The Financial Brand Insights - Winter 2023

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









May 20-22, 2024 | Aria Hotel & Resort | Las Vegas

4 Owning the Account Holder Lifecycle - 4 Strategic Plays 8 Reclaiming a Place at the Heart of Money Movement 14 Stopping the Silent Exodus 18 Empowering More Members to Access Payment Protection 20 How to Offer 5% on Checking Accounts and Pay Only 2% 24 Modular Collections Will Revolutionize the Industry 28 3 Branch Models 32 Managing Credit Card Programs : Risks, Costs and Performance 36 5 Consumer Life Events Banks Can’t Afford to Miss


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Onboard: Focus on Speed According to recent research , two in five financial institutions still run their core banking processes (including onboarding) on slow legacy systems. With neobanks and niche fintechs offering near-instant loan approvals, opening accounts at traditional institutions needs to be fast, seamless and hassle-free. Recent research by ABBYY, reported by OneSpan in June 2023, found that for 90% of financial institutions, “friction" during account opening — such as too many steps, snags in identity verification and taking too long — caused consumers to abandon the process. If it takes prospective account holders more than a few minutes to open an account digitally, they will likely abandon the process, diminishing opportunities for deposit growth. Digital account opening is key to turning the digital and mobile banking channel into a 24/7/365 revenue generator. Other top features consumers are getting from megabanks and neobanks? Funding that account immediately, offering seamless real time bill pay and peer-to-peer payments within the institution’s mobile banking app.

Today's consumers expect experiences that are radically more intuitive and simplified. Legacy financial institutions must digitally transform from inside-out to be future-ready . If it takes more than three minutes to open a new checking account or five minutes to apply for a loan on a mobile device or online, you've already lost the battle for at least 60% of the customers wanting to open a new relationship. — Jim Marous

By Alkami

Looking ahead to 2024, the financial industry is facing some strong headwinds. That’s the consensus among experts in this space such as Jim Marous, who recently said, “The current economic uncertainty is creating the highest level of consumer anxiety we have seen in decades around financial wellness. More than ever, account holders expect their financial institutions to be partners in their financial wellness journey.” The uncertain economy, student loans coming due after a long period of forbearance, mortgage and interest rates skyrocketing, grocery store staples getting more expensive — it's all taking a toll on consumer confidence. In eras past, when our nation’s economy faced challenges that affected personal financial wellness, many banks and credit unions also suffered setbacks in both business as well as reputation. What are the best strategies for avoiding that familiar narrative? Here's a deeper look at the four strategic plays banks and credit unions should be taking right now to grow deposits, increase share of wallet and strengthen the foundation of the entire ecosystem through financial literacy and iron-clad cyber security that keeps account holders and the institution safe.




institutions can deploy tools, technology and educational content to account holders across their ecosystem to protect both their business and account holders’ finances. Financial institutions should invest in a security system featuring behavioral biometrics, two-factor authentication or one-time passcodes. The ideal multi-layered digital security strategy will also work behind the scenes to uncover threat intelligence and detect and mitigate phishing, pharming and malware attacks.

Engage: Personal Financial Management As the financial services industry expands its online presence and contracts the brick-and-mortar footprint, digital engagement tools and programs will bridge the gap for consumers. One way to increase engagement with the institution is by offering tools for personal financial management. Built into the mobile banking app, personal financial management can be a powerful mechanism to boost account holder retention, as tech-savvy consumers want self-service access to manage their money. Partnering with fintechs who deliver integrated solutions can provide small to mid-sized financial institutions the personal financial management interface and the details of their financial status that today’s account holders are looking for. Examples include personalized insights into credit score, spending habits and actionable "next steps" they might take, in addition to budgeting and educational resources. In this way, financial institutions can position themselves as trusted advisors who have their account holders' backs. Grow: AI-Powered Solutions Customer-centricity is the primary way to grow in today’s marketplace. Financial institutions should focus on data intelligence to embed a customer- first culture, resulting in growth of their account holder’s funds and in the process, increasing their income and balancing their efficiency ratio . Utilization of artificial intelligence in banking (AI predictive modeling) and marketing technology to analyze vast amounts of first-party data can uncover and show trends around account holder needs, product and channel utilization, inform product strategy and identify new opportunities for revenue. 2024’s growth strategies should include: • Evaluating each account holder segment based on profitability. • Using data analytics in banking to identify each account holder’s next best products. • Watching for money leaving the institution to competitors. • Creating educational resources and sending out campaigns on financial literacy and wellness monitoring.

