Winning in an Era of Fragmented Banking Relationships

Jim Marous (00:07):

Hello and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, owner and CEO of the Digital Banking Report and co-publisher of the Financial Brand.

Jim Marous (00:18):

In the era of digital transformation that's reshaping the entire financial landscape, understanding shifts in consumer behavior is crucial for banks and credit unions that are aiming to stay competitive.

Jim Marous (00:31):

Today we have Dave Feuer, the chief product officer of Galileo, again, on the Banking Transformed Podcast. We delve into the fragmentation of banking relationships that is happening today, the satisfaction paradox and the imperative for data-driven personalization across generations.

Jim Marous (00:50):

We discuss the challenges and opportunities these shifts present for judicial banks and credit unions, the importance of leveraging real-time data and the need for seamless digital experiences.

Jim Marous (01:04):

Despite general satisfaction with primary financial institutions, consumers are curating their own suite of financial services from multiple providers. According to research by Galileo, this creates challenges with generating new accounts, retaining existing relationships, and generating revenues at legacy financial institutions.

Jim Marous (01:25):

In fact, more than ever, banks must address these marketplace changes through careful planning, strategic collaborations in partnerships and investments in new technology and talent.

Jim Marous (01:37):

So, Dave, you've been on the show before, but why don't you take a little bit of time to introduce yourself and give people a quick overview of Galileo.

David Feuer (01:45):

Sure. So, hey all. Jim, thanks. Great to be back. Dave Feuer, I'm the chief product officer at Galileo. At Galileo, we offer products and services in two unique but quickly converging areas. One is payments in the payments world, and that includes debit processing, issuing money movement and risk products.

David Feuer (02:05):

And the other is bank software and that whole world. And we've got a banking core and a digital banking experience, as well as an intelligent digital assistant called Konecta. So, we really sort of straddle between these two worlds of payments and banking, and we're actually seeing them quickly converge.

David Feuer (02:19):

So, it's a super exciting place and I love talking about the new products and, and the clients and prospects we are constantly engaging with.

Jim Marous (02:27):

So, I don't know if this is the first time you've done a consumer research study, but you just released a consumer research study that revealed significant fragmentation in banking relationships, especially among younger consumers. What are the primary drivers that you see behind this trend, and how should traditional financial institutions respond?

David Feuer (02:47):

Yeah, it's not the first time we've done research, but it definitely is the first time we've done research in this area. And I think, the key messages, the key learnings that I took away from the study are that the primacy gap is widening. So, our understanding of what account primacy and what institutional primacy means is changing because we're seeing consumers sort of curate their own financial experiences, and we can certainly talk about that.

David Feuer (03:17):

And then, you mentioned fragmentation. The digital maturity gap is also widening because consumers are expecting more, and customer expectations have been raised over the last 25 years as they've grown accustomed to social media companies and engaging apps that really are refreshed and structured around their daily flow.

David Feuer (03:39):

And they're expecting that from financial institutions and they're not necessarily getting that. And while consumers aren't telling us that, their behavior tells us that. And I'd love to talk a little bit about that because I thought that was fascinating.

David Feuer (03:52):

And I guess the last thing is your customers might not leave you, but they might stop adding value. So, you may not see your customers close their account, but you certainly might see a situation where direct deposit moves elsewhere. Your inflows and outflows are decreased, and customers are less frequently checking their account, leveraging their account because their interest has moved elsewhere, even though they've kept the account open and still consider themselves a customer of the financial institution.

Jim Marous (04:25):

It's interesting. Before we went on air, I discussed one of my situations where I asked bankers in a big organization meeting of 200 and so people. “Now how many of you have closed a primary finance relationship in the last five years?” And nobody raised their hand. Virtually nobody. Mind you, it's biased, it's all bankers.

Jim Marous (04:43):

But I think I see that in the consumer set as well. As you said, people don't have to close their accounts. But then I ask, “How many of you have opened a new relationship with a non-primary financial institution that takes care of certain financial needs that you wanted to take advantage of?” And virtually everybody raised their hand.

Jim Marous (05:01):

So, as you said, while people aren't closing their accounts, they may not be expanding their relationships. And we see that consumers usually when we research consumer groups, they say they're satisfied with this financial institution. There's a little bit of a problem there because they're satisfied. If they weren't satisfied, they’d probably have already left.

Jim Marous (05:22):

So, it's already a preset notion on who's actually going to respond to the research. But your research uncovered a satisfaction paradox in which consumers, as I mentioned, generally reported being satisfied with their primary bank, but they're still seeking services elsewhere.

Jim Marous (05:41):

How can banks address this disconnect and truly become a consumer's primary financial hub, or one where they really use them for multiple reasons?

David Feuer (05:53):

Yeah, I think the word paradox is a perfect explanation of sort of where we're at. On one hand, we see 85% of consumers saying they have positive experiences with their primary financial institutions. And that seems like it would be overwhelmingly positive and beneficial to the ecosystem.

David Feuer (06:12):

And yet we're seeing that they're using as many tools or services outside of their primary financial provider as inside. And I think, when we looked at Gen Z and millennials, it was something like six financial tools on average, tools and services that were outside their primary financial institution.

