In 2020, the financial services business model changed, and so did the banking software that supported it. In-person interactions declined, with more customers relying on digital channels for banking services. For some financial institutions, that meant adding capabilities to their core banking software.
Unfortunately, not all core banking systems could support digital solutions, and many were ill-equipped to interface with third-party providers. For example, many core systems update accounts during end-of-day processes, forcing workarounds to deliver real-time data to digital solutions. As the financial services sector moves forward, it needs to look at its core systems to ensure they have the flexibility to deliver digital solutions.
What Is Banking Software?
Not too long ago, banking software meant core banking systems, such as Infosys Finacle, Fiserv DNA, or Jack Henry Silverlake Core systems are back-end solutions that process banking transactions, post updates to accounts, and generate financial reports. System products included deposits, loans, credit processing, general ledger, and reporting.
Banking software has grown beyond back-end processing, compliance reporting, and auditing. Its capabilities extend to the delivery of financial services through channels other than physical branches, such as:
Retail-oriented financial institutions have also added products such as credit cards and loans to their core banking platforms.
The changes in channels and products have expanded the sector's need for banking software that provides:
These are only a portion of the functionality credit unions will need as they compete with other financial institutions for market share.
According to Forbes, 78% of Americans prefer digital banking, with 41% selecting mobile and 37% online. Only 29% of Americans preferred in-branch banking. However, consumers trusted the financial advice they received in person more than online because it was more personalized.
As credit unions move forward, they need to look at how their back office systems can facilitate digital experiences without losing the personalization of in-branch services. Credit unions need access to non-core functionality, such as risk management or credit card processing, that integrates seamlessly with the back office and delivers real-time communications.
Most credit unions have heard stories about system integration nightmares. Despite seamless integration promises, new software had to be rolled back because of errors. The operational disruption had staff working into the night to correct errors.
Software that supports API interfaces makes seamless integration possible. Coupled with microservice technology, features can be added without disrupting an entire system. As more core systems support open banking, third-party vendors can integrate with back-office platforms. This capability makes it easier for credit unions to deliver digital solutions quicklyFor example, a credit union wants to add a digital loan origination solution to improve efficiency and streamline the customer experience. Finding a vendor with an existing interface means no waiting for custom interfaces to be written and tested. With seamless integration, financial institutions can deploy digital solutions quickly.
Consumers expect next-day, even same-day delivery. They find waiting on hold for more than five minutes unacceptable. They believe their financial information should reflect activity within minutes.
When that doesn't happen, they become frustrated. Real-time interfaces provide a better customer experience.
Real-time interfaces allow information to flow from a third-party provider to the credit union's core banking system. An example is an interface between a banking system and a network. A cardholder makes a purchase, and the transaction is sent to the card-issuing credit union for authorization.
The authorization is returned, and the transaction amount is debited from the cardholder's account. If cardholders check their balance, the transaction amount will be reflected in their balance.
Some credit unions provide networks with balance files to use for transaction authorizations. The transactions are recorded in a batch file sent to the credit union at the end of the business day.
Alternatively, the balance and batch files could be updated throughout the day for a closer real-time interface. Many US financial institutions still use memo-post processing, which does not update accounts or ledgers until day-end.
Core banking platforms should provide real-time or near-real-time processing. It helps with fraud detection, allowing alerts to happen immediately rather than after day-end processing. Not only does that improve the customer experience, but it also reduces the time staff spends resolving fraudulent activity.
Core banking platforms should offer functionality that helps with digital transformation. Whether seamless integration or real-time interfaces, core banking solutions should offer credit unions the option to use other vendors to move their transformation forward.
Credit unions, like other financial institutions, have access to data. Accessing that data to deliver personalized products and services provides a digital-first experience.
Add artificial intelligence (AI) capabilities, and credit unions can gain valuable insights into their operations and customers. Depending on the age of the core system, these advanced technologies may require a third-party solution that works with legacy systems to deliver digital solutions.
Many companies in the financial services sector have moved to cloud computing as part of their digital transformation. Vendors have created products and services that take advantage of cloud capabilities, including data access at any time from anywhere and customized experience based on AI Whether using big data and AI to provide better fraud detection or deliver crucial insights into customer behavior, cloud computing plays a growing role in digital transformation.
A credit union's non-profit status demands a different focus than its for-profit competitors. A credit union's first task is to serve its members.
That means offering financial services that benefit their field of service. Balancing member needs with increased competition requires credit unions to evaluate their technology strategies carefully.
Credit unions must use core banking platforms to redefine the member's experience as they look to the future. They need to find solutions that address the following trends.
Software solutions must facilitate cohesive omnichannel experiences. While many solutions can integrate with other digital services, they cannot provide the same integration in the branch.
For example, self-service options such as opening accounts, applying for loans, or depositing checks are delivered digitally outside the branch. In the branch, a member must stand in line to access the same service.
Credit unions could incorporate digital services through an interactive device in the branch. Credit unions in underserved areas may have members with unreliable internet access or spotty cellular connections. Providing digital services in the branch delivers self-service options to members lacking reliable technology. In other locations, the in-branch digital options can free staff from basic account management functions to develop a more advisory relationship with the membership.
Merging digital and physical channels requires a flexible infrastructure that can unify experiences. Solutions must be modular enough to deliver functionality as needed and flexible enough to pivot quickly when regulations change. Without some form of API interface, software providers may have limited ability to deliver connected experiences.
Fintechs have shown consumers how technology can help achieve personal goals. They leverage data to recommend tools to give customers more control over their financial health. Personalized assistance requires data analytics to tailor financial advice and recommend financial products and services.
Credit unions are tied to communities. Their field of service may be an employer, a religious organization, or an educational institution. Leveraging those relationships, credit unions have an opportunity to deliver more inclusive services to their members.
Credit unions need solutions to collect data for analysis and use the results for improved customer service. At every touchpoint, members add data that can be used to deliver more personalized services without increasing the workload of employees.
Credit unions face the same labor shortages as the rest of the financial services sector. Without improvements in operational efficiencies, staff will become overwhelmed, and customer service will suffer. Some credit unions may turn to an "as-a-service" model to help with time-consuming compliance auditing and reporting tasks.
When looking for an "as-a-service" solution, credit unions need to find a trusted partner that can assume responsibility for those areas. They need an organization that understands credit unions' challenges and will help define strategic initiatives for digital transformation. With the right partner, credit unions can deliver connected experiences, offer personalized products and services, and experience market growth.
Cotribute delivers a neo-bank-like experience for digital loan origination and account opening. The company's platform offers Growth as a Service and Cross-Selling as a Service to help credit unions realize their digital transformation and growth potential. Schedule a demo today to see how we can help your credit union become digital-first.