Harnessing Trends to Build a Stronger Future

Jim Marous (00:00):

Welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous. Joining us on the Banking Transformed Podcast today is Rob Rubin, General Manager of Financial Services at Insider Intelligence.

Jim Marous (00:25):

In this interview, we unravel the latest developments in retail banking, including the intense competition for deposits, amidst economic uncertainty, changes in digital advertising strategies, recent payments and lending innovations, the increasing role of trust, and the potential impact of generative AI.

Jim Marous (00:44):

Rob provides perspectives on how banks can respond to these trends and best position themselves for the future at a time of immense competition, but also unique opportunities for those organizations willing to embrace change.

Jim Marous (00:58):

As the banking center continues this transformation, it's imperative for banking professionals to understand and to adapt to the latest trends. In this episode, we'll explore the ever-changing dynamics of retail banking, emphasizing the significance of staying informed and agile in the face of industry shifts.

Jim Marous (01:17):

So, Rob, before we dig into some of the most impactful trends in the banking sector today, can you share a little bit about yourself as well as a bit about Insider Intelligence?

Rob Rubin (01:28):

Well, sure. First, thanks Jim for having me on today, I really do appreciate it. I feel like we've actually known each other for years because we've been in the same ecosystem. I've been around a long time developing research programs to help businesses adapt to technology innovation, and I've been focused on FinSer for over 20 years, and I joined Insider Intelligence just over three years ago, and I'm having a blast.

Rob Rubin (01:54):

Insider Intelligence, if you don't know, is a leading research, data, and insights provider that really helps companies maximize revenue, optimize spend, and basically anticipate digital disruption. At the end of the day, we empower companies to make informed decisions through the use of our forecasts, our data insights, because of our carefully vetted data sources and we deploy a proprietary research methodology.

Jim Marous (02:27):

So, it's interesting because as a backgrounder a little bit, The Financial Brand and myself in some of my Digital Banking Reports refer and rely on Insider Intelligence for some of the data that they use as well, because it's a big ecosystem and we all look at it from different perspectives.

Jim Marous (02:43):

Some organizations look it from the consumer perspective, some from the banking perspective, some break it out, some don't. And it's a great tool that I've used for a number of years.

Jim Marous (02:53):

So, banks globally are faced with economic uncertainty right now, increased competition, squeezed margins, and the need to retain and build relationships as we embark on the end of 2023. So, what do you see as the most important trends that will carry over probably to next year?

Rob Rubin (03:12):

I think it's clear that banks are really staring down both tough competition and squeezed margins as you point out. And we think in response they're really trying to revamp marketing strategies to win key customer segments and also to preserve bottom lines and I'll explain that.

Rob Rubin (03:32):

But what we think is, is that we're going to see an uptick in M&A because bigger banks are going to be chasing customer growth and smaller ones are going to be chasing some business sustainability. We think generative AI adoption's also going to grow with some big banks in particular rolling out some key use cases.

Jim Marous (03:54):

So, it's interesting because one thing that I've seen and we've had a lot of ups and downs in the last year, it's been still less than a year since ChatGPT got introduced, and it's been six months since the failure of Silicon Valley Bank. But during that period, we've seen all kinds of rate changes and increases in rates overall and the whole situation where many financial institutions have seen an outflow of funds that they haven't experienced in 2008.

Rob Rubin (04:24):

I think there's like $400 billion of deposit outflows in the first part of the year.

Jim Marous (04:30):

Well, and it's interesting because it's going everywhere. And when I'm talking to financial, I'd like to talk about the fact that guys, I ask them all to raise their hand and tell me how many of you have opened or closed a major financial relationship in the last five years? And virtually nobody raised their hand.

Jim Marous (04:46):

I ask how many of you have opened a brand-new relationship with any type of financial provider in the last two years, and virtually everybody raised their hands. And what's happened is even the measurement of attrition at financial institutions has changed where it used to be, how many accounts have closed against a total portfolio because of your attrition rate. Well, the reality is attrition rates are near zero, but that doesn't mean that organizations are keeping the relationship.

Rob Rubin (05:11):

They're not top of wallet.

Jim Marous (05:12):

Oh, yeah.

Rob Rubin (05:13):

Or they're not primary banking relationship.

Jim Marous (05:16):

Well, and take that even further, Rob, is that we have a situation that the share of wallet or primary account is not even the same. I mean, I'll argue that maybe many consumers, the credit relationship is the top of wallet relationship.

Rob Rubin (05:32):

Exactly.

Jim Marous (05:32):

I mean, my son, Venmo's his primary financial institution, even though he has obviously a bank that backs it up. So, with banks facing the top competition for deposits and a higher rate environment, what creative approaches have you seen banks use to attract or retain customers?

Rob Rubin (05:51):

So, I mean, obvious banks are definitely feeling the pain as more consumers are really shifting out to high yield money markets. We've seen traditional banks fighting in kind of predictable ways by offering somewhat higher interest rates on deposits and they're also deploying some generous signup bonuses.

Rob Rubin (06:11):

But what we see is that banks and credit unions with smaller war chests are competing or trying to compete with the right messaging and tools to drive acquisitions without eating into the profit margin. And a good example is how some banks are really trying to focus in on segments that are looking for new accounts.

