By Devon Kinkead

As Ron Shevlin of Cornerstone Advisors likes to say, checking accounts have become “paycheck motels” – that is, temporary places for people’s money to stay before it moves on to bigger and better places.

Given the all-out war for deposits right now by competing financial institutions, we see this temporary cash housing problem as a serious but preventable threat to the financial well-being of our client financial institutions and their respective customers and members.

Nothing New to Micronotes

We’ve been helping financial institutions increase deposits for years using our proprietary microinterview engagement technology targeted by machine learning.

Quoting Tom Novak, VP and Chief Digital Officer of Visions Federal Credit Union in a 2021 Q2 case study, “…Micronotes is a conversational AI tool, digital marketing tool, where we use machine learning on the backend to more effectively target and curate offers and messages to our digital banking members. One of the best outcomes we experienced a couple years ago, before COVID hit, was when we were in a little bit of a liquidity crunch. We needed to tell our members that we had great deposit rates, and that they could bring those deposits to us and we’d reward them with nationally leading interest rates – or dividend rates, as we call them on the credit union side.  We developed that through Q2’s SDK (software development kit), which is part of the Innovation Studio. It let us curate those messages and integrate them into the digital experience. In a few short months, we brought in over $8 million in deposits, retaining those deposits on our books.”

Our strategy for increasing deposits for our clients is:

1. Hold on to the deposits you have!
2. Ask for deposits held elsewhere, programmatically.
3. Attract customers who can make large deposits.

Watching Deposits Check-Out

How often has a customer or member parked a large sum of money in her checking or savings account while deciding what to do with it next? Did the banking institution reach out to discuss investment or new mortgage options for that big deposit? Probably not.

So what happened next? She probably moved the money elsewhere and 3 months later saw a billboard advertising great CD rates from her banking provider; too little, too late, and way too slow.

A better strategy is to detect deviations from an average account balance, deploy Micronotes and start a mobile or online banking conversation with your customer/member about investment opportunities and/or new mortgage/loan options; with a personal approach.

For example, look at these 10 real checking account balances that are 1-2 months apart (table 1):

Table 1

These 10 accounts all show anomalies given the balances at time 3, which are all North of ten times the average balance over the previous two periods.   Given the net interest margin advantage of having large deposits sitting in low-yield accounts, the risk of losing the deposit is now the key question.

The risk of losing an anomaly deposit can be computed by looking at anomaly deposits that exited the balance sheet within 30 days of the deposit and is a value from 0-1, 1 being 100% probability that the deposit will exit the financial institution balance sheet in the next 30 days.

However, this computation is unnecessary because the anomaly deposit represents a low-cost automated opportunity to learn about the large depositor’s life and needs. For example, a personalized microinterview with the mobile banking customer can be automatically triggered to uncover important information as shown below in Figure 1.

Figure 1

From this one question, we use branch and skip logic to pinpoint the depositor’s situation and needs and direct her to the right banker for options to retain the deposit.

The application of this simple method of detecting anomaly deposits, triggering a discovery conversation in mobile/online banking to understand context and intention, and connecting that customer to the right banker in your organization is a simple but powerful way to reduce the probability that your financial institution becomes a large deposit motel where deposits check-out at noon.

In the next installment, we’ll go through how to:

• Ask for deposits held elsewhere programmatically
• Attract customers who can make large deposits.

It’s time for retail banks and credit unions to apply “teaser rate” thinking to refinance more customer/member loans held elsewhere in a manner fully consistent with Fair Lending Laws. Offering attractive refinancing rates to acquire more loans customers/members hold elsewhere rewards loyalty by lowering their borrowing costs.  For the financial institution, acquiring more loan assets customers/members hold elsewhere increases assets, reduces attrition risk, and generates goodwill… a powerful trio.

Increasing Refinancing Pool Size

All else being equal, the lower the rate, the more likely a given pool of creditworthy customers will qualify for savings from refinancing debt held elsewhere.  Here’s an example from a recent campaign and the impact of rate on a single prescreen auto loan refinancing campaign.

Prescreen loan offer volume can increase by up to 40% by lowering refinancing rates by 75 bps.  While profit per loan will diminish, the net new loans will always add revenue and reduce customer churn.

Retention

All else being equal, the odds of bank customer attrition are multiplied by about 0.42 with a direct deposit relationship and 0.73 with each additional product or service added.  For example, suppose the odds of attrition are 1% per month for the overall customer base. In that case, the odds of attrition for direct deposit customers is 0.42 x 1% or 0.42% and correspondingly 0.73% for customers with one additional service compared to the average customer, who may have 2 products.  And these attrition risk multipliers are cumulative. “If a customer adds both direct deposit and an additional loan, holding all other variables constant, her risk of attrition is now 1% x 0.42 x 0.73 = 0.31%, or one-third the attrition risk of the average customer.” says Devon Kinkead, CEO, and Founder of Micronotes. “Aggressive refinancing rates increase the odds of underwriting more loans and reduce the risk of churn for creditworthy customers. That’s smart business when the competition is intensifying efforts to get your creditworthy customers’ loan business.”

