The banking industry is experiencing a shift of focus in how to best differentiate themselves among peers and competitors: This focus is digital. Gone are the times that financial institutions could rely on the best rates or other account opening perks to drive deposit growth. In today’s market, consumers are looking at several other factors that historically are unorthodox in the banking industry. These benefits enrich the customer experience and include, but are not limited to:
· Omnichannel
· “Smart” banking
· Friendliness and integration capabilities of applications
· Customer relationship management
Banking clientele now demand an experience where their needs and individual preferences are understood. The typical customer no longer will accept cookie cutter solutions.
How we arrived at this point
The banking industry has felt the pressure to go digital due to the emergence of new competition, such as FinTech and digital-only banks, and the effects of other markets utilizing digital.
With the emergence of digital-only banks and FinTech companies, brick and mortar financial institutions face a threat from new market entrants that had not been experienced before. Financial institutions are forced to adopt new concepts and ideas to prevent deposits from leaking to these new competitors. This adoption is generally centered around platforms and accounts that are more user friendly and convenient for consumers.
Other industries have already adopted digital and are creating a consumer that expects customized experiences. Take the retail industry: Giants like Amazon (Nasdaq: AMZN) and other online retailers have unlocked digital in a way that creates a very personalized experience for consumers. They make accurate recommendations (based on large amounts of data and algorithms) and in a manner that does not come across as product pushing. As a result, the banking industry is feeling the pressure to adopt a more customer-centric approach that is now expected by bank customers and is different than how the industry functioned in the past.
What this means for financial institutions and their customers
Due to this shift, both financial institutions and their customers are poised to benefit. Customers want a better experience based on ease, efficiency, and recommendations that are tailored to one’s specific situation. This will require banks to make updates to their applications and platforms, and as a result, will give the financial institution significantly more data to use when making recommendations. As a result, the recommendations made will be accurate, increasing the offer acceptance rate, and will give the impression that the banking relationship is tailored to the customer, potentially gaining trust from their selected financial institution.
Executives of large banks have noted this shift of focus and are quoted below
Tim Sloan, CEO of Wells Fargo (NYSE: WFC), during their Q3 2018 earnings call, stated “We’ve also continued to introduce industry-leading innovations, including using technology to provide our customers more control and transparency. In September 28% of all retail mortgage applications were done through our online mortgage tool, which we introduced in March. We also recently launched Control Tower, which provides customers with a single view of their digital financial footprint, including where their Wells Fargo debit or credit card or account information is connected, such as with recurring payments. It also allows customers to quickly turn on or off their Wells Fargo debit and credit card from their mobile device.”
Brian Moynihan, CEO of Bank of America (NYSE: BAC), during their Q3 2018 earnings call, discussed the investment into digital platforms that will not only improve customer experience but, has long-term savings implications for the bank. “This consistent investment allows us to replace almost every major platform that the company operates and now add new and exciting platforms for growth at the same time. In addition, we have reduced data centers, migrating 2/3 of our applications to our internal cloud. We rolled out digital capabilities across our lending consumer online platform. We rolled out Erica, our digital assistant, our digital mortgage, our digital auto and on and on. In our wealth management business, we are rolling out a sleeker Merrill Lynch digital platform with more integration between banking and investing, along with adding industry-leading capabilities on market data, enhanced document scanning and texting capabilities between our advisers and our clients.”
Marianne Lake, CFO of JPMorgan Chase & Co. (NYSE: JPM), discussed digital on their Q3 2018 earnings call, when an analyst questioned the financial institution’s deposit outflows. “When we think about the deposit base and the retail consumer relationship, deposit and rate pace is an important part of it but it’s increasingly less important, not that it’s not significant. And so when you think about the value that we give to our customers, it’s not just that, but it’s also all of the customer experience initiatives that we’ve had. It’s about convenience. It’s about digital, mobile capabilities. It’s about launching new products, new services, simplifying the environment for them…”
What this means for the M&A market
M&A activity in the digital transformation space has been busy as of recent and will continue, especially with businesses that focus on the financial industry. Due to financial institutions utilizing outside partners and third-party vendors, businesses will apply M&A efforts to take advantage of new intellectual property, acquire new clientele, among other non-organic growth initiatives. A few recent transactions are highlighted below:
· Jack Henry & Associates’ acquisition of BOLTS Technologies, Inc. earlier this month
· Finastra’s acquisition of Malauzai
· Urban FT Group, Inc.’s acquisition of Digiliti Money (Cachet Financial Solutions)
Companies that we are watching include: Backbase, CR2, Finastra, Intelligent Environments, NETinfo, Tagit and Temenos, among others.
Conferences worth noting include Backbase Connect, in Amsterdam, as well as the Digital Banking Forum, and the Temenos Community Forum.
Reports that 7 Mile Advisors has published on the banking technology sector and other sectors can be found here.
Author: Marty Johnson, Associate at 7 Mile Advisors
About 7 Mile Advisors
7 Mile Advisors provides Investment Banking & Advisory Services to the Business Services & Technology Industries globally. 7 Mile Advisors advises on M&A and private capital transactions, and provides market assessments and benchmarking. As a close-knit team with a long history together and a laser focus on our target markets, 7 Mile Advisors helps its clients sell companies, raise capital, grow through acquisitions, and evaluate new markets. For more information, including research on the M&A markets, visit www.7mileadvisors.com.
All securities transactions are executed by 7M Securities, LLC, member SIPC/FINRA.
Financial Institutions Focus on Digital was originally published in 7 Mile Advisors on Medium, where people are continuing the conversation by highlighting and responding to this story.