Rob Rubin (06:33):

So, banks can identify and target prospects, for example, with large balances in other banks. So, you know that someone has a large balance, those are the people that might be looking for a higher rate. Also putting extra resources towards reaching Gen Z consumers who we know are going to be opening up many more accounts than any other generational segment, and you need to really be where they are, YouTube, TikTok, Instagram.

Rob Rubin (07:00):

So, there are opportunities for banks to really focus in on key segments but they're going to have to get a little out of their comfort zone on what media they use to reach those folks.

Jim Marous (07:14):

It's interesting because when you talk about these different ideas, these different strategies, most organizations really didn't have to fight that hard for business until recently. Obviously, the fintechs, when they came on the scene, you had to look out for payments and transfers for traditional accounts.

Jim Marous (07:31):

But even in those checking accounts that transferred, many of those fintech organizations were secondary accounts in many cases. But now when you have interest rate variants in such great amounts, organizations realize they better start tracking funds flow.

Jim Marous (07:46):

How many people are actually doing transfers out of their financial institution to let's say a SoFi or another major fintech. So, how do you see fintechs and other non-traditional providers fitting into the competition for deposits? And do you see any partnerships or collaborations on the horizon?

Rob Rubin (08:06):

I think we do. And I just want to step back and remember that the last time we were actually in the same room together, we were at an event for bank CMOs, and you got up and you asked the group, "By show of hands, who's online account opening, who's got it down to under four minutes?" And like a handful of them raised their hands and got the-

Jim Marous (08:29):

By the way, a very small handful.

Rob Rubin (08:31):

But they got heartily congratulated for this achievement. And then I just want to contrast that to, it takes like 30 seconds to open a savings account with Apple. Like that is a problem for them. That keeping up, to me, keeping up with technology innovation is the biggest problem for smaller institutions. And the thing is, is that big banks right now are pouring billions into their technology infrastructure.

Rob Rubin (09:04):

And as a result, I think we're going to see bigger banks begin partnering more with fintechs than they had in the past. And that the more that they develop APIs for these fintechs to build better personalized experiences for their customers, you're going to see more and more of it. And I really think that the big banks are going to be moving in that direction.

Jim Marous (09:28):

It's interesting, Rob, when you look at it, and in that same meeting, I remember also saying that organizations sometimes rate themselves or have terminology that doesn't even fit today. So, we do research for the Digital Banking Report, we ask how many organizations have a digital account opening process, and 85% say they do.

Jim Marous (09:48):

And then we ask, "How many of you can do it in under five minutes?" And 85% say they can't. So, what's happened is, I'm sorry, but that's not the definition of digital account opening. Digital account opening means, as you mentioned, what Apple can do. In addition, we have to rethink a lot of the back office to make that all happen.

Jim Marous (10:09):

We have providers out there, as you well know, that provide digital account opening processes that can do it in three to five minutes. And organizations will buy their services, then they come in to implement it, and the financial institution will say, "Oh, by the way, we like everything you're doing. We want to reach your goal, but we need to-

Rob Rubin (10:27):

We need to see a picture of that driver's license.

Jim Marous (10:28):

Oh, my God, yes. Exactly. You've been reading my mind. Exactly. And it drives me nuts because I'm going, you know what-

Rob Rubin (10:38):

We need a wet signature.

Jim Marous (10:39):

Oh, and by the way, we need funding in person.

Rob Rubin (10:42):

So, let's ride.

Jim Marous (10:42):

Let's take all three of those aspects. And what's strange is the provider, they even hire a provider that can do digital, know your customer to make it so that you can do it seamlessly very quickly. And invariably, bankers get in their own way.

Jim Marous (10:59):

And I've been saying this so much lately, is driving me nuts, probably driving my team nuts. But the reality is, even our mindsets have to completely shift, which is why we have this podcast, today is to talk about the trend, but also just importantly, how do you react to those trends to make a difference.

Jim Marous (11:18):

Our research, and I think your research and also some of our partners research have found that people that want to open an account digitally, 60% of them will leave if the process takes too long. So, in other words, if I worked for a financial institution, I could go to my senior management and go, "I can increase our account openings by doubling it overnight if you allow me to determine what we need to make it work."

Jim Marous (11:44):

And part of this whole game is risk avoidance versus risk monitoring or management. It's a matter of saying, "Okay, we don't want to lose any accounts because of fraud," where in actuality you could double your account openings. And yes, you'd have more frauds, but they'd be at $100 a piece or $120 a piece, we have-

Rob Rubin (12:07):

The risk isn't great.

Jim Marous (12:08):

Oh, yeah. But the branches will call, "Oh, see, we told you we are going to lose this much money." Guys, look at the mass, look at today still, what kind of growth you could achieve if you do things differently. So, we've seen a lot of consumers, especially since Silicon Valley Bank, flock to larger, more established banks. In fact, we've seen major growth of the top five.

Jim Marous (12:31):

Number one, do you see this trend continuing? And then secondly, in the context of this battle for relationships, can smaller banks compete with larger institutions in today's environment?

Rob Rubin (12:44):

Those are great questions. I guess sadly, I do think the trend will continue. And I think so because the bigger banks spend more money on advertising, especially now. Younger consumers are very brand centric and they're seeing these messages and they're digital natives. So, they're attracted to the easiest digital tools.

Rob Rubin (13:06):

But however, this week on my podcast, the Banking & Payment Show, Tansley Stearns, who's the CEO of Community Financial Credit Union, talked to me about how they're engaging with young consumers by connecting with local influencers.

