The Financial Brand Insights - Winter 2021

#2 banking publication in the world. Nearly 2 million readers, and host of the fastest growing annual conference in banking.

Winter 2021 VOLUME 2 - ISSUE 4





SUCCEED BYDOING THE HARDER THINGS Jeffery Kendall, CEO of Nymbus , shares strategies and management lessons while busting some myths about banking innovation. PAGE 11

Table Of Contents



There’s Gold in That There Data! Are you using it and do you have the right tools?

11 Ways to Find the Perfect Balance Between Risk and Reward How Financial Institutions Should Combat Fraud in a Post-Pandemic World Evaluating Credit Card Profitability: Fee vs. Interest Income 5 Things to Consider Before Your Next Marketing Campaign Why Banks Must Embrace Automation for Growth Amid Regulatory Flux Financial Services Marketers Speak Out on Future Prioritizations Partner & Thrive: Why Fintechs and Financial Institusions Need to Unite



3 Ways to Engage Customers and Protect Their Privacy

Legacy to Revolutionary: Standard Chartered’s Journey in Africa What Strategic Choices Are Credit Unions Making to Drive Growth? 3 Reasons Financial Institutions Can’t Let Mergers Stall Innovation

The Five Essential Card Needs for Digital Consumers 37




How Insurance Companies Can Keep Up With Mobile- first Fintech Companies



The 4C’s for Branch Evaluation and Evolution 69


Can Your Financial Institution Recognize Account Holder Financial Stress, Before It’s Too Late?














In today’s financial services landscape, financial technology (fintech) companies and financial institutions (FIs) are often competing for customers, market share and relevance. It’s no wonder that, generally speaking, fintechs are posed as threats, and financial institutions are often viewed as archaic and slower moving. But it doesn’t have to be (and shouldn’t!) be this way. In fact, the best way to compete and thrive in this market — is for fintech and financial institutions to cooperate and allow each to fulfill the roles they do best. Before we dive into how financial institutions must partner with fintech, let’s tackle why they should. FI Is To Trust as Fintech Is to Innovation The average consumer thinks about their finances frequently, regardless of their financial means. One of the hardest parts in combating economic uncertainty and worries is taking the first step to resolve the issue. Fear and anxiety may paralyze consumers from finding and testing a new solution like fintech services. Regardless of consumers’ financial health, many are reluctant to download an app that will draw attention to their financial situation. However, at the same time, most consumers want to improve their financial situation. To do this, they want the proper tools and they want this to come from a source they trust. Who do people generally trust with their finances? Financial institutions. In fact, a 2020 EPAM survey found 82% of people are happy with their bank, and 63% reported TRUST as the primary reason for deciding where to place their primary bank account (figure 1). In contrast, only 40% of financial decision-makers in the U.S. have a fintech account. Older generations— Gen X and baby boomer s— are much less likely than millennials and Gen Z to use fintech as their primary financial management solution. Even though FIs suffered a loss of trust due to the 2008 financial crisis, they

showed up for their account holders in a big way recently, by offering mortgage deferral programs and other relief-orientated solutions to those affected by the Covid-19 crisis. Why Are SMBs Searching for Something More Robust? In the same vein, small and medium-sized businesses (SMBs) are also constantly thinking about and managing their finances. The difference is that SMBs actively seek out help and critical resources to manage this. Since SMBs want to centralize their financial activities, they typically look to their trusted FI first, rather than a fintech company often without brand recognition or a pre-existing relationship. But traditional FIs aren’t always equipped to provide what they’re searching for. While FIs may have trust in the bag for both consumers and SMBs, they have an innovation problem, especially small- to mid-sized FIs. They don’t always have the resources to innovate at the pace required given budgets constraints, and they often prioritize developing “now” projects over those that are important but perhaps less urgent. Additionally, many small FIs don’t even have modern and robust mobile banking apps, which leaves them even further behind the innovation game. On top of that, they have compliance and

Partner &Thrive Why Fintechs and Financial Institutions Need to Unite By Jonathan Price EVP of Emerging Business & Corporate Development at Q2

