Mobile banking has quickly increased in usage in recent years, and the use of digital banking is only going to increase moving forward. For credit unions, this means that they will need to work to reach digital maturity in order to better serve their members digitally, but what does it really mean to be digitally mature?

Our Co-Founder Sarah Snell Cooke sat down with Alkami Chief Marketing Officer Allison Cerra and Senior Statistician Joel Middleton to discuss Alkami’s research into digital and mobile banking and how they are helping credit unions achieve digital maturity.

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Sarah Cooke 00:30

Welcome, everybody today to this episode of The Credit Union Connection. I am here with Chief Marketing Officer of Alkami Allison Cerra, welcome.

Allison Cerra 00:47
Thank you so much, Sarah. Great to be here.

Sarah Cooke 00:50
And we also have Joel Middleton, who is a senior statistician from Alkami. Welcome.

Joel Middleton 00:55
Thank you. Thank you for having me. Yeah.

Sarah Cooke 00:57

And the reason I have this dynamic duo here is because they've done some really interesting research into mobile banking usage and wanted to share that with the credit union world today. Allison, Joel, you guys want to provide a little bit of your own backgrounds and a bit about Alkami, and then we'll get rolling into the research.

Allison Cerra 01:18

That sounds great, Sarah. So first, thanks for having us. We're so excited to be here with you and your listeners. So Alkami, we are a digital banking provider. In the US, we have about 17 and a half million users who use the digital banking platform provided by Alkami in some way, shape, or form. We provide that service to over 220 or so financial institutions in the US. So that's a little bit about who we are as a company. I'm the Chief Marketing Officer for the company. I've been here now three years. And my background. Before Alkami, I had the I've been in marketing since the earth's crust hardened, as I love to say. This is all I know how to do, nobody else will have me do anything else for them for good reason. But I've done it for lots of companies starting off in telecom working in places like Verizon and what is now Nokia then moved over into big tech like Intel and HP and then moved into software with McAfee. So a little bit about some of the companies I've worked for. But I feel like I'm at home now here with Alkami, getting to work with some great financial institutions every day.

Sarah Cooke 02:22
Of course, and especially credit unions. Right? Exactly, of course. How about you, Joel?

Joel Middleton 02:29

I'm Joel Middleton and I'm Senior Statistician at Alkami. I started my career in survey research and was a survey methodologists for a number of years. I then went back for a PhD and taught statistics in academia for 10 years at NYU and UC Berkeley. And I'm happy that I recently came to Alkami. And I am now like a kid in a candy store analyzing consumer banking transactions to identify trends in our changing financial environment. Yeah,

Sarah Cooke 03:04

I love that both evoke such impressive backgrounds. So much. Yeah, I appreciate you all joining me today. So as I mentioned, you'll have put out this research. And one of the things as I was reading through it, Allison, you had the introductory letter there. Essentially, digital banking is table stakes. 80% of adults prefer digital. So what does that mean for banking going forward? As, as it the technology just accelerates faster and faster? Yeah,

Allison Cerra 03:39

so we'd like to think that digital banking when we think about it, it is absolutely a
required technology for credit unions and banks. Absolutely. It's the way consumers, by and large, prefer to do business and conduct transactions. However, that being said, we think that there's an opportunity here to evolve digital banking, beyond digital banking. What we mean by that is, if you think about where it all started, it started primarily as a service channel, I could check my balances, I could pay bills, I could then remotely deposit checks. It started its origin as a service channel to basically stop those higher cost channels like branches and call centers from having to service those more routine transactions. We believe that the next frontier is to evolve this to the digital sales and service platform that it needs to be, meaning it needs to be equal parts sales service, so that you can not just service those account members, but set up new account members, cross sell products, because we know that is the channel that they are increasingly turning to the FI for, in particular when we look among younger generations who are standing right now to inherit quite a bit of generational wealth being passed down from older generations. So yes, it's table stakes, but there is a big frontier yet to evolve in this space. And that's why we wanted to do the study that we conducted. Yeah,

Sarah Cooke 04:56
Joel or Allison then deploying digitally mature and kind of provide a bit of a synopsis of the research for our viewers.