Rob Rubin (13:25):

So, for example, they have a local artist that's well known in the Detroit area, and they do events with him, but he also has designed art on their debit cards. So, they've really connected into that local influencer. They've also added GreenPoint to their product suite, which helps parents manage their kids' budgets and help teach them financial literacy, and they're innovating on college campuses with student run branches.

Rob Rubin (13:56):

So, when you put those things together, that credit union sweet spot is teachers, parents, and students. That's their trifecta of what they go for, and that's what they focus on. So, they're not trying to be Bank of America or Wells Fargo or U.S. Bank, they're trying to be a local credit union that is connected to teachers, parents, and students, and they offer those services.

Rob Rubin (14:27):

So, I think when you go local, when you start to think small and realize that you don't need a big budget, but you can do other things more innovatively, I think that you do find opportunities.

Jim Marous (14:40):

And to your earlier point about M&A, I think a lot of the M&A we're going to see is going to be with the smaller finance institutions that just don't have the vision, the patience or the budgets to do things differently. However, you and I go back a long way, and we didn't ever have composable solutions that could really nail the things that need to be done at a really good price and very quickly.

Jim Marous (15:05):

A person can partner with a firm today, we actually interviewed a ... yesterday. They're talking about an account where they basically do a blended rate that looks really competitive and they can help smaller finance institutions hit the street and do well if they stick to the plan. Now, that's a major caveat.

Jim Marous (15:26):

So, there is a possibility to do very well. And again, if I'm a smaller finance institution, doubling in size is not the same as if I'm Chase, I'm not going to double in size. And by the way, most of these smaller finance institutions can double, triple, quadruple in size and never raise the eyebrows.

Jim Marous (15:44):

Competitors are not going to respond to their reaction, but you've go to think differently. You've got to have leadership that's really innovative. And you have as you mentioned, a business model that's going to differentiate them. I interviewed and actually did a bike ride with Dennis Devine from Alliant Credit Union in Chicago, and they are completely digital.

Jim Marous (16:05):

They are a credit union that has no shareholders, therefore all the money goes back to the members. And they've used that as a mission that says, "We are going to offer the best rates, the lowest fees, and the best service available in a digital organization because we have an advantage against traditional banks." They've grown to $18 billion in the last year from ... they grew 3 billion up to 18 billion with 850 employees. So, talk about a great efficiency ratio.

Rob Rubin (16:37):

Talk about a big credit union.

Jim Marous (16:38):

Exactly right. But they've grown because they've differentiated on being able to provide the best cost structure available because they're giving it all back to the company. You're probably familiar with Credit Union Everett, Washington, coastal community, where they're using banking as a service and embedded banking as a building block. There's ways to do this. It's just not the way we've always done in the past.

Jim Marous (17:09):

So, part of the whole aspect of going to the bigger banks, especially during the time of Silicon Valley Bank, was the whole importance of trust. It's something we take for granted, but that anxiety, which is not saying I don't trust my financial decision, but seeing that the run in the bank can happen so quickly-

Rob Rubin (17:33):

Hold on. Wait. They can really lose my money?

Jim Marous (17:36):

Oh, yeah, exactly. And by the way, it can happen in less than 24 hours.

Rob Rubin (17:41):

Yeah.

Jim Marous (17:42):

People who haven't been in the industry as long as you and I have, don't realize that the government had never shut down a bank except on a Friday afternoon at the end of business.

Rob Rubin (17:52):

Also, the banks pay to an insurance program. So, it's not the government who's actually bailing the banks out, it's the insurance policy.

Jim Marous (18:02):

So, how do smaller financial institutions reinstill any trust without broadcasting it, which in my day, it said, like Nixon's saying, I'm not a crook. So, you got to be careful how you position this, where you don't raise more eyebrows. But how do you build trust in a smaller financial institution?

Rob Rubin (18:20):

Well, first, we've been at Insider Intelligence surveying consumers about how much they trust their bank in a digital domain, we call it digital trust. And we've been able to score these respondents on how much they "digitally" trust their bank. And the headline is really that consumers who have high digital trust in their primary bank are much more likely to buy another product from them.

Rob Rubin (18:48):

And those who have low trust, so when an executive says to me, "Why is it so important? Every bank is the same. We all follow the regulations, we comply. Why don't they trust us? Or why do they trust one more than the other?"

Rob Rubin (19:04):

The question is really why should we do that? The question is, if you have customers that don't trust you digitally, they're just not going to buy from you anymore. So, it's not really a question. Now, what we found is the most important factors for building digital trust really around data security and privacy.

Rob Rubin (19:23):

So, for example, offering guaranteed reimbursements for fraudulent transactions or having real-time alerts for sensitive transactions engenders trust. You offer those things that says that you trust. So, what we advise our clients to do is to focus on features that engender trust like that I mentioned, and also to identify weaknesses in their brand perception around security and privacy and remedy solutions for that.

Rob Rubin (19:54):

Because if consumers don't believe that you're as trustworthy, if they think that you're not going to take care of their private information, if they're worried about the security, I'm going to all of a sudden, somebody's going to steal my information and have identity theft if I work with you, they won't. So, these are really important things for banks to work on.

Jim Marous (20:16):

It's interesting because trust even goes beyond that, it goes into a value transfer. When you talked about privacy, you're also talking about personalization. I don't think anybody takes it for granted, but it's really interesting that with Amazon, we pay $130 a year for the right to shop at Amazon.

