In the Digital World, Community Banks Must Avoid ‘Rocks in Shoes’

As the pandemic ebbs, as branches reopen and omnichannel banking becomes the norm, community banks must beware a looming threat.

The rock in the shoe — the frictions that cause end customers to vote with their feet,  literally.

It’s a metaphor for the clunky customer experience, the less-than-optimal interactions, digital and otherwise, that drive loyal customers into the arm of FinTechs and neobanks — for a checking account here, a debit card there, nibbling away at traditional financial institutions’ (FIs) revenue streams.

Arvest Bank’s chief operations and transformation officer, Laura Merling, told PYMNTS’ Karen Webster that community banks have to reexamine where they stand in the digital world, while leveraging their core strengths — especially the trust they’ve built with their customers over decades.

“The reason people are attracted to FinTechs lies with simplicity,” she told Webster.

And while digital upstarts have been good at hyper-focusing on one or two products, the fact remains that customers want their incumbent financial services providers to build more than a product portfolio — they want a continuum of financial solutions that anticipate needs in context in a curated banking experience that manages money in, and money out.

Those desires cut across all generations and demographics, Merling said. For banks to serve those desires and further cement customer loyalty, artificial intelligence and other advanced technologies can anticipate when a consumer’s auto loan might be close to being paid off, for instance, and present new opportunities to put that newly freed up cash to work. Or there can be guidance that helps a family set up college funds for their kids.

At a high level, she said, “the bank is prompting them for things that are happening in their life, based on the data that they have about their lives and their spending habits.”

The opportunity is there for the taking by the banks, she noted, as the FinTechs still have a high bar to hurdle to earn the same levels of trust their more traditional competitors enjoy.

Those high-tech initiatives, she said, take time, and do not come simply with the flip of a switch. Key to it all is tackling the technical debt that has massed at FIs over years. And with any digital transformation, she said, a road map is critical. As she noted: Banks should not embrace technology just for the sake of technology alone, though modernization can do much to streamline workflows and improve operational efficiency and can help FIs “tick boxes” — such as the P2P box and the buy now, pay later box, which are becoming table stakes.

Easier for Private Banks

As she told Webster, the pivot can be made most adroitly by a private bank (Arvest, which is owned by the Walton family but operates separately from the Walmart, among them).

“There’s less worry about quarter over quarter performance,” she told Webster, “and you can focus on the longer term growth of the business.” For the community banks, she said, through the pandemic, there has been a “go-local” movement. There was also a “be able to do things online” movement.

Read more: Arvest Bank On Using ITMs To Meet Customers’ Expectations For Personalization

Or as Merling put it, for Arvest, in examining threats and opportunities in a digital age that takes the firm beyond its physical branches in Arkansas, Kansas, Oklahoma, and Missouri.

“What’s the next revenue stream — and what keeps Arvest going as a community bank for the next hundred years?” At the same time, keeping a lookout for those rocks in shoes has helped Arvest find its key lines of competitive advantage. Consider the fact that during the pandemic, even though Arvest’s branches were closed, the calls into contact centers doubled.

Those calls, she said, “weren’t necessary done in order to conduct transactions — they aimed, instead, to keep the relationships with the banks, and to have conversations.”

The challenge was to become more fully digital but still have the relationship focus of a community bank. Among Arvest’s efforts to combine the digital with the personal: Targeted, one-on-one phone calls and advanced interactive teller machines (ITMs). There’s also value in reaching out to small business customers, and to independent freelancers, who are of course part of the burgeoning gig economy.

Read more: PYMNTS Intelligence: The Importance of Digital Accessibility in Enhancing Loyalty and Brand Reputation

Personalization, then, extends beyond the confines of simply giving a customer the best interest rate.

“It’s about, ‘What services do you need, and what do I know about your industry and your company?’” Merling said.

Looking ahead, Arvest has worked with Thought Machine to adopt a next generation core banking platform. To kick off that transition, the company has singled out a high-growth area — in this case, equipment finance — to move over to the new banking platform in the next three months. Midsize banks are also exploring embedded banking and banking as a service. Arvest is also building out a new data platform on a cloud service, Merling said.

And though Walmart is not officially connected to Arvest and Walmart is pursuing its own banking solution, Merling noted that there are opportunities that may lie ahead with the retailing giant (perhaps through partnerships) down the road.

“There are lots of things in motion that all set the foundation for our path forward,” Merling told Webster. As it broadens its footprint across that four-state-arc, “as we keep thinking about what it means to be a community bank in a digital world.”