David Feuer (06:31):

So, if I think about what it means to have a positive experience with a primary FI, I may have a positive experience with some website that hosted my photos at some point but I'm still driving most of my engagement to an app like Instagram.

David Feuer (06:47):

And so, while they might have a positive impression when it comes to things like security and reliability, when it comes to those refreshing, engaging experiences, they're really getting those elsewhere and not from their primary financial institution.

David Feuer (07:02):

So, Derek White, our CEO, likes to talk about what we do in terms of above the glass and below the glass. Sort of the user experiences interacting with the glass cell phone screen and then how the functionality is performed in the cloud and on the device behind it.

David Feuer (07:16):

Just 25 years ago that above the glass would've been like the teller glass. And it's sort of the person in front of the teller and the person behind the teller, you would've needed a significant dissatisfactory experience to walk out of a bank branch and walk to another bank branch and open an account.

David Feuer (07:32):

But today, if I'm having some dissatisfaction with my app, or I just need something that's more refreshing or engaging, or I want a different user interface that really best meets my needs, I can simply go to the app store and download a new app.

David Feuer (07:46):

So, the friction associated with opening relationships with new financial institutions, particularly non-traditional financial institutions like Neobanks and fintechs, that friction has largely disappeared. And so, I think your question is a good one. How do you take that paradox and learn from it?

David Feuer (08:03):

And I think, there's two pieces of good news here. The first is, I think this is largely an important generational gap that represents this shift. So, as an example, one of the learnings we had was that 20% of those surveyed did gig work within the past year. They were gig workers.

David Feuer (08:21):

And so, they used a wide variety of financial tools and services to over index for specific services that their primary FI wasn't offering. And so, I think understanding that this is an important generational gap and that represents a shift, and there's this new type of hybrid consumer and business customer, maybe that's the next SMB, and maybe we need to go do some research on that persona and figure out how to serve them better.

David Feuer (08:46):

I think that's definitely one side of the paradox is addressing the generational shift and sort of the new modes of working and interacting and where their money's coming from and how they're spending their money. And then I think the second one is we've got a great model from the last 25 years of the internet economy in how to build engaging, refreshing applications and what are the sorts of things to do.

David Feuer (09:07):

And one thing I can say is that the most innovative applications out there are constantly refining and have an obsessive focus on the consumer experience. And that's not something we tend to see with financial institutions.

David Feuer (09:20):

The more traditional FIs build a great user experience, but then they stick with it. They're not constantly refining, refreshing and shipping new engaging experiences to really keep top of mind and top of wallet and keep that consumer experience refreshing so that they're not going to the app store for new experiences. So, I think it's a mix of those.

Jim Marous (09:41):

Yeah, it's very interesting. Because I look at my own experience. I use PayPal on my business side to collect funds and also disperse funds. Why? Because it was seamless, it was easy. It's an interconnected link, and that also connects with my primary financial institution, but they're not getting any of those transactions.

Jim Marous (10:00):

I use Acorns to do an automatic savings program. I look at my credit bureau score on a regular basis through another app. I have a line of credit someplace else that allows me the ability for flow of funds back and forth.

Jim Marous (10:16):

All of these could be provided by my primary financial institution, but in each case, there's just too much friction. It may simply be the friction of opening the account. And you mentioned it earlier, the ability to open an account seamlessly, the ability to use it without any trouble and not have to close another account to do it.

Jim Marous (10:35):

And if you kick the tires, you're not happy, simply to disengage, makes these digital players so much easier to work with. And by the way, I'm not dissatisfied with any of my primary financial institutions. I'm just not optimized. I don't feel like I'm being totally taken care of.

Jim Marous (10:53):

And certainly, as we get towards more personalized financial relationships on the whole concept of a wellness journey, trying to get me to my final destination where I want to be financially, they're failing. At least they're failing in my perception that no one's really listening to find out what I need.

Jim Marous (11:12):

We talked about how you can get an idea of other services that people are using. It's amazing how few institutions that I talked to look at flow of funds. When we got government checks during COVID, we had a couple institutions that actually looked at flow of funds and realized that while we were getting fat and happy over the fact that more savings were being generated, they all of a sudden found out that a lot of money was being transferred automatically to Robinhood, to SoFi in your case and other organizations that provided them services.

Jim Marous (11:44):

And all of a sudden, they go, "We thought we had these people, a thousand percent of the relationship. We had very little of it." It's interesting too, your research found that I think it was 60% of the consumers preferred to bank without human interaction.

Jim Marous (12:00):

Now on one side, that keeps your cost down, but it's not like you're going to close branches because 60% of the people don't need to use branches. How should financial institutions balance the desire for digital self-service? Which I know Derek talks about quite a bit on what that means with the need for more personalized, empathetic relationships.

David Feuer (12:24):

Yeah, so that's a really great one because I think there's a lot of room particularly in the U.S. where we have sort of this plethora in abundance of financial institutions to really have different financial institutions that focus on different personas and different sort of customer segments that are in a different place in their life.

David Feuer (12:47):

And so, if I think about some of the supporting points from the survey, 44% don't agree that their financial institution delivers timely advice via digital channels, I think it's really hard for a human to keep up with an intelligent digital assistant in terms of really providing an answer very quickly. Where are my funds? Which is, I guess, the number one reason consumers call a bank.