Banks and credit unions can provide the "my financial institution really knows me" experience by taking a page from Netflix and Amazon. Those business giants offer suggestions of new releases and products their customers might like based on past behavior and predictions of future behavior. Financial institutions can do the same by partnering with third-party vendors that offer the ability to intelligently campaign to AI modeled ideal audiences, positioning the right offer in front of the right account holders at the right time. Delivering account holder experiences that are compelling, timely and relevant comes with alignment between data insights and marketing automation enabling financial institutions to deploy a true sales and service approach within digital banking.

Put the institution’s digital channels to work as a support and revenue center. Today's ideal digital banking digital sales and service model should incorporate all of the below business elements: • Providing 24/7 customer service. • Providing financial literacy and wellness features • Offering a high level of security and identity fraud protection. • Giving businesses the services they need, digitally • Providing peer-to-peer and account-to-account services for account holders to instantly move or send money. • Using data for personalization and relevancy of web and mobile applications, as well as offers and campaign inclusion. • Offering a fast and secure method for digitally opening new products. The ideal 2024 digital and mobile banking experience will include tools and integrations needed to maximize the sales and services potential of each channel. Applying the strategic plays (onboard, engage, grow and guard) transforms the typical service driven model of digital channels into an efficient, strategic revenue center with the institution poised to own the entire account holder lifecycle. As Jim Marous stated, “The biggest roadblocks to success will be the inability to embrace change. Equally, it will be important for banks and credit unions to understand the power of modern technology.” ▪ About Alkami The Alkami Platform is a cloud-based solution for all your digital-banking needs. Our market leading UX that rivals the most progressive neobanks combined with a data set that rivals the largest megabanks enables you to adapt quickly to changing market needs, keeping your users more engaged and driving long-term growth for your financial institution.

The key to success will often lie with the ability to collaborate with outside partners who can deliver excellent composable solutions quickly. The biggest roadblock to success will be the inability to embrace change. — Jim Marous

Real-time flow-based insights allow organizations to detect moments of potential attrition or relationship diminishment for customers . This knowledge can enable proactive interceding with guidance, solutions and even new products. — Jim Marous

Bring It All Together: The 360 Degree Digital Sales and Service Approach Predicting what your account holders want and need even before they know is not science fiction. It is possible to mine insights from transaction data to give the institution a holistic view of what account holders need and help deliver it on the right channel at the right time. Digital banking has traditionally been about meeting and exceeding account holder expectations, by offering an extension of the brick-and-mortar experience. Digital banking platform capabilities have grown substantially since those early days, to include functionality beyond the limitations of the branch.

Guard: Deploy a Layered Digital Security Strategy Cybercrime in the financial industry is on the rise. So are account holders' expectations for the steps their institution is taking to ensure security. Criminals are making use of AI tools to fool consumers and their financial institutions. The ability to craft written messages and chats with human-like accuracy and replicating an individual's voice and appearance are real threats to both of those groups. Being educated on the techniques fraudsters are using, financial





BANKS AND CREDIT UNIONS HAVE LOST GROUND IN THE BATTLE TO HELP CUSTOMERS PAY BILLS AND MOVE MONEY, BUT THEY CAN WIN IT BACK. Technology advances and changing consumer expectations have altered how money moves. Financial institutions are watching their market share in bill pay erode as direct billers such as utility providers compete for customers. Banks and credit unions can fight back and reclaim a business activity they long owned by delivering convenience, choice and control. RECLAIMING A PLACE AT THE HEART OF MONEY MOVEMENT

By Dushyant Sharma Founder and CEO at Paymentus

To say that financial institutions find themselves facing a world of pressures is an understatement. The traditional competitive landscape, which pitted financial institutions against one another to attract and retain customers and members, has been replaced by one in which institutions now compete against direct billers and service providers. This shift began around the early 2000s, when banks and credit unions were basically the only game in town when it came to offering online bill pay. Direct billers and service providers, driven by a desire to garner more on-time payments, saw an opportunity to deliver an experience that could simplify bill payment and help more customers pay their bills on time.

Direct billers such as utility providers, service providers such as telecoms and healthcare facilities and eCommerce retailers such as Amazon have taken full advantage of today’s advanced technological solutions. By leveraging this technology, they can offer customers everything from one-click purchasing and in-demand digital wallet payments to instant payment confirmations and saved payment preferences. While these industry players are heightening consumer expectations around payments and purchases, financial institutions are also facing competition from digital players and non-traditional banks. According to a recent research report, the average banked U.S. consumer has 14 accounts held across 4.4 financial service providers.




