Banking on the Future

Georgia’s consumer-facing financial institutions are embracing technology and offering a steady approach to economic challenges to better serve their customers.

Banks in Georgia and throughout the nation are facing a challenging environment as the government’s central banking system, the Federal Reserve, raises interest rates and technology continues to transform the industry. Mortgage rate increases are the latest kick in the high-energy housing market, while new banking technologies shifted into overdrive during the pandemic. The good news is that banks throughout the state are on top of these trends and are providing a steady hand at the helm for their customers.

“This is such a pivotal moment for people and businesses needing to manage their money,” says Joe Brannen, president and CEO of the Georgia Bankers Association. “The pandemic showed bankers that there was built-up demand for the new technology they were offering their customers. Now with the changes in the economy – escalating prices for goods and services and market volatility – the strengths that bankers have as trusted advisors are in high demand.”

Rising Rates

One of the biggest changes this year is rising interest rates, which is having an impact on the mortgage industry – how much of an impact is the question.

“During the COVID-19 pandemic, consumers nationwide became accustomed to mortgage rates of 3% and below,” says Yong Kim, executive vice president and CFO at Rabun County Bank. “The low rates, combined with the significant number of remote workers with the flexibility to work from almost any location, triggered an unexpected mortgage boom.”

With housing demand high and supply so low, even small increases in interest rates can affect housing affordability. The national median monthly payment applied for by mortgage applicants in March rose nearly 5% to $1,736 from $1,653 in February, according to the Mortgage Bankers Association. The combination of rising rates and increasing home prices are especially affecting potential first-time Georgia homebuyers with low to moderate incomes, who may have a harder time qualifying for larger mortgages because the higher prices affect their debt-to-income ratios.

“Any consumer who had a tight debt-to-income ratio before is now realizing that the increase in mortgage interest rates and real estate prices has pushed them out of some real estate markets,” says Amanda Harrold, a mortgage originator at Rabun County Bank in Clayton. “These consumers are now having to look outside their current neighborhoods for housing while also considering employers that provide work-from-home options.”

Bartow Morgan, CEO at Georgia Banking Company in Atlanta, agrees, mentioning another dampening effect on the Peach State housing market.

“Some consumers will not get approved [for a loan] because their income will not get to the level needed to pay for their mortgage and those in adjustable-rate mortgages may have trouble being able to make their monthly payment,” he says. “This can end up driving more people into the rental market.”

Perspective won’t pay the rent or mortgage, of course, but overall rates are still very low by historical standards. Harrold points out that the average interest rate for a 30-year mortgage in 2007 was 6.34% and it was more than 16% in 1982, according to Freddie Mac. Rising costs tend to tamp down demand, but Morgan notes that Georgia’s housing market (and that of the whole country) suffers from a supply problem. Before the interest- and mortgage-rate hikes, home prices had been increasing rapidly due to a low supply of houses.

“I imagine rising rates will have some effect, but don’t see any deterioration in the housing market because demand is still strong with little supply available,” Morgan says. “In addition, the market now has multiple large institutional buyers purchasing whole subdivisions and turning them into rental properties. This brings additional pressure [on] supply in the market and [is] another reason I don’t see rising rates causing a substantial issue for housing demand in the short term.”

For banks, rising interest rates are having a negative impact on applications to refinance existing mortgages and the fees associated with refinancing. At the end of March, refinance applications in the U.S. were down 60% from a year ago, says Jeff Bishop, mortgage division director at First American Mortgage in Athens. This is a sharp reversal of the refinancing boom that occurred in 2020 and 2021 and could potentially affect banks’ bottom lines.

Tech’s New Touch

The pandemic put a premium on remote, self-service technologies. For in-state banks, that drove customer adoption of mobile and digital channels and products.

“As banks closed lobbies during the pandemic, customers who had not previously adopted tools like mobile banking to check balances and make deposits turned to this delivery channel to transact business,” says Kimberly Kirk, executive vice president and chief operations officer at Queensborough National Bank & Trust Company in Louisville. “Banks that didn’t already have robust [self-service] platforms quickly needed to implement tools that customers were expecting.”

A frictionless customer experience took on a whole new meaning as more customers opened accounts online instead of in person. Customers have always valued speed and convenience, but virtual or contactless transactions also catered to customers who were sensitive to COVID risks.

