How Smaller Institutions Are Trying to Get Ahead in Tech

22 December, 2014 (15:30) | Blog | By: admin

By Mary Wisniewski

SAFE Credit Union in Folsom, Calif., recently began testing iBeacons — devices that power location-based services to iPhones — at one of its branches in an effort to ask smartphone-carrying members about their experiences as they exit the branch.

The idea is to get instant feedback from consumers to learn more about what they want, and the institution hopes to expand the test to other branches and try other marketing over the next six to nine months.

“There is quite a bit to learn about consumer behavior with this,” said Tarrah Palomino-Prim, vice president of applications and e-commerce at SAFE Credit Union.

SAFE’s tests are made possible because of an innovation lab recently set up by NCR Corp.’s Digital Insight software unit, which develops online and mobile banking products. The lab involves a small, dedicated group who help financial institution clients experiment with emerging technologies like biometrics and beacons. Digital Insight, a vendor that changed parental hands twice in 2014, takes on the expense for pilots.

In the case of SAFE, Digital Insight brought a crew of engineers into the credit union’s branch to decide on placement for the devices and updated the mobile app to work with iBeacons. The software company and the credit union have weekly meetings about how the pilot is going and what, if anything, should be modified.

The credit union is motivated to try a technology that blends two historically separate channels into one: mobile and the branch. Palomino-Prim also cites co-developing and learning from actual data as reasons why it is one of the early testers of location-based technologies.

The creation of the lab, which has its own budget, comes as larger banks are increasingly setting up their own testing areas and hosting hackathons in the interest of fostering innovation and creating new products for the company.

José Resendiz, vice president of product management, experience design and business development at Digital Insight, said DI Labs is meant to be used to experiment with promising technologies, in case they swiftly take off with consumers. As such, Resendiz said, “it’s not set up to be an immediate source of revenue for DI.”

The lab presents bank customers, which are often beholden to their tech vendors’ pipelines, with a potential opportunity. Digital Insight, which counts about 840 financial institutions as customers, is scouting for financial institutions that wish to test new ideas in the upcoming year as part of DI Labs’ work. It views the alliances as a “Justice League” for banking employees that each bring in a unique superpower.

To be sure, the tech company, like other vendors, has long tested its proprietary products with interested customers. But the lab offers a different spin on a common practice as it is focusing on testing technologies not exclusive to the company or banking.

More broadly, DI Labs is viewed as a way for smaller institutions to keep up with their larger rivals.

Mary Monahan, executive vice president and research director for mobile at Javelin Strategy & Research, said the creation of an innovation lab should benefit bank customers, but also further their reliance on those vendors.

“The ability to respond fast is critical to changing market conditions, but it is a double-edged sword when an FI is dependent on their tech vendor to provide this capability,” wrote Monahan in an email. “If they are slow to respond, the FI is stuck waiting.”

Digital Insight’s vision is to be able to respond quickly when something catches on with the public. It plans to explore technologies like biometrics, geolocation and data analytics in the coming months.

To be sure, some financial institutions would prefer to wait and learn from others’ experiences rather than be the first to dabble with unproven pilots. Resendiz, however, said he believes there is “way more desire and interest to innovate than what one would expect.”

DI Labs can be viewed as an answer to the rise of new competitors including fintech startups.

Stessa Cohen, research director at Gartner, said pressure on traditional vendors has been mounting.

“All traditional banking vendors are being challenged in different ways,” said Cohen. “One, look at all the startups…. There doesn’t seem to be a spot on earth without a fintech accelerator.”

Vendors — just like banks — need to stay competitive in a digital age. They’re sponsoring accelerators, working as mentors and developing in-house labs to remain relevant.

Traditional vendors “have to show they are there and will stay around,” said Cohen.

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