Allison Cerra 05:07

Well, Joel, you want me to start? And then I'm gonna let you pile on? Is that fair? Okay. Because Joel keeps me honest. Because he's the one that actually has the statistics degrees, I don't, but he's going to get me on as well, I'll tell you the inspiration for the study. The inspiration for the study, like much of the research we do comes from our client community. And our clients are the best of the best in our humble opinion, and they push us to be the best at what we do. And so our clients were increasingly coming to us saying, we want to understand what digital maturity looks like in our industry. How do I know if I'm ahead or behind my competitors? How do I know if I'm putting my investments in the right area? How do I know what good looks like in this space? And so Joel, and I first scoured the web and scoured our own sources to see if we had the answers to these questions, went back to the clients who were asking for it, to which they said, we're really thinking at the big digital sales maturity, kind of not just how many transactions do you do in digital banking every day, give me something more elevated than that. So the study that we did sought to understand the strategy, the culture and the technology, those three as one force for the most mature organizations that are applying digital in a way unlike anybody else in the field, and that was kind of the genesis of the study. Among them, the most advanced have something in common. Joel, I'll let you talk to the audience about like, what the most advanced institutions in the study what they all shared in common as a characteristic.

Joel Middleton 06:36

So overall, our approach was to develop a survey instrument based on the information that we gathered from the FIs and the experts in our own institution and our survey research methodologist. And put together a questionnaire which covered kind of the range of topics that we thought really would characterize digital maturity, the concept. And then to analyze that data, once we collected surveys from the institutions, we will use a set of techniques known as latent variable modeling to identify the kind of the top five questions that were kind of the best indicators. We let the data be the guide. And the latent variable models that we use are similar to the ones used by the the SAT test developers, who are looking for the best questions to identify whether it's Scholastic Aptitude in their case, or in, in the case of what say, a psychologist interested in someone's personality, maybe they're trying to get at this latent idea or hidden idea of some kind of personality trait, let's say extraversion or something along those lines. So we use the same kind of techniques to get at these, these, this latent construct, or we call it a latent construct, because it's, it's hidden, we don't, we can hook you up to a machine and, and measure your personality or hook you up to a machine and you know, measure your Scholastic Aptitude in the same way you can just like take a physical measurement of a, of an institution and know what its digital maturity is. And so these, these questions, the latent variable techniques, look at how those how the answers to those questions manifest that underlying or hidden construct, that latent construct of, of digital maturity. And so, one of the interesting things that we found is that, you know, one very important indicator of digital maturity is kind of your mindset, right, and that gets right at the heart of that idea of, of the latent construct, it's not something that you can, you know, directly measure, you have to, you have to ask and probe this sort of the people at the financial institution to find out, you know, what, what is your what is your orientation towards new technology and new new techniques for, you know, giving customers, you know, access to, to new features and things like that. So, yeah,

Sarah Cooke 09:24

so it's like a cultural change. It's not something that just lies in your IT department, right? It's HR. It's a whole cultural mindset for organizations, from the top down, and so despite the recognized importance of digital banking, many banking providers to help member, member first strategies, but they don't put their money where their mouth is. Think you all found in the research, because they're other things while they're buying the shiny bells and whistles that consumers see every day. But they're building, you know, on top of legacy technology. And so explain a little bit more about that. And also how you would advise maybe a CIO or a COO or CTO in that kind of situation where they're not getting support from the rest of the C suite. Yeah,

