How to Close the Digital Maturity Gap in Business Banking

Jim Marous (00:11):

Welcome to the Banking Transformed Podcast, the top podcast in retail banking. I'm your host, Jim Marous. The recently released business banking digital maturity report provides unprecedented insights into how financial institutions are transforming their business banking capabilities for a digital future.

Jim Marous (00:31):

This research is unique because it goes beyond measuring digital capabilities to examine the culture, talent strategies, and operation models that separate the leaders from the followers in business banking.

Jim Marous (00:46):

In this episode, Allison Cerra, the marketing director at Alkami Technologies and Casey Hogarth from Emerald Research Group, discuss this first of its kind research. We explore why some organizations are growing 10 times faster than their peers, how small institutions can successfully compete against larger competitors, and what it takes to build a digitally mature business banking operation.

Jim Marous (01:12):

Most importantly, our guests will provide a roadmap for how any finance institution can accelerate its digital transformation journey.

Jim Marous (01:22):

At a time when business banking transformation has never been more critical, new research from Alkami Technologies and Emerald Research Group reveals that digitally mature organizations are significantly outperforming their peers growing at nearly 10 times faster than less mature organizations.

Jim Marous (01:41):

What's interesting about the business banking digital maturity report is it follows on the heels of the report we did earlier this year on the retail customer. So, Allison, let's start with you. What inspired Alkami to research digital maturity in business banking and develop an assessment tool that can help financial institutions determine their performance compared to their peers?

Allison Cerra (02:05):

Well, Jim, hello. Hello everybody. Thanks again for having us. And Jim, thank you and Casey for partnering with us on this one. Again, because this study's exciting. I'm happy to be here.

Allison Cerra (02:17):

So, what inspired the study? So, flashback to last year when we were approached by our clients who are typically the source of many of the great ideas we get here at Alkami come from our client community. And we were asked at the time what defines digital maturity?

Allison Cerra (02:33):

And that led to the first study, which was the retail digital maturity model. That's been out now a little over a year or give or take about a year and was wildly popular in the market the first time to our knowledge that we had the three of us coming together joining forces to actually help financial institutions understand how culture, strategy and technology combine to form a digital maturity index in the market.

Allison Cerra (03:02):

And no sooner had we published that white paper, it seemed that we were asked the second question, which was, "Well, that's great, that's a retail model. What about for business banking? What does that digital maturity look like?"

Allison Cerra (03:15):

And even when we, the three of us embarked on the retail model, I know backstage information, we talked about this, that if we were going to do this well, we had to understand that maturity would be likely different if we were looking at the retail portion of an institution versus the business portion of the institution, or the commercial side of the institution.

Allison Cerra (03:34):

And we had decided at that point, look, we're going to start with retail and we'll see if the market accepts it. And if there was acceptance behind it, we were all three of us committed. I know, because we were all in those rooms saying, if the market accepts the retail maturity assessment and they find value in this, we will go forward and publish a business maturity index. And that's kind of the story of how we're here today.

Jim Marous (03:58):

Well, what's interesting and exciting about this is it's normally we just distribute and publish a report about what's happening. What's really the double down on this, as it was done on the retail side, is not only publishing a report about what's going on in the marketplace, but then you give an assessment tool for organizations to figure out where are we?

Jim Marous (04:20):

And this changes over time, but it's really exciting for you to be able to not only assess where organizations are through an assessment tool, but then also be able to take action on. Because what happens is when you finish the assessment tool, Alkami provides you recommendations as how to become more mature.

Jim Marous (04:39):

So, it's the entire round and the out of the process. And I would imagine, Allison, for organizations, this has really been something completely different for them because it's one thing to present research, it's another thing to actually tell organizations specific to their own maturity what to do to get better, isn't it?

Allison Cerra (05:01):

Yeah, totally different. And depending upon when your listeners listen to this, the business maturity index may or may not already be out there in terms of the assessment tool, the retail version of the study and the assessment are in the market today. And anybody can go to Alkami.com and take a retail assessment, which is based on that study. Five questions to inform where you are on the retail maturity curve.

Allison Cerra (05:24):

Business is coming soon for those waiting and depending on who's listening right now, the white paper is out, depending on when you're listening, the assessment may actually also be out on Alkami.com. But the first version of this, when we did the retail one, which really was the inspiration to doing the business one, that to your point, Jim, was one of the game changers is that it wasn't just at theoretical exercise anymore. It wasn't just an interesting research report for which there were lots of good ones out there in the marketplace.

Allison Cerra (05:50):

This was actually an actionable report where we had institutions who said, "Wow, I can actually sit down, take five questions that Casey, with his brilliance and the team over at Emerald figured out what were the questions with the greatest statistical probability of determining where you fit on the curve based on the index, the national benchmark of more than 200 institutions in the retail assessment, 150 institutions in the business assessment where you are."

Allison Cerra (06:17):

That was groundbreaking. And we've had clients who have used the retail assessment as an example to inform their strategy, to inform their technology investments, inform next steps, question their culture, because there are a lot of cultural nuances to both studies.