Financial institutions benefit from the happiness and trust of customers



of people are happy with their bank

reported TRUST as the primary reason for deciding

where to place their primary bank account

SOURCE: 2020 EPAM survey © November 2021 THE FINANCIAL BRAND





regulatory constraints, which leads to the death of most innovations. But guess who doesn’t have innovation problems? Fintechs. Q1 of 2021 was the largest funding quarter on record for fintechs. “Across 614 deals, VC-backed fintech companies raised $22.8B,” according to a CB Insights report . Furthermore, exit activity also hit a new high, at 11 IPOs and 67 M&A deals. Where Fintech and FI Unite Fintechs are agile and innovative, which empowers them to adapt quickly to emerging customer needs and market volatility — a necessity that most financial institutions lack. On the flip side, many fintechs often don’t have the brand recognition necessary for consumers and SMBs to trust them with their finances. Here we have a situation where fintechs and FIs complement each other’s strengths and weaknesses nicely. FIs have brand recognition, relationships and trust but need innovation. And fintechs have innovation and agility. It only makes sense for the two to partner to bring innovation to consumers fast. Let’s Do AwayWith Traditional Partnership Models Traditional processes for vetting and implementing fintech technology are expensive and time consuming, so FIs need to be certain of the ROI from an early stage. Hence, fintechs are met with a high bar from the very beginning when acquiring FI partners, leading to significant expenses and deployment of resources without the certainty of partnership success. Even if a fintech manages to get past the sales and vetting cycles, they have a custom integration to perform. Because FIs run on different systems, fintechs must perform a different integration for every FI they want to partner with. This limits the scalability of their product and delays the fintech’s ability to recognize revenue. For proper development cycles, fintechs need to get their product in front of customers quickly, get feedback and incorporate that feedback into

future product iterations. Building a fully featured product without customer feedback is a surefire way to waste your time and money. But this is the arrangement that current FI partnership models offer, and it challenges a fintech’s ability to drive efficient customer growth. A NewModel That Works A better partnership model would include a single, standard integration for multiple FIs. That way, fintechs don’t need to perform a custom integration each time they sell their product. These partnerships would consist of the rapid deployment of features and services so fintechs can test and iterate. Once these requirements are in place, fintechs and FIs can partner to deliver fast innovation; build deep, lasting relationships with their customers; and create a world where fintechs and FIs can live in harmony. FIs must stay true to the qualities that loyal customers like about them — stability, trustworthiness and legacy — when seeking partnership with fintechs. Fintechs can help FIs deliver more efficiency directly to customers and behind the scenes with internal processes, such as end-to-end encryption and algorithms. This, for instance, can be in the form of creating a seamless, user-friendly onboarding experience for customers through a new, modern smartphone app. The numbers don’t lie: traditional banks that use fintech see profits increase by approximately 40%, according to McKinsey & Company . In turn, FIs help fintechs by bringing their trusted clientele and their centuries-long experience of weathering through multiple disruptions to the industry. The Bottom Line? Fintech might be the new kid on the block, but it’s here to stay — it’s becoming the fabric of modern society. So, FIs must learn to work with fintech, not against it, and accelerate its adoption. Together, FIs and fintech can bring new life to the financial industry. ▪

Innovate at the next level Welcome to the new era of digital banking. Q2 Innovation Studio is built for what’s next — letting you offer the latest third-party financial technology directly inside digital banking. Q2’s platform is easily extended and lowers your risk by using a standard partnership integration.

Build sticky relationships with your account holders by giving them the differentiated experiences they crave.






recover money from a legitimate transaction by making a dispute claim. This can even extend to cardholders that are in on a fraud scheme with an accomplice who purchases the goods or services with the cardholder then claiming fraud on their account. If the cardholder is able to successfully convince the card issuer that actual fraud has occurred, the cardholder will ultimately receive a refund. Friendly fraud is especially challenging to combat, as financial institutions run the risk of diminishing the consumer experience if a legitimate dispute is too quickly dismissed as fraudulent. While there is a great deal of negativity to focus on in the fraud space, a bright spot in the current landscape is Automatic Fuel Dispensers (AFD). Overall, counterfeit fraud is decreasing, thanks to pumps finally being equipped with EMV or contactless technology. Just over 50% of AFD transactions are now chip or contactless, with that number rising to 60% for the top 20 fuel merchants. AFD fraud decreased from 16.1 basis points (bps) in January 2020 to 11.9 bps in January 2021. For comparison, chip and contactless transaction fraud is 1.0 bps compared to 25.1 bps for magstripe transactions. Future Fraud Trends There will undoubtedly be more fraud moving forward. Consumers are increasingly gravitating to digital experiences, a trend that extends across all demographics. While different consumers may be utilizing digital in different ways, ecommerce and CNP transactions will continue to accelerate, which will drive online fraud numbers even higher. We are also seeing an increase in fraudsters targeting consumers and companies directly. For example, Google is seeing a phenomenal uptick in the number of phishing sites, and fraudsters are getting better and better at making these sites look like legitimate financial institution sites. Romance scams have also continued to rise as a result of the lockdown. From 2016 to 2020, reported dollar losses increased more than

