What is connected digital banking and why is it important? We look at three pressing pain points elicited from the pandemic and how it will shape banking in the future.
By the end of July, the U.S. economy had dropped 32.9%, signaling the worst GDP report ever. With COVID-19 spurring this staggering contraction, both businesses and consumers alike have been struggling to navigate financial uncertainty. While digital transformation has been on the radar for financial institutions for the past several years, the pandemic has undoubtedly underscored the need to accelerate such initiatives.
Weathering the economic impacts of COVID-19 has proven to require more connected banking and payments options. Technology leaders within financial institutions (FIs) have made it their prerogative to support new customer demands through the digitization of systems, channels, and processes. These customer demands have been presented in three key areas.
Lending has been a central response by both FIs and the government to the financial turbulence caused by COVID-19. Incumbent FIs that may have seen the need to digitize loan operations as a distant speck on the horizon are now experiencing the full brunt of this calling. What was once viewed as an answer to new entrants like Rocket Loans and Opploans has become a rallying cry to handle the surge in loan forbearance requests as well as a major uptick in mortgage refinancing requests. On top of that, the banking industry shouldered the responsibility of administering the U.S. government’s Paycheck Protection Program (PPP) loans aimed at small businesses. The sheer volume of loan applications at the program’s launch led to technical glitches galore as disconnections between front-end intake portals lacked and the back-end became evident.
These hiccups highlight the necessity of connectivity within internal banking systems and between those systems and external partner systems. API-led connectivity enables banks to facilitate this type of integration, safeguarding lending operations against system failures due to lack of connectivity. APIs can be wrapped around loan origination systems, allowing banks to expose data into modern systems and channels, processing loan applications received through digital channels straight through. This type of approach can also be reused across channels that may become relevant in the future, including voice assistants and other AI-driven applications.
While API-led connectivity would address the issues with the PPP lending program described above, it also serves to future-proof lending operations to other challenges that are sure to lie ahead as the economy continues its recovery.
API-led connectivity can also integrate front-end and back-end systems to provide a personalized customer experience geared towards providing relief to the customers who need it most. This type of intelligent, proactive response by banks can help customers struggling due to layoffs and other financial uncertainty to learn about fee waivers, options for deferred payments, or other tailored options to ease financial pain points.
When front-line and mid-office employees can access a single view of customer data, they can detect signals in behavior and anomalies in normal patterns that may prompt them to offer these customized options. For example, a pause in monthly direct deposits might trigger a bank to notify that customer about deferred payments. With APIs in front of core banking systems, banks can tap into transactional data (like the direct deposit scenario above) to inform marketing experiences as well as customer service and relationship manager outreach. The result is more precise, effective assistance for customers.
Without a doubt, providing a secure, streamlined, and frictionless digital banking experience is table stakes for 2020 onward. Studies report that 76% of Americans say they won’t open an account with a bank that doesn’t have a mobile app. This digital experience can only be facilitated by total integration between core banking systems, digital channels, and external partners. Know-your-customer (KYC) and anti-money laundering (AML) systems must be integrated with the mix to enable customers to open accounts through digital channels. This calls for APIs that can securely expose core banking functions to mobile, web portals, and anywhere else customers may prefer to open accounts or transact.
While digital banking capabilities are critical, FIs should be looking toward the future when modernizing and transforming core systems. Customers are looking for modern digital payment options, including push payments and digital wallets. These fast transaction options help customers move money — and access money — more quickly, especially as cash falls out of vogue. Offering these capabilities means banks must have a well-governed approach to both internal and third-party APIs.
Banks that were on the API-led path before COVID-19 must ramp up efforts in connectivity as demands become increasingly strenuous on core systems. Those that have not yet embraced API-led connectivity must approach modernization with a sense of urgency to meet rapidly changing customer needs and demands. Even after the economic impacts of the pandemic begin to ease, operational efficiency and a customer-centric approach will be the way of the future.