There’s just too much in our Banking Priorities Executive Report for one episode. So we did another!
In this episode of Banking on Community, our hosts dive back into the results of our annual survey of community bankers and explore their tech investment strategies for AI, APIs, data analytics, payments, and more. Plus: psychic quarter-zip coordination and black-market Christmas sweaters.
Transcript
Saxon Prater (SP): Welcome to Banking on Community, a podcast for community bankers. This is where we talk about the community banking industry’s trends, technologies, issues, challenges, and opportunities.
I’m Saxon Prater.
Tara Schultz (TS): And I’m Tara Schultz.
Brett Glover (BG): I just wanna know where your sweatshirt is from last time. That’s what—we need that thing every time.
SP: She sold it on the black market.
TS: I just wanna know why I didn’t get the cute quarter zip memo. Look at you two.
BG: Yes, exactly. Well, you know—
TS: Wow.
SP: It’s just a wavelength thing. We just knew.
TS: You just knew. I’m not there yet.
BG: I’m Brett Glover. Happy New Year. Happy to report I did not let my kids open their presents early, but we did agree as a family this year on a complete thrift store Christmas: all secondhand and/or support local business only. It was absolutely fantastic.
My kids are a little bit older, and so it was really their suggestion, but it was really cool, as well as the—it is a fun process to find gifts for your 21-year-old and 18-year-old in nothing but thrift stores and antique stores.
So, anyway, if anybody wants to try it next year, report back and let me know how it goes. But hope you guys had a great Christmas and Happy New Year.
TS: Thank you, you as well. Happy New Year.
SP: I like that idea. A very happy Thriftmas.
All right. Today we’ll be continuing our discussion about the 2025 Banking Priorities Executive Report. So, just as a reminder for all of you listening, this is CSI’s yearly research initiative where we ask bankers across the country about their strategic investments, priorities, technologies, concerns, and really just get a look at where their head is going into the new year.
And we had a lot to cover last time, and it was so much so that we are going to continue that discussion today with a little bit more of a deep dive.
So, last episode, we talked about bankers’ strategic priorities overall, top issues and technology trends. Today we’re diving into their planned technology investments and also a few little specific areas.
So, I want to start with the technology priorities for 2025. So we had efficiency drivers, data analytics and reporting, commercial banking, and small business banking as the top priorities.
So the thing that stands out to me is—as far as efficiency drivers—is that artificial intelligence, as we discussed last time, is one of the top technologies that we think is going to be moving the industry. And it’s not exclusive to community banking by any means. We see it all, all over the place, right? For the second year, AI was named the most impactful technology trend. But one thing that I noticed that I found pretty interesting, that I would love to ask you both about: AI for customer service.
So this was an area that, last year, I remember one of the takeaways was that it was still in a kind of “wait and see” phase. We’re trying to figure out whether or not we feel comfortable enough using it for anything that is customer-facing.
It increased this year, from 86% to 90% saying that they were looking into using AI for customer service. And that’s kind of consistent with what I’ve read in other reports. Celent, the analyst firm, they said that 68% of banks plan to launch customer-facing services using Gen AI in 2024 or 2025.
So, let’s just talk about that a little bit. Like, what does that look like? What exactly are we talking about?
TS: Yeah, I would love to see that many implement or take steps towards getting to leveraging AI for this type of service. I lean towards a lot of progress will be made in 2025, but with some caution on the banking front of letting it all go to AI. Because, you know, many haven’t taken the initial steps of getting more comfortable with it internally first. But definitely supporting and streamlining, for example, in the area of customer service.
I saw something on— I wish I remembered who posted the image, but it was around their experience on Chase’s AI support chat. They asked for branch hours and they continued to receive responses around treasury services. So completely different. They were being sold a product, but they were asking for branch hours.
And, you know, so those scenarios bring you back to use the technology internally to just create more trust in the product and tech itself within your support centers first, but I expect to see more focus on internal AI to prove, to build trust before the customer release and trust.
I think we’ll see more around, you know, internal workflows, policy creation across the industry, but I think another really exciting thing is seeing AI be used for legacy code movement. That could be a game changer in the right scenarios, too.
BG: Yeah. First of all, I know the exact post you’re talking about, because I saw it as well, and I absolutely laughed out loud. It was great.
