Banking transformation for customer owned banks: play to your strengths

Banking transformation for customer owned banks: play to your strengths

After a three-year hiatus, Australia’s customer owned banks, credit unions and mutuals had a chance to re-connect in person at the 2022 Customer Owned Banking Association (COBA) event.

Sandstone Technology’s Chief Customer Officer, Jennifer Harris, reports back with her observations from the convention, and more broadly, thoughts on the post-Covid shifts shaping this dynamic segment.

It was great to have COBA back in our calendars this year. As ongoing sponsors of the event, we always find it gratifying to see the turnout of attendees at all levels of business. In this sector, everyone from the C-suite down is genuinely passionate about the work they do in their communities. And there is an openness and feeling of one-ness that you don’t tend to get at other industry get-togethers.

The first thing I noticed this year was how much the agenda had changed. In the wake of the pandemic and other major global disruptions, the focus was firmly on people and culture. Customer experience (CX), employee experience (EX), growth mindsets, environmental, social and governance (ESG) and corporate social responsibility (CSR) dominated discussions in 2022, alongside banking transformation.

So what’s driving that change of focus?

The talent and skills shortage

Whether you’re in the financial sector, or like us, in the fintech space, we’re all facing into one common issue: a pandemic-led skills shortage. We’re a small country with a relatively small population. Border closures and lockdowns have curtailed the usual influx of overseas talent and our resource pool hasn’t grown enough to meet the needs of expanding organisations. Staff issues have had serious impacts on businesses.

To counteract that skills crisis and retain/attract staff, building the bank’s culture is key. A big part of that is creating a workplace environment that encourages and facilitates people acquiring new skills through continuous learning. Internal coaching and mentoring play an important role here.

30 years ago, an employee’s professional skills and competencies could potentially last decades; now it’s down to under five years. If you don’t get outside of your BAU thinking and start looking at how to educate and advance your staff, you will face further attrition.

AQ: the secret weapon

On the subject of new hires, I found a COBA presentation by Marnie Fletcher, Chief Member and Growth Officer for Defence Bank, really interesting. She spoke about AQ – “adaptability quotient”. Equally as important as IQ and EQ according to Marnie, AQ describes the ability to adapt and thrive in a fast-changing environment. Going forward, Defence Bank is actively seeking out resilient people who can cope with fast change and uncertainty.

But it’s not just individuals who need AQ; organisations do too. No-one’s sure whether Australia will have a recession, but if we do, it will have a big impact across the board. Just ask people who went through it in the UK. I think we underestimate the impact of a true recession on our market.

As we’ve opened up our borders and allowed migrants back in, it has definitely helped address the skills shortage. But if we enter into a recession, there will be serious belt-tightening; jobs will be lost. That’s when resilience and an ability to adapt to change will enable customer owned banks – or any banks – to succeed; and digital transformation for these mutuals and credit unions is definitely part of achieving that resilience.

ESG and CSR to the fore

Because customer-owned banks are so entwined with the communities they serve, they’re set up very differently to tier 1 and 2 banks. ESG and CSR are part and parcel of what they do. I’ve previously heard Bendigo Bank CEO and MD, Marnie Baker, speak very eloquently about her bank’s drive to mitigate climate change, and its approach to achieving carbon neutrality.

The thing to remember here is, regional banks are on the frontlines of climate change, whether it’s flooding in the Northern Rivers region and in Queensland, or fires in Victoria and New South Wales. Community-owned banks are the backbone of a lot of these communities.

John Williams, CEO of Summerland Credit Union cited the example of the Northern Rivers floods in 2022. In the first couple of days of the crisis, his bank’s priority was checking how staff were impacted; then their focus turned to their customers. Within six days, a community hub was set up with six different banks offering their financial support. Public and corporate donations flowed through, as did supplies of food and clean water.

It’s that many-to-many approach, those shared values, mindsets and behaviours, that sense of belonging that really serve these smaller banks in a crisis like a flood or a fire, and unite communities.

The faster drive to digital

For customer-owned banks, where engagement is often on a first-name basis, the impact of Covid was particularly heavy. With enforced social isolation and safety concerns keeping customers out of branches, on top of continuing branch closures, they lost that highly personal channel and it forced a major cultural shift.

What had previously been a gradual uptake of digitisation and automation became an urgent push for banking transformation, across the board. Banks were suddenly pushing customers towards digital channels and call centres.

More quickly than we could ever have imagined, customers became educated about digital channels. Their behaviour started changing, with a whole new segment of older customers becoming more digitally aware, adding to the ranks of digitally-savvy Millennials and Generation Zs.

And that now has financial institutions in all tiers re-thinking how they service customer needs. It starts with elevating the customer experience, making it seamless, removing friction, making it easier for customers to reach their bank 24/7. Crafting better employee experiences – removing mundane tasks so staff can focus on value-adding activities – is also crucial.

The digital opportunity for customer-owned banks

The personal connection that customer-owned banks have with their customers is their number one advantage. Their satisfaction rating of 91% overall in Australia is something that other banks can only dream of.

The downside is that smaller banks can’t compete with bigger banks’ digitisation and automation programs because they don’t have the budgets and internal technology teams. When Covid struck, they knew they needed to start offering the same CX that customers were used to, or customers would switch. Digital transformation went from being on the wish list of a tier 3 or tier 4 bank, to becoming a top priority, to remain competitive.

The solution? Mergers and acquisitions (M&A). See Greater Bank’s merger with Newcastle Permanent and People’s Choice merger with Heritage Bank as examples. We’re going to see more and more M&A over the coming years – smaller banks coming together under one brand – or maintaining their distinct brands but using their combined strength to help drive innovation for their customers and remain competitive in market.

COBs need to play to their strengths

Customer-owned banks will likely never have technology as their great differentiator. It’s unlikely they’ll have digital banking or mobile banking apps with all the bells and whistles of say, a big four bank. But what they do have is that high level of customer satisfaction, and that community mindset. So what they need to be doing is look at how they can best utilise the technology they can afford in conjunction with those personal relationships they’ve cultivated. That’s the differentiator. Putting something in market that is going to retain and deepen those relationships and build on that loyalty.

As they increasingly divert their customers down digital channels, the opportunity is to pitch those channels as a way to get the more mundane transactional banking tasks done quickly and easily. For other tasks, customers can take advantage of the more high-value, personal touchpoints as required. So the digital banking or mobile banking options are not taking away from the human interaction or that sense of belonging and shared experience, but rather supporting it.

The partnership future for fintechs

The other global movement we’re seeing is partnerships and integrations between technology vendors. That might be a company like Sandstone Technology partnering with another fintech to integrate our offerings to provide a better overall solution for our customers. It not only means better banking solutions for customer-owned banks and better offerings for end customers, it also opens up a whole new sales channel. As a united entity, we can go out to market more broadly, and if an opportunity arises, we can go in as a combined force.

The flipside of that is our customers, the financial institutions, start to look at technology vendors not as vendors, but as partners. Customer-owned banks don’t have large IT departments or massive budgets. So it’s crucial they select the right tech companies that can empower and enable them to better serve their customers, as well as lift the employee experience.

That was highlighted in the keynote by author/speaker/adviser Jonathan MacDonald.

As Jonathan said, banks need to realise that a lot of technology vendors – and I would include Sandstone in this – are not there to hound them, to push something on them they don’t need. We’re there to help them.

We want to work with them to improve their customer experience and their employee experience; to drive efficiencies and productivity.

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