By Jack Lynch Senior Vice President and Chief Risk Officer at PSCU

Combat Fraud in a Post-PandemicWorld How Financial Institutions Should

When considering the current fraud landscape, it’s clear that consumer adoption of ecommerce skyrocketed during the pandemic. As much as 60% of U.S. payment sales can now be attributed to card not present (CNP) transactions. Not only are consumers shifting to the CNP environment, but fraudsters are as well. In fact, CNP accounts for nearly 80% of the fraud in the U.S. today. There has been a 16% increase in online fraud attempts worldwide, and it is estimated that one in three consumers were targets of pandemic-related fraud. Categories like travel and leisure and gaming fraud saw particularly large upticks, at 155% and 393%, respectively. The pandemic also triggered an unprecedented increase in transactional disputes. Data indicates a 100% year-over-year increase when comparing fraud and non-fraud disputes for January of 2020 and January 2021. Two pandemic-affected categories were the largest drivers of the increase: travel, as many cardholders cancelled travel plans due to the pandemic, and non-receipt of goods, as cardholders cancelled orders due to shipping delays. One of the consequences of this is a shift in behavior as consumers are now familiar with the disputes process and more accustomed to filing disputes. Another challenge is the rise in “friendly fraud,” which occurs when a cardholder is seeking to

The Big Risk

ALMOST 80% of all fraudulent payment transactions happen where the cards are not present.





Linked Analysis , for example, combines monitoring, prevention, recovery and consulting to identify and stop fraud before it occurs. A key element of these types of solutions are AI-powered tools that link events across different platforms, individuals across different institutions and merchants across any cards. Ideally, all of these then also point to each other to find a common thread. This enables the institution or its partner to reach out to the consumer and proactively identify and stop the incident. Other risk management initiatives include next-generation delinquency management solutions. These cloud-based collection and recovery platforms enable omnichannel management, and use integrated web portals for customer or member self-service collection. New fraud alert platforms enable branded communications, so cardholders can be confident the alert is coming from their financial institution. Such platforms’ intelligent phone recognition means outreach will be tailored depending on whether the communication is going to a cell phone, digital message or email. To address the increased challenge of disputes, financial institutions can rely on partners with this capability. For example, PSCU has a new disputes operations center that enables one-call resolution for new disputes via phone, as well as real-time updates regarding existing disputes and fraud claims. Such capabilities eliminate the help desk voicemail process, which means cardholders will get answers in real time. Clearly digital channels will continue to grow. As an industry, it is imperative that we have the right tools and technologies in place to stop fraudsters regardless of where and how they are entering, while simultaneously ensuring a better experience, both on the fraud side and the consumer experience side. ▪ About the author Jack Lynch leads PSCU ’s Fraud and Risk Management Operations area and is President of CU Recovery, a PSCU company specializing in delinquency management.

Banks and credit unions spend plenty working to protect customers from fraud. However, it’s imperative that institutions also do more to educate people to help reduce the risk. Mitigating Disaster:

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fourfold, and the number of reports nearly tripled when it comes to romance scams. Consumers are becoming more vulnerable to attack as scammers move from targeting the financial institution as a whole to also going directly after consumers. The more we can educate cardholders, the better. Another growing challenge is synthetic identity fraud, one of the fastest-growing types of financial crime in the U.S., costing financial institutions billions of losses annually. To help better identify and mitigate this type of fraud, the Federal Reserve announced an industry- recommended definition of synthetic identity fraud. In brief it is: “The use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain.” The definition was developed by a payments industry focus group of fraud experts of which PSCU is a part. The Federal Reserve envisions that a consistent definition for synthetic identity fraud will help the industry understand what constitutes this type of fraud and its impact on consumers, financial institutions and the overall U.S. payments system. The Path Forward Given the current landscape and expected future trajectory, what can financial institutions do to combat fraud? Unfortunately, it is not as easy as simply stopping the fraud. Achieving a balance between risk management and the consumer experience is the sweet spot in combating fraud. Banks and credit unions should consider using solutions that can help identify fraudulent activities and halt them in their tracks. PSCU’s

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Accelerating the Corners Through

Whether motorcycle racing or running a bank technology company, Nymbus CEO Jeffery Kendall strikes the right balance between risk and reward.

