Transcription:
Penny Crosman (00:03):
Welcome to the American Banker Podcast. I'm Penny Crosman. Community banks sometimes feel that they lack the budget and staff to compete with larger banks and fintechs on things like mobile and online banking, virtual assistants, and most recently generative AI. But there are steps that they can and should take to stay relevant technology wise. Jim Perry, senior strategist at Market Insights works with a lot of smaller banks, and he's with us today to share some of his thoughts on this topic. Hi, Jim. Welcome.
Jim Perry (00:33):
Hi, Penny. Thanks for having me.
Penny Crosman (00:35):
Thanks for coming. Where are you living and working these days?
Jim Perry (00:38):
Oh gosh. As I may have mentioned when I last saw you, I think it was at Finovate, right?
Penny Crosman (00:44):
Yes, yes.
Jim Perry (00:45):
Our firm started in Chicago about 30 years ago, and while our headquarters has since moved to Seattle, I stayed in the Midwest and I actually now call Kalamazoo, Michigan my home. And it's interesting, Jim Marous the other day said, Kalamazoo, why did you choose Kalamazoo? Because it's not the easiest travel hub. And I had to laugh because of course my work still takes me all across the U.S. working with a lot of community-based institutions, as you mentioned, in markets that are both large and very, very small.
Penny Crosman (01:20):
And you said something like a lot of the homes in your town were designed by Frank Lloyd Wright?
Jim Perry (01:27):
Yes. The entire community was designed by Wright back about 75 years ago. And so on the one hand, it's marvelous to be part of that kind of community and that kind of environment. I do frequently have my need for a city fix, however, need to get back into the heart of the city.
Penny Crosman (01:53):
It sounds lovely. You can come visit us in New York anytime.
Jim Perry (01:57):
Ah, excellent.
Penny Crosman (01:58):
So from your point of view, is it important for smaller banks to try to keep up with advanced technology such as generative AI, or is it okay for them to be laggards and follow the bigger banks and more tech savvy fintechs as they introduce new technology?
Jim Perry (02:18):
That's a great question, and I think, I'd have to say it probably depends on how we define "keep up," because I don't think smaller banks need to be worried necessarily about deploying certain technologies like generative AI as an example, within the next six months or the next year or two years even, because even the largest banks, as you know, are still figuring out the right internal and external use cases. And a lot of smaller banks though, I think they tend to dismiss these kind of technologies out of hand, thinking that they're always going to be out of reach. And as I was driving to a client in central Ohio recently, I had the chance to tune into your Digital Banking AI summit, which by the way was a really excellent conversation. I hope you had a lot of small banks listening because they really need to.
(03:19)
But as I listened, it kind of struck me that there's this really rapidly growing digital divide between banks that are deploying these technologies, whether they're automating systems or improving customer experience or whatever, and those that aren't, and unfortunately, that divide is growing larger every single month, every single week, every single day. So while it may be okay to follow, these small banks can't stop doing the groundwork they need to be doing, again, being in this part of Michigan, there are a lot of farmers around and like farmers who prepare their fields for planting, bankers have to keep cultivating their organizations for advances in technology.
Penny Crosman (04:07):
Can you think of an example that you've seen where that digital divide hurts the community banks?
Jim Perry (04:16):
It seems to me that, well, I can't think of a specific example off the top of my head, but more frequently I think community banks end up missing so much information about even their current customers because they don't have their data systems in place, they don't have their analytics in place, and they're missing very important pieces of information that should be telling them new ways to be communicating, marketing with their customers, putting the kind of information in front of them in a contextual way that's going to put the right offer in front of them at the right time. As an example, I have a relationship with a community based institution that's about, I think they're actually close to $5 or $6 billion in assets right now. And I just finished up a car loan with them this summer. You would think that within a matter of weeks or months after that particular loan was complete, they would have reached out to me to say, is it time for a new car? Do you want to pre-qualify for a loan, et cetera, et cetera. I heard nothing, absolutely nothing, which was kind of amazing to me because you tend to expect, I think customers of smaller institutions expect those to know their customers better than some of the big banks might.