Goodwill

Micronotes’ AI-driven engagement and cross-sell solutions combine machine learning with the closing power of sales interviews to turn the digital banking channels into revenue generators. Imagine the goodwill created by systematically finding and lowering your customers’ borrowing costs. For example, a happy and energized customer who just saved $70/mo refinancing a loan with your bank can automatically be encouraged to write a review on social media, driving more new customer acquisition.

Summarily, aggressive refinancing rates should be part of any prescreen campaign to find and refinance mispriced loans held elsewhere. As total prescreen loan offer volume increases, more loans are written generating more revenue, more assets, reducing churn, and creating goodwill. It’s time to sharpen the pencil and get aggressive for everyone’s benefit.

Unfortunately, a traditional prescreen marketing campaign’s cost, complexity, compliance, and labor requirements can be daunting, particularly for community financial institutions. As a result, these financial institutions either do credit marketing infrequently or not at all.  That’s now changing.

There are almost as many different ways for a financial institution to use artificial intelligence machine learning to connect with their digital users as there are banks and credit unions in the United States.

When it comes to connecting with customers who seldom visit branches, it’s essential to realize that the online and mobile engagements between bankers and their digital users—which, for some larger institutions, can number in the thousands per month—likely never would have happened if they required a branch visit.

By Kevin Flanagan, Marketing Director, Micronotes

When it comes to successfully selling financial products and services to current bank customers or credit union members, there is one rule that proves accurate time and again: Leads turn into sales.

And to generate those leads, you need to engage with your digital banking users and ask them questions about their lives in order to uncover the needs that turn into leads that become sales.

In examining the latest results from financial institution clients using Micronotes AI-driven engagement and sales platform, one thing is clear: banks and credit unions that use the in-session and logout interviews enabled by Micronotes to ask users about their lives and what they need are generating the most leads.

Here are some of the insights gleaned from recent client results:

• A $1.4 billion bank in the mid-Atlantic region more than doubled the number of interviews it conducted vs. the previous month. Leads created jumped more than 160 percent, and sales rose by a sizable percentage, as well.
• A small community bank in the upper Midwest increased the number of customer interviews it conducted by more than 300 percent. This resulted in a 25 percent increase in completed interviews. But, more importantly, those interviews generated a 100 percent increase in leads.
• An East Coast community bank increased its completed interviews by a modest 19 percent over the prior month. But they still doubled the number of leads generated.
• A West Coast credit union with more than $5 billion in assets increased the number of campaigns it ran by just 16 percent, which increased the number of interviews completed by about 5 percent. But even such a modest rise in completed interviews increased leads by more than 45 percent.

It’s important to note that not all Micronotes campaigns are designed to sell products and services. Our clients typically run about 40 percent or more of their campaigns to educate digital users about financial issues, security topics and the like.

And not all leads turn into sales instantly in any industry.

But in a world where it takes leads to make sales, we see a solid track record of success for financial institutions that engage with their digital users more frequently. In other words, they follow the lead, which leads to success.

By Kevin Flanagan, Marketing Director, Micronotes

More and more financial institutions are deploying Micronotes’ AI-driven solution to engage with their customers and drive sales and revenue growth. But there is another important benefit that our machine-learning platform delivers.

Banking is one of the most heavily regulated industries. Most governments around the world recognize the need to ensure that financial institutions handle the money of people and businesses in a legal and consistent way. Banks and credit unions employ teams of experts who are responsible for ensuring compliance with myriad regulations.

Most of our clients run two primary types of campaigns with their customers and members. The first is campaigns designed to help people choose the right products and services for their money. The second is what we call “quick facts,” which is a broad category of conversations conducted with digital banking users during and at the conclusion of online banking sessions.

Quick facts range from quizzes about upcoming holidays and community events to recycling days and opportunities to support charities. But while some quick facts have a lighter tone and are intended to share information and build a sense of community, other topics ranging from cybersecurity tips to financial literacy are where the compliance angle comes in.

Many of our clients use Micronotes campaigns to educate their customers and members about important topics related to their financial well-being.

On the topic of cyber security alone, financial institutions face a number of requirements—from multiple regulatory bodies—to educate their customers about cyber threats and how to protect themselves and their assets.

So, not only do our clients use Micronotes to build deeper relationships with their customers and members, they also are using our platform to comply with industry regulations. And we’re proud to help them with that important work.

By Kevin Flanagan, Director of Marketing, Micronotes

This week’s announcement by Monzo, a UK-based mobile-only “bank,” that it plans to offer its services in Los Angeles this summer generated a lot of media coverage. Most of the articles described Monzo’s success competing against traditional banks in the UK and predicted it could do the same in the U.S.

Not so fast.