But I think when we’re talking about this, I think, you know, a lot of what a lot of customers are weighing—and it’s a good point that you bring up internal versus external—and we’ve said this—not to beat a dead horse—but a community bank is just absolutely focused on customer experience and relationship, right?
So, I think it’s a little bit multifaceted. One is waiting until some of that technology, where they can leverage a provider to help them with that, gets perfected a little bit more, so that they can then decide: “okay, what part of our customer service questions do we feel comfortable being answered in that way? Because we want to be so high touch, yet if we could let some of this go, we could even be more high touch in areas where it really matters the most.”
So, I think a lot of folks are just weighing that out in real time, as they approach their strategy. But not surprised to see that, where it sits, the percentages, and I think it will be very much—2025, we’ll see that progress a lot.
SP: Yeah. And as I was looking at the numbers, the reason I was so surprised—Brett, you already alluded to this—is, you know, community banks, they’re known for being customer-first, service-first, and making sure they don’t fall into those horror stories of what you’re talking about with Chase giving terrible customer service because they’re putting the technology first prematurely, right?
But then I started thinking about it, and with generative AI, it doesn’t necessarily even have to be those customer-facing chats. Like, there are other ways that you can use it to support your overall customer service that might be in the actual branch, whether it’s compiling meeting notes, or tracking down things so that it’s just easier to give answers. Do you think there’s anything to that? Do you think that could be what some bankers are thinking too?
BG: Yeah, I think that’s definitely something that’s in consideration and being looked at. I think, you know, where you will continue to see that develop and come to fruition more quickly is how those strategies actually begin to roll out to market. And they can weigh both the positives and negatives both, as well as how they want to approach it individually. Because again—and I know we talk about this a lot here—but every community bank is just a little bit different and is going to have a different approach on what they want to let go, what they want to keep, what they want to gain automation on, on the backend. And they feel really good about that to free up folks on that are more customer facing. So I think it will definitely play itself out more in 2025.
SP: One thing that we hear about is using AI for data consolidation, being able to take kind of actionable steps from data. So all this data out there, every time somebody does something, that is a data point, but how do you make sense of it? How do you use it, you know, in an actionable way?
So, from both of your perspectives, how should banks be leveraging data? How can they use all this data?
TS: Yeah, I think it starts with knowing how your customers are banking with you first and foremost. And with others, how they’re banking with others. It’s key to earning that growing wallet share. If you are, for example, unaware that significant dollars are flowing out to a brokerage or that your customer is accepting and making payments for a small business and essentially running an entire small business out of their consumer account, what a missed opportunity for you and for them.
All of that allows for much more personalized and effective targeting, personalized recommendations, and real time engagement that is both accurate and actionable with customers.
BG: Yeah, I agree. And I think it’s important here to point out that those tools are not anything new. I mean, I know that the hype around, you know, all things AI has picked up so much steam over, you know, the past 18 to 24 months. But the ability even for our customers to be able to have not only that kind of data, but that actionable data that Tara was speaking about, you know—which is essentially using machine learning, right—has been, we’ve had in the marketplace for quite some time. And so understanding what’s already available to you through a partner that can help you specifically understand your data and make that actionable is not anything necessarily new to 2025. Although I think it’s definitely being brought up to the surface.
SP: So let’s talk about open banking and APIs. So, you know, one research report estimated that the total open banking transactions will reach $330 billion by 2027, having reached $57 billion in 2023. So when we look at the actual data of how banks are planning to use open banking and APIs, we have leveraging APIs for customized workflows at 49%.
To me, just a little bit of editorializing, I would say that’s the operational efficiency part that we’ve talked about, making sure that your staff is equipped and can do what they do best faster.
Moving down the line, we’ve talked about banking-as-a-service with 17% of the overall vote for strategic priorities, as well as APIs and open banking in general.
So what are both of your thoughts on how banks are leveraging APIs?
TS: Yeah, when it comes to APIs, I think there’s certainly no one size fits all strategy. And that’s even more so with banking-as-a-service that we’ve talked about. But I’ll say I’ve been thrilled to see the growth that we’ve seen on API utilization across over half of our customer base. That really shows innovation and not stagnancy. Banking-as-a-service, it’s not for everyone, but if it’s not for your bank, what is that strategy to compete, to expand, to remain relevant in the years ahead?