By Nymbus

Motorcycle racing is a delicate dance between acceleration and braking. Slamming the breaks too quickly could mean a disastrous skid. Hit the front brake too hard? You may find yourself flipping over the handlebars. Racing also requires that riders develop an almost innate awareness of lean angles when entering a curve. Tiny steering adjustments can mean the difference between exploiting their machines’ limits or losing traction. To race on a powerful 1000 cc super bike, you need a steady hand, excellent judgement, and a willingness to take some risk. It’s not all that much different from running a company; you are constantly balancing risk with reward. At least that’s what Jeffery Kendall, Chairman and CEO of Nymbus , believes. Kendall’s passion — when he’s not working or spending as much time as possible with his wife, two children, two cats and a dog — is racing Ducati Motorcycles. He’s always loved anything with two wheels but has a particular soft spot for Italian bikes. Ducati combines the best of Italian styling with aerodynamics and performance. Kendall joined Nymbus as CEO in September 2020. Prior to Nymbus, Kendall was executive vice president of North America Sales for Temenos and executive vice president and general manager, Kony . Nymbus was firmly in its adolescence and struggling with scale when Kendall came on board. “As a startup with no revenue, you have to claw your way to get your first customers,” says Kendall. “But at some point, you have to scale. What you did early on may not be what you need to do to get to the next level.” Since Kendall took the reins, Nymbus’ staff base has grown from 150 to more than 450 associates. Kendall’s focus has been to expand

11 Ways Financial Institutions Can Find the Perfect Balance Between Risk and Reward





the size of the company while building a robust executive leadership team to take Nymbus to the next phase. Kendall shares a few strategies and management lessons that apply to banks and credit unions and busts some myths about banking innovation and transformation along the way. 1. You’re Smarter Than You Think There’s a myth, often perpetuated by technology firms, that bank and credit union employees are just not as technologically savvy as the folks in Silicon Valley. Totally untrue, says Kendall, noting that some of the brightest, sharpest and most innovative people he has had the pleasure of working with work in banks and credit unions. Indeed, one credit union customer investing capital in Nymbus has one of the most talented leadership teams in financial services and is committed to technology and to growing the credit union. The pandemic and the acceptance of remote work has leveled the employment playing field. A community bank in the Midwest that once had talent limitations can now hire remote workers thrilled not to have to live in the Bay Area, Austin, or other high-priced technology hot spots. Technology firms do dangle equity in front of talent, and although banks and credit unions may not be able to offer competitive stock options, they can look at other types of rewards, incentives and motivations.

2. Embrace a Virtual Culture Kendall notes that the Nymbus culture allows the company to take advantage of what’s been called the Great Resignation — an unprecedented number of employees who are leaving their jobs for greener pastures, whether that’s more money, a better work/life balance, or an environment that makes diversity and inclusion a priority. Nymbus has always had a mostly virtual workforce and unlike many companies, didn’t have to suddenly pivot to remote work due to the pandemic. That bodes well for Nymbus, says Kendall. “Companies are struggling whether to be virtual or on-site and employees get caught up in the indecision.” Kendall believes in giving employees the choice. Employees are welcome to work on- site at least partially in the company's offices in Columbus, Ohio or at headquarters in Jacksonville, and about 10% of employees choose that option. “It’s about being flexible and being part of their whole life versus inhibiting their non- work life,” he says. Kendall acknowledges that staying connected while working remotely is hard work. “We’ve been intentional about building relationships, regardless of whether employees are working in Seattle or Miami,” he adds. For instance, Nymbus created a nine month leadership development program to strengthen the team bonds in a virtual environment.

3. Becoming a Fintech Isn’t Out of Reach…

Digital transformation is also heavily reliant on people. “You can’t put great technology into the hands of people who don’t have the vision to transform and expect the technology to perform,” explains Kendall. “But there is a lot of innovation that can happen outside of technology by looking at things from different perspectives.” 6. Make D&I a Priority Nymbus’ commitment to diversity and inclusion is also attractive to top talent. It’s not just talk: more than 50% of Nymbus employees are women and the management team is 65% women, going well beyond Marketing and HR posts. Diversity doesn’t just happen — especially in technology companies. Working with a former recruiter to fill a sales leader position, Kendall was struck that the resumes all looked alike: white men. “I asked that at least 50% of the resumes I received be from female candidates,” recalls Kendall. The recruiter pushed back, responding that there are not as many women in technology careers as men. “There may be fewer women, but we are prioritizing diversity,” Kendall replied. “There are no excuses.” Diversity becomes a self-fulfilling prophesy. “The more diverse talent you hire, the more you look like a place that people of different backgrounds and ethnicities will feel comfortable and attracted to,” explains Kendall. “The key to attracting great talent is to have people who can serve as role models to others. They can identify and see themselves in that person’s role in five years.” The more diverse talent you hire, the more you look like a place that people of different backgrounds and ethnicities will feel comfortable and attracted to. Jeffery Kendall CEO at Nymbus Diversity becomes a self-fulfilling prophesy

