It’s tough being a regional bank. As the financial services industry becomes more and more technology and data driven, smaller institutions must perform an unenviable balancing act between traditional service and digital evolution.

All banks serve customers with ever-expanding expectations, especially when it comes to online and mobile banking. But the massive players rely on economies of scale and boundless resources. Large banks have vast I.T. departments and can employ dedicated digital armies. Some even boast sizable user experience (UX) teams.

Regional banks rarely have such advantages. Even those with more than $15 billion in assets under management can struggle to remain competitive. So how are they keeping up?

More than two decades of working with banks and financial institutions has shown us how regional banks evolve to meet the challenges of the digital age.

The Stages of Digital Development

When it comes to online tools, regional banks usually grow into and out of several stages.

Stage 1 ­– Just the Basics

Early on, it’s a victory if smaller banks simply offer a coherent, mobile-friendly website. Such sites feature links to multiple external tools for forms, job listings, calculators, and, of course, online banking. The organization might not yet offer a way to open accounts or apply for loans online.

Yesteryear, a bank in this first stage might not even use a content management system. Nowadays, nearly all do. The smaller the bank, the more likely the tool is open source, like WordPress. Marketing departments in Stage 1 are in over their heads but learning fast.

Stage 2 – The Online Branch

Somewhere along the way, it becomes clear that digital investment must drastically increase. Growth itself may instigate this, but bigger budgets are just as likely a response to increased competitive pressure or customer clamoring.

Regardless, leadership begins to treat digital tools and content as something akin to opening and maintaining a new branch. They readily understand the costs and benefits of opening physical branches and the idea of a virtual branch makes sense, even if the analogy is limited.

More investment usually means improved or updated digital tools, a more robust content management system, greater focus on digital channels, and of course, a larger annual budget. Marketing and I.T. teams have little choice but to collaborate more closely. Bank leadership is not necessarily tuned in, but they know the game has new rules.

Stage 3 – Dedicated Digital Team

When acquiring customers (particularly millennials) becomes more contingent on a bank’s digital offerings, regional banks realize they must expand their internal capabilities. They cannot rely the same traditional methods and teams that have gotten them this far.

Marketing teams transform out of sheer necessity. They add skillsets, including search engine optimization, inbound marketing, social media, and online content creation. Front-end developers may enter the fray. Meanwhile, I.T. teams are actively planning fundamental infrastructure evolution.

Growth leads to sophistication and complexity. Regional banks may significantly reorganize, creating “dotcom” or “digital” departments. New leadership roles and hierarchy emerge. Banks in this stage (and this is especially true in the decade after the banking crisis) may be acquired or seek to acquire others.

Stage 4 – User-Driven Technology

New internal structures and skills lead inevitably to the next step, a greater emphasis on fulfilling customers’ ever-growing digital experience expectations.

This usually means launching a more sophisticated, unfailingly mobile website. The new site will be dedicated to better “user experience,” now an internal buzz-phrase and recognized online differentiator. At this point, online banking tools and capabilities may also be changed or significantly upgraded since technology also sparks competitive advantage. This process can take a long time. Not all regional banks move quickly here.

Market pressure, especially from larger banks, forces the issue. Despite moving in a more modern direction, regional banks in this stage still have a strong traditional bent. Technology and online experience remain siloed internally.

Stage 5 – Integrated User Experience (UX) and Customer Experience (CX)

Digital experience now leads the way in the banking industry. Traditional methods (e.g. physical branches) play more of a supporting role. People are more and more digitally savvy and dependent. This includes older customers. Banks now speak of an overall customer journey through an easy-to-use ecosystem of digital touchpoints and tools.

When banks reach this stage, websites, online banking, and other online tools are no longer considered separate from overall growth, acquisition, or retention strategies. They become radically integrated. The lines between technology, marketing, and business strategy blur. What was once novel has become normal.

The largest banks pave the way to define what it means to integrate user experience and customer experience. Regional players do their best to emulate the model through greater technology planning and investment, continued team evolution, and refined use of external tools and consultants.

What motivates change?

Several factors determine a regional bank’s progression throughout these five evolutionary stages.

  • Technology – Rapid growth and adoption of online and mobile technology, especially in the smart phone era, has forced banks to evolve.
  • User Expectation – Customers have become more and more demanding of digital products and services. This trend shows absolutely no sign of slowing.
  • Growth – The drive to grow (through acquisition or, as we’re seeing more in recent years, organically by capturing newer, younger customers) necessitates change.
  • Fear – Relentless competitive pressure and the need to retain and attract customers pushes even the most conservative, provincial banks to create better customer experiences online.
  • Time – These evolutionary stages are as much a reflection of market change over time as they are a bank’s progression to greater, more user-centered digital footprint.

Embracing Change

Regional banks that have progressed through to the last stages of their digital evolution share some common traits.

  • Commitment to User Experience – Banks that succeed faster are intent on providing better, more useful, and intuitive digital products. This commitment, which must extend to the highest levels of leadership, produces internal urgency across departments.
  • Investment in Technology – There’s no way around this. Regional banks pushing the envelope with user-focused technology are investing more in it. This parallels what we see with larger banks, who have been making concerted efforts to transform their technology footprint while rethinking how customers experience online banking. Some of the largest institutions have significantly bolstered user experience staff, including by acquisition of existing UX teams.
  • Continual Team Development – Stagnant, traditional teams simply cannot help their organizations compete. Developing digital skillsets or bringing on new talent isn’t easy for banks, especially smaller regional institutions. The best banks push themselves internally to keep up with the pace of technological change.
  • Customer Centrality – Digital evolution depends on approaching technology from a customer’s perspective, rather from the bank’s perspective. This is a difficult task for any organization, let alone banks but customer expectation and behavior are driving digital change. The customers’ perspective and experience matter most.

Toward the Next Stage

Time will tell what the next stages in digital development will look like. Two things are certain: 1) Technology will continue to advance and 2) user expectation will continue to grow. The trick to keeping up and staying competitive is to keep evolving and embrace change.

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About truematter

Our team has been doing the real work of user experience since the earliest days of the commercial web. We’re out to make your digital products a whole lot better.

It’s survival of the digital fittest out there. We help you evolve.

Author: @ExperienceDean
Editor: @baileysendsword

Graphic: @josephdmachado
Image Source: Julia Margaret Cameron