And I personally love in my career surrounding myself and our CSI teams and coworkers with the right companies and associations that are really in the fight to keep community banks, keep community financial institutions relevant for the decades to come. Because it truly isn’t a time to keep your door shut, business as usual kind of environment. That’s a short game. So if it’s not banking as a service, what kind of problem are you solving for the market niche that you’re going after? And how will you do it better than others can in the market?
BG: Yeah, I think you’re spot on. I think I have been pleasantly surprised at community banks embracing of that technology, specifically APIs. And not just like what a provider like us, for example, or other providers are developing for them, right? Whether that’s their in-house systems, an integration, or integration with a third party that then the bank can leverage. But the number of banks that are now ingesting APIs themselves, right? And they have their own tools, they are pulling data, looking at that, they’re using it to create their own RPA-type things or workflow automation as well as, you know, bringing in a new provider or considering a new partner that they would like to leverage. And proactively having those conversations with them of: “okay, well I know my core provider is API-friendly, API-first. Are you?” Right? Or, or even embracing working with a system integrator, right? Which there’s no shortage of those out there. So, the embrace of that I think has been very well received. And the folks that are doing that, looking at that, and making it a part of their regular strategy are making giant strides.
TS: Yeah, I love seeing that hockey stick every quarter of more and more API growth. We don’t look at that from our perspective, that’s not our internal product-to-product. That’s customer use of APIs. And that’s awesome.
BG: We don’t have time to get into it, you know, today fully on this piece, but I think it’s important to highlight that I think some of what has kept some community banks, specifically, away from exploring that further is thinking, “I don’t have the resources on staff to develop that technology.”
I mean, the short answer for right now, today, is you don’t have to, right?
And that’s the beautiful thing about what folks like—what we’ve brought into the ecosystem and can provide and can educate on. But I just don’t want that to be, you know, a showstopper, if you will, for a bank that’s out there who hasn’t yet and is going, “well, I’d like to do that, but I can’t.” We need to have some conversation.
SP: One of the purposes of open banking is bringing in these new technologies. And one thing that we’re seeing increasingly is a move towards- we’ve talked about digital banking a lot for years, and I’m noticing a little bit of a shift where there’s a little bit more talk about digital engagement. We now know that most customers would like at least a digital component of their banking experience. And so the question is, how do you engage those customers?
And when we look at the report itself, it says that 44% said that they wanted to expand self-service capabilities and automation. Another 42% said account opening and onboarding.
And I should say for the listeners, you could select the top three here. So, if you think the math isn’t mathing, that’s how we can have just two options taking 80%, seems like.
So there’s an emphasis on both acquiring these new accounts, making it easy for them to onboard, but then also to engage with these customers, to keep them active, to keep them well, yeah—to keep them active.
Tara or Brett, can you say a little bit more about how consumer’s expectations have shifted and how that is determining banker strategy here?
TS: Yeah, it’s not digital to customers anymore. It’s banking. We’ve talked a little bit about this previously. The experience isn’t driven by the banks anymore. The experience, the speed, the personalization: it’s all driven by the other experiences in the consumer and in the small business life. They have that immediate gratification and they expect, you know, the payment access and all of that to be timely to their moment in need. So it’s been a major shift over the years, but they don’t look to their banking digital app anymore to guide what they want. Other apps outside are determining and enforcing, you know, higher speed, immediate gratification around those things. What do you think, Brett?
BG: I think, well, yeah, definitely. And I think there’s a shift when it comes to engaging customers digitally, where in the beginning that was like, “oh, man, we might lose that high touch that we crave so much.” And I really think the shift is, okay, we’re meeting our customer where they’re at in the world that we live in, right?
Like you said, it’s not the digital aid—like, this is just the expectation, right? This is the way it is. And just because you have a digital engagement does not mean that it’s not helpful or relevant or deeply meaningful.
The way I look at it and talk to bankers about it too is like, look, I mean, you’re offering another avenue, a very important avenue for your customer to engage with you that works the best for them in that moment. So for example, like, if I’ve got a high, high, high pressing need—and this is what’s great about community banks, and I bank with a community bank, and it is—I mean, you know, something’s on fire I really need and I know the right person to talk to, I’m picking up the phone or I’m going in there and I know I can get access and get help immediately.