Jim Marous (20:35):

That's crazy, because it really isn't much more than that than the right to shop but it's because we trust them with their data. We trust them with their intelligence that makes my day easier. And what happens, my prices have risen dramatically over the last 10 years and will continue to rise.

Jim Marous (20:52):

On the other hand, if you don't show that you have empathy for what I want, which is speed, simplicity, and you weren't looking out, for me, that impacts trust. Even though it's not like the traditional trust in, "Oh, I think I'm going to lose my money," but do I trust you that you're not going to put more money towards your cost savings than my experience or engagement? Then you're losing my trust.

Jim Marous (21:16):

Shifting quite a bit from here, a recent report that you came out with was around the digital ad spending in banking. I think you've been doing this type of analysis, but this year you really broke it out into finer components.

Rob Rubin (21:32):

That's right.

Jim Marous (21:33):

Overall, in a nutshell, what did you see as far as trends in the financial service industry, more specifically the banking industry with regard to how organizations are using digital advertising and digital marketing?

Rob Rubin (21:47):

Well, so we are looking at banks separately this year. And what we've seen really is that banks have cut back their marketing budgets. It doesn't seem that surprising, but yes, they have. And recently, in fact, a Gartner CMO report recently that they came out, I think it was their 2023 report, they said that as a percentage of revenue, banks spend on marketing has declined from about 10.5% last year to 7.5% this year.

Rob Rubin (22:18):

And what we see is that the cuts are being made at the top of funnel campaigns. So, it's really the brand campaigns, it's not the performance marketing campaigns. Those dollars are still there but what we see is that that could be a real mistake. It's not having the overhead coverage of top of funnel really has a long-term negative impact on how well you can do with your performance marketing campaigns.

Rob Rubin (22:49):

And in fact, we were able to see that TransUnion partnered with Ally and what they found was that for consumers that had seen Ally's brand message, they were six times more likely to open an account and Ally's all digital. So, it's a digital opening experience.

Rob Rubin (23:10):

So, I think that it really speaks to the challenges that banks have because we're in a high rate environment, it's a little nerve wracking. Their cost of funds are high. They aren't getting the same volume of mortgage business that they got. So, it's a little hard.

Rob Rubin (23:28):

Their margins are getting squeezed at the minute, and yet they still have to spend lots of money on marketing. And I think that one of the big cultural shifts that banks have to make is to see marketing as a revenue generator and not as a cost. And I think that that's a cultural shift. I think-

Jim Marous (23:50):

I'm sorry, I'm smiling because I'm going, heck, I was up against that hurdle 40 years ago, when I was in charge of marketing for National City Bank going, "I better have the mindset of the finance person because I'm not going to get money because I'm bringing ads to the table."

Rob Rubin (24:05):

Like, we've been hearing about a recession for two years and that's all the CFO at a bank needs to hear before they go after every cost center, including a marketing cost. And it's partly because, and I'm sure we're going to talk about this more, is they don't have the data analytics to attribute marketing to revenue and that's a problem.

Jim Marous (24:30):

Well, Rob, it's very interesting because you mentioned that the tracking capability, but also it's another one of these mindsets shifts that you really have to think of everything you're doing differently. So, a financial marketers today can't, in most cases, go to the exact same marketing agency that has built brochures for the brochure, that built direct marketing programs when we used to market credit cards, whatever it may be. Or does their media advertising and look for them to be the specialist on digital marketing.

Jim Marous (25:01):

You need to search out those digital marketing organizations that know not only what channels to use and what to market, but then will, as you mentioned, so important, will do the tracking to validate your spending. In any case, right now, if you're trying to find third-party solution providers, if those providers will not help you validate their existence, don't do business with them.

Jim Marous (25:27):

Because I can't give my money away hoping, or just by common sense saying, "I know I'm going to get value." If a company says they'll provide you good data and analytics, okay, show me how to take that the final mile to make it. So, I'm making money on that and I'll increase your budget, but I'm going to lose it if you don't help me with that.

Jim Marous (25:45):

So, I think we have to look at different partners for digital marketing than we did for traditional ad and space ads. So, when you're looking at the other side of the balance sheet from let's say deposit generation in the ever-evolving world of payments and lending, what has Insider Intelligence seen as far as the changing landscape of payments and in lending and what does it mean to the future of banking?

Rob Rubin (26:11):

Well, if you think about, the future banking's like a big topic. So, if we raise our elevation to a higher altitude, and we think about it, the thing that's been hard, it's been the disaggregation of services that has created all this new competition for the banks.

Rob Rubin (26:31):

So, banks and credit unions can now offer a range of payment options for consumers and businesses, that's a whole new dimension of competition that they haven't had. Lenders who aren't traditional banks, lending tools that are embedded in checkout, different business models are all challenging a traditional bank's approach to reaching customers. Buy now pay later is just such a great example.

Jim Marous (27:05):

Exactly.

Rob Rubin (27:06):

The banks, the credit card companies don't even know how much their own customers have exposed with buy now pay later, because they're not getting any of the reporting. So, that makes it not only a challenge because now you have a different way to, there are a whole bunch of consumers that like to buy that way, but many of them like to buy that way because they also know that it doesn't go on their credit line.

Jim Marous (27:35):

Yep. Well, and you look at that and I go back to the days-

Rob Rubin (27:40):

But that's a challenge, that changes the business.