To what do we owe this disparity? For one, direct billers offer a more comprehensive account management experience. Customers have greater access to bill details and relevant account information. They can easily track their monthly spending, view payment history and make adjustments to items like automatic payments. Direct billers also offer greater payment flexibility and choice, and more billers are able to offer credit and debit card payments, as well as in-demand, advanced digital wallets (PayPal, PayPal Credit, Venmo, Apple Pay and Google Pay). The expanded menu of payment options ensures that direct billers can meet any payment preference, whether a customer likes to earn credit card rewards or simply enjoys the ease of ACH AutoPay. Lastly, real-time payment confirmations relieve the stress of paying bills. Customers instantly know that their bill has been paid, which is a great relief to the average consumer with 12 to 15 bills to pay each month.

Win Back Consumers with 3 Cs Consumers have spoken. When it comes to building the ideal money movement experience, financial institutions must offer: • Convenience • Choice • Control Convenience can come in many forms but it starts with centralization. The ability to serve as a bill payment and money movement hub will eliminate the necessity of consumers visiting each of their billers’ sites to pay bills. Centralization provides a convenient hub to view and pay bills, but that hub cannot be a static repository. It needs to be intelligent, connected, and flexible. Consumers want a place to both aggregate and manage bills from multiple direct billers: accessing bill details and adjusting payments as they manage their money. At a time when consumers have multiple payment methods from which to choose – each offering unique benefits – limiting payment choice may limit consumer adoption of bank bill pay. Like Netflix versus Blockbuster, consumers may value flexibility over proximity. Consider the use cases. A consumer may prefer to pay their landscaper or dog walker through Venmo, while racking up travel rewards by paying utility bills with credit cards. Financial institutions that enable payments — not limit them — will be positioned to reclaim consumer engagement and loyalty, especially if they can deliver payments in real time. Topping this strategy is control. eCommerce giants such as Amazon have done remarkable work building a system where customers control everything from payment types to delivery dates. Beyond payment types, consumers also want control over how they access the bill pay experience (e.g., mobile, web), receive bills and notifications, schedule payments or even make partial payments using different methods. The goal is to deploy a platform that is flexible enough to make any billing and payment experience feel tailored — one that delivers anywhere, anytime payments and real-time notifications right to a customer’s preferred channel.

A financial institution’s bottom line will take a hit when fewer consumers use its products and services, but changes in consumer behavior pose an even greater risk .

Digging in a bit deeper, a recent Paymentus whitepaper conducted in partnership with The Financial Brand showed that the lending industry was increasingly dominated by nonbank lenders. Rocket Mortgage was the top mortgage lender by loan volume in 2022, with Wells Fargo (#4) the only bank to crack the top five. Ally Bank, a pure digital financial institution, is the top auto lender with a 5.75% market share, while Forbes lists OnDeck, Lendio and QuickBridge — all nonbanks — as the best small business lenders. To top it off, real-time payments are set to increase in volume thanks to the recent launch of FedNow. This development will only serve to further heighten consumer expectations for payment choice and speed in their money movement. Understanding the Stakes Everyone knows the story of Netflix, but the success of this streaming giant would not have been possible without Blockbuster — an entrenched industry leader that fell victim to a nimble, focused and forward-thinking disruptor. Blockbuster certainly is a worst case scenario, but the issues and challenges that produced its downfall are relevant to today’s financial institutions. First, there was a loss of consumer loyalty. Netflix gained traction with a customer base that was tired of the hassle of driving to a physical store only to find that the movie they wanted to rent was out of stock, or paying extra if a movie wasn’t returned on time. Weakened loyalty ultimately led to less revenue. As Blockbuster started to bleed customers, its revenue generating opportunities shrank. They tried to win back customers by cutting rental fees but consumers had already moved beyond price. Netflix changed the entire value equation from cost to convenience, forever altering consumer behaviors and leaving a trail of empty Blockbuster storefronts in its wake.

A financial institution’s bottom line will take a hit when fewer consumers use its products and services, but changes in consumer behavior pose an even greater risk. Once consumers no longer consider a financial institution as the center of their money movement universe, it could be a case of out of sight, out of mind. Lower engagement and more competition will make recouping revenue through interchange fees or cross-selling opportunities virtually impossible. Shifting demographics are accelerating this phenomenon. Digital natives are becoming a larger portion of the banking base. These younger consumers are comfortable with handling their finances through emerging technologies and financial providers who exist only digitally — with no physical location whatsoever. Sizing Up the Competition Financial institutions’ battle for relevance and stature is being waged primarily on two fronts as it relates to money movement: lending and bill pay. We know that nonbank lenders are increasingly dominating the lending space, but bill pay is where financial institutions have the greatest opportunity to reclaim their place at the heart of money movement. This is primarily due to the competition within this space: direct billers. Utilities, tax collectors, insurers, healthcare providers and the like have transformed their operations to provide the modern billing and payment experience that customers prefer. In fact, according to Datos Insights: Billers' digital solutions (e.g.,website, app) Customer use of online bill payment

Financial institutions that enable payments — not limit them — will be positioned to reclaim consumer engagement and loyalty , especially if they can deliver payments in real time.