(06:04)
And because that's how they've positioned themselves in their communities. We know you personally, but unfortunately they're not personalizing their offers. They're not personalizing their communication, they're not personalizing their customer experience in a way that really communicates that in ways that are important these days.
Penny Crosman (06:26):
And what are some of the things that keep community banks from being able to have those kinds of analytics and being able to personalize offers like that? What are some of their biggest technology challenges? We did a survey recently, our innovation readiness survey, and across all banks, the concept of limited resources was the top reason that banks gave why it was hard for them to innovate. Is that true among these community banks you're thinking about? Or are there other things too that keep them from being able to do these kinds of projects?
Jim Perry (07:08):
Penny, I think most bankers I know immediately focus on this issue of limited resources, and that's both human resources and financial resources and because that's definitely valid. Those are the things that are top of mind. Those are the things that press them most often. But in many ways, I often think a bigger challenge is actually cultural. We do a fair bit of strategic planning for community banks and credit unions, and I frequently see this tendency to want to make strategic or tactical choices based on the way things have always been done. And that's a form of cognitive bias that is always going to shut down innovation. And so one of the challenges I think really has to do with mindset.
(07:57)
Even just this week, I heard again, a banker say to me, we can't compete with Chase or Bank of America, and as if that kind of gives them permission to do what they've always done and hope it's going to be good enough. But while that might be true, it really shouldn't stop them from staying informed, participating in demos with fintechs, making adjustments to their culture, doing internal training to help their culture get ready for a new deployment of technology. And even, I mean, sometimes I think it's easy for a banker to get stuck in terms of how they understand their customers, because if you're not really analyzing your customer data, if you're not mining your transactional data to look for trends or behaviors, things of that nature, it's really easy sometimes to believe that your customers are still functioning with your financial institution exactly the way they did five years ago or 10 years ago. While intellectually, you may understand that consumer behavior has changed, but you're not necessarily making any internal adjustments to accommodate that.
(09:24)
Then there's another aspect of cultural challenge that I think has to do with the absence of speed and scope in discovering and deploying some of those solutions. I guess you simply can't take two or more years to initiate and accomplish some of these improvements because again, if you're not moving quickly, if you're not focusing your strategic choices so completely and establishing your priorities in such a way that you can do something in six to nine months as opposed to a year or two years, the longer you wait, the further you're going to fall behind. And I think a lot of smaller institutions, even those that have been leading into tech improvements and technology change, the improvements that they've been making have been very small. They've been incremental as opposed to really making a commitment to larger or a major initiative. And then on the other side of that, I think you've got cultural challenges, but you have structural challenges, and that relates simply to their data quality and the absence of any kind of ongoing data analytics because they don't have the professional team on board that can really do the work of data analytics.
(10:56)
And so consequently, they're going to end up missing a lot of opportunities because they're missing cues from their customer data.
Penny Crosman (11:03):
Well, it sounds like based on what you're saying, there's a lot more they could be doing. And some of it is psychological cultural mindset issues, which is interesting. In our most recent innovation readiness survey, we found that the smaller banks that are trying to innovate are especially focused on customer experience. 60% of the banks with less than 5 billion in assets said that customer experience innovation was their top innovation priority. Second was product innovation, 16% said that that was their top priority. Are you seeing that in the market? And if so, why is customer experience so important to community banks right now?
Jim Perry (11:50):
Wow, that's a pretty big gap, right? 60% and 16. But what you're saying does seem consistent with things that I've seen in conversations I've had with bankers around the country. And I think mostly because there's an acknowledgement that customer behavior and preferences certainly have shifted since the pandemic, and that probably customer experience overall is the area of their greatest vulnerabilities on the speakings have been out there. As many have talking about the fact that consumers generally are viewing every experience, whether it's financial institutions or retail in general, through the filters of speed, simplicity, and security. And even when those conversations start happening as some of these smaller institutions internally, they realize that whether you're talking about the digital experience, the experience with their ATMs, their experience with their websites experience within a branch, the customer experience overall in many cases still looks like it did 10 years ago. If you start talking about branch level experience, then you could be talking about 20 years ago or 30 years ago, and there is an acknowledgement that that's the area where they need to do the most work.
