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Relationship Banking in a Digital Age: Reducing the Human-Technology Divide

Guest Blog From Filene Research Institute's Bill Maurer, Scott Mainwaring, and Taylor C. Nelms

Bill Maurer, Filene Fellow for Emerging Technology and Dean of the School of Social Sciences, University of California, Irvine

Scott Mainwaring, Research Affiliate, University of California, Irvine

Taylor C. Nelms, Senior Director of Research, Filene Research Institute

The era of neighborhood branch gathering places may no longer be tenable as a new era dawns on self-and curbside service, constant online connectivity, and conversation in virtual spaces. In partnership with State National, Filene’s Center for Emerging Technology is exploring the future of digital financial services.

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young woman and man looking at papers and discussing while sitting at a table

Are credit unions and community banks ready for the digital future of consumer finance? The answer to this question can be found in how to connect — rather than divide — humans and technology.

In 2020, in response to consumer demands for curbside access to financial services, the digital transformation of banking jumped ahead, accelerating in some estimates by 3-5 years in as many months. Nonetheless, challenges remain — and, in many cases, have deepened — for many organizations. The low-hanging fruit of digital adoption and adaptation are past us; now it is time to look beyond immediate needs and begin planning for a fully and truly digital business.

The expectations of consumers of financial services have risen as they have increasingly relied on and embraced technology to say connected or to re-connect with family, friends, and co-workers. Group videoconferencing platforms are being used for family brunches and virtual happy hours; DJs are performing live on Instagram or getting Zoomed into late-night parties; proms and church are going online. These experiences will set the standard by which financial services will be judged: connection, simplicity, intuitiveness, real-time access and insight.

The desire for high-quality experiences and relationships will not disappear. And so, because people no longer separate “virtual” from non-virtual worlds, instead using technology to navigate a mixed-up physical and digital world — one that is both on- and offline — “digital transformation” requires doing more than simply “converting” to digital processes and procedures designed in analog for face-to-face or paper-based interactions. It requires tackling head-on the question of how to do relationship banking and how to serve a community banking function in a digital age.

For credit unions and other community-focused financial institutions, this is a challenge that is especially fraught. Technology-enabled, self-service channels are especially difficult to tune for financial services, because of the high stakes and uncertainty of financial decision-making. Money produces anxiety, and anxious people want reassurance from other humans. This can lead to lower satisfaction and lower trust.

What’s more, it is becoming increasingly clear that relationship-building is hard online and especially hard when service is automated. The rise in the use of digital financial services is underscoring the experiences and quality of service that, as of now, cannot be replicated through digital channels. At the same time, for this reason, there is a massive opportunity for credit unions and community banks to figure out how best to marry high-tech channels with high-touch service and find ways to replicate in-person interactions and relationship-based service in digital and mobile environments.

The cascading effects of the COVID-19 pandemic, including the ongoing struggles of millions of U.S., households, raise the stakes of this challenge and offer insight into ways to take advantage of this opportunity. The relevance of the credit union and community banking mission of service to consumers’ financial well-being is growing. How can this mission be sustained even as online becomes the dominant way these financial institutions deliver products, offer support, and work with members to solve problems?

mature man with disposable mask talking on a cell phone while sitting on a park bench

One area of growth and innovation is in the use of so-called artificial intelligence techniques to support “natural” conversations, though text, voice, and/or graphics, between people and artificial agents that more or less pose as people in enacting a service. Amazon’s Alexa and Apple’s Siri are well-known examples, through financial service-specific versions have also launched. Bank of America’s Erica is perhaps the most well-known version, but credit unions are also getting into the “virtual assistant” or “conversational agent” game, from Michigan State University Federal Credit Union’s Fran, to Royal Credit Union’s Val, to University Credit Union’s Royce.

Virtual assistants are not simply a new channel to access services. They require that we forge new social norms — about privacy and security, work and leisure, and especially the intimacy and empathy of human-technology relationships. How do people experience such systems? How do they expect them to behave?

We are already intimate with our smartphones. These personal and personalized devices are our constant, daily, bodily companions. Add an always-available virtual assistant to chat with, and our relationship with our phones — especially in a time of social distancing — becomes even closer. In financial services, virtual assistants promise to enhance personalization, especially when it comes to personal financial management and financial well-being. Take BofA’s Erica. Via your smartphone, she can help you plan a spending path, manage your expenses, alert you to when bills or other recurrent payments are coming due, give you your FICO score, and even provide rudimentary credit counseling.

The “intimacy” offered by virtual assistants rolled out by big banks is threatening to credit unions and community banks precisely because these organizations have historically prided themselves on the quality of their customer service and their knowledge of their members. If interactions with financial digital assistants are to replace person-to-person conversations with customer service agents, is the credit union system back in a familiar position of trying to play catch-up with the big banks and their big pockets?