And therein lies the inherent advantage financial institutions have over direct billers. Centralization provides the convenience that direct billers cannot offer. The fragmented direct bill pay experience is unwieldy to manage and can introduce a host of challenges for bill payers. Logging into multiple sites each month can be both time-consuming and a security risk. Plus, different billers may offer different payment types, meaning customers will have to actively remember and manage their payment methods across billing platforms. Should a card on file expire, the account may be at risk of accruing late fees or triggering service shut-offs.


Financial institutions






The Bill Pay Business Case Bill pay may have once been thought of as a cost center but forward-thinking financial institutions are starting to treat it for the loyalty-driving opportunity that it is. Some 16.8 billion bills are paid annually in the U.S, according to Datos Insights. Of this total:

reservations can help financial institutions customize offers in real time. If you can identify a customer as a frequent flier who often dines out or regularly rents cars, you can extend offers around travel rewards cards. And given the amount of choice consumers have in this space – both in terms of the financial institutions they can patronize and the options available to pay bills and move money – loyalty is at a premium.

When you put your customers first, guess who gets paid first?


ACH Online bill payment methods

Only 57% of consumers report holding a credit card with their primary institution , and as mentioned before, the average banked U.S. consumer has 14 accounts held across 4+ financial service providers.







Consumers are comfortable finding the solutions and products that best fit their needs. If financial institutions can serve as the one-stop shop for all bill pay and money movement needs and supply the payment options that can satisfy today’s needs in a way that also earns revenue, consumers will come back.

The opportunity for volume growth is there, as card payments have steadily increased over the past decade and it offers financial institutions the ability to earn interchange revenue.

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Financial institutions with $1 billion to $3 billion in assets will see a decline in interchange fees of about $561,000 per year due to Durbin II.

In fact, when asked their reasons for choosing a primary financial service provider, bill pay is a top-three choice (47%) , according to Datos Insights.


Consumers want it. Now, how can you deliver?

Reclaiming a Central Role The Paymentus Banking & Fintech solution is purposefully built to empower financial institutions in their mission to reclaim their position at the center of consumers’ money movement and bill payment needs. Through this modern, robust, flexible and open payment hub , running on Paymentus’ Instant Payment Network, financial institutions can connect directly to thousands of local and national billers and transform their money movement landscape with a comprehensive suite of innovative services— each designed to enable the three Cs needed to win a greater share of customer loyalty. ▪

Cornerstone Advisors estimates that financial institutions with $1 billion to $3 billion in assets will see a decline in interchange fees due to Durbin II of about $561,000 per year. However, by allowing consumers to pay their bills using credit cards from their institutions, financial institutions can begin clawing back this revenue. Interchange revenue is just one area of revenue- generating opportunity offered by centralized bill pay and money movement. The wealth of data produced by the transactions made by aa financial institution's platform allows for insights into customer behaviors and needs. Items such as interest paid, purchase patterns, even hotel





The move highlighted an opening for traditional banks to forge new partnerships and rethink their approach. There has never been a better time for traditional banks to reinforce their long-time position as the go-to financial institutions for small businesses. But banks need to move fast; recent data has shed light on the urgency of this situation.

By Jeffery Kendall Executive Chairman and CEO at Nymbus

You know what's ironic? Small and medium-sized businesses are often referred to as the backbone of the economy, yet the very institutions that should be supporting them need to get on board. Call it a silent exodus, if you will, but more and more small businesses are sidestepping traditional banks and gravitating toward alternative financial solutions. The reasons are manifold — high fees, slow service, outdated technology — but the message is clear: It's time for banks to step up their game and turn this exodus into an opportunity. A Gap in the Market, A Gap in Understanding In the summer of 2022, Brex — a Silicon Valley lender to startups — abruptly withdrew from the small business sector, giving its clients 60 days to find new providers of business credit cards and other services. Fintech companies like Brex attempted to cater to small businesses but lacked the knowledge and understanding to address their complex needs. Banks stand at a crossroads as small and medium-size businesses increasingly explore alternative financial avenues. This shift is a wake-up call and an opportunity to redefine banking for today’s business clients. By offering tailored services and leveraging modern technology, banks can turn the tide and better support the communities they serve.

