How to avoid community lenders’ most common tech mistakes

This article was originally published on BankBeat.

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As the demand for digital banking experiences continues to rise, community lenders need to focus on making these experiences as streamlined and secure as possible. Exceptional customer service has always been a significant competitive differentiator for local banks, which is why many have digitized their products and experiences in recent years. Beyond the need to meet customers where they are, the creation of a robust digital infrastructure will automate processes, eliminate inefficiencies and increase productivity.

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The digital transformation isn’t a one-time initiative — it’s an ongoing process that requires community lenders to comply with ever-shifting regulations, keep software updated to ensure data security and privacy, and educate customers and team members. This will help them deploy powerful tools like cloud-based home equity technology that will dramatically increase performance, reduce costs and improve the borrower experience.

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There are several mistakes community lenders often make in the development of their tech stacks: Ignoring cybersecurity and compliance issues, not putting enough emphasis on training team members, attempting to do too much in-house, and failing to keep the customer experience front and center. Also, community lenders need to be mindful of who they’re targeting. There’s a shift to the younger generation, so we need to prepare them through UI/UX, foster their growth and lean into digitization to meet their needs. Let’s take a closer look at these mistakes, as well as the ways they can be avoided and how lenders can maximize the usefulness of their technology.

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Mistake #1: Failing to make security and privacy top priorities

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This year marks the twentieth anniversary of Cybersecurity Awareness Month, which makes it a perfect time for community banks to assess their digital operations and certify that they’re taking all necessary steps to protect customer data and keep their systems safe from cyberattacks. According to a 2023 IBM report, the financial sector is second only to healthcare in the average cost of a data breach. At a time when community banks are increasingly digitizing their operations, this is a stark reminder that cyberattacks can be extremely destructive — financially, operationally, and reputationally.

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There are several best practices that will help community lenders defend themselves from cyberattacks: Regularly update software with the latest security patches, educate customers and team members about cyber risks, automate processes that are susceptible to human error, and understand the implications and requirements of Service Organization Control 2 Type 2. The categories of SOC 2 Type 2 are security, availability, processing integrity, confidentiality, and privacy, all of which give customers confidence that banks are working with partners that are protecting their data, complying with relevant laws and regulations, and keeping their IT infrastructure up to date.

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SOC 2 Type 2 won’t just give customers greater confidence; it will also offer protection and peace of mind when the institution works with integrators or software partners. This makes the acceptance of vendors and partners much faster, and it increases trust in both directions. Community banks can’t afford to risk a crippling cyberattack that will put their customers’ sensitive data at risk, so taking security and privacy seriously at every level is of utmost importance.

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Mistake #2: Ignoring the human element

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As community lenders implement cloud-based elements of their tech stacks, it’s easy to forget that human beings are at the center of many digital initiatives and processes, from cybersecurity to the customer experience. This is why education and engagement are crucial. One of the reasons customers are loyal to community lenders is the personal and human aspects of the experience; customers want to be treated as individuals, but they still want the convenience of digital services.

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To make the digital transformation as smooth and productive as possible, community lenders need to have a plan in place. This means educating your team on best practices around data integrity, cybersecurity and compliance, as well as making sure they’re prepared for when something doesn’t go as planned. Almost three quarters of data breaches involve a human element, which highlights the importance of training employees to identify and prevent social engineering attacks. Community banks need to keep in mind that their employees play a major part in the progress of digital transformation.

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One of the great advantages of digitization is that it allows your institution to scale without making substantial investments in human capital. Digital resources allow community banks to make the most of their existing workforce by automating tedious manual processes and drastically reducing the likelihood of human error. This allows employees to do more creative and engaging work while increasing efficiency through automated workflows and communications.

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Mistake #3: Making tech decisions that aren’t customer-centric

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There has been a digital revolution in banking: 78 percent of American adults prefer to bank online or via an app, while 87 percent of consumers say they use banking apps at least once per month. Although it’s clear that the digital era is here to stay in the banking industry, this shift comes with several liabilities. For example, 79 percent of Americans are concerned about how companies use their data, while another three quarters say the threat of fraud is a key reason to switch banks. Customers are willing to share their data with community banks for more services and better experiences, but they need to be reassured that this data will be handled with care.

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Despite the scope of digitization in the banking industry, 63 percent of customers still say they want “one-on-one personal conversations with bank representatives.” Customers also expect banks to understand their own unique preferences and concerns: 72 percent rate personalization as “highly important.” These are areas where community lenders can shine, as an essential aspect of their appeal is the personal attention they can offer customers, attention they won’t receive from major financial institutions.

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No matter how community lenders approach the development, implementation, and maintenance of their tech stacks, an emphasis on cybersecurity, privacy, and excellent customer experiences will take them in the right direction.