Allison Cerra (06:31):

And so, it's been really rewarding for us to be able to offer that to the market that we actually can give them a prescription, not just, here's the diagnosis, but here's the prescription forward for how you can actually evolve your own maturity vis-a-vis the benchmark.

Jim Marous (06:47):

As you know, makes me pretty doggone excited as well, because we've never had anything like this. And as you said, five questions put you into a category as to what you need to do next to make the biggest impact with, in many cases a lower cost.

Jim Marous (07:02):

So, it's like, how can I move the needle today to make my banking business better both on the consumer and business side. So, Allison, the research found that most digitally mature organizations grow 10 times faster than less mature organizations. What do you believe are the key differentiators that drive this dramatic performance gap?

Allison Cerra (07:27):

It's great. It's gold. This instrument, and I should tell your listeners the business assessment tool may have a couple of more questions than retail, so I got to give Casey some permission there, because Casey lets the data tell him what are the questions.

Allison Cerra (07:41):

So, it might be a couple of more than five, but it's going to be in that ballpark. The point being it's not a ton and it's a pretty frictionless way to take the assessment, whether you're retail or soon business.

Allison Cerra (07:53):

But Casey and team, he'll speak more about this, they let the data tell us what are the characteristics that inform digital maturity. To your point, Jim, we saw the most digitally mature business in business banking organizations reported 10 x the revenue growth of the less mature, which was an even starker difference than what we saw in the retail maturity.

Allison Cerra (08:17):

In that instrument, it was already impressive that the correlation was two x, the most mature grew twice as fast. This was even more pronounced. The least mature grew less than 2%. The most mature grew over 16%, almost like 10 x the difference between those two extremes.

Allison Cerra (08:35):

And Casey and team working their magic and looking at the data found three key pillars of that, that I'm sure Casey will go into in more detail. But the first was user experience. The first was just a focus on user experience. And what was interesting in this study is that all that looks on the surface is not as it appears. So, when we looked at just features, there looks to be a lot of feature parody in the marketplace.

Allison Cerra (08:57):

So, when we look at user experience for things like sub user management, is it offered, yes or no? When we look at digital account opening, is it offered, yes or no? Integrations to major ERP and accounting systems, yes or no? Money movement tools and different payment capabilities, yes or no?

Allison Cerra (09:14):

If you just looked at the binary, it looks like most organizations, there's a lot of homogeneity in the market. Not a lot of difference at all. It's not until Casey and team do the double click that there is a vast difference in just how deep and integrated those capabilities are and how powerful they are.

Allison Cerra (09:32):

To what extent are things like integrations handled with rich, API, bi-directional, API interfaces versus just basic SSO or even worse CSV export integrations? To what extent is sub-user management intuitive and elegant, not just offered? That's when you really start to see the separation occurs in that user experience pillar.

Allison Cerra (09:53):

The second pillar is around employee productivity. And we'll talk more about this here, but employee experience, it's the most advanced. Organizations are starting to expand the aperture of what they think of when they think user experience.

Allison Cerra (10:07):

Users are certainly the end users; the customers are the members of the institution. But increasingly for the most advanced organizations, the user is also the employee behind the glass, the administrators that have to offer that world class experience to the customers or members. And you're seeing a bigger focus on employee automation tools as a result.

Allison Cerra (10:26):

And then last but not least, as we saw in the retail study, as the adage goes, culture eats everything. Mindset in this case informs the skillset and the tool set that the institution uses. So, the most digitally advanced have the mindset of informing everything from whom they see as their competitors to how they access and retain and develop their talent to obviously how they make decisions.

Allison Cerra (10:50):

Is it more data informed, or do they rely more on their gut instinct? Hint, it's more data informed. So, everything about them is different and the way they describe themselves, define themselves, reach and make decisions and how fast they move.

Jim Marous (11:03):

It's interesting, Allison, we're seeing it across all dynamics of banking is that it's not just cultures communication. Do employees really know what top management's doing and what the executive management wants the direction of the financial institution to be?

Jim Marous (11:19):

And even more importantly, am I going to be keeping my job? People are scared to death about AI and all kinds of digital transformation replacing them. And the reality is those organizations that assure the employees that they're going to be part of the future, that they have a way to move forward, they have a way to improve their job performance and what they do on a daily basis really moves the needle with regard to how digitally mature and how well that organization does.

Jim Marous (11:50):

Casey, when you look at the research overall, you just determined four distinct segments as you looked at digital maturity, obviously elevating over the pace of how mature they were. Can you describe these segments and what differentiated each level?

Casey Hogarth (12:07):

Yeah, so just like the retail work, we've got four different groups, and they go from sort of the least mature to the most mature. Our first group, which is about a quarter of our audience, is what we call the cautiously modernizing segment.

Casey Hogarth (12:23):

They're typically smaller FIs and they'll tell you they prioritize digital, digital's key, essential, more important than our branch experience if you ask most of them. But the gap is sort of, they're not necessarily putting the money behind it. They spend a smaller percentage of their total investments on tech than the other segments.

