance data to create insights? Most core banking systems have a challenge delivering data that can truly drive meaningful insights?
Mark, Javelin Strategy & Research: Two models are evolving. The Hindsight Model, which is the general practice today, starts by identifying available historical data that can be presented to customers in a helpful way, such as spending insights. The Foresight Model starts by identifying financial principles, and then identifies data that would help consumers see where they stand so they can correct course. Examples include saving an emergency fund, building borrowing power, and paying down debt.
Developing an advice-driven Foresight Model in digital channels starts by thinking like advisers, not just transactional enablers. That means identifying fundamental principles of personal finance and then mining data that not only quantifies a consumer’s habits but also recommends benchmarks, encourages progress toward goals, nudges consumers in a healthy direction, and creates a craving to continue regular monitoring. I do not want to be glib that this is simple. It all hinges on identifying, collecting, and mining the right data – and many financial services providers do not even do that well with the information they hold in their own silos.
Question: To what extent can MX provide PFM?
MX: MX does not offer your grandfather’s PFM. It is personalized financial automation. MX leverages machine learning and AI to provide consumers with personalized financial guidance that doesn’t require them to do any heavy lifting. This personalized assistance uses behavioral data from the user to automatically generates guidance to protect (guard and analyze finances to identify anomalies or potential fraud); guide (direct and guide to help keep users moving in the right direction), and inform (update with news and notifications that users need to stay on top of their finances).
While many providers offer batch data pulls, MXinsights are offered in real time thanks to MX’s industry-leading data cleansing. Consumers receive a constant stream of guidance that flows as often as they spend rather than quickly irrelevant information pulled monthly or weekly. Within the first five months of using the quick and accessible ‘swipe to save’ insight, one of MX’s larger partners increased savings by $2.3 million with an average of $135 saved per user.
Mark, Javelin Strategy & Research: If I could add an element of caution here, “PFM” is a slur to many financial services providers. It connotes the failings of personal finance in a tab – a bunch of so-so tools for a too-small segment of do-it-yourselfers. Many financial services providers shut down when they hear that phrase, and I will not argue with them. Their pain is real. We have to think bigger and bolder – and act as coaches, not just plumbing assistants who hand consumers a wrench when they’re trying to fix a leaking pipe.
Question: I’ve observed that literally every U.S. bank and credit union (with the exception of BoA and Revolut) has created an entirely separate CX (digital placement, look-and-feel, presentation of information, widgets, tools, etc.) for financial health and wellness vs. security, fraud, and safety. Do you suspect these ‘walled off compartments’ are just another example of FIs building disconnected silos - or do you think there might be a logical and customer-centric rationale for keeping ‘financial safety’ entirely outside of financial health and wellness interaction and conversion?
Mark, Javelin Strategy & Research: There is a strategically important emotional connection between financial fitness and digital security. It is all about creating a sense of confidence and control. Personal finance is rife with counterproductive emotions about money – anxiety, feelings of futility, and the constant tug of war between instant gratification and long-term financial happiness.
Similarly, one of the main reasons consumers say they are reluctant to try aspects of digital banking is they do not believe it is secure. The strategic connection between these two efforts is to supplant those negative emotions with a sense of unprecedented control and confidence. The name of the game is to turn helplessness into empowerment with innovations in cash-flow awareness, financial and security alerts and notifications, on/off card controls, oversight and control of private data shared with third parties, and a radical approach to to oversee all bills.
Question: Are banks having success in offering insurance and investment products?
Mark, Javelin Strategy & Research: I will go out on a sturdy limb and point to USAA in insurance, and then add that investing is a frontier that many banks are pouring money into. For example, Bank of America is banking on Life Plan and Merrill Lynch, and U.S. Bank, Navy Federal Credit Union and others are actively building a bridge to investing. One of the main goals is to turn savers into investors and nurture relationships with affluent, younger consumers who can be introduced to passive investing with a robo approach.
Question: Unfortunately, our systems base financial health insights on information that is largely out-of-date, e.g., 24- to 36-hour delays for credit card users. Do we see blockchain changing this with real-time transaction settlement?
MX: According to CB Insights and Accenture, blockchain technology, which serves as a decentralized “ledger” of transactions, could disrupt transaction settlements. Rather than using SWIFT to reconcile each financial institution’s ledger, an interbank blockchain could keep track of all transactions publicly and transparently. That means that instead of having to rely on a network of custodial services and correspondent banks, transactions could be settled directly on a public blockchain.
Further, blockchain technology allows for “atomic” transactions, or transactions that clear and settle as soon as a payment is made. This stands in contrast to current banking systems, which clear and settle a transaction days after a payment.
That might help alleviate the high costs of maintaining a global network of correspondent banks. An Accenture survey among 8 global banks found that blockchain technology could bring down the average cost of clearing and settling transactions by $10 billion annually.
Question: In your view, where should digital experience and consumer behavior analytics fit on an investment priority for a financial institution?
Mark, Javelin Strategy & Research: We have outgrown the day when adoption is a sufficient measure of success. With traditional PFM in a tab, we could essentially count the users who opted in. Although that tells us something about the number of regular users, it does not tell us about the depth of their engagement or whether sessions are satisfying. This problem is only going to grow as financial institutions increasingly evolve from reactive to proactive relationships based on insights and recommendations. It is only going to become more important to develop benchmarks that show how your institution stacks up against key rivals and measure things like usefulness, satisfaction, and innovation.
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