Riding The Wave Of Digital Transformation: How Can Smaller Fis Compete?

James Goodstein, VP Product Manager, Digital Banking, Ocean First Bank [NASDAQ:OCFC]

James Goodstein, VP Product Manager, Digital Banking, Ocean First Bank [NASDAQ:OCFC]

The need to embrace digital innovation has never been more important for the financial services industry.

Jamie Dimon, CEO of JPM Chase, once noted tha the believes banks are becoming technology companies. More recently, in April of this year, he commented in his letter to shareholders:

“And they (banks) are facing extensive competition from Silicon Valley, both in the form of FinTech’s and Big Tech companies (Amazon, Apple, Facebook, Google and now Walmart), that is here to stay. As the importance of cloud, AI and digital platforms grows, this competition will become even more formidable. As a result, banks are playing an increasingly smaller role in the financial system.”

When it comes to the megabanks, one solution to these competitive challenges is to invest in bolstering their own technology as well as acquiring smaller technology companies through M&A (which is the trend they are all following). It is vital that financial institutions continually evaluate how best to adopt technology and reposition themselves in the evolving digital landscape.

By contrast, what should the smaller banks, credit unions and financial institutions do to stay competitive?

Smaller institutions cannot operate at the same level as the largest institutions; however, we need to integrate with emerging technologies through strategic partnerships. Smaller financial institutions must rely on a combination of software providers for banking services, and technology partnerships. This balance of software providers is more critical than ever to maintain efficiency and to stay competitive. A continued evaluation of the costs and benefits of these alliances must now become part of standard operating procedure.

Consequently, FI’s and software companies must also embrace open API’s. Software should be more flexible and compatible with a multitude of technology stacks. Security concerns prevented most banking software platforms from integrating API’s in the past, and many software companies had been slow to adopt this practice. However, now that secure connections and cloud solutions are becoming more mainstream, the tide is turning. Regarding this change, according to Backbase, a digital banking technology company, “Despite their initial reluctance towards open APIs, banks are starting to understand their potential, with almost 70% implementing API gateways to accelerate digital banking innovation. 41% see an API gateway as an enabler, while almost 38% see it as a chance to open up to third parties.”

The Covid-19 pandemic has made it apparent that investment in technology and specifically digital transformation is extremely valuable. These innovations allowed financial institutions to remain operational while much of the world was shut down. Where its customers were more accustomed to using digital platforms such as Mobile Banking, Online Banking, and Mobile apps, a financial institution fared well during the pandemic.

For almost 20 years, I have been involved in program management and software development and have implemented digital change firsthand. When I joined OceanFirst Bank, right before the height of the pandemic, it was immediately clear to me that our leadership understood the significance of digital transformation and were actively embracing this across the organization. A program that had previously been launched was our “Certified Digital Banker” program which aims to create digital champions by educating employees and customers about all things digital, such as the features of mobile and online banking platforms. OceanFirst’s commitment to digital solutions positioned it well to adapt to the challenges caused by the pandemic.

"The Covid-19 pandemic has made it apparent that investment in technology and specifically digital transformation is extremely valuable"

OceanFirst’s commitment to integrating evolving technology continues to grow. Recently, we have engaged with tech startups for expertise in automation and cloud technology and are working towards incorporating AI into our operations. Our working relationship with, FINBOA (Finance Back Office), a small tech startup based in Texas, is one example. After an extensive RFP, we selected FINBOA to automate our debit card dispute processing and provide a secure cloud platform that offers dispute processing automations. Most importantly, the platform is PCI DSS compliant.

FINBOA’s platform digitally transformed the bank by removing paper processes and providing a three-way connection to our front office (Customer Care Center), to our bank branches and back-office dispute processing team via the cloud. We were also able to automate our letters to customers that tell them the outcome of their disputed transactions. This has saved our staff valuable time in their day and allowed them to be more efficient. As a result of this implementation, dispute processing time has improved, and customer letters are generated quickly, improving efficiency. This new platform allows us to offer our customers 24/7 access to make a dispute online or via our mobile banking app, expanding beyond our previous capability to offer this service only during business hours.

Another initiative was our “Contactless” payments offerings. According to Visa’s “Contactless Awareness & Usage US –Q4 FY2019”, pre-pandemic awareness of the contactless symbol rose from 62% (2018) to 71% (2019) with post pandemic levels now even higher. Customer sentiments are changing and younger segments such as millennials want the ability to use new digital features like contactless payments, mobile banking, and even digital cards. These features were not nearly as prevalent just a few years ago. As a result, our bank, like many others, has embraced contactless payment methods over the last two years.Our OceanFirst Visa® Debit Card holders can use Apple Pay®, GPay™, Samsung Pay™, Garmin Pay™ and FitBit Pay™. We also completed “Visa Check-Out” and plan to rollout contactless debit cards in Q2 of this year.

Both the offering of our contactless payment solutions and our enhanced Dispute Processing have been digital journeys that have allowed us to stay competitive and operate with greater efficiency. As customer habits change, businesses must continue to digitally evolve to continue winning customers.

Some of our lessons learned are:

• Make it a regular process to evaluate your technology partnerships and goals

• Consider the multitude of emerging tech startups and what they have to offer

• Utilize an RFP tool to help make decisions and organize information

• Continually review the market research and stay aware of emerging trends

• Try to have an “agile” mindset with technology. You must respect how fast things can change and take that into account before committing to long-term waterfall projects or commitments.

How will your institution navigate your ship to stay ready for the next digital wave?

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