Casey Hogarth (12:46):

And so, even though they say it's important, step two is putting your money behind it. And we see that when we look at some key user experience boxes to check, they seem to be less likely to offer digital accounting opening experiences, fewer management tools and sub-user management experiences. ERP and accounting tool integration isn't nearly as strong if available at all.

Casey Hogarth (13:14):

But they're not afraid to kind of tell you they're aware of their shortcomings, they understand, they acknowledge, they know that they don't have the best platforms on the market but changing that is a lot easier said than done. Right?

Jim Marous (13:28):

Yeah.

Casey Hogarth (13:29):

And so, that's sort of, I think where their challenge is just knowing where to go next with the resources that they do actually have. And so, when we step up to that next group, actually the smallest segment of our four we're calling optimistic believers. These are typically credit unions and they truly believe in what they're offering. Like the previous group, they'll tell you digital is awfully important. They say it's more important than the branch and call center experience than any other segment.

Casey Hogarth (14:03):

And they actually put the money behind it. The percentage of their total investments last year that went towards digital is higher than every other segment. So, with the resources they do have, they are in fact putting it at the top of their list from a financial perspective.

Casey Hogarth (14:19):

And what we do see is they have stronger UIs, that leads to a better experience for their customers. One particular strength that they very consistently offer as great as the most advanced orgs is around that sub user management experience. So, that seems to be a place that they've really prioritized, I think for good reason.

Casey Hogarth (14:42):

But there are some other experiences they fall behind leaders on, things like more advanced payments experience or a more packaged all in one payments experience. Their invoicing tools aren't necessarily as present or advanced.

Casey Hogarth (14:59):

That ERP integration is usually there, but not necessarily quite as strong and seamless as some of those more advanced orgs. And they ultimately, if you ask them, they'll tell you their platforms are above average. So, even though they're missing some of those truly tip of the spear capabilities, they'll still tell you they're above average. They're really strong.

Casey Hogarth (15:22):

And what a lot of what drives that is ultimately who they're comparing themselves to. Typically, they're saying we're better than another FI like us, a smaller local institution that kind of we're right next door to, our platform is better. And to jump into that next position, it's really about raising the bar and starting to say if we compare ourselves to some of those bigger, more advanced FIs, maybe we aren't quite so great.

Casey Hogarth (15:53):

And that's where the next segment, the emerging pioneer steps in, this is the largest segment about a third of the total market made up more so of banks. And this is where institutions start to get a little bit bigger. They consistently offer all the capabilities I've mentioned that seem to be important in maturity, digital account opening, advanced payment methods, strong ERP integrations.

Casey Hogarth (16:20):

And they see a lot of potential in data. They haven't necessarily deployed or fully deployed modern advanced data technologies, but they'll tell you data's important. They have the data to work with. And they've started deploying some of those technologies. So, sort of that early stage of really leaning into the data and taking advantage of it is where they stand there. And they'll tell you their platform is actually right around average, if not below.

Casey Hogarth (16:50):

And that's because instead of comparing themselves to smaller and local FIs, they're more often comparing themselves to the mega banks. The ones with the biggest ability to invest in technology. That's what their targets are set on.

Casey Hogarth (17:08):

And it seems to be paying off because they aren't necessarily spending quite as much, but they do have some more of those advanced technologies. And then that brings us to the fourth group who we call the tech titans. They're kind of by name, the most advanced, are typically the larger bank.

Casey Hogarth (17:25):

So, to some extent a bigger budget gets you there easier. It's not all of it, but it's certainly a factor. And when we get to this group, we see that there approach priorities, particularly on the sales experience, isn't quite as digital focused as those other groups.

Casey Hogarth (17:43):

So, you don't necessarily have to say digital only digital is everything that we do to become one of those tech titans. They recognize that there is a bit of balance. You can't necessarily ignore and sacrifice that in-person high touch experience ... I think we didn't necessarily see that in the retail work.

Casey Hogarth (18:00):

So, that's pretty unique to the business side of things. And they offer advanced experiences across the board from what I've mentioned. They have an all-in-one payment center where you can do everything you need to in one place. They have a two-way seamless API integrations with common ERPs.

Casey Hogarth (18:21):

They're incredibly data-driven. They prioritize data over their experiences twice as much when they are going into making decisions. And they've typically fully deployed some of those advanced tech data technologies, things like data lakes and starting to play with AI more.

Casey Hogarth (18:38):

That's sort of a big aspect of what separates them from those emerging pioneers is on the customer facing side or the customer member facing side of things. They look pretty similar. But when you look at intrinsically and back at what's happening behind closed doors from a employee experience, from a data perspective, that's where they have a leg up above everybody else.

Jim Marous (19:00):

So, it seems then Casey, I know that you and Allison really spent a lot of time building the structure of the survey, and I think as a researcher there's almost always a case where something comes out and surprises you, something just so you go, "I didn't really expect that." What was it in this research that you saw that you said, I didn't necessarily expect that?

Casey Hogarth (19:24):

I can start. So, it's funny you mentioned kind of going back and spending a lot of time building this. Before we actually wrote the survey, we did some qualitative research and talked to a small handful of people in these types of positions at FIs.