David Feuer (13:11):

So, I think there's definitely room for managing the CSAT gap and sort of looking at customer satisfaction and saying, can a digital channel do a better job from a customer satisfaction perspective?

David Feuer (13:23):

And then also looking at the generational gap that we talked about beforehand and saying, my son who's 20 and in university, he much prefers not to talk to a human and to use an intelligent digital assistant to get the answers he wants from a bank.

David Feuer (13:38):

And I'm curious to what extent other financial institutions that he uses are able to use that as sort of a way of learning what he wants, what his needs are, and sort of what are the surrounds that bank would have to build to better address his market segment. The sort of young university student just starting to build credit and just starting to have a bank account. I'm not so sure that banks are thinking of the digital assistant channel as really a way to mine intention in order to build that.

David Feuer (14:11):

And it's sort of, there's a generational gap in those that are running the banks as well. Us sort of having been in financial institutions and financial services for a while, we're used to measuring footfall and sort of thinking about where we place branches because we know there are people sort of walking around about town and that they're going to pass their branch at a certain percent, we're going to get inside the branch.

David Feuer (14:33):

What does that look like in the digital world? What does digital footfall look like and how do we measure that? So, as we think about customer satisfaction and specifically answering your question, I think some of it is segment analysis and understanding what are the needs of the different segments.

David Feuer (14:46):

And some of it is really saying, am I taking a data-driven approach to meeting the needs of my customers and looking at what their flow is and what their lifestyle is, and making sure that I'm there versus trying to drive older legacy concepts of primacy, which say, "I want to be their only app, and so I'm going to move everything into my app and I'm going to be the one stop shop for all their financial needs."

David Feuer (15:10):

Because I think increasingly that's impossible. It's an ecosystem. And so, we have to figure out how we play in that ecosystem. And I think as a segment, as financial services, it's going to have to mature such that we take an ecosystem driven approach and not try to put everything into our app.

Jim Marous (15:28):

It's interesting. Let's take your son or my son who's 26 now but had the same issues that your son has now going into college. Let's take those as examples because I think the way we view banking has gotten old.

Jim Marous (15:44):

We expect the consumer to walk into the branch to open their account, which in many cases your research saw it. They still do, at least for their first account, they probably go in with their parents. They maybe got referred to them by the parent.

Jim Marous (15:58):

They come in, they open the account, and that is the last time that person comes into a branch because they have no need to, in many cases, they're not given checks to begin with. But on top of that, they're not often asked questions that lead to further discussions.

Jim Marous (16:15):

And I look at my son as a great example where he had a checking account and when he wanted to open up a credit card, he asked his friends, "Where should I go?" His financial institution, by the way, never offered a credit card because they have traditional risk scores, and they have traditional risk elevations as to what makes a good customer, and a college student necessarily doesn't qualify in a risk averse environment.

Jim Marous (16:41):

On the other hand, he heard the Discover card was a great way to go. And I just told this story earlier today, where he sat in the beginning of the seventh inning of a baseball game we were sitting at, he started looking at Discover and answering the questions.

Jim Marous (16:54):

The only question he asked me was, "Should I give annual income or monthly income?" I said, "Give monthly, because it's summertime, you're making money in the month. And they'll just multiply that by 12 and probably give you more credit than you would've gotten otherwise." He did so, before the ending was over with, he had a credit card, he had already in his Apple wallet.

Jim Marous (17:14):

Now, what's interesting about that is he solved his own problem. The challenge now is we have to ask many more questions. We have to drive this level of personalization that we're talking about here. We can't just wait for somebody to come to the branch, they're not going to. We can't wait for them to open an account digitally because they don't consider you their primary until they get more than one service with you.

Jim Marous (17:40):

So, when you look at this, and when you look at the data in the digital world that's flying all over the place, how can banks more effectively ask for information and data and then leverage it for a more tailored and specific offering?

David Feuer (17:56):

Yeah, I think there's a lot to unpack there. And I seem to remember recently you were talking about how co-modernization is actually really about data modernization and really figuring out how to streamline data sharing so that we get the maximal impact of all of the data that's inside of a financial institution to really drive customer benefit.

David Feuer (18:19):

I definitely think that's part of it. Is that even within a financial institution, there are such silos to getting that data that the credit decisioning engine has almost nothing to do with, let's say the retail bank experience, which is completely separate from the SMB bank experience.

David Feuer (18:35):

And when this next generation of college graduates, they might go work at a law firm and they might go work in an accounting firm and all of that, but eventually they're going to want their own medical practice accounting practice, law practice, they're going to need SMB accounts.

David Feuer (18:48):

Are you there for them when they need that in their generational flow? And I don't think we can expect all banks to have all features. And so, it's like, can we use the data to be able to refer out to another bank and to be able to sort of embed that functionality so that if I don't want to build SMB functionality into my financial institution, I can at least rely on a third-party financial institution.

David Feuer (19:08):

But still maintain that connection and relevancy and not get churn out because that customer as they grow more mature, has sort of matured out of what my bank can provide them. So, I do think there's a certain amount of sensitivity to customer needs and being able to use my internal data with third-party services, which is a little bit of that ecosystem approach.