If it’s not pressing and maybe I’m driving, or maybe, for whatever reason, can’t pick up the phone and call, I’ve just got something else going on—I want to be able to choose that channel to where I can engage digitally and get the help for the less pressing, you know, “not a fire” situations.
So, I mean, it’s really—you are offering something that is still meaningful, very relevant, and that the customer expects. So I think a lot of shifts have taken place in the way that that is viewed. And, like, we’re not moving away from something. We’re gaining something, and it’s an important distinction.
SP: So, let’s move over to payments. I found this pretty interesting: peer-to-peer payments, P2P, this was our top ranked payments priority, followed by digital wallets and real time and instant payments.
So, we had peer-to-peer payments at 44%. This slightly improved from last year. It seems to be more of a focus. And is this just sort of an outgrowth of requests from customers? They want to be able to immediately pay their friend, kind of similar to like the Venmo experience, but with their actual institution? Or is it the opposite where it’s bankers trying to get ahead of these other trends that are happening in the market.
TS: It’s reaction to expectation. They see the data that’s happening. The customers are going to find a way to move this money via other channels as well. So they know they need these tools to be relevant. So much money is moving outside via Venmo, PayPal, all of the other channels. So playing a part of that important ecosystem is absolutely critical.
You know, I think as they think about modern payments and banking needs holistically, it’s no surprise. The importance and use of digital wallets, that’s on the rise as a massive consumer preference and demand. And it’s not just push provisioning anymore. It’s not just finally getting it into Apple Wallet, but it’s full-scale digital issuance to get your customers fast access to shop online as well.
No secret: you mentioned RTP. The adoption of that is accelerating. We have, you know, instant settlement. That’s eventually becoming the new standard. That instant gratification, it’s everywhere in our lives, especially the younger generation, especially my son. When I send him money, he thinks I’m poor if it doesn’t get there instantly. But eventually that’ll seep into more and more banking experience holistically.
BG: Yeah, the P2P one’s always interesting for me. And I think, you know, one piece of that that we didn’t mention that’s driving that too is—I mean, let’s not forget that there still are some folks, and I wouldn’t even necessarily characterize it generationally, that have been exposed to P2P or they’ve received one, they’ve never used it themselves, but they are leery of someone if they don’t have a relationship, right? And so they would rather have that offering through their trusted financial institution, their community banking partner, than they would a provider that that is scary to them, is the simplest way to say it.
So I think, you know, that is a part of it as well, that is probably driving some of those results there.
TS: Yeah. And as we look at, you know, the entire payment ecosystem, you mentioned RTP, we’ve seen a tremendous amount of growth with our FedNow launch there. There’s a rise in banks across the industry on RTP. I think they have over 31 million transactions in October and FedNow has exceeded over a thousand financial institutions.
But, you know, TCH just announced a big limit increase in the individual transaction limit, which is going to be a game changer for industries that are using wire functionality today, for real estate and large merchant settlements and really business liquidity overall.
But when we take it back to the customers you’re serving and really getting down into, you know, the pain points of how you solve the payment problems—one of the coolest use cases that I heard recently: DJ Seeterlin, over at Chesapeake Bank, he shared a great story recently on how they’re using RTP and FedNow to solve for a true customer pain point in the freight trucking industry. They’re getting paid instantly. They’re avoiding fuel card and all of that process. So they are removing friction from that business journey process.
So what opportunities like that exist with those that you serve in your market. Find the pain and use those channels to expand use cases. Because the opportunities are huge ahead for us.
BG: I couldn’t agree more. And you mentioned FedNow there and obviously it’s still very new, but even the data that is out there from launch date until now and how that’s beginning to be adopted is impressive. And I think in 2025, you’re going to see some folks really innovate and look at, “okay, how can we solve a problem?”
We have to remember, and I really think on the business side, that’s what is going to accelerate that network faster than anything. Because there are pain points there. And when it comes to the consumer, I just think – sometimes, we’re in the industry, we live in this day to day, right? This is what we do. But your average consumer out there isn’t walking into a bank and saying, “do you offer FedNow payments?” It’s not going to happen. They’re going to walk in and say, do you have a secure way for me to send money instantly to friends and family,” or something of that nature. Like, “I can do through—or other people do through—other providers, but I’d rather do it through you.” So, I think that is going to continue to develop in 2025 and at a rapid pace.