Casey Hogarth (19:41):

And one thing that they really spoke quite a bit about is that ERP integration side of things. And they talked a little bit about how pretty much everyone offers it. Yep. But the real difference is what you can actually do with it. That idea of a two way experience where you don't necessarily have to be even in a banking platform and you can do more from your ERP because — that was a big surprise to me.

Casey Hogarth (20:10):

I definitely didn't see that coming up at first. I hadn't really tapped into that. But multiple talked about the importance and business' kind of preference for being able to do everything in one place. And being able to enable that to do more with their ERP systems seems to be a huge differentiator in a lot of their minds. And that hadn't crossed my mind yet until we got some on the phone and really started digging deep into what actually makes these different.

Jim Marous (20:43):

Well, it's interesting because in business banking, there's just so many levels of what you can do with a customer, even outside of banking, bringing things in that are outside of traditional banking environment, more so than you can do on the consumer side.

Jim Marous (20:55):

I wouldn't be surprised that that would be a major differentiator because as you said earlier, everybody's got the basics to a degree. Or Allison said it, it's a matter of saying how can you go beyond those basis?

Jim Marous (21:07):

So, Allison, I know another somewhat surprising finding, but we found on the consumer side as well was that 20% of the most digitally mature institutions had less than a billion dollars in assets. They didn't have the wherewithal to spend willy-nilly on technology, but what really allowed these smaller institutions to compete with their bigger peers.

Allison Cerra (21:32):

Yeah. That was a good finding in both studies. This was not a surprising finding for me, only because we'd already been surprised in the retail study. So, I would say that the retail study, the surprise was, wow, everybody thinks, oh, it's all about the resource.

Allison Cerra (21:46):

And by definition, if you're bigger, you're just going to be on the most advanced side of the curve no matter what. You'll be able to have the favor of just being large. And certainly, as Casey said, there is a correlation between size and maturity, no doubt about it. But that isn't the full story.

Allison Cerra (22:02):

And so, we had already seen in the retail model that yes, there were institutions much smaller in size punching well above their weights as the most mature of the study. In this case, the same 20% of the institutions are of "smaller size" that are in the most progressed segments.

Allison Cerra (22:20):

And what we found here is it's again about the mindset informs it. They're much more likely to describe their culture or themselves as an institution, as full service versus friendly as an example, versus their counterparts. They're much more likely to have API integrations much more entrenched, robust API integrations that we see versus their smaller peers that don't get into the more mature cohorts.

Allison Cerra (22:43):

They also are very religious about monitoring their platform's feedback. They do regular surveying of their customers and members to better understand that. So, I would say that was again, something that was consistent between the two studies is that it's, as you challenged us, Jim, in the first study, you're the one that said, "I really want to know, is it about the size of the dog and the fight or is the size of the fight and the dog?"

Jim Marous (23:06):

Yeah.

Allison Cerra (23:07):

And we found that yes, for many institutions that are defined gravity candidly on both ends of the spectrum, because we have about 20% of the larger institutions representing the least mature segment. So, it can go both ways. It cuts both ways as a double-edged sword. We saw that here.

Allison Cerra (23:23):

And I would say to answer the question, what did surprise me, especially given the confirmation bias I had coming into this, is why you don't have me do the research, Jim, is why you have Casey do the research because he doesn't subject himself to confirmation bias.

Allison Cerra (23:37):

Because I thought, "Okay, we're going to see a very clear line here that the higher the digital investment, the more mature they are." So, different from asset size, but just the more digital resources and investment, by definition that's going to lead you to being more mature because we saw that conclusively on the retail side.

Allison Cerra (23:55):

To Casey's point, we didn't see that here. Optimistic believers are the second on the four of the four cohorts and maturity. They invest the most in their digital initiatives as a percent of their budget, but they're not leading like the tech titan.

Allison Cerra (24:10):

So, I think that what I learned here is why is that, well Casey and team aptly not name them optimistic believers. Because it's not just about what you're investing, but who are you benchmarking yourself against? We see that in this study that based on is it the mega bank that's really setting the pace on what innovation is looking like for a lot of things because they do have the investment, they can make in it.

Allison Cerra (24:35):

Or is it the local, regional or community FI down the street that's your benchmark that can actually lead you down a path of potentially investing a lot of your budget, but potentially not in the right areas depending upon getting to where the features are of the most advanced institutions. So, that was I think, my biggest surprise going into this.

Jim Marous (24:52):

It's so interesting because the one dynamic we don't measure, and as I was going through the research for the third or fourth time is that we are writing our report. You kind of get the feeling that the optimistic group may have had a farther path to travel. In other words, they may have been further behind, and they had to double down on the investment.

Jim Marous (25:11):

But they did that, which is kind of interesting as well. I think another dynamic when you look at this small versus the larger organizations is that give yourselves Alkami credit and other organizations that compete with you in that the ability to now do almost anything quicker and at less cost than ever before is now possible.

Jim Marous (25:36):

I mean, any organization wants to build a totally digital organization and transform what it was to what it can be. They can do a complete core transformation. They can do a partial core transformation. They can look at digital new account opening and implement it faster than ever before, if you decide that that's what you want to do.