Kendall believes that banks and credit unions can become fintechs. Not only do they have the talent, they also have the most valuable asset of all: a charter. “Every fintech needs a bank behind them, but not every bank needs a fintech. You’ve got the fuel to be your own fintech with help from partners,” he explains. Kendall and his team spend a lot of time talking with bank and credit union executives to demonstrate that, with a partner, it’s not that big of a leap to become a fintech. And there's a big upside for taking that risk. While agility may be easier for fintechs since they are unburdened with legacy systems, remember that fintechs struggle with technology and change as well. And banks and credit unions can overcome any legacy obstacles by implementing different operating models. Another myth is that fintechs are better at marketing than banks and credit unions. Again, not true, says Kendall. What gives fintechs an edge is that they tend to leverage external agencies and understand the value in data driven customer acquisition strategies — something financial institutions can do as well. 4. Move Quickly Banks and credit unions can’t afford to move slowly. “It’s about growth and it’s about speed,” says Kendall. “You have to keep pace with a rapidly changing industry.” Kendall advises his bank and credit union customers to quickly test out the feasibility of innovations. Quickly investigate the idea, but be prepared to let it go if it’s not working. 5. Transformation is a Team Sport “Digital transformation” is a term that makes Kendall cringe because he believes that it implies that digital transformation is a standalone initiative under the purview of the chief digital officer. Instead, digital transformation is really a mindset that is organization-wide.

The advantage of having a charter: ”

Every fintech needs a bank behind them, but not every bank needs a fintech. You’ve got the fuel to be your own fintech with help from partners. Jeffery Kendall CEO at Nymbus





8. Deliver Remarkable Execution Nymbus’ customer base includes a regional bank with $80 billion in assets on the high end, and a $100 million bank on the low end, but Kendall states that size is only a number. “We don’t care how big you are; we’re here to help you get where you want to go,” he explains. “We provide hope and inspiration for banks and credit unions that may feel trapped in old ways of doing things and don’t have the resources or culture to be innovative,” says Kendall. Or perhaps management doesn’t have the appetite to bet their career on a transformation that pushes the envelope. “I’ve seen careers derail if a project fails,” says Kendall. “I want to delight our customers,” says Kendall, noting that it’s an easy thing for a CEO to say, but adding that he is “constantly blown away” at how employees go the extra mile. For example, Nymbus worked with a de novo bank and although outside their contract, the team helped the bank design its logo, brand, and website. “We felt accountable for getting the bank financed and successful,” says Kendall. “I love the extra surprise you get when working with our team.” 9. Get Out of the Way A former mentor told Kendall that the job of CEO is to set the strategic vision and growth objectives for the company and give employees something to aspire to. The CEO shouldn’t tell them how to do it or to track every milestone on the roadmap. Kendall’s responsibility as CEO is to identify Nymbus’ north star. The CEO is also tasked with making sure the company has enough financial fuel to run and that it has a structure in place to responsibly allocate those resources. And then, get out of the way. “The CEO is not the execution engine,” notes Kendall. “Employees will rise to the occasion; I’ve seen it time and time again. The people on the ground interacting with customers are the ones who come up with the most creative ideas. Give them permission to innovate and change and be different.”

10. Take that Vacation Kendall recently spent a week and a half on his motorcycle with friends touring national parks. And he encourages the rest of his team to take two-week vacations at a time as well. “The leadership team needs to set an example. Plus, the more you take vacations, the easier it becomes!” he adds. Nymbus offers unlimited personal time off since Kendall and his team don’t feel that they should dictate how much time their people need to take off to be happy and healthy. “I don’t want my team not to be able to take vacation because they had to use their vacation days to stay home with a sick child,” he says. Employees will do what’s right if you just trust them, he adds. 11. Do the Hard Things For banks and credit unions that want to embrace change and move to the next level, Kendall has this advice: Pay attention to the things that people think are hard or don't want to do. That’s where the value is. “People shy away from transformation because it can be painful, but there's more opportunity in a messy situation than there is in a clean situation,” he says. For example, most fintechs don’t really understand the ins and outs of compliance and regulatory issues so they shy away from those topics even though they are critically important to banks and credit unions. Instead of being wary, Nymbus embraces compliance. “We hired a forward-thinking chief compliance officer to lean into regulatory issues and make it a strategic weapon,” notes Kendall. Sure, doing things differently is risky, but so is motorcycle racing. It’s all about balancing risk with reward. “Don’t ignore risk, but recognize that risk is also ignoring opportunities,” says Kendall. “Doing the harder things often gives the biggest payoff.” You’ve got to know when to accelerate and lean into the curve. ▪