Fully 66% of small businesses are considering new banking


relationships within the next year and two-thirds feel misunderstood by their current banks. This isn't just a gap; it's a glaring disconnect that financial

institutions need to address, and fast. With their established trust and deep

understanding of small businesses’ needs, banks are well-positioned to provide tools and services that simplify financial management. To meet the evolving needs of businesses, traditional banks must embrace new thinking and form strategic partnerships with fintech companies and service providers. User-friendly platforms can centralize all the financial requirements of small businesses, simplifying processes such as loans, payments and cash management. This allows executives to focus on running their businesses without the complexities of dealing with multiple service providers. By renewing their focus on serving small businesses and embracing new partnerships, banks can foster strong relationships and support local communities and economic growth. Through continuous evolution and collaboration with fintech companies and innovative partners, traditional banks can ensure that businesses receive tailored and comprehensive financial solutions.

The Silent Exodus as an Untapped Opportunity

Even specialized firms like Brex struggled to meet the nuanced needs of small businesses, highlighting the potential for disrupting the disruptors. Regional banks, community banks and credit unions are well- positioned to fill the void left by traditional banking giants and newcomers. These institutions deeply understand local businesses and are committed to community development and economic sustainability.






Amid the challenges lies an untapped goldmine. Small and medium- sized businesses, the backbone of our economy, are signaling a clear desire for more than just transactional relationships with their financial partners. They're looking for value and they're ready for a change. In recognizing this, we can redefine the future of banking to serve these businesses in ways that can transform communities and economies. — Jeffrey Kendall Chairman and CEO of Nymbus

businesses gain access to the tech solutions they seek, complemented by personalized expertise. In return, financial institutions solidify enduring relationships, enhance competitive positioning and contribute to community well-being. Square Pegs, Round Holes and Bridging Gaps The divide between banks and small businesses goes beyond mere services; it's a matter of true understanding. April Clobes, President and CEO of Michigan State University Federal Credit Union (MSUFCU), recognizes the pressing need for financial institutions to delve deeper into the unique challenges faced by small businesses. "Our job is to meet the members where they are," Clobes asserts. She highlights how traditional banks often fall short in tailoring their services to the specific needs of businesses , giving rise to the feeling that they are trying to force a "square peg into a round hole." However, the challenge for financial institutions continues beyond offering various services. It requires fostering a nuanced understanding of the small business landscape. "Local means something different to everyone. We are local in many cities," Clobes observes. She cautions against excessive reliance on digital solutions, noting that while business owners may enjoy the convenience of online transactions, they still desire the human touch when navigating more complex requests. In this ever-evolving financial services sector, institutions that stand out will strike the delicate balance between digital efficiency and personal interaction, walking the line between service providers and community allies. In navigating this complex landscape, success lies in meeting the current needs of small businesses and anticipating future demands. This forward-thinking approach paves the way for a mutually beneficial relationship that enriches both the business and the community it serves. Financial institutions can tailor their services to provide targeted solutions by understanding the distinct challenges small businesses face. As these businesses thrive, so too will their financial partners. The potential is vast, the journey is engaging and the future lies in a collaborative relationship that benefits all parties involved.

By rethinking their approach, banks can bridge the gap between themselves and small businesses . They can adapt their services, leverage technology and provide tailored solutions that enable small businesses to thrive.

By understanding the unique needs and aspirations of small businesses and leveraging existing community connections, traditional banks can redefine the future of banking. This transformation can give businesses the value they seek, foster relationships beyond transactions and revitalize communities and economies.

providing customized services that align with their unique needs. Seizing this moment allows them to build trust and contribute to the overall success of small businesses. High Tech and High Touch: Banks Must Deliver In today's rapidly evolving financial landscape, small businesses want a blend of high tech and high touch experiences. They need the convenience and efficiency that cutting-edge digital solutions offer, but they also crave the personalized human interactions that foster trust and understanding. To meet this demand effectively, banks must strike the right balance between technology and concierge- style services. Here are five key takeaways for banks to consider when creating a mix of digital and hybrid concierge services in their small business banking experience: 1. Seamlessly integrate digital tools with human expertise. 2. Ensure easy access to essential services like real-time account reconciliation, swift payments and mobile receipt capture. 3. Provide avenues for small businesses to connect with dedicated relationship managers for tailored guidance and support. 4. Offer a variety of communication channels, including in-person meetings, phone support, email and chat. 5. Utilize data analytics to provide small businesses with valuable financial health and performance insights. A mutually beneficial partnership emerges by embracing a high tech/high touch strategy. Small