Jim Marous (25:59):

And I think it also looks at what is your vision, what have you defined your problem as being? And I think there's some smaller organizations that have done a really good job of defining what are we trying to solve for and where are we going to go? What's the most important thing to do?

Jim Marous (26:14):

I think in the research we've done, in the research you've done now we find that that middle segment of organizations, the 10 to 15 billion to a hundred billion really struggle because they're so stuck in legacy. It's really hard to unwind. The large organization has so many layers in place in the existing or legacy world.

Jim Marous (26:38):

So, it's interesting as you peel back the layers more and more and say, "Okay, so this may be the reason or how do we move forward?" Which is really what's good about the tool that you're going to be providing.

Jim Marous (26:49):

Casey, your research found that there were significant differences in how institutions approached talent management. What strategies are being used by the most mature organizations? What have you found to be some of the tipping points?

Casey Hogarth (27:04):

Yeah, there's a couple different aspects of it. The first we see is the most advanced orgs are from a hiring perspective, are open to going outside the industry. They're not set on just hiring people who have worked in other financial institutions, but kind of broadening their openness to people who may know technology but not necessarily finserv. Those being open to that seems to help.

Casey Hogarth (27:31):

The other thing we see is they invest more in employee upskilling. So, not only bringing in people who can add more to what they can do, but enabling their employees to learn more, to teach themselves so that they can grow into kind of a modern banker rather than something that they may have been when they were hired on. So, I think from a pure talent perspective, those both seem to come up and seem to be really important.

Casey Hogarth (28:01):

But the other thing that I think is really important here is actually giving those employees the tools to enable them to do better work. So, it's not just hiring and training, but equipping them with tools that they need to thrive and succeed.

Casey Hogarth (28:18):

We see in some other research that probably no surprise, but younger generations tend to expect more from their digital experiences at work. The bar for this app or this tool or this solution better actually make my life easier or better save me time is a lot higher for those younger generations.

Casey Hogarth (28:38):

So, and tech leaders are kind of feeling that pressure, they're feeling things shift around and they're certainly aware of it. So, that idea of kind of enabling them employees to do more, make the tools easier to use is going to be important to lean into in the future.

Casey Hogarth (29:02):

And we see that when we actually look at orgs who have invested or prioritized internal employee technology versus technology built strictly for customers, we see that one of the biggest differences when we look at that group to everybody else is they're just able to execute on decisions faster because they have the tools.

Casey Hogarth (29:26):

Once the company makes a decision to, we're going to go build this, or we need to go fix this, things get done quicker because they have the tools to do it, because they have the data to one, make those decisions with confidence, but also to actually potentially automate some things when you've got more data you can automate that gets things into the field into action quicker and it makes employees' lives easier, which ultimately makes their jobs easier.

Casey Hogarth (29:53):

So, yeah, we're seeing it's not just about hiring and training, but giving them the actual tools to make their jobs easier.

Jim Marous (30:02):

It's actually the democratization of insight. It's interesting, I come from the banking world where I had to ask the department that held all the reports, the technology group, "Can I get a report on how many people open accounts in marketing?"

Jim Marous (30:16):

And I can never get those. I'd have to wait 3, 4, 5 months after a program ran. And between then I had run three more. That may have been totally ineffective because I didn't have the information. Today's financial institutions really distribute that insight, that information as far as they possibly can so that people can make decisions closer to the end consumer.

Jim Marous (30:39):

And that makes it so much more powerful. But it also doesn't feel like my success is being determined by somebody else who owns something else. And it was the who owns the information was the most powerful and now it's everybody, which is really a change in dynamics, but it's a way of communication and a change in culture.

Jim Marous (31:00):

Allison, I love reading your letters. Allison in the report provides a letter of her insights and overview of what we've done and where we're going. And your letter emphasizes that culture informs everything from strategy to execution. You mentioned this earlier in our conversation here today. Can you elaborate on how culture really changes digital maturity?

Allison Cerra (31:25):

Well, I mean, we see it, I take no pride of the authorship here. I wish I did say culture strategy, but we see it, we see it over and over in both of these studies. And I think what Casey is hitting on here is so fundamentally important. I don't think it gets nearly enough airtime.

Allison Cerra (31:41):

And that is, we talk about the generational wealth transfer a lot and the passing of the 16 trillion in wealth over the next 10 years from boomers largely to millennials who are expected to inherit that wealth over the next 10 years.

Allison Cerra (31:55):

But we're in the midst of a generational work transfer right now where for the first time this year, gen Zs will outnumber boomers in the workplace. So, for the first time, we have a multi-generational workforce that FIs are dealing with, as are their customers, their business customers are dealing with this same inflection point.

Allison Cerra (32:12):

And to Casey's point around why employee productivity really comes into this, which is where culture comes in. Where do you see your employees fitting in in the culture? Are they relegated as a second class citizen? When you think about user experience as an example, or you thinking about them as users in the end-to-end workflow of a consistent user experience, perhaps more important than in any segment than in business.