More opportunity in amessy situation

Pay attention to the things that people think are hard or don't want to do. That’s where the value is . Jeffery Kendall CEO at Nymbus

Multiple research studies have concluded that diverse companies perform better, but for Kendall, this isn’t about revenue or performance metrics. Diversity and inclusion is the right thing to do, no matter how much it costs or how long it takes. “You can say diversity is important because it impacts the bottom line, but what if it doesn’t? Would you still do it?” he ponders. 7. Serve as a Catalyst for Change Kendall says that Nymbus brings accountability to its relationships with banks and credit unions and has confidence the tech company can deliver what they promise. “We structure our contracts to align with our customers’ objectives, whether its growing deposit base, increasing non-interest revenues, or increasing brand presence,” he explains. “Who would you rather partner with?” asks Kendall. “A vendor that charges you a big chunk of money upfront and is not invested in your success or one that asks for a low cost commitment, demonstrates success, and only charges when they deliver against set milestones and targets?” It’s a rare business model for a technology vendor, admits Kendall, but sharing in the success of its customers is a paradigm that he and their investors feel strongly about. In many ways, the business model is all about empathy. “Customers are betting on you,” says Kendall. Letting them down can have dramatic implications for their careers and their families. “If we don’t do this amazingly well, what happens to the person who brought us in?”

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Things to Consider Before Your Next MarketingCampaign

Banks, credit unions, and other lenders need to stand out in this “attention competition” and target their marketing efforts more than ever before.

improved customer experience. This deficiency in leveraging data to its fullest doesn’t bode well in scenarios where traditional institutions are competing with fintech firms and other non-traditional emerging competitors. The companies leveraging data to its fullest potential will be the ones left holding the trophies at the end of the race for new customers. To improve the use of data, financial institutions need to identify both internal and external sources of data that can help support their customer acquisition and retention goals. Internal data sources can help with personalization and targeting of the right offers to existing and previous customers. External sources offer insight into a broad range of data points that can be beneficial not only in marketing, but throughout the entire customer lifecycle. Behavioral, demographic, and lifestyle

lender-customer relationship evolves. As stated in an article in The Financial Brand , “Many financial institutions think a great customer experience begins after the first account is opened. In reality, the customer experience begins before any account is opened, as the consumer is shopping for a new financial institution.” Keeping this in mind, there are many things to consider when planning and executing marketing campaigns. Here are five ways to improve your marketing results and optimize the customer experience. 1. Research Leverage internal and external data to assess your target audience. Many financial institutions have historically failed to leverage data effectively in support of their marketing efforts and in support of an

data attributes can help drive personalization and segmentation. Paired with fraud and other essential data attributes including baseline credit information, an effective data strategy can ultimately result in greater response rates as well as improved risk mitigation. Marketing and risk assessment are not separate activities but must occur in parallel when extending offers for financial products and accounts. Programs in the marketplace such as TEST/DRIVE ® can help you research and evaluate third-party data sources that have the data necessary in support of your campaign strategy and goals. 2. Personalize Know your audience and align the campaign channel(s) to your audience’s preferences. You need to understand consumer behavior and preferences to personalize offers effectively.

By Carson York SVP Business Development at Digital Matrix Systems

It is growing increasingly difficult to gain the attention of consumers that are constantly being hit with advertising messages in both their personal and professional lives. Banks, credit unions, and other lenders need to stand out in this “attention competition” and target their marketing efforts more than ever before. The competition that you must outpace with effective campaigns includes both traditional competitors, as well as emerging fintech and neobank competition. While customer acquisition is essential, customer retention is even more important. Retention starts with the early “pre-customer” experiences and builds from there as the





You’ll want to identify the criteria that you will use to determine future offers that are a fit and will help with customer retention. Ask yourself some key questions as you look to evaluate campaign outcomes and make improvements for future campaigns. ● What is the best data available to assess my target audience? ● Which channels should I use for this campaign? ● What analytics should be applied to help improve my response and conversion rates? ● What will the measure of success be in terms of results? ● Are there vendors that can help? Even if your organization has dedicated resources to develop campaign strategies and execute campaigns, partnering with external resources for data and analytics support can often amplify your results. Whether managed internally or externally, a focus on each of these five campaign stages will help drive successful outcomes. ▪