David Feuer (19:31):

And I think that's super important, is understanding internally how to break the silos around data, and then of course, externally how to work as an industry together to pull in solutions where there might be gaps. I think that's definitely part of it.

David Feuer (19:44):

I think there's another piece also, and you're asking specifically about how to use data, but I think there’s a data posture that we need to consider. And we talked a little bit about footfall. If I think about DBS Bank in Singapore a few years ago, they had an advertisement, and I hope I don't butcher this too badly.

David Feuer (20:02):

It was like, to be relevant to our customers, we disappeared. Customers want their bank when they need something. Customers don't want to get constant push notifications from their bank multiple times a day. It's not that sort of business. It's not Instacart. It's not Google. It's a banking relationship.

David Feuer (20:19):

And so, customers sort of want their bank to be there when they're needed and then disappear when they're not. And so, I think that a lot of the data that we have around what customer's flows are and what experiences they prefer, whether it's Amazon Alexa or their Apple Watch, or their desktop is their primary experience, or their cell phone is their primary experience.

David Feuer (20:40):

I don't think banks are really looking at that and saying, "These are the preferred modalities and channels in which this customer wants to interact with me. Let's drive engagement through that channel, and let's be sensitive to that."

David Feuer (20:51):

Versus sort of saying, "We want to be top of wallet, we want to be top of mind, and therefore let's constantly hound our customers." And you see it in the digital world top of wallet which I guess, used to refer to, which is the sort of plastic card that I could most easily grab from my wallet.

David Feuer (21:09):

If I think about Apple and Google's interface, top of wallet is easily shuffable, right?

Jim Marous (21:14):

Yeah.

David Feuer (21:15):

It's sort of like, is that virtual card there, is that the one that I want to use? If not, I shuffle it, and the next card is top of wallet. So, account primacy is really sort of shifting into the digital world in ways that we don't know how to solve for, but we do know that the answer is data.

David Feuer (21:30):

And so, breaking down the silos internally, figuring out how to take an ecosystem approach to third parties, and really looking at omnichannel as an opportunity versus sort of an obligation to be there for customers, but it's an opportunity to be there where customers need when they need us. I think those are all paramount.

Jim Marous (21:48):

It's interesting that you just gave me a thought around my GPS system and my car, and while we rely on it all the time, it's not like it's continually talking to us. It doesn't tell us you have 12 miles to go, you have 11 miles to go. You have 10 miles to go.

Jim Marous (22:04):

No, it waits until right before you have to take action. It tells you what turn to make, and it may be a turn that wasn't in the original map because of something changing in the traffic pattern ahead of you. In addition, what it does, it continually processes where you're going and what you're going to do.

Jim Marous (22:21):

And when you start using something like Uber that gives you additional recommendations based on maybe where you're staying, maybe where you've been before, what you've done with Uber before, these become insightful helps as opposed to selling.

Jim Marous (22:36):

And I think that when you look at that, when you look at just the way that the map, the GPS system of your car work, it doesn't have to tell me that there's a Starbucks at the upcoming stop, unless somewhere during the process I've said, "Tell me the closest Starbucks."

Jim Marous (22:54):

You start interchanging with other maps and the map adjusts based on where you turn. When you look at the personalization aspect, your research referenced some Accenture research that basically said that people don't mind giving information up. They do not mind sharing information with their primary financial institution.

Jim Marous (23:17):

Are there very many financial institutions that you know of that are taking advantage of that willingness to find out more about their consumer so they can provide solutions at the right time and place?

David Feuer (23:31):

It's funny, I do see it. So, I see it, but I see it in the modality of a survey. I see surveys saying, "Hey, update your income, update your job." What's your career, things about home ownership and sort of really basic information that the bank could probably derive from other patterns that they're seeing around paying a mortgage and tax payments and inflows and outflows and direct deposits and all those sorts of things.

David Feuer (24:02):

And I think that's really the nexus with AI here, where the pattern recognition used to be based on us building these really specific sort of analysis tools. And now we know how to build these algorithms that can simply go and figure that out for us.

David Feuer (24:18):

As long as we know what question to ask, I bet you a lot of that survey data we could probably derive without having to burden the customer with filling out a form and also having a customer possibly provide us information that's stale or quickly irrelevant because they might get a new job, lose their job, get more salary, and they didn't fill out the survey even though that may have happened two months after they filled out the survey.

David Feuer (24:40):

So, I think, a lot of this is really taking that data and being really smart about do we want to burden our customers with providing them a survey, or do we want to figure out how to derive that information from the activity we're seeing? And I think that's where we start to predict what customers’ needs and how customer needs and we can get ahead of it versus, I guess, chasing the customer. I think that's a lot of the-

Jim Marous (25:02):

That's interesting because I think about my son. He got out of university three years ago. He's been in an apartment for two years. This information is easily available in the marketplace. I think financial institutions are still worried about incorrect information, false narratives, but you can easily go and say, a lot of customers of ours at your age are starting to think about a mortgage.

Jim Marous (25:25):

Do you want ways to help save for a mortgage? Or do you want to have ways to know about interest rates, whatever it may be? We don't even use basic data. I kid a lot of times about the fact that when you do a test drive, there's a ping on your credit bill that says you're basically doing a test drive, a car dealership has made inquiry into your credit rating.