Jim Marous (27:42):

Well, I go back to the days when banks owned all the POS terminals and had people going around from retailer to retailer to service them and to get all the data. Well, we gave up that business, we gave it up to a multitude of providers. But at the end of the day, what we gave up was all the data that came with it.

Jim Marous (28:00):

Now, that was at a time when we didn't know what to do with that anyway, we didn't really use it that much. But you look today, my business relationship is with PayPal. I pay all my contractors, I receive all my receipts directly from PayPal. As a result, I get loan offers from PayPal on a regular basis, that's based on knowledge.

Jim Marous (28:19):

The bank that is behind the PayPal, my traditional financial institution, knows nothing except money's going in and out via PayPal. And on top of that, because of a whole another story that I've got into in many podcasts, I write two checks a month from my business bank to my personal bank because those two banks until recently don't talk to each other, therefore, they don't even know about those transactions.

Jim Marous (28:47):

So, what what happens is you look at payments, you look at the whole world of lending. And really what it gets down to is simplicity, the lack of friction, and the availability of services when I need them in real time.

Jim Marous (29:04):

I mean, my son, I think I mentioned that he believes Venmo is his primary financial institution. He can get credit, he can use a card to make payments. And certainly all this P2P transactions are that way. In the same sense, my Apple wallet is my gold mine and I use a lot of different organizations, but it's all through my Apple Wallet. And as you mentioned, I also use Apple savings.

Jim Marous (29:30):

When you look at these organizations that are disrupting the way consumers bank and the consumers are moving with the trends faster than the banking organizations are keeping up, how does Insider Intelligence see financial institutions trying to make a difference or hold their own, at least when it comes to payments and when it comes to lending?

Rob Rubin (29:53):

Well, I think that they have to adopt these technologies, but it's really, I mean, at the highest level, if you think about, they react to everything. How did banks let Venmo become a verb?

Jim Marous (30:10):

And why do banks keep on claiming that Zelle is bigger? Well, guys, I'm not talking about internal transfers here that you collect in Zelle. As far as the consumer goes, I don't know anybody in Gen Z that says, "Hey, I'm going to Zelle you some money." "What? don't you have Venmo?" Yeah. That's the next word.

Rob Rubin (30:32):

It depends on what you're doing. What I found is that consumers are distinguishing what they use with Zelle and what they Venmo. So, for example, rent checks get paid with Zelle. Paying your friend back for a concert ticket is a Venmo.

Jim Marous (30:53):

Well, and it's interesting too, because a lot of the things, the payment of the rent, I used to either write a check or I had an ACH transfer out of my bank account. So, what did Zelle really replace, except an internal transfer already, but they didn't give up on ... it didn't go to Venmo, so at least it's better that way. But when you're looking-

Rob Rubin (31:15):

It's the problem that you pointed out is that back in the day, the bank was the brand, the facing brand. And now the bank is a utility, it's a utility for you. You happen to know who they are, but I would say that a lot of consumers don't know that their Apple savings account is really Goldman.

Rob Rubin (31:32):

These are institutions in the background acting as a utility. So, either you own the infrastructure, so it's cool to be the utility if you own it all.

Jim Marous (31:47):

And if it's always front and center. I don't want the utility to be something that I honestly couldn't tell you who my electric company is, I just know we pay it all the time. I don't want to not know, I don't want it to be a bank that the customers don't know who you are. I want to be front and center.

Jim Marous (32:03):

But it's interesting because we used to rely on the card transactions or the checks that the logos were always on it. But I used to pay for the travel on the toll roads with my card, I knew what card I used. Now I got the little device in the front and it just pays automatically out of the same account.

Jim Marous (32:22):

But I couldn't necessarily tell you what account that was. All these embedded transactions are making it very different to be able to build your brand, which gets back to your digital marketing and digital advertising thing. That says, "Guys you can't forget the brand aspect of what you're trying to do."

Rob Rubin (32:39):

Do you want to know what the elephant in the room is that we haven't really talked about as one of the problems is that a smaller bank has a lot of challenges recruiting the next generation of bankers, people to work there. Kids who are graduating from college aren't clamoring to go work for old-fashioned community bank. I mean, that's a problem. How hard is it for a small bank to compete for top college grads?

Jim Marous (33:07):

Yep. And how much do you want to give up? Third-party solution providers are helping to bridge that gap between who I can get in my own staff versus how I can get the advanced intelligence. On the other hand, I go back to my Alliant Credit Union example and Dennis Devine has no trouble getting any kind of recruits.

Jim Marous (33:27):

Why? Their mission is very clear. What's kind of cool for a Gen Z employee or potential employee is they realize that mission is to give as much money back to their members and to their employees as possible. That mission is something I can get behind. But if I'm simply doing old style banking faster, I don't know, it's not where I would have my son go.

Jim Marous (33:50):

I would have him go to a PayPal, to a SoFi, or even to one of the third-party solution providers that provide those services to a traditional financial institute. But you're right, it is truly the elephant in the room that isn't getting any smaller, the room's getting smaller.

Rob Rubin (34:08):

For sure.

Jim Marous (34:08):

So, let's take a short break here and recognize the sponsors of this podcast.

Jim Marous (34:15):

Welcome back to Banking Transformed. So, I'm joined today by Rob Rubin, General Manager of Financial Services at Insider Intelligence. We've been examining the major trends impacting retail banking today, and the ways banks and credit unions can respond to those trends.

