It’s hard to find an executive in the financial service and commerce business who isn’t convinced that the digital-first economy is here to stay. But what isn’t so clear as the new year rolls out is that the digital-first economy has become the main competitive platform in the industry.
“I think it’s clear that digital-first is abundantly, absolutely and without any doubt, the path forward,” Scheuerman told PYMNTS. “If you think about Apple launching their credit card or Google’s announcement of their checking account and the focus of investment in the digital arena of the mega banks — Chase, Wells Fargo and Bank of America — the competition is everywhere.”
And for many financial institutions (FIs) the challenge now is not just competing with those mega banking players; they’re competing with Big Tech and FinTechs, both of which have gone a long way toward simplifying the onboarding process and creating services that conform to the needs of the digital consumer. Scheuerman said Ondot’s data demonstrates that consumers are willing and interested in following digitization to new banking relationships.
What we’ve seen in a little under a year, she said, is akin to “a modal shift” in the industry separating the digital “haves” from the digital “have-nots.”
“But what we are seeing now is [FIs] know where their focus needs to be, and those that are aggressively wanting to succeed, which should be everyone, are building toward those digital needs,” Scheuerman said.
Meeting those digital needs, she said, can start with digital issuance.
Understanding New Need
A half-decade ago, Scheuerman said, losing a card meant digging in for a long wait when it came to getting it replaced. No matter how much one needed that card, it was either going to be a wait of several business days, or a big added expense for the card company embossing and sending the replacement via overnight courier.
The emergence of digital issuing, she said, has largely changed the game in this regard, making it possible to instantly (or minimally very quickly) provision a new card into a consumer’s digital wallet ready for use.
“That means the consumer is able to continue their spending uninterrupted,” she said. “The FI has a lower risk of losing transactions and activity to another card in their wallet. Consumers will need a payment vehicle to be able to carry on their daily needs, and being able to get that to them quickly guarantees that … the institution remains top of mind … with the consumer and doesn’t have to worry about rebuilding a damaged or interrupted relationship.”
That’s important because the competitors are out in force and across verticals — and even seven days of one FI’s lost time is going to be another institution’s gain as it gets a chance to step into that consumer relationship as the player that can provide for its customers’ needs instantly. That world of the last year has been a radically shifted place, she said.
Going to a favorite restaurant and then off to catch a show has been supplanted by ordering dinner via a third-party delivery service and streaming Netflix. That means transactions have also shifted from in-person to not-present card on file or eCommerce transactions.
“So, all of those pieces and the continuing changes that we are all navigating day by day have come together to make the role of digital-first cards first and foremost to be enabled to meet the needs of those consumers,” she said. “It’s really being there in every moment, providing a way that they need to make a payment wherever and whenever they want to.”
Transacting is a consumer’s most frequent financial interaction, and digital provisioning means that banks won’t risk the interruptions that will knock them out of those transactions and therefore out of step with their customers’ day-to-day lives.
“I think probably the simplest way to say this is that transaction attrition is going to lead to account attrition,” she said. “If I can’t use that for a few transactions, I’m going to replace it. Likely I’m going to move that entire relationship.”
The Many Powers Of Digitization
Digital capability, however, is more expensive than that, Scheuerman explained, noting that in Ondot’s overall view of the benefits that digitization offers customers, it breaks down into two “big buckets” — the power to lower cost and the power to boost revenue.
Digital card control tools that make it possible for consumers to self-serve in the event a card is lost, or they need to activate a new card, or they plan to travel, save manpower hours in branches or in a call center as customers can do more for themselves. Also, under the heading of efficiency are things like cleaning up transaction information and providing purchase clarity to cardholders to prevent chargebacks born of consumer confusion, or adding card controls and alerts so consumers can better spot fraud as it happens.
But beyond what digitization can do in terms of preventing losses and upping operational efficiency, it has the power to add revenue to the pile by bringing customers back into the fold who had previously gone somewhat dormant.
“As cardholders continue to be made aware of the digital-first modern connected card features, FIs are seeing a benefit of cardholder reactivation in some consumers that may have lapsed in activity, and then pick back up and begin using their card,” Scheuerman said. “Again, as they’re aware of all of these new and improved capabilities, once they’re using the card again, the FI is seeing the increased transaction revenue from that new spend.”
Increased spend and the resulting data build a deeper affinity between the consumer and the bank, which in turn leads to increased spending by the cardholder, she said. It is the kind of virtuous cycle that FIs can leverage with digital issuance and the wider range of digital capabilities that their customers need, are increasingly demanding, and will eventually go elsewhere if their home banks can’t provide.