The Future: From Silent Exodus to Vocal Partnership As the financial services landscape changes, the silent exodus of small businesses from traditional banks has been a wake-up call. But what if we told you that this exodus isn't a problem to be feared but rather an opportunity to be seized? It's time for banks to rewrite the narrative and transform this disconnect into a powerful partnership. Imagine a world where banks understand and address the needs of small businesses, becoming essential partners in their growth and success. By rethinking their approach, banks can bridge the gap between themselves and small businesses. They can adapt their services, leverage technology and provide tailored solutions that enable small businesses to thrive. This shift from exodus to partnership is about more than just economic gains; it's about building stronger communities and driving local economic growth. When banks understand and meet the unique needs of small businesses, they create a ripple effect that benefits everyone involved. So, let's rewrite the future of banking. Let's transform the silent exodus into a vocal partnership that redefines the role of banks and enables small businesses to thrive. Together, we can build stronger communities, drive economic growth and create a future where the success of small businesses and banks are intertwined. The journey awaits and the possibilities are limitless. Are you ready to embark on this transformative path? ▪

Unlocking the Goldmine: Banking's Wake-Up Call

Banks actively strive to capture their portion of the $400 billion small and medium-sized business market. However, they have realized a crucial truth: To succeed, they must deliver precisely what these businesses need. Recent data points highlight the growing importance of serving this segment: A staggering 85% of banks now recognize that their success with small businesses is vital to their overall performance. 85%

Community banks and credit unions have observed a significant decline of 43% in their share of primary business banking relationships in recent years ,


emphasizing the urgency to adapt and cater to small businesses effectively. Community banks and credit unions must resonate with modern small businesses by understanding their unique demands and leveraging innovative technologies. By combining human understanding with digital efficiency, they can offer specialized financial products and services, fostering stronger relationships with small businesses. With a focus on relationship-based banking, they become essential partners in businesses' growth journey,






Frictionless digital experiences make it easy for consumers to discover, learn about and opt into these offerings. Integrating these experiences seamlessly into the lending process is essential for credit unions looking to meet demand for these solutions. Economic Uncertainty Amps Up Relevance Payment protection solutions are among the financial security products experiencing increases in consumer relevance in recent years.

Blending the Human Touch With the Pluses of Digital Consumers are not only more interested in payment protection products, but they’re also initiating their search digitally, without speaking to a service representative.

According to recent surveys, nearly half of all direct auto loans begin digitally, with nearly 12% funding completely without human intervention .


That means building strong multi-channel experiences that deliver the right products and messages at the right times through a member’s application process is essential. Technology integration with APIs (application programming interfaces) is one way credit unions can reach members where they are looking to improve the rates of product adoption. The behind-the-scenes integration also allows credit unions to have the most up-to-date, compliant and personalized education on the products they endorse. The systems can deliver the relevant types of payment protection, cost estimates and key details about benefits that are based upon each members’ specific lending needs. Not only do these integrations need to be seamless to the member, but they must be easy for the credit union to activate. Our current integration takes about three to five minutes for the credit union administrator to enable to ensure that making member experiences better is not a burden for busy credit union technology teams. Layering high-touch human consultation offered by credit union lending teams on top of convenient digital tools helps enhance the take rates of financial products. This, in turn, grows non-interest income, helps reduce financial risks for more consumers and deepens the relationship between member and credit union. ▪

There’s been a nearly 70% growth in likelihood to purchase payment protection over the last four years.


By Lisa Pavelski Director, Lending Digital Capabilities at TruStage

Further, a 2023 study of lending preferences found 8 in 10 consumers reported they worry about not being able to make their loan payments due to unexpected expenses and life events.


Economic uncertainty has triggered significant changes in financial decision-making behavior among more than 80% of consumers. Helping consumers take steps toward financial security requires simple and well-placed access to education and relevant services. Take payment protection, for instance. New consumer research uncovered a significant gap between the number of members who would be interested in payment protection and those who recalled being offered it during their loan process:

Consumers are most concerned about unexpected expenses, high cost of car repair, a life event/change in their household and sickness or injury impacting their ability to make payments. Payment protection helps reduce risks for members while providing credit unions crucially important non-interest income and protection against delinquencies. To protect member and credit union finances, effectively educating members through compelling messaging is essential. Displaying interactive content early and often throughout the loan process increases understanding of how payment protection works — it boosts awareness and recall.

If given the option, 64% of consumers would be interested in obtaining payment protection products (ex: credit insurance, debt protection, guaranteed auto protection, mechanical repair coverage) in conjunction with their loan. 69% of personal loan applicants and 48% of auto loan applicants don’t recall being offered payment protection.