Allison Cerra (32:35):

Because on the retail side, we can use technology to intercept a lot of retail customers with the right offer at the right time. That's the great thing about the retail side. The business side, it really is about empowering your employees with the tools, with the tech, with the data insights to be able to have those analog conversations.

Allison Cerra (32:51):

Because the other thing, the study found that was a bit of a surprise to me is that the most mature institutions in this study, unlike the retail study, aren't likely to say that digital banking eats all other things at the expense of the analog channels at the expense of branch or call center.

Allison Cerra (33:07):

They have a very balanced approach, whether that's in servicing existing account holders or acquiring new account holders. The most mature in this study, unlike the retail study where in the retail study, they were much more likely to say digital banking against all else at the expense of branch and call center.

Allison Cerra (33:27):

Here, it's no, there is an omnichannel experience we have to create where our business clients expect to come into a branch. They expect to call a call center an account representative, and they expect to do things digitally. So, really having that unified account experience that can only be predicated if you have a culture that really does empower the employee and give them the insights, Jim, that you spoke about.

Allison Cerra (33:52):

So, I think that this is one of the reasons why we see this culture eats everything and it informs everything it informs of how they think about their competition as we talked about. Are they likely to see it as the local credit union or bank down the street, or are they likely to set their sites higher on the mega banks?

Allison Cerra (34:06):

Are they likely to look interior to the corridors of this marketplace for the next talent generational change? Or are they likely to expand their net and look outside of the industry? When they do Casey's research and his analysis found they're more likely to invest in their employees, not just with automation, but with training, giving them the development skills they need to basically move to being more digital friendly and more data informed.

Allison Cerra (34:32):

We believe the emerging persona in this industry is the data informed digital banker that will use the tools technology and most importantly the data to be able to create a much more personalized account holder experience, be it over digital and or analog channels.

Allison Cerra (34:47):

So, and I could keep going on, this is a big point in the study, and we cannot underestimate the generational wealth and work transfer that is underway right now in our lifetimes. There's never been a more exciting time to be in the industry. And it'll be even more exciting tomorrow. We'll say this every day because these are interesting times.

Jim Marous (35:05):

Well, it's interesting Allison and Casey that this research really helps define, are you walking the walk as well as doing the talk? Because you used to be able to talk to shareholders talk once a year, once a quarter and talk about what you're doing.

Jim Marous (35:21):

But really, it's where the rubber hits the road right now. Institutions realize that the consumers, the small business people, the big business people, they know what can be done. They know it when they take an Uber, they know when they use Amazon, they know it when they use Google, they know it when they use a personal version of ChatGPT that they're expecting more because you're getting more in other institutions, other industries.

Jim Marous (35:48):

And I think it's important when you look at culture, when you look at what's possible to realize there's a pot of gold at the end of that rainbow. As you mentioned, Allison. There's so much transfer business assets, there's so many new businesses being created that when you look at this, you can't stand on the sideline anymore. But it's not just about investing in digital.

Jim Marous (36:11):

Casey, you referenced the fact that institutions are investing heavily in digital, but some aren't maturing to the pace you would think based on their investment. What causes this disconnect, this dichotomy between investment level and maturity level, do you think?

Casey Hogarth (36:30):

Yeah, I think one aspect to make sure your investment level is actually on target is listening. You just talked a little bit about how other sectors, customers are getting more modern experiences. Things are changing rapidly beyond just banking right now.

Casey Hogarth (36:52):

And Allison kind of mentioned earlier, when we look at the orgs that are smaller but punching up and still more advanced, one of the biggest differences that we see between them and other small FIs is the percentage that send out regular satisfaction surveys. They're three times as likely to do that.

Casey Hogarth (37:11):

And coming from research, I love surveys, let's be honest. But I think that's a deeper representation of sort of their mindset of they listen to customers, and they want to hear what their members have to say. And so, that mindset transfers to more than just we send out surveys, but they're reaching out in other ways.

Casey Hogarth (37:33):

They're listening to what they see on their app store ratings and they're having conversations with small business customers to hear what they actually need. And when you get those insights, when you actually listen and put the time into getting feedback from your customers, it makes sure you're actually putting the dollars that you're investing into what they actually want.

Casey Hogarth (37:58):

So, I think that's one really important factor. And the other is just being honest with yourself and kind of raising the bar instead of just comparing yourself to the fi down the street admitting that we are in fact competing with some of the biggest institutions out there, whether or not we want to admit itis an important step to opening the door up to bigger comparisons to set the bar higher.

Casey Hogarth (38:25):

And ultimately that allows you to explore new capabilities, new functionality that you might not necessarily have seen thought of because your type of FI isn't doing it yet, but it opens you up to potentially exploring that and bringing yourself up to be comparable with those bigger Fis rather than just the best UI within your community.

Jim Marous (38:54):

Casey, within the research that we did, if you look forward and say, "Geez, I can see something happening here," but we've only done one of these right now, so we don't know exactly where it's going to go. But in your qualitative discussions and other research you're doing, what aspects of business banking do you believe will be the most transformed by digital capabilities? Do you think it's going to be because of AI? What do you see?