Jim Marous (25:44):

Well, the reality is that information is available, which is why when you buy a car or when you shop for a car and do a test drive, you get all kinds of information from other dealers, other manufacturers. And yet I get nothing from my financial institution that says, "Hey, you may be looking for a car right now, would you want a discount on our order rates?"

Jim Marous (26:03):

We don't even use the most basic information. And I think, when you look at the different silos of data, the inability to use data, that's going to be the competitive battlefield. Especially when you look at gen AI and all that. And when you're looking at the ability to build from that data, to build personalization into the whole ecosystem of working, that's the only way you're going to break through.

Jim Marous (26:26):

Otherwise, we're simply going to all be charging after the same consumers for the same services. Your survey, also interesting is one of these aha moments that Gen Z, they aren't flocking exclusively to neobanks. In fact, many of them are using the top five or four financial institutions in the country. What does that tell us about banking preferences of Gen Z and maybe how the next level financial institutions can potentially attract these customers?

David Feuer (27:03):

So, I definitely think there's something to be said for the big brand banks have the market perception of being secure and reliable and sort of stoic. And so, if you need something that's secure and reliable, why not open an account if at a major bank it’s free and there and you can always walk into a branch if needed.

David Feuer (27:27):

But that's sort of the friction and the paradox that you refer to in the research. On one hand, 86% of consumers are happy with their financial institution. On the other hand, 37% feel that financial institutions aren't offering offers that are tailored to their financial needs and aren't offering personalized service.

David Feuer (27:50):

I think, they open an account with a major financial institution because of that brand identity and the feeling of being secure and reliable and present in terms of physical branches.

David Feuer (28:02):

And then they realize that when they want something more personalized and more tailored to their needs, and that works with a greater ecosystem of tooling, they look elsewhere for something more engaging. And those are those sort of six other apps that they're using.

David Feuer (28:16):

And we see that more pronounced with the younger generation, which is, I think, much more willing to experiment and download apps and try new things even outside of that gig worker paradigm.

David Feuer (28:27):

So, I think, they're opening with the traditional institutions because the traditional institutions have done a really great job of positioning themselves and their brand in the market as being reliable and secure and there for you. And I think consumers are opening those accounts and saying, "Great, it's a bank account."

David Feuer (28:42):

And then they're redefining what there for you means. And if there for you means being there in the digital world and disappearing when not relevant and being there when relevant, they're finding that in sort of neobank channels and third-party technology services. And I think that's where that paradox starts to show.

Jim Marous (29:02):

It's interesting too, because even the identification, what's your primary financial institution. We always looked at it as being the checking account. Because we would write a lot of checks, there'd be a lot of activity, a lot of engagement throughout the process.

Jim Marous (29:16):

Well, we're not doing that anymore. We're not writing checks; we're taking our debit cards or our credit cards and doing transactions. And in many cases, I wonder if the whole primary financial institution definition is changing beneath us without us knowing that.

Jim Marous (29:33):

My son, I will guarantee you, does more transactions using Venmo than he does using his primary financial institution. He also does more transactions using his credit card than he does his debit card.

Jim Marous (29:46):

So, I'll guarantee you that what it would be, normally his primary financial institution in the traditional definition may rank third as far as who he's engaging with the most. And that kind of throws off all the research because you're saying, " Okay, what do I have to replicate? What do I have to look at? How do I get this business back or identify who I should be going after for revenue and for profitability?"

David Feuer (30:16):

Absolutely. I think, it's funny the velocity of how quickly it's moving. It used to be the checking account. And then for a while it was direct deposit. And I think that's still a good indicator.

David Feuer (30:26):

But what if you're a gig worker or you're in university or a recent graduate and you have multiple smart jobs, you might not have direct deposit. So, then we start to look at what's the primary recipient for inflows? Which one's the primary recipient for inflows.

David Feuer (30:40):

And then how long do those inflows stay in that institution? If I move an inflow to an institution, but within 24 hours, 80% of it is gone through Venmo and Cash App and Zelle and whatever else. What does that mean for the role of that financial institution? Is it an intermediary? Is it my primary institution?

David Feuer (30:57):

I think the nature of what account primacy means is changing. And so, we have to think about that in the digital world and say, well, what role do we want to play? I mean, in a high yield savings environment, certainly you want to hold onto that cash as much as possible, and you would expect that to be the case.

David Feuer (31:12):

But with the younger generation, they may not have a bunch of savings. That may not be possible. And so, who are you engaging with? Who are you driving the most traffic towards? It may not be cash, but I may be logging into the app three, four times a day, or I may be going to the invest tab and checking prices of stocks, but never actually buying them.

David Feuer (31:29):

That to me indicates somebody's buying them elsewhere. But they're using that interface to sort of benefit from the invest application. So, how do you get that activity moved into the app? I think there's indicators, there's breadcrumbs that we have that we should be mining for this really important data that we're simply not.

Jim Marous (31:47):

So, it's interesting because when you look at the nuances of flow of funds, when you look at all these different accounts. If we're not looking at that, we really don't understand the relationships being built. And as you mentioned, what's the primary relationship? Is it a credit account? Is it a relationship that's with an investment firm?