By placing education late in the application when members are done with forms, interest in learning more about products has been as high as 40% of credit union loan applicants .


TruStage™ is the marketing name for TruStage Financial Group, Inc. its subsidiaries and affiliates. Lisa Pavelski is director of lending digital capabilities for TruStage. She can be reached at


This interest sets the stage for easier and richer conversations about financial security as the application process progresses.





Additionally, losing a consumer is now more expensive than it has been in recent times. As far back as the global financial crisis of 2008, there has been a consistent correlation between the cost of existing funds and the cost of new funds, such as a one-year CD. In fact, most of the time the current cost is actually higher. Recently, those lines have started to diverge and the replacement cost has become dramatically higher (Figure 1). This has created the proverbial “rock and a hard place” for community financial institutions. How do they offer a high rate to be attractive and competitive while also remaining profitable? The Answer Lies In Your Checking Accounts Anyone working in the banking industry knows that most checking accounts don’t pay a very high annual percentage yield (APY) — if any at all. The business of running a financial institution is all about paying low but competitive rates on deposits while charging the highest possible rates on loans. Simple enough.

By Alisha Crafton Chief Growth Officer at Kasasa

With expensive certificate of deposit rates sending your cost of funds through the roof, a plain- vanilla, free checking account may feel like a comfortable way to control your COF. But the truth is, the premium rates of high-yield checking accounts enable you to retain and bring in new deposits with more engaged consumers — while only paying a fraction of the promoted rate.


These are challenging times, to say the least. Government stimulus has dried up. Big tech is joining fintech, with Apple amassing $10 billion in consumer deposits in less than four months. The media has convinced consumers that their money is safest in a “too big to fail” megabank, and the government isn’t doing much to change their minds. All of these factors lead to more and more competition for deposits. The urgent need for liquidity has prompted many financial institutions to offer high-yield certificates of deposit in an effort to bring in needed deposits. This has dramatically widened the gap between what banks and credit unions are paying on deposits and what’s available in the market. In the past 20 years, when the industry cost of funds (COF) has risen and fallen, the one-year CD rate has moved in lockstep. However, that is not happening today — in fact, the industry COF and average CD rate have never been further apart.

Figure 1

Funding cost crunch reaching historic levels


Industry COF Average 1-year CD rates





The delta between what financial institutions are paying on deposits and what's available in the market is the widest in modern history





0.0% 0.5%


© May 2023 SOURCE: FDIC and NCUA, 2023 2011 2014 2017

2020 2023




So, it stands to reason if you’re running a bank or credit union, offering 5% APY on a checking account looks like net income suicide, right? You’d imagine your net interest margin is going to shrivel like a sponge that’s been left on the counter too long. In theory, paying out 5% on a demand deposit account sounds like a risky business decision — but in reality, it’s one of the smartest products you can offer your account holders. Hold on to your balance sheet — we’re about to pull back the curtain on the largely misunderstood category of reward checking. The truth is, you can absolutely maximize high- yield checking while turning a profit. Here’s how:

This defends against interest rate risk in a rising rate environment, but it also insulates institutions from the liquidity risk associated with instruments like savings and money market accounts — which are priced on the shorter end of the yield curve and are highly sensitive to rate volatility and deposit flight. And because high-yield checking accounts lag the market with a COF that’s lower than the promoted rate, they don’t have to be repriced as quickly when rates drop — positioning them well for increased consumer retention and continued growth. A focus on short-term risk mitigation can lead to the belief that CDs will help mitigate longer-term interest rate risk, but comparative modeling shows that this is not the most advantageous approach. As rates rise steadily over a period of time, the two-year CD rate eventually rises as well, with a sharp jump once it reprices. Regardless of your particular appetite for credit risk or ability to deploy funds into assets, any COF below the federal funds rate represents a return that is essentially risk-free (through a lower interest rate paid on accounts than earned on overnight loans to other institutions). This added income operates as yet another hedge against interest rate risk. The advantage is clear So, while a plain-vanilla, free checking account may feel like a comfortable way to control your COF, a high-yield checking account allows you to advertise a distinctive product and keep your balance sheet fundamentals strong. More importantly, the premium rates of high- yield checking accounts enable you to retain and bring in low-cost deposits while creating more engaged consumers. These relationships in turn will lead to more loans and more non-interest income — which lowers your all-in costs even further. And leads to a more profitable bottom line. ▪ About Kasasa Kasasa is a financial technology and marketing provider whose branded retail products, world- class marketing and expert consulting services help community banks and credit unions nationwide grow and retain low-cost deposits while creating deeper, more profitable relationships with their account holders.