Not entirely. For example, consider another dimension to the intimacy of smart devices: constant data collection, surveillance, and sale to third parties, often without the user’s knowledge or explicit consent. Companies want to imagine that as our intimate partners new AIs will evolve towards a lifelong, genuine, and beneficial connection, but they also tend toward insidious inescapability. Despite their female voices, Alexa and Siri could eventually come to be viewed like a bad ex-boyfriend who’s always creeping around, or at least a friend who we mostly enjoy the company of but can never really trust.

Indeed, in a report on the future of banking technology, Accenture reminds us that “black-box personalization” is all too common but leaves consumers feeling “out of the loop and out of control.” That feeling is the opposite of the promise of personalization, which ought to offer opportunities for transparency, participation, and agency over one’s experience.

The origins of the English word “intimate” are instructive. The Latin intimāre means “to put or bring into, drive or press into, to make known.” It even once meant “to declare war.” Intimacy today implies familial closeness. But we have to remember that intimate partner violence is so challenging to address because of that closeness, and the ability it confers on an abusive partner to do real harm.

Contrast intimacy to another word we’ve heard a lot in discussions of AI: empathy. To empathize is to project oneself into another’s circumstances so as to be changed by that other person’s state of mind or feeling or circumstances. Empathy is a useful term of credit unions. Credit unions live by the philosophy of people helping people, and in fact, credit unions emerge not from intimate relationships so much as affinity relationships. We may not be family, but we all share something in common.

How can credit unions and community banks choose empathy over intimacy in designing digital financial services that meet their mission and elevate their value proposition and market differentiation?

In the short term, here are some ideas to consider.

  • Step 1: Put technology to work in facilitating curbside service. Do you have digital signature capability for completing loan applications, or do members still need to come to your branch to complete a transaction? Accelerate technological solutions to reduce even curbside visits. Facilitate remote conversations ahead of required visits to minimize contact time but maximize relationship-building and opportunities to impress and even delight members. With online pre-work out of the way, the curbside visit itself can offer a personal and caring, not clinical, feel.

 

  • Use technology to improve human-based service delivery. Online analogs may always pale in comparison to real human-to-human connection. Find ways to use technology to protect, make use of, and enhance the customer-facing staff. How might you use automation not to replace human service interactions but instead give consumers a map to guide them through your website and digital systems? How can technology be used to prioritize consumers who need to talk to staff so that limited time can be made as mutually satisfying as possible? And what back-office tools or dashboards can you provide staff to allow them to “see” and serve consumers better?

 

  • Focus on the hand-off. The transition from automated to human interactions is the most critical point in your service value chain — the make-or-break moment that, done right, will drive loyalty and, done wrong, will produce disengagement and churn. Here’s baseline: anything a consumer has offered up about themselves and the job they are seeking to accomplish to an automated system must be available to the human service rep that consumer is now talking to.

 

  • Put financial well-being at the heart of your service value proposition. In moments of uncertainty and flux, people need tools to help them plan and prepare, and the best tools offer both personalization and contextualization: personalized products and contextualized delivery and guidance. Demand for personal financial management (PFM) will thus continue to grow into the future. PFM provides consumers a financial well-being toolbox with budgeting and expense-tracking technologies, income smoothing and savings apps, bill negotiation, loan repayment and credit management and repair, and investment and portfolio optimization. Putting PFM at the center of credit union offerings and operations gives credit unions the opportunity to deepen relationships by connecting different parts of consumers’ financial lives.

 

  • Use remote channels to facilitate member communication preferences. One strength of remote channels is their ability to provide as much or as little engagement with members as they desire. Sometimes members prefer to not involve a human. The privacy and perceived anonymity of mobile banking can provide a welcome alternative for members from having to have uncomfortable conversations with customer service agents.

 

  • Find ways to bridge “digital divides.” Credit unions and community banks have long been at the forefront of financial inclusion efforts, but they will be challenged to ensure that access to digital banking and payments services is equitable and their benefits communicated clearly to members. One survey of U.S. adults at the end of March 2020 found that while 73% of respondents overall reported being more likely to use digital financial services during the pandemic, that percentage fell to 64% for households with incomes under $50,000 and 62% for consumers with a high school education or less. It is unclear whether these disparities are due to differences in internet access, awareness, or distrust in digital channels, but they indicate the potential for a gap in financial service provision that could deepen patterns of inequality. We know that access to high-quality broadband internet is not evenly distributed. In 2019, the FCC estimated that 5 million U.S. Americans live in digital deserts. They are disproportionately elderly and poor, and they tend to have lower levels of education and live in rural areas. We must meet members where they are. Consider creating compelling “low tech” solutions for users of pay-as-you-go phones or for consumers living in conditions of low-quality broadband connectivity. Look for ways to better handle member communication (when appropriate) through email, text messaging, or direct messages on social media. When it comes to technology access, one size does not fit all.

How Does State National's Focus on Technology Impact Credit Unions?