Jim Marous (34:30):

So, Rob, there's a lot of discussion around personalizing banking and trying to build engagement. In fact, there's a whole lot of talk about not looking as much as experiences, as much as how much interaction can we have, how many times can a consumer really interact with their finance institution?

Jim Marous (34:47):

So, what role does data and analytics play in understanding consumer behavior and the preferences in today's retail banking landscape? And just importantly, how well do you think banks and credit unions are leveraging data, AI and technology today?

Rob Rubin (35:04):

Well, it's a tricky business because when does personalization become creepy? Consumers say they want the right offer at the right time, at the right place, but they do not want you to text them saying, "We noticed you just walked past our bank branch, stop in for-

Jim Marous (35:26):

Right.

Rob Rubin (35:27):

Like that becomes creepy. So, how you use the data is absolutely critical. And the thing that I think banks need to do a better job of is using their own first-party data better. So, I know, they know a lot of information about you, they have it in their systems, but for a lot of campaigns that they go out and reach out, they're not actually using their own data, they're buying third-party data about you even though they know more than the third-party and it's probably more accurate.

Rob Rubin (36:02):

In terms of AI, I've spoken with a lot of people at banks and it's mixed really about how aggressively they're looking at AI. And I think that if you're not prioritizing AI use cases right now, already, you're done. If you're not in flow already, I don't know, you should be the one looking to sell because it's really coming.

Rob Rubin (36:33):

And we're going to see very quickly use cases that are meaningful. And one of the things that's transformational about, like ChatGPT is how many consumers know about it? How quickly Chat open AI got to a hundred million users compared to anything else was exponential.

Jim Marous (37:02):

And how often it's in daily conversation. I had a lunch with a non-bank, a non-tech person, somebody who's retired, and we got into a conversation about how we're each using ChatGPT and different things and how people are playing around with it.

Jim Marous (37:15):

They're kicking the tires because they understand there's risk. But as you said, you can't just wait for it to be a thing because that's too late, you'll never catch up.

Rob Rubin (37:26):

And you got Venmo-ed.

Jim Marous (37:28):

Oh, exactly. Well, it's interesting because, I think it was like two weeks ago, I think my team heard it and we talked about, geez, how many organizations laughed at Erica from Bank of America five years ago? How many organizations now can connect the dots and say, "Geez, all the information they collected on voice communication, voice interactions, and how that can now be used in the ChatGPT functionality is insane."

Jim Marous (37:58):

I mean, that is learning that was done relatively low cost in the Bank of America scheme of things. But to be able to use that data and as you said, use your internal data to do the basics right. When you talk about prioritization, get your digital new account opening process done right with the data you have to make it so I don't have to fill in my name, address, social security number and everything else, you know that about me. And even if you don't-

Rob Rubin (38:29):

And you know it and I called on the phone number that you know it's me.

Jim Marous (38:32):

Exactly. And oh, by the way, and I'm not your customer, you can access that data instantly. I mean, look what happens when you open an Apple credit card. They may not have data on you, but they have enough on the phone. There's ways to get data so I don't have to do all the key punching.

Jim Marous (38:49):

But at the end of the day, what you're really talking about there is organizations have to use data and AI effectively for the basics first. And don't let go of the learning curve because a customer takes for granted a lot of things that use AI and crowdsourcing and data.

Jim Marous (39:09):

I keep on talking about the GPS system of financial services. Most customers or most consumers don't realize that you're getting the best direction because of all the cars in front of you that are using the same system. Because that tells them there's a backup if you should be taking another route.

Jim Marous (39:26):

You don't remember the days, I guess I should say, when you did a Google search, you'd have to go through three pages of things before you found kind of what you were looking for, now it thinks for you. A lot of people get frustrated with the sentence completion that your voice device does on your behalf, but we're expecting that now.

Jim Marous (39:49):

We've got to realize it's not just the tech that the other banks are doing. It's the tech that the non-banks are doing that the consumers are recognizing.

Rob Rubin (40:00):

The consumers always want convenience. Back in the day when consumers were looking for a new bank, when they thought about convenience, it was, "Well, where's the branch? What are the drive-through hours?" Things like that. Now convenience is defined-

Jim Marous (40:19):

Right there.

Rob Rubin (40:21):

Yeah. Convenience just has a completely different definition. So, the question of whether, why are you asking me that question, becomes inconvenient now for many consumers to do something that they used to do. So, I really think that it's always been about convenience and it's a good example is we've asked consumers in the past, "Who would you rather talk to, a robot, a chatbot, or a human?"

Rob Rubin (40:51):

And most consumers will say human today. And I will argue that in five years, probably less, if you ask that same question, the result will be the opposite because it's about convenience. It's like, "Wait a minute, I can ask this machine that's now talking to me, doesn't have to put me on hold to read my file because it knows it."

Jim Marous (41:13):

Oh, yeah. And we had a podcast with Brian Roemmele a couple months ago, and he said, "Imagine a time when you're going to have a ChatGPT bot that is specifically to you." So, it's going to remember every conversation you've ever had, going to remember every challenge you've ever had, any complaint you filed, any compliment you did, any account you opened.

Rob Rubin (41:33):

I don't know if that's good or bad. I make a lot of mistakes.