First of all, Monzo, the self-proclaimed “bank of the future,” isn’t actually a bank, so it is partnering with Sutton Bank to make its first foray into the U.S. market. And second, if Monzo—or any other mobile/digital/app-only financial company becomes successful in the U.S. it will be partly because of the products and services it offers, but it will be mostly because the majority of traditional financial institutions let it happen.

A statement by Monzo’s CEO, Tom Blomfield, provides key insights into why incumbent banks could turn out to be their own worst enemy.

“When it comes to consumer apps, banks are at least a decade behind the ease and feature-set of a Lyft or an Airbnb, not to mention sloth-like and unimaginative when compared to the innovation cycle in the apps we use every day,” said Blomfield. “With Monzo, we aim to make money work for everyone by working with our community of users to build things that work for them.”

Essentially, Bloomfield is saying is that consumers increasingly prefer digital applications to perform many of the tasks, such as hailing a ride, that used to be done less efficiently. And he’s saying that banks are failing to give consumers modern convenience and fingertip access to their services.

Many savvy bankers see the future and know it’s digital. And they’re working hard to give their customers the ease of use and always-on availability to their banking that they get from their transportation and entertainment.

Way back when I was a freshman in college, I began working as a bank teller at a local bank. During my tenure, each time a new technology debuted, such as ATMs and paying bills by phone, there was widespread dismissal of these new ways of doing things. But such conveniences—and many more like them—quickly became commonplace for all banks.

If people want to do most of their banking digitally, there’s no reason traditional banks can’t accommodate them. Many already are. And those are the institutions that will fare best when Monzo and others like it come to town.

Legendary bank robber Willie Sutton is alleged to have answered the question “Why do you rob banks?” with a pithy “Because that’s where the money is.” While that tale is taller than most, the basic concept can be applied to the efforts of digital upstarts to disrupt banking.

There’s no question that people like the convenience of digital banking. Therefore, it’s up to banks and credit unions to “go where the customers are” and offer robust, feature-rich digital solutions, using artificial intelligence and other powerful technologies.

If not, maybe they will be gonzo.

By Christian Klacko, Cofounder and COO, Micronotes

This week I attended a webinar with an interesting premise: It used Netflix as an example of how to successfully engage digital customers. The presentation focused on how bankers can take some tips from the Netflix playbook to meet the needs of customers who rarely visit branches.

After the initial compliments for all things Netflix, the presenters showed a screen shot from an anonymous bank’s website. Thinking this could be a good example of how bankers can engage digital users, I was curious to see where the presentation was headed.

I was quite surprised to hear one of the presenters say “Here’s an example of what not to do,” as she went on to say it didn’t matter which bank website she showed, because “of the hundreds of websites that we’ve gone through… a lot of them are virtually the same.”

She leveled the criticism that “95 percent [of bank websites] are focused on getting customers to online banking, and then beyond that to upsell and cross-sell and get them to those opportunities. So, the website for many is being used for selling, and not for transactions or support.”

What type of business is interested in selling products and services to its customers? Just every one I’ve ever worked for or engaged with!

Of course, providing easy access on your website to whatever information the visitor seeks is a good idea. But in a webinar aimed at bankers—who universally struggle to engage with customers they seldom see—being critical of efforts to drive revenue growth by also focusing on selling really misses the mark.

By Kevin Flanagan, Marketing Director, Micronotes

This week, Bank of America issued a news release touting that Erica, its digital banking assistant, completed 50 million requests for 7 million BofA digital banking users in its first year of operation. The announcement was picked up by many media outlets over the next few days.

Those big numbers are not surprising, given that Bank of America is one of the world’s largest banks.

But, if you dig deeper into this story, one thing stands out: Erica is very good at responding to customer requests, but there’s no mention of Erica being able to initiate conversations or make personalized offers to those 7 million customers. In other words, Erica’s sole function is to respond to questions from people about their personal finances.

Now, I’m not saying this type of engagement isn’t valuable, wouldn’t it be more valuable to Bank of America, or any bank or credit union, if they could use artificial intelligence machine learning to begin conversations with digital users? And I don’t mean just starting a conversation with “Hello” or “How may I help you?”

What if financial institutions had a platform that could really engage with digital banking users by using predictive analytics to anticipate our needs and make personalized offers?

Whenever we log in to the website or mobile app of our bank or credit union, the institution knows who we are and has our financial details handy. That’s how we can make deposits, transfers, pay bills and all the other tasks we perform.

But wouldn’t it be more useful to the institution—and to us—if our bank or credit union could use our financial data to offer us a better deal on our checking account, or suggest we move some of the money we have in a low-yield savings account and into a higher-interest CD or money market account? Or what if there were an AI solution that knew we had a mortgage with our bank and could offer us a home equity line of credit? That would truly be a win-win for the bank and us.

I guess we’ll just have to wait for some innovative company to come along and develop an AI machine-learning platform that does more than just perform basic banking functions that we request. Until then, well, we’ve got Erica….