What FIs should know about emerging performance metrics for digital banking 

Covid-19 accelerated the banking industry to embrace a digital-first mindset providing online and mobile banking experiences to their customers. The pandemic might be behind us, but digital banking behavior has arrived — and it is here to stay.

While Americans prefer credit unions for a more personalized approach and high level of customer service, most still use banks as their primary financial institution. This provides banks the opportunity to influence customer preferences for digital channels, increase stickiness, and at the same time strengthen customer relationships.

This means banks need to substantially change their operating models as part of a broader business transformation strategy. At the same time they need to pivot from manual operations and increase automation, redesign their online platforms, and augment their digital front ends in a move to build and continually introduce new customizable products based on customer insights.

Data from a recent Cornerstone report shows that for high performing institutions, 82% of their checking account holders are actively using their online banking platforms, on average. That’s 17% higher than the middle of the pack institutions, and 23% higher than the low performers.

To identify the “high performing” institutions in the data set, the report categorized participating banks and credit unions into three groups based on their performance along five metrics: 1) return on equity, 2) return on assets, 3) efficiency ratio, 4) 2020 to 2021 loan growth, and 5) 2020 to 2021 deposit growth.

Aside from being used for online checking accounts, and an increased number of mobile deposits, and digital loan applications – other performance metrics are becoming evident for digital banking that banks and financial institutions need to keep tabs on in order to continue providing quality services to its customers.

1. Peer-to-peer (P2P) payments are paving the way for modern solutions

P2P payments are rising in popularity, replacing cash payments by enabling better control over the transaction, higher transparency, and a more efficient system to send or receive money among mobile banking consumers. 

The data shows that hardly 5% of checking account holders are using their bank or credit union’s P2P payment services. On the bright side, 20% of checking account holders grew between 2020 and 2021, and approximately three P2P payments were made each month, by and large.

As financial institutions look to revamp their payment strategies stepping into 2023, peer-to-peer payments are expected to play a key role. A quarter of FIs planned to implement their P2P blueprints – with a majority of credit unions (62%) and banks (42%) considering it as one of the imperative use cases for their organizations.

In the US alone, the total transaction value from P2P mobile payments is expected at $1,153 billion in 2023, 17.1% higher than in 2022 and exceeding $1 trillion for the first time.

2. Social media platforms are the new backbone of digital transactions

Until a few years ago, social media platforms were considered a very Gen Z thing to stay connected and sharing life updates among their social circles. However, now things have changed, thanks to the advancing technology.

There are expected to be 4.9 billion social media users worldwide in 2023 — that’s nearly over half of the entire world’s population scrolling through their social feeds.

While implementing social media channels into their existing tech stacks can bring up quite a few challenges for the banking industry, it can also be used to their advantage despite the risk of sailing into a new area. 

Banks are cognizant of consumers’ needs and want to meet the demands, in particular the younger generations who are accustomed to doing everything in public light, but compliance, security and privacy are still huge aspects for FIs when it comes to becoming comfortable with social platforms. 

For the same reason, banks are not at par with social media user engagement, with only 8% of digital banking users following their bank or credit union on Facebook or LinkedIn, and just 5% following their institutions on Twitter.

The right social media strategy – by being responsive, engaging, and problem-solving – can help banks better understand their customers’ changing needs and improve the overall customer experience, build lasting relationships, and increase customer retention. 

In fact, social customer support has become a pressing priority because it allows customers to reach the firms on the platforms they already use everyday. For each 100 followers, FIs received 229 support requests on Twitter and three on Facebook. Institutions that surpass their Twitter followers by 1,000 could receive as many as 23,000 service requests each year via Twitter. This shows how banks need to capitalize on the reach that popular social-media platforms facilitate with more focus than ever before.

Moreover, after the acquisition of Twitter, Elon Musk shared his vision for Twitter's plan to enter the payments market in a move to create a first-of-its-kind super app offering interest, a debit card, checks, and maybe even loans in the US. This further suggests why FIs need to enhance their digital strategies as competition intensifies, become proactive, and be future-ready.

3. AI Chatbots are building on the digital banking momentum

While digital or online chats are a way to offer prompt assistance to customers – only 11% of digital banking users made use of this option, which accounts to seven digital chat interactions per user on an annual basis.

The report showed that 12% of Gen Zers and one in five Millennials switched to an online chat, or a social media channel when they last opened a checking account.

To address and fill in the cracks in the traditional banking services, which include long waiting times, inconsistency in or missing information, and unanswered questions, chatbots powered by artificial intelligence (AI) capabilities have become the new must-have standby support in the banking industry.

While the pandemic accelerated the deployment of digital tools, AI chatbots have become a big part of the trend – evidenced by the increased number of FIs (23%) that were expected to have deployed chatbots by the end of 2022, up from the 12% that had implemented chatbots in the start of 2021.

In addition to resolving the pain points for customers and saving time, the adoption of chatbots also cuts down operational costs for FIs. By embracing the AI tech, banks are expected to reduce customer service costs amounting up to $7.3 billion globally by 2023, up from an estimated $209 million in 2019. 

With the advent and increasing popularity of ChatGPT, 2023 might be the year for the AI banking chatbots.

While the AI chatbots tech is promising, seeing an upward trend and emerging as a new performance metric for digital banking, the user experience remains a work in progress. Even artificially intelligent chatbots, though skilled at detecting patterns in human language, have limitations when it comes to natural language understanding – thus lacking a human touch.