Allison Cerra 10:17

that's a great point. So one of the things Sarah, just so the audience knows, when we looked at the data, using the model that Joel just described, there were four segments that emerge from that data. So we've got four segments, from the least digitally mature to the most digitally mature. To your point, what we see that separates the least digitally mature from the other three segments that are more mature than they are, is this notion of how much they prioritize digital banking, and put their investments behind it. So what you see is the least mature organizations in the study, not surprisingly, because I'd love to say culture eats strategy for breakfast strategy eats technology for lunch. So it starts with your culture, that informs the strategy, then that informs where your technology goes. So it stands very easy to reason that if you're saying that digital is not important to you as an institution, then as a result, you're not going to have the same digital bench strength as those who are more advanced. So it starts there, when we then start looking along that continuum of the other institutions and the other three segments, the next big fissure you see, is in something like deposit account opening, digital account opening for deposit accounts. And what we start to see there as the separation starts to then widen between organizations who do that not just for existing members, but also for new members. So the next frontier tends to be DAO, and especially for new members. And the final frontier, what separates the most advanced are those that apply and use data in a way unlike anybody else, so they not only have the data tech stack, but they imbue data in their decision making day to day and they're much more likely to say that they are a results driven institution than others who are more likely to say that they're friendly or team oriented as examples to describe their culture. So to your point around how do you get alignment around the C suite? One of the things that we thought was important is how do you give ePHIs as the guide? How do you show them? First of all, what does good look like? And by the way, this study talks to everybody from mega banks, and top 50 banks, neobanks are in this study all the way to regional and community financial institutions that have at least 200 million in assets, more than 200 institutions are included in the study. And that's a pretty wide field, because we wanted to look at the broadest landscape possible to be able to define where is the maturity in the market at large today? First of all, we want to give the assessment to our, to our market to let them know, this is what maturity looks like as of today, in 2024. Beyond that, what I would advise is we have the assessment tool that Joel mentioned, where out of this instrument of probably 75 Plus questions that we ask these 255 NFIs, applying the statistical models that Joel just mentioned, we found the five most determinant questions in this instrument that had the highest probability of determining where you would place on the curve, that assessment is available at no charge on Alkami.com. Anybody can take it any FI can take that and actually get a view of what segment they would likely be in today, along with prescriptive advice as to what they would need to do to close the gap between that segment cohort and the next one higher up assuming they're not already in the most mature. So that would be my suggestion. This is a tool that's meant to be practical, not just educational for the point of being like interesting, but to actually be relevant so that when those CIOs are in the boardroom, or in the C suite, arguing for their their dollars and resources and why it's important. Hopefully, this tool is instructive and useful and practical for them to be able to take their own test, grade their own paper, measure it against 250 other FIs in the market right now and see where they fit on that curve.

Sarah Cooke 14:04
No, so what are these five questions? So

Allison Cerra 14:08

they go to things like how much do you prioritize digital banking over branches and call centers as a channel? They go into things like what is your data strategy today? And what kind of technology do you have employed in data? And the reason there is because data was seen as the biggest difference maker for the most mature FIs in the study. And they go into what kinds of account opening, Do you offer today for new members, whether that's mobile, online, or both? And so there's, there's five questions across those three big areas that allow you to kind of assess so and the idea is any FI with a digital banking background that's familiar with your retail business should be able to answer these questions with some degree of accuracy and be able to see where you're likely going to place on that curve.

Sarah Cooke 14:53
One of the things I love about what you guys found too is a quarter of the organization's excelling digitally were less than half a million, half a billion

Allison Cerra 15:01
500 million in assets. Yeah.

Sarah Cooke 15:03
Yeah. For credit unions and community banks as well, we need them both.

