4 Best Practices for Banks Launching Digital Advice Channels
“I think that you will all agree that we are living in most interesting times. I don’t remember a time in which our history was so full, in which every day brought us new objects of interest, and, let me say also, new objects for anxiety.”
— Joseph Chamberlain, British Politician, 1898
We can all relate to experiencing some of the anxiety from the impact of rapid technological change on our lives, businesses and society as a whole. Mr. Chamberlain’s world was being turned upside down by innovative technologies such as the light bulb, the radio and one of the most underappreciated 19th century inventions, the zipper!
Let’s fast-forward to the present where 21st century technologies are transforming the wealth management and banking experiences. Leading financial firms are increasingly tapping into digital advice offerings to be responsive to the ever-expanding financial expectations of their customers which is critical to continue growing their business and staying a step ahead of the competition.
Innovative digital tools are transforming the banking and wealth management experiences. Leading financial firms are tapping digital advice offerings to meet their customers’ ever-increasing expectations and continue growing their books of business.
Banks are encouraging collaborative efforts between their retail and wealth divisions. Sharing data to facilitate seamless experience during cross-selling opportunities.
Many banks have realized that they have to connect to their customers in a digital way, both online and via mobile apps. This puts them a bit ahead of the curve in the overall financial services market, but they now have to go further, towards true digital advice as they are moving into the wealth management space.
This was the message delivered by Eric Jones, Senior Vice President of Product Management for the Bank Solutions Division of Fiserv, at the Forum 2018 client conference that was held in Las Vegas earlier this month.
Banks must expand their scope of services beyond simple checking and savings accounts in order to grab their slice of the digital assets pie, Jones advised. It will be critical to remain in the center of consumer financial activity to reduce the transfer of assets to competitors, he stated.
The usage of online banking platforms is increasing, which provides an advantage since they have more consumer touch points versus wealth management firms, Jones noted. Their clients can go weeks or months without interacting with a managed accounts, but the average bank customer does 20-30 transactions every month.
Digital advice is expanding rapidly through banking as robust application programming interfaces (APIs) enables conversion strategies more by seamlessly connecting third party applications to core banking platforms, such as Fiserv’s DNA, Jones reported. Fiserv launched a multi-year effort to open their core services to enhance the customer experience and improve workflow integration, which is now coming to fruition, he stated.
“Customers can now seamlessly move from payments to opening a new account, to transferring funds into a brokerage account within same user experience without hopping in and out of different applications,” Jones described.
How successful are these new workflows and customer experiences?
The improvements in digital engagement of banking customers has resulted in asset inflows into savings accounts and CDs for example, Jones observed. As customers become more digitally engaged, they purchase more banking products per household, and make more transactions such as bill pay and account transfers, he added.
Jones pointed out that banks that are effective at digital engagement have seen an increase in their net promoter score.
What other types of integrations have increased customer satisfaction?
Integrations between core banking and wealth management systems have shown great promise in delivering added value to customers, asserted Tirdad Shojaie, Senior Vice President of Product and Business Strategy for Fiserv’s Investment Services Division.
“Siloed financial planning is dead”, Shojaie stated, saying that more wealth management firms are choosing all-in-one technology platforms that include financial planning features, which provide a seamless user experience for advisors, he insisted.
How Are Non-Bank Competitors Changing the Landscape?
Banks are no longer only competing against one another. They’re competing against retail companies that offer customers a customizable user experience. A recent survey found that 73% of Millennials are more excited about new financial services offerings from Google, Amazon, Apple, PayPal, or Square than they are from their own bank. Convenience is the new loyalty, and banks must provide the levels of speed, intelligence, and intuitiveness that their customers have come to expect.
It will be difficult for financial services firs to compete directly with the consumer retail giants, Shojaie stated. They will need to cultivate alternative distribution channels with technology partners to attract enough new customers to maintain growth in their digital advice business.
A B2C robo called Honest Dollar, which was acquired by Goldman Sachs in 2016, recently partnered with TurboTax to enable users to open IRA accounts while preparing their tax returns. I saw this first hand when helping my daughter with her taxes. At the tail end of the process, TurboTax analyzes your information for ways to reduce your taxes and then announces that opening an IRA could save you money.