SP: Yeah, you see this across the board where consumers’ experiences in one area inform their expectations in others. So it’s essentially, like, it’s the Netflix, the Amazon effect essentially. And we already talked about it in digital. So consumers expect easy access to their financial institution via digital. The same is true in payments. If they’ve experienced it in one place, the question is always, “why isn’t it also here?”
So I think what you all are saying about reducing friction, but also giving them what they expect, makes perfect sense. And it makes sense why these ranked so highly this year, beating out several other categories of payments.
If we switch over to lending: this is another huge, huge topic in the industry. I want to talk a little bit about automation. So, automation in lending was a pretty popular priority this year, and to some extent it has been in past years. You know, we’ve seen that traditionally in lending, there can be all these disparate pieces that need to be kind of aligned or unified in some way. It can take time. And then you have the customer that is waiting on receiving that loan. But could you all tell me a little bit more about what you’re hearing from banks about those customer expectations in lending and really what they’re doing to meet them?
TS: Yeah, like we talked about the automation and speed as it relates to payments, but that’s no different in the area of lending. Community bankers, they’re all about relationships, but technology still plays a vital role in that. Technology is a tool in the toolbox that is leveraged to really drive, you know, improve customer relationships. So too often, kind of, technology gets in the way rather than truly supporting community bankers, but incorporating process automation throughout the lending process can be an effective tool in that toolbox that improves their productivity. It strengthens the customer relationship as well as their experience in gaining that credit.
We recently did a case study with one of our customers in St. Louis, Royal Banks of Missouri, and the Hawthorn River solution. That tool, the technology, the workflow, the automation, and the API functionality, that took a commercial loan from two hours that their banker was doing down to 20 minutes. So think about that time that they were able to really sit down with that customer and spend other ways building the relationship. And it wasn’t about frustrating technology in a lengthy two hour process of take it, scan it, move it, do all of this. It was two hours to 20 minutes and they can focus on the customer. That’s huge. And that’s what we need more of.
BG: Yeah, I can’t really say it any better than that, because at the end of the day, it is about servicing the customer. And the tools that you can provide your team, you know, if you’re a banking executive to say, “okay, here’s a way that we can embrace that and do that.” By the way, that is the digital transformation journey.
I couldn’t agree more with what Tara said. I’ve had several customers leverage Hawthorn River with astounding results, of taking some very complex, antiquated and very time-consuming processes and reducing that in drastic measures by leveraging technology. And it’s very impressive what folks have been able to accomplish in that area.
TS: Yeah, I think it’s also worth mentioning too, that the tools that can aid with intelligent automation and underwriting, it helps banks meet their customers at a time and a moment of need, while not overburdening their staff with small dollar loans.
How many close the door on those small dollar loans because they cost more than what they make? But how many times do consumers have that bridge need? And meeting them in a time of need? That really goes a long way, when it’s underwritten safely intelligent, automated, and doesn’t place a burden on the bank too. So it’s a win-win for the customer and the bank.
BG: And in one place, by the way, and not five different platforms.
TS: Yes.
SP: Yeah, that makes a huge difference. And it’s great to see that these community financial institutions, they’re moving in the direction of efficiency. They’re making these investments and ultimately they’re going to be able to serve their customers better and faster. So I’m eager to see, as this year unfolds, what else we hear from these customers and how these responses are borne out.
And we’ll leave it there for the sake of time, but I appreciate both of you chatting with me again through this Banking Priorities Executive Report. It’s always very informative.
Thank you listeners for joining this discussion. As I mentioned, this is our second one and we’ve still just scratched the surface of all of the data in this Banking Priorities Executive Report. Highly, highly recommend you go check that out on our website. It’s at csiweb.com.
As a reminder, you can also subscribe to this podcast wherever you get your podcasts. You can see our faces on YouTube. You could go back to last month’s and see us in our holiday wear. So, if you didn’t know what Brett was talking about at the beginning of this episode, you’ll definitely wanna see Tara’s big reveal.
And then finally, don’t forget, you can submit questions via the hashtag #BankingonCommunityPod or send your questions to @CSISolutions on X or CSI on LinkedIn.
So, with all of that, thank you all for listening and we’ll see you next time.