Jim Marous (41:35):

But at the end of the day, it's going to be about a value transfer. It's going to be about, "What are you giving me back?" You mentioned about, don't notify me about the fact that, come on in and visit us when I'm near a branch.

Jim Marous (41:47):

But if we said, "By the way, you just stop by the Apple store. If you need financing for any of your Apple devices, we have a special going on specifically for Apple consumers." All of a sudden you're going a little creepy, but I'm getting value out of that, it's very specific.

Jim Marous (42:04):

So, you go, "I'm going to give you a pass on that." In much the same way that Disney had the personal bands, and people got a little freaked out initially, and then they got a little bit more freaked out when the talking characters could actually reference your child by name.

Rob Rubin (42:21):

People change.

Jim Marous (42:22):

By child by name, but all of a sudden you look at your child's face and you go, "Oh, I'm totally okay with the person referencing my child by name, because I feel I still have trust in Disney. They're not going to use it for the wrong thing."

Rob Rubin (42:33):

I remember when Twitter first came out, I'm talking about X formerly known as Twitter for anyone. How come you changed the name to X, but everybody has to say X former known as Twitter, when does that end?

Jim Marous (42:46):

Yeah, exactly.

Rob Rubin (42:46):

But when it first came out, I was at Forrester and early on I signed up for it and immediately I started getting emails, which seems old already, but I started getting emails saying, so and so and so and so are following you. And coming from my perspective back then, I was saying, "That seems bad. I don't want anyone to follow me." And now following is like a sign of success, so I have all these people following me.

Jim Marous (43:17):

But on top of that, it still says that the consumers at the end have to have the final say and the control. I may like it, you may hate it. We've got to be able to both get what we want in the way we want it. When you look at using AI for engagement, using personalization, are there any standout examples of financial institutions that you're aware of, that your company's done research on that stand out as kind of getting this thing right, right now?

Rob Rubin (43:48):

Well, there are organizations that are doing a lot, particularly in the backend, but I think that at banks, the ones that we're seeing in terms of early consumer facing initiatives are really around authentic chat like Erica, personalization, wealth planning, those are sort of the consumer facing ones.

Rob Rubin (44:10):

But we see more back office initial sort of takes on generative AI, things around fraud defense as a support for CSRs. So, to make the CSR smarter and faster, so you're getting a human interface, an actual person, but that person is being supported by a generative AI tool to help them.

Rob Rubin (44:36):

Credit scoring, great example of another good application. So, there's totally a lot of things that are coming, but I can't point to this bank is doing this.

Jim Marous (44:47):

Well, you mentioned credit scoring, so the alternative credit scoring criteria. AI helps tremendously looking at alternative credit things. Everything from utility payments and rent payments to even the purchasing of technology that you can track. And you can say, okay. And I was lucky enough to go to China before COVID and visit WeBank. And their look at the consumers they wanted to serve was so much different than a traditional U.S. bank.

Jim Marous (45:20):

In that they said they can look at transactions and interactions, how a person uses their phone to find out who will be a bad character. And I said, "Okay, that's interesting." So, what you're doing is you're eliminating the bad characters and assuming most of all the rest of them are okay, as opposed to-

Rob Rubin (45:39):

Isn't it true most humans are good.

Jim Marous (45:40):

As opposed to the U.S. that says, "I only want the good characters." That is a very different scale.

Rob Rubin (45:46):

I'm assuming you're bad until proven otherwise.

Jim Marous (45:50):

Oh, geez, aren't we talking about everything in life right now but that's beside the point. But it's interesting because when you use data to find those anomalies that are going to be on the bad side, it opens up a whole new world of opportunity to serve broader marketplaces.

Rob Rubin (46:07):

That's right.

Jim Marous (46:08):

So, as we try to wrap it up here, what should banking leaders prioritize in their technology and innovation agendas as we're looking forward?

Rob Rubin (46:17):

Well, in terms of AI as I said, I think banks have to lean into it. I think they have to get their tools and tech up to date as possible and identify the highest priority use cases and develop a testing environment and begin development.

Rob Rubin (46:36):

They really need to start to think about how they can leverage that technology to provide a better experience, to provide a more accurate data set, whatever's required. And I also think that they need to think about creating APIs to open up opportunities to innovate with fintechs for their customers. They can't be the only source of innovation within their domain, and they can't just partner with someone because they're a Jack Henry thing.

Jim Marous (47:14):

Oh, yeah. What's interesting is when you talk about innovative institutions, it's those institutions that have what I'll say doubled down-

Rob Rubin (47:22):

And there's nothing wrong with Jack Henry. I didn't mean it like that, I'm just saying-

Jim Marous (47:25):

Those firms that have doubled down on investments to say, "I'm going to pick some specialists," Jack Henry, FIS, Pfizer, you name it, they all provide great services. However, they're not the best at everything. So, if you prioritize something, you say, "I've got to focus on X," and then you find the best provider.

Jim Marous (47:42):

I give a lot of credit to those organizations that I'm willing to pay again for something that my provider says they can provide me, but this provider can do it faster, better, and scale it quicker. At the end of the day, it's pretty poor.

Rob Rubin (47:57):

I think it's brave for a leader in a bank to make those choices. And I think it's hard. And I think when they're up against tight margins and they're being measured on a very short leash by their boards, it becomes a really difficult scenario for them to make the technology investments that they need.