Casey Hogarth (39:23):

I do, I spend a lot of time researching tech and I've heard a lot about AI, but I'm pretty convinced that it's going to have a big impact. It's starting to already, but I think you give it a couple years, once everybody starts to get the hang of it and learn how to use it for their at work and organizations learn how to tailor it to exactly what they need, I think that's really going to transform the experience that actually I talked a little bit about earlier.

Casey Hogarth (39:53):

That idea of, I want everything in one place. I spend all day in my ERP platform as a enterprise or worker or a business owner. I want to be able to do my banking within that rather than have to log into a couple different places. And I think, we're kind of halfway there already and I think AI is going to be this piece that really transforms it into something totally different.

Casey Hogarth (40:20):

And not only am I banking through my ERP platform instead, but I'm banking through that platform sort of chat channel chat experience. So, I'm not clicking through to make transactions. I'm not clicking through to pull banking information. I'm just asking my ERP buddy, can you send this transaction to x this amount, this date? Or can you pull this information and give me the insight to it?

Casey Hogarth (40:47):

I feel like that will be here not tomorrow, but give it a couple years. And once we all sort of are comfortable with today's version of AI, I think we're going to start to see that more.

Jim Marous (40:59):

Allison, what do you think you're going to see in the next, I'm not going to say three to five years anymore because really it's the next three years because we have no clue what could happen in five years. What aspects of business banking do you believe will be the most transformed by digital?

Allison Cerra (41:13):

Well, I'll tell you what my aspiration is rather than just a prediction. My aspiration for this part of the market is that we don't think about something like personalization as a pejorative when we talk about business banking. I think for too long we've said, "Oh, personalization, that's a consumer ish, that's too retail ish. That feels very consumer-like."

Allison Cerra (41:36):

And my point is, there is no bad word about personalization, especially when you can really be relevant to that business client. We are no longer these isolated beings that I expect one thing in my personal life and then I'm a completely different person when I walk into the workplace.

Allison Cerra (41:55):

We are integrated. We're integrated people, we have common expectations. Jim, you use the example of Amazon Uber. Hell, like I'd use the example of Domino's. I order Domino's now and I know exactly where it is. Is it going in the oven and they got my toppings out? I mean, it literally has seeped into every aspect of what I can do now.

Jim Marous (42:16):

And when you make that call, they go, "Do you want to order the same thing you did last time?" It's a little thing that you go, "Gosh, I don't have to make another decision."

Allison Cerra (42:23):

I don't have to do it. You know me. And imagine for a business, why is that a bad thing when we talk about hyper-personalization at scale? Well, I would love for you, if I'm a business to know if I'm going to have a cash outflow problem in a few months by predicting what my spend is and what my revenues are.

Allison Cerra (42:40):

I would love for you to be able to tell me where I should be investing my money more wisely so that I am diversifying my risk, but also maximizing my return. I would love for you to be able to tell me how I can service my business customers more intuitively knowing that they're in the midst of the great generational wealth and work transfer themselves, and they're trying to figure out how to seize a new segment of the market, many of them themselves as well as a new segment of knowledge worker.

Allison Cerra (43:05):

Why is that a bad thing? So, that's why I do believe that the data informed digital banker persona is one we can and should be talking more about. And that is equipped by data and insights at scale, whether for the retail or the business or the commercial multi-entity customer.

Allison Cerra (43:22):

To me it's about personalization of knowing what that entity needs in that moment of time and being hyper relevant at that moment. And whether that is accelerated, which I believe it will be as Casey does by AI, or whether it's just getting our data stack in order. Start with getting the data house in order because AI can be intimidating and overwhelming.

Allison Cerra (43:43):

Just start with, do you have your data house in order? Are you still working out of these very disparate silos that are very hard to understand what the data even is? Have you structured, have you cleansed it? Have you codified it? And/or have you leveraged third parties that can help you do that so that when the time is right, you've got gas in the engine. And we know that data is the gas that feeds an AI engine. So, get your fuel pumps in order if you do nothing else right now,

Jim Marous (44:08):

You know what, it's so important too. Bankers tend to want to be perfect and consumers and small businesses don't expect or require perfect. In other words, when you're developing a personalized experience with me, the more you help me be better at being me in a financial world or non-financial world, the more value transfer there is and the more open to things that aren't a direct hit. And we'll be able to have.

Jim Marous (44:37):

So, for instance, my team knows, I use the example a lot recently that Uber continues to be in communication with you during your journey. Not only tell you where you are and where you're going, but they may offer you takeout food at your hotel you're going to, or they may offer you restaurant suggestions.

Jim Marous (44:55):

They may not be perfect, but the fact that you know they're using information they've gathered to make it easier for you gives you a lot of points. I think banking can be inhibited by the fact that they say, but what if we make a mistake?

Jim Marous (45:12):

If you've shown the consumer that you know them, understand them and are looking out for them, that's the key one. They're going to give you more ability to make mistakes than if you know everything about me but you never once reach out and say, maybe this will help.

Jim Marous (45:29):

I can take a mistake. What is harder and harder to accept is when you don't get engaged with me. When you don't start the conversation, when you don't have a digital tool that makes it so that you say, based on what you've done recently, here's what I expect you to do.