(13:33)
And even as I say that though, it still surprises me the number of bankers are still trying to defend the traditional transactional role of the branch. Just last week, I read another article where someone was trying to make that case that in smaller rural communities as an example, they expect a 1950s kind of experience of branch banking. And I thought, well, first of all, you're getting yourself in the biggest way. And to a degree, I mean, we've always known that consumer preferences are going to default to what they know until they actually experience a new way. Well, guess what? I mean? People could walk into a McDonald's and have a better digital experience than they can in some bank branches around the country. So there's that real tension right now in where to deploy their resources in terms of making digital improvements through the technology that's available. And I mean, thankfully, they have their new partnerships available out there. I mean, you've got consortia like Alloy Labs and CBAs ThinkTech initiative, and then you look at all of the fintechs that are out there and what they're offering. There's a lot of ways that community banks and smaller institutions can actually partner with people that are going to help them than ever before. They just need to pick those two or three things that they can do differently and then get about the business of doing them.
Penny Crosman (15:23):
Well. Every now and then I'll go into the apps, apple App Store or Google Play, and I'll look at community bank apps and they tend to kind of look the same. And I admit I haven't done this in several months, but do you think that there's a need for smaller banks to try to distinguish themselves in some way in their apps and websites, or is it okay to just try to keep up with the status quo? Or is it more, is the branch technology more important as you were saying? Is it more important to give that a state-of-the state-of-the-art experience when people walk in?
Jim Perry (16:07):
Actually, I think I've been advising our clients, I've been even saying a lot conferences lately, pay attention to your mobile. First and foremost, you have to. This can't be a set and forget kind of situation, and if you haven't looked at adding value through your mobile app, you better be doing it now because more of our behavior is there. You don't have to look very far. And there are countless surveys that have pointed to our digital views now as consumers has shifted to mobile in so many different ways and through APIs, there's so many things that can be added that are going to create greater value. One of the things that was so exciting for me to see at Innovate was wish that the company that adds this layer of life insurance protection layered on top of a deposit account and the fact that they can plug into the mobile app so that as an example, I could open up the app not only see what my current deposit balance was, but I could see how the increases in my savings deposits had actually made a difference in the amount of life insurance I had through this free coverage.
(17:43)
But again, I think consumers are expecting to get more than the two tenths of 1% yield on an account. They're looking for tools to improve their financial lives. So yes, I think you're right to keep looking at those apps because I'm always inviting banks to do the same. You've got to experiment. You've got to actually download these things and take a look at them.
Penny Crosman (18:15):
Are there any community banks that you know of or can think of that are doing a lot of the right things?
Jim Perry (18:22):
Oh gosh. I knew you've talked several times with folks like Jill at Citizens Edmond and Kurt at Coastal Community Bank because kind of the rock stars on that front, but there are a lot of folks out there. I think I look at Reading Cooperative in Massachusetts, Oregon Bank in Wisconsin. We've worked with Sound Community Bank out in Washington Mercantile Bank here in Michigan. And I mean, all of those that I just mentioned, they're all under 5 billion in assets probably. And they've been working on bringing new technologies on board. A lot of it has been more relative to automating processes and bringing things on that will actually ultimately impact customer experience. Some are more customer facing than others, but I think there are community-based examples of people out there that are making a difference.
Penny Crosman (19:36):
That makes sense. Well, Jim Perry, thanks so much for joining us today and to all of you, thank you for listening to the American Banker Podcast. I produced this episode with audio production by Kellie Malone. Special thanks this week to Jim Perry at Market Insights. Rate us, review us and subscribe to our content at www.americanbanker.com/subscribe. From American Banker, I'm Penny Crossman and thanks for listening.