Allison Cerra 15:07

Yeah, that was a big that was a big field finding. Sarah. You're right. And we partnered in the study with Jim Reuss, who, you know, is a big influencer in this space. And we wanted his input into the study, just given his expertise. And that was his huge contribution to the study, as Jim said to us, and one of our brainstorming sessions, he said, is it about the size of the dog in the fight are about the size of the fight in the dog? Which is it? Is it just because I'm a megabank, that I am by virtue destined to be digitally mature, because I have the assets I can throw at this and the resource? Or do smaller organizations have the right to compete? To your point, the data absolutely showed that a quarter of the most digitally mature organizations had less than $500 million in assets. Joel, do you want to tell Sarah and the audience what some of the characteristics were that we saw among those kind of those those overachievers, as we call them, that were kind of punching up in their weight? And what made them different? Sure,

Joel Middleton 16:05

I would say, you know, as I said before, the first step, I think, to you know, getting on the road to digital maturity is changing the mindset. And so what we saw in these, these questions that became evident were really important through these techniques was that, you know, the institutions first had to sort of conceptualize that this was, this was a path that we need to go down. And it was a really helpful kind of picture in a way, because we did see the smaller institutions had, had made these transitions into, you know, using more and more data to make decisions and all the way up to, you know, using machine learning and artificial intelligence for identifying, you know, customers and for additional products and such. So, yeah, so, but what we saw is that, that sort of on ramp to get getting there starts with the mentality, and then you know, develops with, you know, taking those first steps towards getting your data house in order, making sure that your your data is accessible to you, so that when you go to try to apply it to the next decision making task, you you have it there ready, and you can develop those reports, and those make those decisions. And that path then leads to those more sophisticated methods that that are now being employed to, you know, identify audiences and, and things like that. But um, it's a, it's a, it's a hopeful picture in the sense that you don't have to be a mega bank to get there. But you do have to start thinking about it and start taking those first steps and get on that on ramp and start getting your data house in order and moving in that direction. So yeah,

Sarah Cooke 17:49

yeah, that on ramp for financial institutions. But there's also the on ramp. Allison, you kind of mentioned it a second ago, too. For the consumer, is the account opening experience in mobile? And so that I mean, that becomes the bank or the credit union's brand, right? For the consumer. Absolutely.

Allison Cerra 18:10

And what and what, look, we were excited to do this research, there's so many little hidden gems throughout the research that we've note, we take no credit for it, just like Joel said, the data just presents itself. And Sarah, to your point, what we find is even among the most advanced institutions, there's always something that they're knocking on to try to get better. So so this study doesn't just go well, this is the extent of digital maturity today, and 100% of the most advanced are doing these things all the time really, really well. What you start to find is there's even more open, you know, blue, blue water space, blue ocean space, beyond that one of those being mobile account opening. And if we looked at it the most advanced organizations while they are likely to offer mobile account opening, one of other one of the other contributions from Jim to the study, the five minute mobile account opening experience, you know, if we think about an always on culture where Amazon can deliver something to my door today, if I so desire, you know, Jim's point, his hypothesis is look, consumers are going to expect more and more that it's not just sufficient that you offer the option to open the account online, but that you make it as quick and efficient as possible. So the five minute mobile account opening or online account, opening experience is extremely elusive, even to the most advanced only like 25 to 35%. Depending if you're talking about existing members or new members are offering that capability that tells you that's the next frontier. And even if we look at their back office processes, how automated are you because a lot of times to your earlier point, Sarah, it's it has to do with your legacy infrastructure in the backup house. That's affecting what experience you can provide in the front of house. Those organizations, even the most mature have room to grow when it comes to automating the back office processes to actually help them enable a better Front Office experience for the, their members. So yeah, mobile account opening comes through quite a bit in the study and in the paper for good reason, because the data kind of kind of performed that way when we looked at it.

Sarah Cooke 20:13

So, I found it interesting. The level of digital maturity was also linked to and I guess I kind of intuitively knew this, but linked to revenue growth, as well as not being correlated to size. So these institutions that prioritize their data utilization, as you found in the research, they experienced annual revenue growth of like, 20%. Correct. Sounding and probably any or any, anywhere, correct. But higher than 20%, higher than the others.