How does all this shake out for your institution?

You want account holders to qualify because their activities make and save you money, while the high interest builds their loyalty. But for those high-net- worth individuals, you can rest easy knowing that your COF is controlled by the “blended” structure of the account. In fact, the COF discount actually increases as rates rise. This uses simple math to demonstrate exactly how reward checking has a growing advantage as rates rise. A 5% promoted rate on a checking account would actually result in a COF of 2.62%. And when you take into consideration the non-interest income from the healthy debit card activity required for account holders to receive the promoted rate and the non-interest expense, you get a true total cost of deposits of 1.65%. It gets even better over time High-yield checking accounts are the only major deposit products that enjoy this significant COF discount — an advantage that is often overlooked. Even more noteworthy, this advantage increases as rates rise and when they fall. High-yield checking already pays rates that consumers perceive as premium and the inherent advantages of these accounts allow institutions to price promotional rates further out on the yield curve (Figure 2). Since high-yield checking accounts are priced farther out on the yield curve, their promoted rate can rise more gradually than the federal funds rate, lagging behind the yield curve as it shifts upward.

In-house Promo Shaking Up Old Ways of Picking a Digital Banking Partner This 16-page discusses what financial institutions need to know and do to choose the right vendor. This report includes: • Why customers are looking for better digital CX • What to look for in a digital banking partner • The right questions to ask when you think you’ve found them Free Report:

Get consumer attention with the promoted rate

5% is a “wow” rate. If you advertise it, it’s going to get noticed. Which will bring in a good number of new accounts — as well as retain current account holders. And while this promoted rate may apply to any individual account holder’s balance, the reality is that you’re very unlikely to pay anywhere close to 5% on your account base. Add qualifying activities that most people do anyway In order to earn that high APY, the account holder completes a set of qualifying activities designed to make and save your institution money. These activities can include taking an e-statement, posting and settling ten or more debit transactions, setting up direct deposit and more. Calculate the “blended rate” The high APY is only paid on a limited balance amount, called the balance “cap,” and you set that cap according to your deposit goals. Any balance above that limit earns a lower APY, like 0.5% for instance. This results in what we call a “blended rate,” where the final APY earned is a combination of the below- and above-cap rates. What’s the worst-case scenario for the account holder? If the account holder doesn’t qualify, they earn the lowest published rate (the average is typically 0.05%) on their entire balance and the account remains free (as in, no monthly maintenance fee).

Figure 2

Cost of funds discount grows when rates rise


Promoted rate Actual COF












© May 2023 SOURCE: FDIC and NCUA, 2023


In collections and recovery, traditional systems will be replaced by modular, cloud-native solutions, offering flexibility and cost savings. Real-time digital intelligence is vital in modern recovery operations, enabling personalized and efficient customer interactions across multiple channels. This transformation will set the stage for improved customer experiences and reduced costs, with virtual agents and automation playing key roles. In the future, collections and recovery will be more efficient, responsive and customer-centric.

investment and prioritization based on external economic conditions. As we approached 2020, before the pandemic hit, many organizations were reevaluating their approach to default management. There was a growing recognition that the global economy, which had been experiencing unprecedented growth for several years, was likely to slow down. Efforts to revitalize the collections and recovery capabilities after more than 10 years of underinvestment revealed some harsh realities. One of the key findings was that advancements in technology had changed the role of platform capabilities and service expectations. The onset of the pandemic accelerated these changes, particularly in the realm of non-human digital interactions. The convenience and efficiency of digital interactions became more pronounced, leading to shifts in consumer preferences and a sustained emphasis on digitizing operational business processes. As a result, most traditional platforms lack an architectural foundation needed to support the intelligence, dynamic workflows and digital interfaces necessary for real digital collections. One Final Migration Since the early 1980s, the collections industry has been evolving in parallel with technological advancement. In the early 1990s, paper collection cards and rotary phones were retired in favor of mainframes and digital dialers. The millennium ushered in tiered and distributed systems enabling operational advantages and the concept

By Bridgeforce

The Game Has Changed The banking industry is facing significant transformative pressure from every direction. Political change, technology evolution, fintech disrupters and weakening margins are fueling the need to redesign how banks do business. Business executives are inundated with internal and external sound bites about the promise of artificial intelligence (AI), the magic of robotic process automation, the extinction of the telephony channel and of course the need to embrace all things digital. The foundations of the business — and traditional components of the buying decision — are being reshaped and redefined.


Traditional methods are being digitized within modern, intelligent and adaptive emerging technology solutions.

Debt Collection Tech Journey As a cyclical part of the credit lifecycle, debt collection experiences considerable variation in




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