Making the Digital Mindset the Priority

“I had always kind of thought of engagement as more of an emotional connection and an emotional demonstration. Just because you check your account balance 15 times a week does not mean you're engaged.”--Ron Shelvin

What makes a brick-and-mortar business so appealing to so many? It’s not about the bricks themselves. The appeal of these buildings has everything to do with access to people. 

In looking at the mindset financial institutions need to adopt to connect with consumers on a digital level, it’s all about people. 

Ron Shevlin, Director of Research at Cornerstone Advisors and Senior Contributor at Forbes, has a take on digital connection that is worth reflection. He’s been advocating for digital growth and transformation for over a decade and has valuable insight into the future of digital banking, and online-first, mobile-first organization.

Taking on the Right Mindset

Will financial technology lead to ruin for many brick-and-mortar banking institutions? 

Fintech may be bringing a new mindset to the industry, but it doesn’t signal the end of banking as we know it. This mindset can complement incumbent legacy leaders, not compete with it. Both channels can enhance what the other has to offer. 

Ron reflected on an article he read years before, where one quote stood out to him in particular:

“Nobody wants a relationship with a computer.”

Ron remembered hearing this and bristling a little. His gut reaction was that “Nobody wants a relationship with a brick.” Consumers are not drawn to banking branches by the buildings themselves; they want to interact with a real person. 

As Ron explained, “It's not about the brick and mortar and it's not about the computer. It is about access to people.” 

Technology can be a great way to interact with clients and customers, and with tools like screen sharing, consumers still have a personal way to access people within a particular banking institution without having to drive to a nearby branch. 

Ron continued, “The mindset that's changing is the realization that computers don't replace the branch in terms of interaction. They supplement the ability to have access to people and facilitate that conversation. The face-to-face, human-to-human interaction is absolutely important, but it doesn't have to be in a physical place with the two parties in the same room.”

Oftentimes when banks and credit unions bring in experts to audit their digital growth, they are surprised to learn that digital growth in the financial realm should mean so much more than just online and mobile banking. There are endless opportunities for tools and various channels for digital banking. But really, consumers are in search of the experience of having well-defined systems and processes to reach a better place financially—regardless of how they interact.

Essentially, the human experience can be delivered through the digital experience or through the real-world physical experience. Both can work together. 

“It is about the experience and the quality of the experience,” Ron shared. This encompasses several factors, including: 

• How convenient it is to interact with a brand
• The quality of problem resolution and the overall outcome
• The capability for institutions and customers alike to take action after an interaction. 

Digital Adoption Versus Digital Transformation

Thanks to the pandemic, many more people have been logging on and completing their banking via mobile channels. As a result, a great number of banks and credit unions have been scrambling to build out their digital capabilities. 

But the harsh reality is that not all of these capabilities are accessible in a mobile format.

Ron explained, “You're not digitally transformed until your core is digitally transformed.”

In other words, banks may have implemented artificial intelligence and other Fintech tools, but until they have changed the very core of their operation. This may require steps like building out the data infrastructure and moving to the Cloud. 

But many banks haven’t taken all of these steps. They haven’t fully digitally transformed. This is about so much more than offering a mobile application, or eliminating overdraft feels. It’s about a starting approach of a digital mindset. 

There’s a lot of talk about banking customers being digital natives, and the banks that are thriving are also taking on this digitally-native approach, which gives them a major advantage over the incumbents.  It’s the same kind of advantage that Amazon had over Walmart in their digital channels. Amazon began in a digital space, whereas Walmart tried to paste digital solutions atop their incumbent model. 

While Amazon adopted a fully digitally-native solution, Walmart tried to bring a digital model into their legacy model instead of revolutionizing and reordering their processes, which has created a lot of friction within the company. 

Banks have the same choice: Are they ready to go digitally native? Traditional incumbent financial brands have to capture some of this thinking and fully transform.  

Customer Segmentation 

Ron turned his thoughts to customer segmentation, suggesting that they throw out the quadrant or nine-box grid approach to segmentation. He instead offered that they should take a similar approach to the United Services Automobile Association (USAA)—a bullseye.

At the center of USAA’s bullseye is actively deployed military. While this is a small portion of their total membership, by serving this segment of their members, USAA is also doing a decent job of serving active, non-deployed military members and others who fit in the next ring outside of their “bullseye.”

Ron shared, “So reality is, is from a strategic perspective, you've got to answer the question, "Who's in our bullseye and can we have more than one bullseye?" But reality is that you focus on the customers or members who are in your bullseye and build around them.”