Allison Cerra 21:02

Yeah, actually, they had and Joel will correct me if I get these numbers wrong, because he knows these numbers. 20%, revenue growth was the most advanced organization versus 10%, for the least advanced, so they actually had double the revenue growth reported than the least advanced and that was an important metric for us. When Joel and the the other statisticians from our research firm, were looking at the data, it was super important that we didn't just and Joel you know, I don't mean this disrespectfully to academia could, given your background because I love academia. But we didn't want this purely to be an academic pursuit. So we could have said, Oh, there's digital maturity, let's let the model tell us the story, which we did. But then the bigger question was, why does that even matter? Does it like are we chasing something that really at the end of the day, is interesting, but not relevant. So it was really important to us that we had financial metrics, also baked into the study, where we could ask these respondents to self report. And in our study, 70% of our respondents actually told us the FI they were with, so we could actually also go to public reports and confirm what the revenue growth was. So the reported data shows that the most mature are growing twice as fast as the least mature, seeing 20% growth annually, where others on the low end of the spectrum are saying 10

Joel Middleton 22:20

Yeah, I think it's important to note that, you know, there's so much value in and in the, in the data that these institutions have, you know, knowing what their customers are, you know, potentially sort of interested in before maybe even before the customer knows that. And so, you know, just kind of getting that data house in order and being able to make a few decisions based on, gee, you know, these people seem more likely to maybe want to refinance their home or, you know, something like that, like, those small things that when you start getting that data house and or seeing you can actually really enhance kind of the the revenue perspective of the bank or the revenue opportunities for the bank. So the FI, and so it's, yeah, so I think that's really important to underscore.

Sarah Cooke 23:15

Yeah. And so the one part of the research, it says that digitally mature organizations focus on results over aesthetics. Can you add, it was one thing, I wasn't quite sure I understood that concept. So I think it was interesting the information in there, but if you can go a little deeper with that? Sure,

Allison Cerra 23:39

sure. So a couple of ways that we find that one is in the way that they describe themselves. So the most advanced organizations, when we asked all these FIs to pick from a series of 10 adjectives to describe their culture, and they can pick up to three adjectives, what best describes your institution's culture? What we found was that the most mature digitally mature institutions in the study were much more likely to say they were results driven, versus friendly, or team oriented, which you saw much more higher incidence among the least mature, we also find that the most mature organizations say that they are much more likely to trust data when making decisions than their own experience or instinct, which you find the opposite when you look at the, the least mature. So we see and then when we talk about the aesthetics, we ask, these are digital banking decision makers. What's most important to you in your digital banking platform? Is it the speed? Is it the aesthetics or is it the features and the capabilities of the platform? The least mature organizations are much more likely to say it's about the aesthetics. The more mature organizations are much more likely to say it's about the functionality and the features. So you start to see in more ways than one, how there are there are clear indicators that they are results driven not just in how they describe themselves. It's in the way that they make decisions with the data that they use internally. And it's also in what they value when they think about what makes a great digital banking platform great.

Joel Middleton 25:11

I think one of the interesting aspects too, about the results driven kind of culture there is that one of the things that we found, it was interesting for me was that, you know, these institutions are also pushing their service. Their service providers, their, you know, the companies like Alkami, that, that provide their, their digital infrastructure, they're much more likely to say that they're pushing those vendors to do and create and to, you know, change their offerings. And so that's, that was a really interesting result. And in fact, you know, it's really interesting to watch. Allison, she's presented this now a couple of times to some of Alkami's clients, and, you know, she tells them, You need to push us, which is kind of a reflection of Alkami's culture, I think, of kind of iterative improvement and engagement. So, yeah,

Allison Cerra 26:12

yes. Very true, Joel. Yeah, it is true. But it's like I love Joe, that you mentioned that, because it's true. It's the culture, when we talk culture, we're talking big C culture here. It's not just the culture internally, it is the culture they have with their ecosystem of partners. And Joe's 100%. Right, they're much more likely to say we push our partners forward versus the least mature are likely to say our partners push us. So it they view it through their entire, the culture comes through whether they're talking internally to their employees, or whether they're talking to the partners in the ecosystem that have to help them be great. Yeah,

Sarah Cooke 26:45
yeah. And I love that, that hopefully, some of those people asking for advancements or additions or whatever credit union people do. 100%

Allison Cerra 26:54

Yes, that's a that goes without saying, especially with the credit unions being so rightfully concerned about the member experience, and really elevating that above a lot of other things. Absolutely. Yeah.

