FI Insights: Misguided assumptions taint digital product development or expansion. Don't let them.

In our survey of financial institutions, conducted in partnership with Lendit, we discovered surprising digital product hesitancy among some banks. The worry may misguided, however, and delay revenue opportunities. 

In response to concern about waiting until a digital product makes sense across an entire customer base, Marc Butterfield, SVP of Innovation & Disruption at First National Bank of Omaha, notes: “An experimental digital product or service is OK. Don’t worry about scale across every customer or getting the experience to work seamlessly
right away.” He concludes: “If you just talk about whether it might work, you’ll never know.”

Research on profitable digital banking strategies supports this. According to Oracle, banks must respond to shifting customer appetites with speed to new markets and by incorporating new products and processes rapidly onto banking platforms. Banks must also “leverage data insights” ongoing to iteratively improve.

Waiting until legacy systems can support a launch, regulations are crystal-clear, or every customer wants a product invites underperformance. Feeling “fully ready”, may also mean “too late.”

Consider BNPL, for example.

Research shows that more than half of all consumers are interested in using BNPL this year. Importantly, interest is growing across a range of consumer income levels, credit scores, and borrower risk profiles.

Despite this, nearly 45% of surveyed financial services providers agreed with the statement: Typical BNPL/installment credit customers are outside of my target customer base from a credit risk standpoint.

When prompted for additional concern insights, respondents raised “credit concern”, “customer value”, and “risk appetite” issues. According to Amount and PYMNTS research, nearly one quarter of BNPL users report $100,000+ in annual income. As well, 47% of consumers earning over $100,000 express interest in using bank-backed BNPL plans.

Adoption across higher-credit customers is growing as the credit mix is influenced by more premium merchants starting to offer financing at checkout, suggests McKinsey. Today, 65% of total receivables
originated by point-of-sale lenders are with consumers having credit scores higher than 7009.

For FNBO’s Butterfield, testing customer profiles to assess fit is less important than servicing growing merchant network interest. “This is a defensive strategy for us. Our card partners asked for the capability and we knew someone would provide it if we didn’t. Find a partner to support rapid launch, be deliberate on what you want to
learn the first year, then try it and see if it makes sense.”