What likely follows is that USAA and similar institutions serve its customers better, in more specific, personal ways, building connections as it goes. This kind of segmentation and laser-focus is popping up in all kinds of institutions, with banks and credit unions for gig workers, Black Americans, disabled consumers, LGBT consumers. 

The catch of this kind of customer segmentation? Ron explained, “You can't just pay lip service to it. There have to be unique needs [met]. We've seen it for 15 years now with banking for women: Pink doesn't do it, my friend.”

As Ron elaborated, “In fact, many women don't have unique needs. My wife manages the finances in this household and she says, ‘I couldn't care less about a bank for women. I'm managing a family.’ But there are segments in the female population that do have unique needs and you've got to find those.”

The important thing to remember about customer segmentation is defining who is in the bullseye. It’s about looking back at what made the institution successful, seeing who is drawn to the institution, and which consumers are creating and establishing the bullseye.

 But what about people who fall outside of the bullseye?"

When banks and financial institutions can identify the bullseye, they can focus all of their efforts and energies around the bullseye. They then benefit from a kind of halo effect; those who mostly fall within the surrounding rings.

Driving Engagement at Your Financial Brand

A mere seven percent of consumers are highly engaged with their bank. But one in five consumers is totally disengaged. Why does this happen?

The term “engagement” has been a common buzzword in the business world for 15 or so years, first emerging in advertising: Are people clicking on ads and really interacting with them and absorbing them?  Ron mused: 

“I had always kind of thought of engagement as more of an emotional connection and an emotional demonstration. Just because you check your account balance 15 times a week does not mean you're engaged. Turning to your bank or credit union a few times a week, a month, whatever it might be for advice on how to manage your financial life and to talk about the issues and concerns, whether it's face to face or not face to face or even using the tools, that demonstrated a greater level of engagement because of that emotional involvement or that emotional investment.”

The notion of engagement can span from transactional activity to more interactional activity. In Ron’s experience, so many consumers don’t use their primary bank's debit card, do not have a credit card with their primary bank, and aren’t even using their primary bank’s person-to-person payment tools—they're using Venmo or Square or another similar app.

As he explained, “For a lot of consumers, primary is really nothing more than the place they park their paycheck… Checking accounts have become paycheck motels, temporary places for people's money to stay before it moves on to bigger and better places.”

Knowing this, it’s up to banks to drive engagement. There must be opportunities to interact and demonstrate the value financial institutions can provide through digital engagement. The events of 2020 solidified the fact that banks are not going to see enough people regularly coming into a branch to create the level of interaction you need to develop engagement and a relationship. It has to happen digitally.

Transactional interactions are now the legacy mindset. The opportunity for banks going forward is to put the transformation of people over the transaction of dollars and cents.

Developing Financial Health

The traditional perspective regarding financial health and consumer financial health issues is that people aren't financially literate, which causes financial problems and leads to poor financial health. 

But this isn’t necessarily the case. 

Consumers do not need to be financially literate to have good financial health. They need good financial behaviors.

Financial literacy may not have any impact on financial health. More importantly, income doesn’t always necessitate financial health. 

As Ron put it, “There are plenty of people I know who are in the low-to-middle income level who have the discipline and the lifestyle that they're okay and I know people who make $150,000 that do not spend responsibly.” 

Ron continued, “We have to look at financial health… out of the context of income, [and] more in the context of behavior.” Ultimately, financial health is about performance and those who want to maximize their performance.

He continued. “Financial health is not this binary, ‘You have health or you don't have health.’ It's a spectrum and we need a way to understand where somebody is on that spectrum.” He also offered that someone’s credit score is not always a great indicator of financial health; that credit score only measures someone’s credit worthiness. 

How do financial institutions fit into helping consumers build their financial health? They have to find ways to create a positive impact on consumers' financial health wherever they are, which retire more than just investing and lending. Ron suggests turning this into a selling point; to prove that these banks are having a positive impact. How many customers have improved their financial health? How have they done so? By home much. This then becomes a valuable marketing tool. 

Looking ahead, banks and credit unions have a tremendous opportunity to connect with consumers digitally, and in doing so, they can help consumers improve their lives in amazing ways—by building their financial health, supporting the small businesses in their community, and engaging in meaningful ways. Because after all, it’s not the bricks that are driving consumers to branches—it’s the authentic, human interaction. And that can happen anywhere.