Engaging customers through a proactive payment experience

According to the BAI Banking Outlook: Trends in 2020 survey, roughly half of Millennial, Gen X and Gen Z consumers expressed a willingness to switch financial services providers for better banking apps and digital platform capabilities. Put simply, they value a better experience and more importantly will switch providers for one.

Today’s consumer expects quick and reliable digital solutions that include payment capabilities that meet their needs pertaining to paying bills, account-to-account transfers, P2P payments as well as additional financial services such as bill negotiation services.

The benefit for banks and credit unions who invest in providing a better digital payment service is two-fold. These financial institutions retain existing customers and members at higher rates and increase their overall satisfaction with the organization, but also strengthen their consumer and business relationships digitally. The result is a competitive edge against organizations who lack the interest in doing so.

Understanding consumer wants and needs

The Federal Reserve reports that approximately 16.6 billion ACH debit transfers and 14.5 billion check payments occurred in 2018. This compares with 2.1 billion ACH transactions versus 42.6 billion check payments about 20 years ago.

This rise in digital payments represents a cultural shift. Financial institution consumers have come to find these payment channels as better fits for their own lifestyle. These capabilities simplify their lives and therefore have a real value to them. Customers and members appreciate the speed and convenience that digital payment channels bring to the banking world, largely because they replicate the experience found in retail, food and beverage and other sectors.

Financial services providers are also seeing a real decrease in consumers’ use of cash and check. In a Consumer Credit survey, 80 percent of respondents reported using cards for everyday purchases, while only 14 percent said they used cash. This shift away from paper-based payments demonstrates that consumers have moved to digital more than ever. They want more convenience in their payments, and it is the financial institution’s job to deliver upon this convenience.

How does a bank or credit union become proactive?

Using AI and machine learning to make proactive and personalized payment recommendations can help a financial institution demonstrate its overall value to the consumer and build a closer relationship with them.

A recent Oracle study found more than 60 percent of consumer respondents expressed interest in wanting to manage bank accounts and take out loans online. Financial institutions possess a wealth of customer and member data that can help the organization understand their account holders’ financial habits and provide personalized advice.

In other words, the financial institution needs to provide a ‘do it for me’ type of experience. For example, consider how these tools can proactively inform users of billing due dates, low balances, missed payments, areas for savings and more, in a way not possible through traditional tools. Pair this with a greater ability to promote cross-selling, and the financial institution builds stronger relationships with its customers or members and obtains a greater competitive advantage, especially against non-banking entities.

The rise of non-traditional banking

The global digital payments market will reach $132.5 billion by 2025, based on a compound annual growth rate of 17.6 percent over the next six years, according to a report by Grand View Research Inc.

The future is bright for digital payments. So bright that non-traditional banking entities like the PayPals and Venmos of the world have proactively realized the earning potential, and are enticing financial institution customers with innovative product offers.

The aforementioned Oracle study notes more than 30 percent of its global survey respondents said they have never used a challenger bank or fintech, but would be open to banking with one. Nearly one third of banking customers are open to the idea of leaving their bank or credit union if a non-traditional competitor’s offerings are appealing enough.

Financial institutions possess the capacity to foster a proactive, more engaging payment experience and build a closer relationship with their customers or members. Today’s banks and credit union consumers live in a fast-paced world and require quick and reliable digital solutions that meet their needs. Non-banking entities are taking advantage of this opportunity and tapping FI customers who have long been a part of the traditional banking ecosystem.

The good news is it is not too late for banks and credit unions to regain their footing, but it must be done in a proactive manner that demonstrates the bank or credit union’s value goes beyond the mere transaction – that it understands the consumer and keeps their best interest in mind. Innovative digital payments solutions not only help the consumer, but also can help strengthen the financial institution and bring deposits back into the organization.

Mickey Goldwasser is VP of marketing and chief of staff at Payrailz, a digital payments company offering solutions to credit unions.

Want more BAI Banking Strategies? Sign up for our free newsletter.