Jim Marous (32:07):

But I have a friend that has opened so many accounts in the marketplace. I think he has like 12 of them just to get the spiff to open an account. Only one of those is a primary. And we have to look at different things to identify the path that a person takes and figure out what they want, but also what we can offer people on an easy accessible tool.

Jim Marous (32:31):

So, you talk about in your report also the importance of being at the point of need for consumers. How can financial institutions today leverage technology to anticipate needs? Or can they?

David Feuer (32:47):

I definitely think they can. And I think part of this is back to our conversation on omnichannel. I think different consumers in their daily flow have different needs. And I think one of the things that banks have been doing forever is sort of looking at inbound calls to the call center and disputes and complaints as well as just general customer service needs and saying, "Hey, how can we better be proactive about meeting those needs? Because we see those are points of friction in the consumer experience."

David Feuer (33:18):

I think there's obviously some regulatory burden there, but there's also the opportunity to take those as points of customer insight and really taking those and saying, "Hey, there's a better way for us to be proactive and solve for those, not just from a cost savings perspective, because we want less calls into the call center and call containment."

David Feuer (33:39):

Because especially as we see intelligent digital assistance getting better at answering those questions that it costs less and less to serve those answers, but more how can we anticipate what consumers needs are and get in front of those, so they never have to call the call center, and so they never have to talk to a digital assistant.

David Feuer (33:58):

So, there's these breadcrumbs, where we have all of these indications of how we can solve customer needs. And I think really thinking about sort of what are the different areas that we want to win in, how do we win in those? And then how that ties back to account primacy, customer journey, and the digital experience are all hallmarks of how we're going to get there.

David Feuer (34:22):

I think that the research pointing out all these paradoxes should be interesting to every bank stakeholder, a neobank stakeholder, because it's the sort of thing where it's challenging to us as an industry and the way we're going to solve for it in different institutions is different.

David Feuer (34:39):

But at the end of the day, we've got so much insight that we can mine and offer customers and really figure out how to better fit into their daily flow that whether it's a new channel, whether it's a new experience, whether it's a new feature or importantly, a new relationship with a third-party that can allow them to bring that feature into the app or at least refer them with data.

David Feuer (34:59):

And so, it's sort of a soft handoff saying your adverse selection for this credit card, but here's a secured charge card from a third-party that can help you build your credit. Those sorts of simple things. We should be looking at those as a daily basis.

David Feuer (35:11):

And that sort of digital breadcrumb mining should be part of all of our digital literacy at any level in a bank. It should be part of being a stakeholder in a bank. And I really feel like as an industry, we have this opportunity to really go get that.

David Feuer (35:26):

And that's how we can be much more sensitive to customer flows and customer needs and being there when customers expect us to be. It's not just about one thing. It's really about taking a holistic view of what are the flows, what are the channels, what are the preferences, and then what are the relationships that we need with technology providers and vendors, with third-party institutions and as a financial institution ecosystem to meet the needs of our customers.

Jim Marous (35:51):

It's interesting, David, when we talk about your research, and we've talked in the past about core transformation, core modernization what is interesting is there's so many opportunities out there. It is like playing whack-a-mole. I mean, it's so difficult because there's so many opportunities. You only have limited amount of time, in some cases, limited amount of money.

Jim Marous (36:12):

But we talked about the last time you were on, about how a company should start their core modernization journey. We talked about the fact that you don't have to do it all at once. It's not like it used to be where you got to go, "I'm going to redo my core, and I got to do it all because that's just overwhelming right now."

Jim Marous (36:29):

But we have to upgrade our tech. When you'd look at what needs to be done right now, where should an organization start and what should they be moving towards?

David Feuer (36:42):

I think there's a couple of things and this is what I'm hearing from prospects as well. There's sort of the macro environment, we’re moving from a very high interest rate environment to a lower interest rate environment. And so, there's increased pressure on figuring out how to get into the financial products that were, let's say, popular five, six years ago where it wasn't quite a zero interest rate environment, but it wasn't an 8% interest rate environment.

David Feuer (37:06):

So, things like CDs are becoming more popular because the expectation is that the high yield savings accounts will be yielding less than a CD, significantly less than a CD in the coming period. So, I think there's an opportunity for reinvigorating products that were popular in that sort of environment. And I think CDs and those sorts of surround products are starting to become top of mind.

David Feuer (37:29):

And of course, the issue is working with legacy cores on building out those type of products. And when I say reinvigorating, it's really making them more relevant to customers and consumers who might be at different stages in their life.

David Feuer (37:42):

And so, really looking at a multis segment approach versus sort of targeting the traditional segments for those products. So, being able to build those next generation digital experiences and looking at the core and saying, is my core able to do this in a reasonable period of time? Or is my infrastructure holding me back?

David Feuer (37:59):

And if my infrastructure is holding me back, maybe the answer is a core augmentation strategy where for these three or four new products, I'm going to build them side by side. I might not need a whole de novo bank approach in order to address this segment. I may be able to simply add it to my existing portfolio of products, but I can't do that with my current infrastructure.

David Feuer (38:20):

So, I think those are the things that I hearing from prospects and banks where it's sort of like, we need something new, we need something different because we have these product challenges, and if it takes me two to three years to build these products and get them to market, that's simply too long.