Jim Marous (45:44):

Domino's, yes, it may be a little bit off that they haven't really put in the oven. Maybe it's an AI tool that tells you this. But again, are you trying to show that you're trying? It's a big deal and that's where to bring it all together, that's where the human aspect of digital banking has become important.

Jim Marous (46:03):

We can't release everything to digital. It was brought up over the weekend, we're all on top of what's going on in New York with the killing of a UnitedHealthcare. I think it's United. I may be wrong.

Jim Marous (46:19):

But UnitedHealthcare executive and it was thought there was possibly because of the way they handle claims. Well, it also came out that UnitedHealthcare does a lot of AI to handle claims. This shows the importance of human testing, of models, human engagement during the models. You can't just relieve everything and hope it works out well.

Jim Marous (46:42):

Because there are going to be exceptions. Heck, the whole AI, generative AI world is so new that we're going to make mistakes. We'll be okay with mistakes as long as a human has looked over those and is flexible if you have a complaint.

Jim Marous (46:57):

So, Allison, to wrap this all up, what are you doing today at Alkami and with your research that we can be expecting down the road? I know there's a couple things because we're involved in a couple of them, but as you look at this research, what is coming up? What's next?

Allison Cerra (47:15):

Well, for us, what's next is getting the assessment tool out there. So, the first thing is, if your listeners have not yet seen this research, they can download, Jim, thanks to you and your extraordinary contribution to this entire project, both as a thought partner and then actually the content generator behind the white paper. There's a white paper on Alkami.com that they can download. Get the full-

Jim Marous (47:38):

Also, it's going to be on the episode notes. So, it's on the episode notes as well.

Allison Cerra (47:41):

It's perfect. So, you'll be able to get the white paper, depending upon when you listen to this, the business maturity assessment will already also be online at Alkami.com. If it's a little bit premature, it will be online targeting early 2025 for that assessment tool to go live where you can actually take a few questions out of the actual research that Casey and team did and get the index against this national benchmark of where you would fit, and your institution likely fits on this maturity curve.

Allison Cerra (48:10):

And then last, but not least, we might be under the tent right now building the next retail maturity assessment evolution based upon research. Because one thing we know this isn't going to radically shift year by year, we would expect that this is a journey, not a destination. So, we're not expecting, oh my gosh, what you just learned about retail a few quarters ago is now completely flush that and we're going to give you a brand-new assessment.

Allison Cerra (48:37):

It's not about that. It's about having the rigor in this research to say, once a year just for good hygiene we should re-look at the goalpost on the field because undoubtedly the leaders in these studies, be it business or retail, are going to have moved the goalpost a certain degree. And if we can understand where that goalpost is shifting over time, that will over time shift the curve.

Allison Cerra (49:03):

So, we might just have a little retail study that we'll be ready for prime time as a refresh to the one that came out, um, about a year ago so that the market can again see to what degree did the goalpost shift a bit on retail, albeit the maturity still largely being the same. What does that suggest for the future?

Jim Marous (49:23):

That's exciting. And even looking at those people that did the assessment tool as we asked them to do on the retail side, how did they move forward compared to the marketplace as a whole? And as Casey and you both know, this is a moving target.

Jim Marous (49:37):

The thing is, and that's why there's so many organizations that say, "I have an aspiration to be at this level." Well, that level changes between last year and this year. If we're all following Chase, for instance, Chase is doing things differently today than they did a year ago.

Jim Marous (49:52):

So, that train's moving and, and it's so exciting to see these kind of tools, this kind of research to be involved in it, even on my small part. But I thank both of you for being on the show today and really look forward to seeing what happens next because it is an exciting world.

[Music Playing]

Jim Marous (50:09):

But if we give the tools to the industry and the industry responds accordingly based on what they provide to the banking organizations, because very few organizations, no matter what size are building from within. So, it's like pick your partners carefully and move forward.

Jim Marous (50:24):

And I will say this, because I said it last week, I was doing a meeting with a bunch of organizations that are in the core transformation journey. Don't get in the way. The reality is of the organization you worked with have gone down this path and have found successes. Don't change the rules because they'll get you to the finish line a lot quicker.

Jim Marous (50:42):

Thanks, both you for all your work, all the work you've done on both the retail and the business banking study and for the great research you continue to provide the industry.

Allison Cerra (50:52):

Thank you, Jim. Thanks for your partnership. We couldn't do it without you and Casey obviously can't do it without the brains behind the curtain there. So, thank you both.

Casey Hogarth (51:00):

Yeah, thanks for the opportunity. These are always fun.

Jim Marous (51:03):

Thanks for listening to Banking Transformed, the top podcast in retail banking and the winner of three international awards for podcast excellence. If you enjoy what we're doing, please take some time to show some love through a positive review.

Jim Marous (51:17):

Finally, check out the research we're doing for the Digital Banking Report and the articles we're publishing at the Financial Brand. This has been a production of Evergreen Podcasts. A special thank you, our senior producer Leah Haslage, audio engineer, Chris Fafalios, and video producer, Will Pritts. Until next time, thanks for listening.

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