The most successful marketing campaigns typically leverage a multi- or omni-channel approach, driven by data for improved targeting. Although success can certainly be achieved through a single channel such as digital, television, direct mail, or print advertising, in many cases a multi-faceted approach is best and allows you to have multiple touchpoints with both future and current customers. Illustrate how your offer meets the customer’s unique needs without being too heavy-handed in your messaging. “What’s in it for me?” is how we’re all wired and tend to process information. Today's consumer is accustomed to highly personalized interactions from a variety of retailers and service providers, and the expectations they have for you as their financial institution are no different. The wrong focus can quickly sabotage an otherwise well-structured campaign offer. Leverage available data to understand consumer preferences based on their current or past relationship with your company, the general preferences of the demographic groups they fall within, and their individual consumer-level data points including current and previous tradelines on credit reports. Understand what customers expect, and make sure you deliver on that promise. 3. Analyze Apply effective and consistent analytics through the campaign lifecycle. The best campaigns tend to be a combination of art and science. Data science , to be more specific. This starts with the criteria that is used in the very beginning to generate the target list for the campaign and carries through to an application that is successfully processed and approved to acquire a new customer. Pairing credit data with alternative data provides a solid foundation for both marketing and risk management. Employing consistent analytics in both the marketing stage and the approval stage can

enable lenders to achieve a higher return of successfully approved applications. The benefits are three-fold. First, you’ll achieve a greater return on your marketing investment. Second, by matching your approval criteria using guaranteed matched calculations, not just equivalent calculations, you can reduce or eliminate legal regulatory concerns. Lastly, you’ll provide a better customer experience by extending campaign offers that have a high likelihood of conversion. Customers that believe they are “preapproved” but are then declined when they submit an application quickly become frustrated. This scenario is easily avoided through analytics that apply the same criteria throughout the customer lifecycle. 4. Measure Determinewhich metrics are critical to measuring success and directly related to ROI. What will success look like for your organization’s campaigns? It may vary by the channels leveraged and the scope of each campaign, but improvements can only truly be realized if consistent metrics are established and measured. Social, email, direct mail, and other channels have different baselines that are indicative of “success”, and ultimately the best measure for any of your campaigns are response rates and conversions. Depending on the size of your organization, market share, and other factors, some campaigns may yield brand awareness gains prior to subsequent personalized campaigns that drive customer acquisition. 5. Refine Take the lessons learned and apply them to make your next campaign even better. As you evolve your campaigns over time, you may need to look beyond traditional data sources and look more at behavioral and other types of data that can be very predictive. Another consideration is the data that you and your team will need to continue to market effectively to customers once they are on board.

About the author Carson York is the senior vice president of business development at Digital Matrix Systems (DMS) , helping clients gain the most value from their data through the DMS suite of data access, storage, and analytics solutions. Carson has over 35 years of industry experience working with top insurers and financial services companies across North America. He provides strategic direction to identify and secure new partnerships and provides a unique blend of operational experience and relationship-driven leadership. Prior to joining DMS, Carson was Vice President of strategic alliances, national accounts and sales operations at American Modern Insurance Group/Munich Re. Partnering with external resources for data and analytics support can often amplify your results . Expanded resources:

Digital Matrix Systems (DMS) offers a process that credit card issuers, auto finance lenders and other financial lenders can leverage to improve their direct mail offers and eliminate the typical challenges. Leveraged at the marketing stage of the customer lifecycle, the process uses credit file archives and the tri-bureau DMS Summary Attributes ® to create pre-approved offers that can potentially generate a greater return of approved applicants. The DMS marketing stage methodology addresses the need for consistent evaluation by providing uniform calculations throughout the applicant review process. This approach eliminates manual coding required by traditional methods and improves speed to market. Approaching the generation of marketing offers this way helps mitigate risk and maximize customer acquisition. Introducing a Better Way to Target Potential Customers

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Evaluating Credit Card Profitability: Fee vs. Interest Income

much interest income yield they will earn based on any given amount of balances outstanding across all of the APRs within the credit card program (figure 1). Credit card portfolio balances are divided into two groups of cardmembers: those who pay down card balances in full each month (“transactors”) and those who do not (“revolvers”). The revolve rate is the percentage of total balances of cardmembers who are revolvers versus transactors. The higher the revolve rate for the card portfolio, the higher the interest income

yield. A lower revolve rate will in turn result in a lower interest income yield. In addition, the WAAPR has a parallel impact on the interest income yield. The higher the average APR within the portfolio, the higher the interest income yield. The lower the average APR within the portfolio, the lower the interest income yield. Costs of interest income Naturally, there are costs associated with collecting interest income that comes from a credit card program. Banks and credit unions would be remiss to not consider the costs associated and how that may affect their program’s profitability in the short and long term. The two primary costs associated with interest income are the cost of funds and charge-off reversals. Cost of funds: A credit card program’s cost of funds refers to the risk associated with the cost of funds. The risk is related to the average life/ duration of the funding source and the relative movement of the cost in relation to the revolve rate. As alluded to previously, cost of funds for a credit card program also depends on whether the portfolio has a fixed or variable APR structure (figure 2). Charge-off reversals (losses): Another cost related to interest income is charge off reversals,