David Feuer (38:34):

And that's really driving a whole bunch of both business and technology considerations from our perspective where we're starting to say, the core processor, which was traditionally the hallmark of the long tail, where banks really couldn't manage the core themselves. We're seeing very large established financial institutions saying, "You know what, for four or five products to get started with, we don't want to operate and manage this thing. Can you operate it and manage it and manage it for us?"

David Feuer (39:01):

Which is something 20 years ago we never would've seen a bank ask us that. A traditional bank, especially the larger banks, want to operate and manage everything themselves. And now they're realizing there might be significant benefits, not just from a risk perspective, but also from a resilience perspective and cost perspective to outsource running that.

David Feuer (39:19):

So, if you want to introduce four or five new CDs to your product portfolio, do you really want to go run a new core or do you simply want APIs for those CDs and figure out what the integration points are? So, I think there's a lot that that's putting pressure on us, and that's great pressure.

David Feuer (39:33):

We love that where we have to start to think differently because our customers have to start to think differently about how they're going to market and the speed at which they're going to market. And that's the modernization journey we're attaching to.

Jim Marous (39:45):

You know what, it is interesting. I've had recent discussions with a lot of organizations and realizing that we have never had an opportunity like we have today for moderate size, mid-size and even smaller organizations to just do amazing things from a core modernization journey, from a new product development journey, from an insight journey.

Jim Marous (40:05):

Because there are so many partners out there wanting to help. And each one of these partners, Galileo being one of them, has to be the best at what they do. Not having to worry about what others do in areas that they aren't interested in.

Jim Marous (40:20):

And I think organizations lose opportunities to actually talk to organizations like Galileo and saying, "Okay, here's where we are. Here's what we believe is our endpoint we want to get to specifically." How do we best get there? And then leverage the insight you have working with literally hundreds of financial institutions with the exact same question where you know the questions to ask to get to the core of what to do next. Excuse the pun on the word core.

Jim Marous (40:50):

But the reality is, we as a financial industry today, have so much insight, so much intelligence, so much amazing experiences out there. We've got crowdsource and determine who's going to get us to where we want to go when we define where that specific place is.

Jim Marous (41:10):

But if you don't know where you want to go, there's your first question. And then when you find that out, find partners like Galileo that can actually help in the process of getting there based on your experiences.

Jim Marous (41:22):

I'll guarantee you that when you go out to see a financial institution, you're not hit with something brand new you haven't seen before. I mean, almost every mix and match of what's going on you've seen, and you certainly can ask questions that will open their eyes on what they should do next.

Jim Marous (41:39):

And it gets into the whole generative AI scenario saying, as opposed to just developing answers, what's really cool about the technology, the ability to structure questions for better journeys.

Jim Marous (41:53):

When you look at what you're working with, with financial institutions today, where is the key focus right now? What are they trying to fix, number one, and really doubling down on this question, but with a different focus is, what are they looking at as being maybe not in their line of vision right now? Maybe it's generative AI, maybe it's Blockchain, maybe it's anything in the background. What are people truly focusing on and what are they right now maybe putting on a side burner?

David Feuer (42:24):

That's so well said, Jim. I love talking to customers and while I tend to knock a lot of questions for things that we haven't seen before, we certainly still get surprised because we sort of work across this multiple segments all the way from neobanks and fintechs both in consumer and SMB, and B2B, all the way through to license and charter traditional financial institutions.

David Feuer (42:51):

And so, you get to see sort of a bevy of customer interests. And it's funny how you actually see this crossover where the neobanks tend to be most interested in how to become more like a traditional financial institution and the traditional financial institutions are trying to figure out how to become more like the neobanks. And so, it's sort of this crossover.

David Feuer (43:13):

Because everybody wants to do everything, because everybody wants to be the best bank they can possibly be. So, as far as what's going on in the back burner, I think for a long time we have this role in banks of folks who are sort of the custodians of infrastructure.

David Feuer (43:30):

And every 10 to 20 years it would be like, we need a new home loan processing system. What are we going to do to modernize ours, so that we can produce better quotes for home loans, faster quotes for home loans, modernize the mainframe and all of that.

David Feuer (43:44):

And I think that was for a long-time sort of how budgets were allocated. And it was sort of like, well, it's 20 years. The last update was a change from cobalt to C, but we're still having trouble getting C programmers, so now let's sort of modernize this so we have better folks to come maintain those systems.

David Feuer (44:03):

And that's sort of an infrastructure inside out perspective where the custodians of infrastructure talk about the risk inherent in their infrastructure and say, okay, even though it's very cheap, because we've got a whole bunch of costs that we've already sunk into this infrastructure, it's time to modernize.

David Feuer (44:22):

I'm seeing less of that. I'm seeing less of sort of this is an old system, we need to modernize it. Can you just do what the old system did? I don't see that as much anymore because I think that's-

Jim Marous (44:32):

Thank goodness. Yeah.

David Feuer (44:33):

Yeah. And that's sort of BAU as a bank at this point, right?

Jim Marous (44:36):

Yeah.

David Feuer (44:36):

Business as usual is, I've got to keep modernizing, I have a budget for keeping the lights on and I have to continue to iterate. And banks all have a level of distraction in front of the core infrastructure services anyway.

