Kyle Witt knows that as the CEO of a small bank in central Wisconsin it certainly doesn't sound good when he says his goal in advancing technology "is not to have people walk into the bank."
Witt is spearheading an upgrade in data management capabilities at the $119 million-asset Ergo Bank in Markesan. The project is part of an effort to offer the bank’s 4,000 customers more digital services — and to appeal to new, younger consumers.
Small banks still need to have face-to-face interactions with local customers, but that sort of communication may become less important to future generations, he said.
"We understand banking is quickly becoming a digital footprint, rather than a brick-and-mortar footprint," said Witt, whose bank is working with the St. Louis fintech Neocova to develop cloud-based data collection and management as a foundation for all bank operations. "These decisions are not based on current customers' needs as much as how do we grab the next customer?"
Ergo, which dates back to 1910, is an example of a community bank trying to overcome the stigma that
"Digital transformation has a massive umbrella, and I know a lot of people don't even like using the term because it can mean so many things to so many different people that it is just meaningless," said Stephen Greer, senior analyst with Celent. "I spoke to one bank that said it went through a digital transformation just because they went paperless."
Witt has seen similar claims among his peers.
"On our community banking side of things, there is some confusion about a digital footprint," Witt said. "When I talk to some [other bank executives], they view it simply as online banking or mobile deposit capture — but those are straightforward, fundamental banking things. If you are a bank without those things, you are way behind the times.”
The pandemic added pressure on companies to provide more digital services to customers amid lockdowns — ahd exposed many gaps in the digital offerings of smaller banks, Greer said.
"It created a lot of opportunity for banks to digitally transform through the easier integration that many platforms were providing," he said.
Vendors like Neocova,
Ergo will have a cloud-based system operating parallel to its legacy banking core, gathering all of the data from payments, loans and other services to create a universal view of the bank and its customers.
"It gets really interesting in how we drive customer engagement for our customers and create business opportunities through what we call discoveries, intelligent alerting and predictive analytics," said Dino Pietropaolo, chief technology officer at Neocova.
The data collected into Neocova's data model creates different modules with specific tasks and goals. The Spotlight AI module is artificial intelligence technology that aims to provide a complete understanding of the bank and its customers' transaction and account behavior.
It is compiled through business-intelligence reporting such as helping the bank break down its customers by the number of deposits made by each one at branches. That data then helps guide the bank in decisions about other services the customers may want.
"If some customers do mostly direct deposits on a specific day, then all of the sudden they stop, the bank can alert the proper individual so they can take action or if there are some other needs," Pietropaolo said.
The Groundswell AI module utilizes machine learning to detect specific activity through predictive analytics to assist Bank Secrecy Act and anti-money-laundering compliance through transaction monitoring that detects suspicious activity.
After initial data collection and customer analysis, the information is run through the Ambios module and Neocova would determine how the bank's core capabilities can be shifted to a digital setting. Ultimately, native core services are shifted to the cloud and rely on open application programming interfaces.
The biggest feedback Ergo receives from customers is that whatever new technology is put before them, it has to be easy.
"We are hoping as stuff progresses and as we build around the core that we can pick programs that provide us with the best ease of use and get more people to use it," Witt said.
It's a slippery slope for smaller banks to hesitate on making a transition to technology that many U.S. consumers are increasingly becoming accustomed to.
"Once someone gets into a larger bank with easy-to-use technology, we never get that customer back," Witt said.
Like many community bank leaders, Witt knows where his institution's strengths lie and acknowledges its limitations.
"I would say we are good on the lending side in working with unique customers and unique properties, so that is a good area for us," he said. "But looking at other technologies for stealing more customers and making more deposits at the bank, we have to make things easy for those future customers."
Essentially, the future of the community bank lies in transaction growth, Witt noted, with customers making payments or accepting payments.
"I want something in place in which I can facilitate transactions," Witt said. "If I can do a million transactions a day at a penny or two pennies, that adds up to a lot of noninterest income."