Analysis of Card Program Interest Income In the case of a credit card program, interest income is earned as a result of cardmembers borrowing money from the issuer to fund purchases. A credit card program’s interest income yield, or percentage of interest revenue on total balances, is determined by taking the weighted average APR (WAAPR), which is affected by whether the rate is fixed or varied based on an index, such as the published prime rate, and multiplying it by the revolve rate. The product of this calculation, depicted graphically below, tells a bank or credit union how

By Elan Financial Services

In the typical banking business model, interest income is associated with higher risks because it is subject to potential margin compressions. Fee income, by contrast, is associated with lower risk because it is thought to be more consistent, predictable and free from margin compression impacts. When it comes to credit card programs, however, this rule of thumb is not always the case. The risk associated with fee income could be higher than expected if the credit card program is not optimized. Many of the fee income lines — such as interchange or late fees — within the credit card profit and loss statement are tied directly to variable expenses. These expenses may move in unpredictable ways and can increase profit margin compression risks. Banks and credit unions must carefully weigh the options of choosing either a credit card program run in-house versus one outsourced to a third-party agent provider and take into account the impacts of profit margins and variability of fee and interest income.

Figure 2

Cost of funds impact on card program yield and ROA

Figure 1

Calculating yield from credit card interest

● Net interest yield ● ROA yield











12% Weighted average APR (WAAPR)

75% Revolve rate

= 9% Interest Revenue Yield






Cost of funds 0.25% 0.45% 0.65% 0.85% 1.05% 1.25% 1.45% 1.65% 1.85% 2.05% 2.25%

This graph illustrates the impact that changes to cost of funds have on net interest income and return on assets yields, assuming a fixed weighted average APR. Rising cost of funds results in lower net interest income and ROA. A low revolve rate will also reduce the hedging effect of variable APR pricing. The chart assumes a 10% gross interest income yield and starting ROA of 3.25%. A one point increase in cost of funds results in a ~10% decrease in net interest income and a ~30% decrease in ROA.







which are balances unlikely to be collected due to the borrower becoming substantially delinquent. These balances must be accounted for as they may eventually become permanent losses for the credit card program. Analysis of Card Program Fee Income Fee income is earned by a bank or credit union from account-related charges. It can be divided into two primary components within a credit card program: direct fees and interchange fees. Direct fees are charged directly to the cardmember for a service, convenience, or to make up for a missed payment. Interchange fees are paid by the merchant at which the credit card is being used. Interchange income is determined by the transaction volume and is often viewed as a low-risk source of revenue. However, there are investments and expenses that are required to grow this revenue stream, so it may not be as low risk as it initially appears. The most obvious investment to banks or credit unions associated with products within the credit card program are rewards offers. Stronger rewards propositions within a credit card program result in more value to the cardmember, higher level of spend on the card, and higher portfolio growth over time (new account growth). In theory, offering higher rewards values on a credit card program results in higher spend and portfolio growth. The tradeoff is that rewards have a direct variable cost linked to the same driver as the interchange income: purchase volume. Many cardmembers nowadays expect robust rewards from a credit card program, however that doesn’t change the fact that such rewards are costly for issuers. Financial Trade-off: High-value rewards programs such as a 2% cash back reward, will single-handedly offset all interchange fees earned. Credit card issuing is a complex mix of variable revenues and expenses that are

driven by the overall card program’s product designs. More than one calculation must go into measuring card profitability. Whether it is interest income earned or fee income earned, many factors and assumptions introduce some form of risk to the bottom line. If a bank or credit union does not get the card program’s formula right, profitability is lost and any value of card issuing becomes a burden to the overall enterprise. Outsourcing Considerations Banks and credit unions should take a critical look at calculating their credit card program’s overall profitability. One aspect to consider is using third party resources to dive deeper into factoring in all expenses tied to managing the card program. These expenses may be more extensive than the obvious costs. Also, it is important to weigh the risks of unsecure credit card lending by comparing the true income to other loan assets. Many banks and credit unions find the profits of self-issuing may not outweigh the inherent risks and hidden costs. Partnering with a third-party provider may allow banks and credit unions to optimize their credit card programs while mitigating risk and the various costs associated with running a credit card program, including those that may be not so straightforward. ▪

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About Elan Financial Services Elan serves over 250 active credit union partners. For over 50 years, Elan has offered an outsourced partnership solution that provides credit unions the ability to market a competitive credit card program to their members and outsource most major functions such as marketing, servicing, compliance, underwriting, etc. For more information, visit




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