David Feuer (44:46):

So, they have applications that make up for a lot of those gaps. And of course, many of them have API management platforms and legacy ESBs and sort of all these levels of abstraction in their stack that they use to sort of pull those systems up and sort of modernize them in an iterative way so that the applications don't suffer.

David Feuer (45:05):

So, I'm definitely seeing those kinds of projects more on the back burner. I want to modernize my core because my core is 40-years-old. The projects I'm seeing is I need to modernize my core because I'm not relevant to customers anymore. I'm not able to ship at the velocity that customers are demanding anymore. I'm not able to build the products or the accounts that account for my customer's journey.

David Feuer (45:28):

We talked about the consumers becoming SMBs when they open their own practices, law firms, accounting firms, medical practices. And that's not just about an SMB checking and savings account. It's about loans and unsecured loans when they're opening the practice. Then secured loans once they get the equipment and all that stuff.

David Feuer (45:46):

Being able to really look at the entire womb to tomb sort of journey of a customer and address their needs along that, that's where I'm seeing a lot more attention from these banks saying we are getting the accounts, but we're not getting the activity. In order to get the activity, here's how we have to address it.

David Feuer (46:05):

Some of it is cross segment. Some of it is really looking at how to get deep into segment. Some of it is, again, through relationships. How can we get better at cash flow analysis so that we can do cash-based loans and cash-based decisioning as opposed to really credit score based decisioning, because we want sort of those either uncreditized or unbanked or really that segment of the population that really wants more banking but has trouble getting it.

David Feuer (46:32):

So, I think, those are what I'm really seeing driving modernization and infrastructure projects. It's actually not the infrastructure which is awesome to see. It's the needs of the market. I think every bank has its own wrinkles as to how it has to go about that.

David Feuer (46:45):

And so, part of my challenge is how do I address those needs in a sensitive way to where that bank is and their journey and what they want to do, and sort of sharpen that vision so we can turn it into an iterative project-based approach and say, here's what we'll do first. Here's what we'll do second.

David Feuer (47:01):

Versus trying to bite off the whole thing which is something that tends to have a lot of risk and also hard to get buy-in across all the stakeholders in the bank around.

Jim Marous (47:10):

David, it's interesting because what it gets down to is, are the people you're working with willing to accept change? Because if they simply say they want a faster engine to do what they've done before, we've made no headway. Because speed by itself is not going to answer the questions going forward, and it's certainly not going to protect you for the changes that are down the road.

Jim Marous (47:31):

On the other hand, it gets down to leadership and basically is your leadership pushing your employees, their employees to a point of saying, we need to be able to do banking better as opposed to faster.

Jim Marous (47:44):

And it really gets down to, are you structuring your organization with your changes in technology to really meet the future needs and what may be down in the future as opposed to simply redoing what you've done in the past.

Jim Marous (47:59):

Dave, finally, your research, which we're going to give a link on the episode notes, so you'll be able to download the research. If you had one key element from your research that you want your clients and your prospects to take away as a here if you learn nothing else in our research (because it really has a lot of insight in it), this is something you have to focus on. What is it?

David Feuer (48:24):

Tough question. If there's one thing, I think it's that we have established means for understanding our customers and those don't work anymore. The way we've thought about understanding customers, customer behavior, customers’ needs, and meeting those needs don't work.

David Feuer (48:42):

And they especially don't work when there's very little friction to adopting new tools, new financial institutions and, and new ways of banking that didn't exist in previous generations. And so, I think the one lesson I have is we need to think differently as an industry about what our consumer's needs are and how to meet them.

David Feuer (49:01):

And that goes all the way from all the conversations you and I have had Jim, about from core modernization through the breadcrumbs and data aggregation, through the digital experience and meeting the consumer's needs where they're at, through omnichannel, through customer service, all those things.

David Feuer (49:16):

I think this report has one important message, which is we need to rethink all of that to meet the needs of consumers and to get ahead of what customer needs are. Because if not, the industry is changing and there's a risk that we won't change with it. So, I think, as your listeners read through, they'll see that very loudly.

Jim Marous (49:36):

Yeah, great point. If we ask the same question we've always asked for and get answers we've always gotten, and it may not get us to where we have to go. And I look at the whole idea of look at your flow of funds. I think that's a great starting point.

Jim Marous (49:52):

And one thing we didn't even touch on in this discussion is the whole how do you make your digital experience better? Which it is a podcast in of itself, so we'll save that for later. But the reality is consumers, and by the way, especially your older consumers expect new digital experiences that replicate what they get at Amazon, at Google, at all these digital things and the listing skills of those activities.

Jim Marous (50:23):

So, Dave, as always, love to have you on the show. We'll keep on doing this. We appreciate all the insights your company brings to the marketplace, and I really stress that everybody download the report. It's in the episode notes that you can download and take a look at because there's a lot of surprises in it and a lot of ahas. There may be some things, but the reality is, are you prepared to meet the needs of this changing consumer? Thank you, Dave.

[Music Playing]

David Feuer (50:49):

Thanks Jim. Great to join you as usual.

Jim Marous (50:52):

Thanks for listening to Banking Transformed, the winner of three international awards for podcast excellence. We appreciate the support we've received over the years 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 (51:10):

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 (51:27):

I'm your host, Jim Marous. Remember, a modernized back-office platform is the key to tomorrow's customer engagement success.

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