Sarah Cooke 27:05

Yeah. And, you know, that goes to the next question I have. And I don't know who wants to take this first. But there's a segment where banks and credit unions go toe to toe, can you Yeah.

Allison Cerra 27:17

We see a couple of differences with banks and credit unions. First, we see credit unions tend to be better on the account opening experience, banks tend to be more mature on the data side. We see credit unions tending to be more receptive to change. So we see a little bit more change adaptiveness with credit unions. And the last one that I remember off top my head that struck me was credit unions are also more likely than banks to look outside of the financial services industry for talent. This this instrument went pretty broad. So we even went into what are their hiring philosophies? And how do they think about the talent? Or and what does that look like? And credit unions are more likely than banks to actually hire from outside of the immediate industry to go find talent in these spots? So yeah, credit unions definitely had some interesting differences here.

Sarah Cooke 28:06

And the Yeah, I think the war for talent in particular, we I've one of my goals is to make credit unions, employers of choice. And part of that, of course, is the technology that they have available to them that makes their jobs not only easier, but make serving their members easier as well. So now, as per usual, I allow my guests to have final thoughts, I try to not have the last word except at home. So Alison, we'll start with you. Okay.

Allison Cerra 28:38

So listen, what I would say is it was important to us with this study that we snap the chalk lines on what digital maturity is at the highest altitude across the widest cross section of financial institutions in the US today. But we wanted to make it practical. So I would encourage your listeners, go to Alkami.com. Take the self assessment and get practical prescription as to where you are on the curve and what you can do to evolve your institution forward. And if nothing else, what I assure you Sarah, is it's going to invite a lot of conversation in these FIs around debating some of the answers to these questions that appear straightforward and are straightforward at the surface. But I know from my own consultation with Alkami clients on this, it's amazing the spirited debate, you get in the C suite around what would you answer that question that way? Or what? How would I answer that question? And that alone can be a very valuable learning experience for FIs for no other reason than to take the assessment and see what conversations it sparks. Joel, I'm gonna turn to you for your last thoughts. That was

Joel Middleton 29:41

I was gonna I was gonna make a point about conversations. I think this instrument, there's no five questions that can perfectly categorize someone with respect or an institution with respect to their digital maturity. What we did was we came up with, you know, letting the data VR guide we identified these five that we We thought were the best, we didn't want our online instrument to be really arduous or you know, you have to put in like financial data or anything like that. We wanted it to be pretty straightforward. So these five questions give you a guide. And I think the way to look at it is, these are conversation starters, these are, you know, this is a jumping off point, with with, you know, for which we're, in which you can have conversations internally, it's led to really interesting conversations, when I've seen Allison present the results to FYI. So those conversations have been great. And it's, it's just, it's really is a jumping off point for, you know, thinking about what it means to be digitally mature. And getting on that on ramp to, you know, wherever you are on the on the spectrum, like thinking about what is sort of the next what are the next steps and, and we're always open to, gee, you should have asked this question, or you should have asked that question because we too at Alkami are always thinking about how do we iterate and improve and so some of those conversations with with advisors have been just fascinating. They, they really want to see the entire instrument, they don't just want the five questions. They want the whole instrument. And so both times I've seen it presented, you know, the feedback has been, Can we see the whole thing? You know, can we take the instrument so that we can, you know, talk about these things internally. And it's really, it's really interesting to see to see the results play out like that. Excellent

Sarah Cooke 30:04
wrap up. Thank you all very much for your time. Appreciate it. Great having you, Allison and Joel.

Allison Cerra 31:35
thank you so much for having us, Sarah. It's been a pleasure.

Sarah Cooke 31:37

Thank you.