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Digital Banking

Using Technology to Tackle Financial Fragmentation

Melanie Reneris
Apr 4, 2023

While technology and digital transformation may have accelerated financial fragmentation, financial fragmentation isn’t new.

When I was a teller at a small community bank, senior citizens would come in on the third of the month to cash their social security checks. They’d usually deposit a portion with the rest divided into envelopes aligned to their expenses (an analog budgeting tool) and the remainder was driven to our competitors down the street.

Having lived through the Great Depression as well as the Savings & Loan Crisis, many believed they should never put all their financial eggs in one basket. As a result, they maintained accounts at a variety of banks and credit unions – just in case.

The Status Quo

Even in the wake of recent events, today’s financial fragmentation is driven more by convenience than a lack of trust in the safety and soundness of any particular bank or credit union.

Looking for an easy way to send money to family or friends 24/7? Download an app to send money instantly without exchanging personal financial information. Want to purchase crypto, check your investments, or help your kids learn to budget? Three more needs, three different financial service providers.

It’s clear third-party fintech providers have stepped in to address financial needs that are being unmet at someone’s usual depository institution. As a result, the finances of today’s consumers and businesses are deeply fragmented.

Individuals struggle to understand their complete financial picture, while banks and credit unions – in the dark about their accountholders’ true financial lives – lose valuable relationships and revenue opportunities.

Technology to the Rescue

Though technology has fueled financial fragmentation, the right technology can also provide relief by helping you become the financial hub for your accountholders.

As a financial hub, you can deliver the one app an accountholder opens when they want to see their complete financial picture. Powered by open banking and account aggregation within your digital platform, you become their single source of truth.

When that account aggregation relies on Open APIs and secure data connections rather than screen scraping, you’re improving reliability and data access for your accountholders – who also gain greater visibility into their financial wellness and more control over what they’re sharing while you unlock relationships and revenue opportunities for your institution.

Integration and Innovation

While financial data aggregation answers existing financial fragmentation, an open tech stack can address its root causes.

Accountholders fragment their relationships when their needs are not immediately met by their primary financial institution – turning to faster, more convenient options like fintechs, megabanks, and big tech providers.

When your key technology providers encourage integration by publishing API documentation and providing access to a self-service developer portal – like Jack Henry™ does – you gain the power to buy, build, and partner with your provider to deliver the experiences and conveniences your accountholders seek through embedded fintech, keeping them in-house and reinforcing your place as their financial hub.

Taking a Holistic Approach

The technological and structural silos in today’s financial services industry challenge banks and credit unions striving to become a financial hub for their accountholders.

Consider how lending and deposit functions are often separated into consumer and commercial divisions, each using their own technology and support teams. Even the digital experience is often comprised of separate systems for online banking, mobile banking, bill payment, or P2P payments.

All of this creates a fractured and friction-filled experience for the people you serve. These accountholders don’t know (or care) why their personal information from last year’s application for a car loan doesn’t pre-fill on their application to refinance their mortgage or fund a small business venture.

It’s equally frustrating for your own employees, who juggle multiple back-office systems daily to support the basic banking activities of your accountholders.

What if, instead, you think and operate like a platform rather than a collection of distinct services, identifying opportunities to improve your accountholder experience and reduce financial fragmentation?

By removing silos and creating encompassing experiences across key digital, lending, and payments touchpoints, you’ll find yourself at the center of your accountholders’ financial lives.

Yesterday or Today, It’s Still Financial Fragmentation

Today’s accountholders fragment their financial relationships for different reasons than the senior citizens I used to serve on the teller line. But they’re fragmented, nonetheless.

By becoming a financial hub, you’ll discover opportunities to deepen relationships, grow revenue, and attain first-app status while simultaneously addressing financial fragmentation and improving the financial lives of your accountholders.

Learn how you can empower financial health for your accountholders by becoming the financial hub.

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