Rob Rubin (48:21):

And that's why I think that — and I said this once before, how many banks and credit unions are there in the United States today? Like 7/8,000, maybe more like something around there. I really think in five years there's going to be 500 or less. I just don't see the need for all of them.

Jim Marous (48:40):

Well, that's interesting. I'm not too sure if I see that, but I think we're going to have a better indication that it should be that. It's one of these things we always lag what should be, but I think the defining lines of success and failure will be well in place, and we're going to have laggards to the failure side.

Jim Marous (49:00):

And what's interesting, and I don't know if you see the same thing at your company, but what I've seen more than ever is I can almost tell immediately in a podcast interview whether or not an organization's going to be a survivor, or a folder based on their leadership and their willingness to accept banking differently.

Jim Marous (49:24):

I mention this often, that the biggest hurdle financial institutions have today are leaders that have never had a bad year. We know who we're talking about. Every mid regional, these guys have been together for 30 years, and they've never had a bad year. So, you know what, there's no pain. So, if there's no pain, why do I change?

Rob Rubin (49:44):

I'm retiring in three years, so am I really going to make the-

Jim Marous (49:48):

Exactly right. And the problem then is you got people right behind you that are three years behind that, and people right behind that, that are three years, that have all been brought up the same way. I kidded in an article I did a year ago that I said, "What scares me is that management training programs continue to take brand new, exciting, enthusiastic graduates and have them go through a management training program where they learn how we do things."

Jim Marous (50:18):

Oh, shit I'm sorry, but nothing worse than to take a person's enthusiasm way going, by the way, any ideas you have about changing things, here's how we do them. Yeah, exactly. So, Rob, what suggestion would you give a, let's say, a mid-size or a smaller finance institution today to make it so that your chance of success increase over the next 24 months?

Rob Rubin (50:44):

I mean, it's real basic, identify really carefully who you're targeting, who you want your next customer to be, and not make it everybody, not make it so general, I want anybody who's 18 to 64. Make it that and figure out how to reach that.

Rob Rubin (51:06):

But the most important thing, and it's the hardest to do, is to listen to them. Is to go and listen to what their needs are, and to be a listener and to be able to understand … to truly listen. Not listen by, "Hey, I want to listen to you about what you think of my new product," but listen to what their problems are, listen to what the challenges are, and figure out how to solve those challenges and to be where they're at. And I think that those are really basic stuff.

Jim Marous (51:37):

But it's real. It's real, and we've said it for so many years. What's interesting is with digital technology, you can ask those questions at scale and speed very easily. In addition, you can deliver on those answers just as quickly. And right now, consumers are being asked information all the time and give it over to those organizations that they know are going to do something with it.

Rob Rubin (52:01):

Something valuable with it for them.

Jim Marous (52:02):

Oh, exactly. I get frustrated by the fact that financial institutions waived mortgage payments and rent payments during the height of COVID, but they never asked the consumer, "By the way, can you tell us why you're doing this?" And give them three options. "Are you using it so you can save? Are you using it because you can't make payments on your house? Or you make it because you can't feed your kids?"

Jim Marous (52:25):

How valuable would that be this year, three years after the beginning of COVID to know what the financial perspective of this consumer was, if they all of a sudden, got a windfall check or got a waiver on a payment to know, that tells you a lot.

Jim Marous (52:40):

And if you pay off on that, if you actually do something based on that, show some empathy, you are going to get more information. the information will keep — even in your case where you're a little bit more of a cynic, you'll keep on giving it, if you know that every time you do it, you're going to get some better services.

[Music Playing]

Rob Rubin (52:56):

Something valuable back.

Jim Marous (52:57):

It may be as simple as going to a restaurant, you go to a restaurant because not just do you like the food, but it kind of feels like they know you. And then you go, "I'm good with that. I'm down with that."

Rob Rubin (53:08):

That's right.

Jim Marous (53:09):

Rob, thank you so much again.

Rob Rubin (53:12):

I had the best time, Jim.

Jim Marous (53:13):

I thank you and everybody who listens. Be sure to check out because Insider Intelligence, yes, they have firewalls sometimes, but for instance, I believe the information on the ad spending is something that actually is accessible without a firewall, and there's other services as well.

Jim Marous (53:32):

They provide tremendous insight that's very timely, very focused. They have some great people there that I've known for years that do a lot of the research, and they're a great firm. I'm not bragging on a competitor; I'm hoping people build their ecosystem of who they will use for insight are broader. So, Rob, thanks again.

Rob Rubin (53:54):

Thanks a lot Jim, and I look forward to seeing you soon. Thank you everybody.

Jim Marous (53:58):

Thanks for listening to Banking Transformed, the top podcast in retail banking and the winner of three international awards for podcast excellence. We appreciate the support we've received to make this endeavor a success. If you enjoy what we're doing, please take some time to show some love in the form of a review.

Jim Marous (54:16):

Finally, be sure to catch my recent articles on The Financial Brand and the research we're doing for the Digital Banking Report. This has been a production of Evergreen Podcasts. A special thank you to our senior producer, Leah Haslage, audio engineer, Chris Fafalios and video producer Will Pritts.

Jim Marous (54:33):

If you've not already done so, remember to subscribe to Banking Transformed on both your favorite podcast app and our new YouTube channel, for more thought-provoking discussions on the intersection of finance, technology, and leadership. Thank you for joining us. Until next time, keep innovating and transforming.