While they are still two separate website, the messaging and interface design makes it relatively easy to open an account on Honest Dollar and then come back to TurbotTax and finish your tax retuirn.
This was a brilliant deal for Honest Dollar (which calls itself Honest Dollar by Goldman Sachs), and I’m sure it is costing them an arm and a leg, but has probably increased traffic to their website by 10x and generated thousands of new clients. Honest Dollar has a two-tiered pricing structure; $1/month for accounts under $5,000 and 0.25% for accounts over $5,000. Their pricing is like a mix between Acorns and Wealthfront, although Wealthfront is actually free for accounts under $10,000.
Fiserv recently announced their own partnership to integrate technology from digital advice provider Marstone into their Unified Wealth Platform. This will allow asset managers, broker/dealers, banks and credit unions who are Fiserv clients to implement either a self-service “robo advisor” or a hybrid model. Firms can also deploy a white-labeled investor portal, a capability not previously available on Fiserv’s platform.
Besides their online wealth technology, Marstone also provides account aggregation, digital financial planning tools, portfolios and an interactive questionnaire process that can be tailored to firms’ existing workflows. They can use models built by Marstone or their own custom models.
A three-year study from Scratch, an in-house unit of Viacom, found that a third of Millennials believed they won’t need a bank in the future. They also ranked the top four global banks among the “ten least loved brands” and would rather go to the dentist than to their bank.
Overstock.com, with 40 million unique monthly visitors, became the first consumer retail giant to launch a robo-advisor. They launched with an innovative flat pricing model of $10/month, no matter what assets are in the account. This could be quite lucrative for Overstock since it’s not until an account’s value reaches $48,000 that the fee equals 25 bps, which is what Wealthfront charges for all accounts over $10,000.
The Rise of Conversational Technology Platforms
I saw a demo of this product at the conference. It supports queries such as, “Alexa, what’s my checking account balance?” “Alexa, when is my next bill due?” and “Alexa, please pay my electric bill.” It is also able to present relevant updates and offers for new products that the consumer would be most interested in based on analysis of spending patterns and other behaviors, Jones explained.
Fiserv is also developing a chatbot product that would be a 24/7 customer service channel for wealth management firms, Jones revealed. It will be AI-powered, using natural language processing to enable basic conversations with customers.
Since it can monitor users’ keystrokes and has access to all core banking data, the chatbot will more easily anticipate what customers want to do, even before they open the help window, Jones noted. Combined with digital marketing data, the offers that the chatbot will present to users will feel very natural, just like part of normal conversation and certainly less intrusive that banner ads or emails, Jones insisted.
The Investment Services team is working to teach Alexa to support wealth management use cases, Shojaie mentioned. These will include asking to evaluate specific accounts or questions about progress towards goals.
Leveraging Industry Standards
The European Union is ahead of the US in development of open banking standards and regulations. (i.e. New account opening for banks & credit unions for originating accounts and loans), Jones observed. These standards define a set of business services that are enabled through a technology layer that allows authorized third parties to retrieve and update data in bank core databases.
The Banking Industry Architecture Network (BIAN) is creating a common taxonomy for banking-related web services such as account opening, transfers, mortgage originations, etc.
Fiserv has been investing in enhancing their enterprise services layer, which is built on industry standards, to provide an open-access model into their core banking platform, Jones explained.
4 Best Practices
Shojaie recommended that banks should target unification at the user interface level such that there is a consistent user experience across the bank’s middle and back offices.
This advice meshes well with recent research on omnichannel user experiences that identified 5 key components for success:
- Optimized for Context
Firms looking to launch their own wealth management platform should define their optimum customer experience first and then map the required technology to support it, Jones advised. Many banks wind up reversing these steps and bringing in what they believe to be the best technology solution without fully understanding what they want to present to customers.
It’s also helpful to bring in the right level of business expertise as early as possible so as to create a solutions diagrams to guide the technology team, Jones noted. Banking platforms require people and their expertise to be in a continuously consultative process. Business consulting services can help implement the right technology solutions, he said.
What are fintech providers doing?
Legg Mason, Financial Guard robo, Fiserv does back end