Not surprisingly, the pandemic triggered a massive shift to P2P (peer-to-peer) payment apps and digital payments. In 2020, global financial services company Fiserv reported that transaction volume on Zelle increased by 113% among the institutions it processes for. In 2021, a record $490 billion was sent via 1.8 billion payments on the U.S.-based digital payments network owned by Bank of America, Truist, Capital One, JPMorgan Chase, PNC Bank, U.S. Bank and Wells Fargo. The Georgia Banking Company’s Morgan asserts that business-to-business and consumer- to-consumer money transfer will continue to drive the use of apps like Zelle and its closest competitor Venmo, which has been focused mainly on consumer-to-consumer transactions.

During the pandemic, Queensborough National Bank & Trust Company launched a fleet of interactive teller machines (ITMs) at its branches that not only had ATM functionality, but also enabled customers to have a video conference with a teller for transactions. ITMs allowed banks to efficiently extend their hours and continue to service customers when branches were closed for COVID cleanings. A quarter of all financial institutions currently use ITMs and 60% plan to deploy them within the next three years, according to research and branding agency Adrenaline. Although only 6% of respondents said they had used an ITM, the survey found that 68% of respondents said they would be comfortable using an ITM for deposits or withdrawals, 40% for credit card payments, 26% to open a new credit account and 21% to pay bills.

“Obviously, the world is moving into more technology and the industry is changing rapidly, but a high-standard approach towards our branch network is vital to the overall customer satisfaction,” Morgan says. “Today, the branch is less about going to the teller line and more about having a direct conversation about the customer’s needs and future plans for their families and business.”

Later in the pandemic, as in-person purchases rebounded, Kirk and her team saw an increase in contactless transactions at the point of sale. Customers tap to pay with debit and credit card, or use mobile wallets like Apple Pay or Android Pay. Visa reported a more than 30% increase in tap-to-pay transactions year-over-year, and its “Back to Business” study found that 48% of consumers say they will not shop at a store that doesn’t offer a contactless way to pay. “Consumers today have expectations of an Amazon experience or an Apple experience, where the engagement with a company is streamlined, responsive, elegant and easy for the customer,” she says. “Banks are working to reduce the friction for the customer to do business with us. If the process or technology is difficult or clunky, customers won’t respond to it, no matter what its purpose is.”

For optimal convenience and a high-quality experience, customers should be able to engage their financial institution in various ways, including website, mobile app, a local Customer Care Center, ITMs or face to face when walking into the branch. Eighty-one percent of banking customers say that tech improvements by their financial institutions are making it easier to access services, according to the Georgia Banking Association’s April update.

“Digital transformation in various forms is on all bank roadmaps,” Kirk says. “For many banks it continues to be the implementation of digital front-end services, particularly online account opening for both deposits and loans. Banks will also continue to invest in and develop mobile app functionality. At Queensborough, my mantra is to leverage technology to create a human experience.”

Video customer care, a new rollout at Kirk’s bank, allows customers to call the customer care team, engage in chat sessions and participate in a video session for face-to-face digital support. The care team can co-browse with the customer to find information and guide them through processes.

Internal Transformation

The digital transformation is not solely customer-facing, of course. For customers to have that positive, frictionless journey, banks must change their operational processes to support digital applications and automation. By using tools like robotic process automation – technology based on software robots or artificial intelligence – banks are able to create more consistent outcomes that improve the overall quality of the customer experience. Kirk notes that it changes the value of the human workforce the bank employs because employees involved in menial tasks can then move on to perform higher-value functions for the institution.

Banks must also be able to harness and leverage the massive amount of customer data at their disposal. Once the vast stores of customer information are gathered and mined, financial institutions can use predictive analytics to help them understand customer activity and needs. Such forecast modeling can help with credit scoring, fraud detection, collections and cross-selling.

Lastly, FinTech and bank partnerships will continue to evolve as an important front for business advancement in Georgia. Financial institutions looking for ways to respond faster to consumers, become more cost-effective and otherwise differentiate themselves in the marketplace often leverage FinTech partnerships to gain an edge and improve the customer experience.

More than 120 FinTech companies in Georgia process about two-thirds of all U.S. payments and contribute to the advancement of the digital financial world with their innovations. Six of the 10 largest FinTech firms call the state home.

“In Georgia, we are fortunate to have a flourishing population of FinTechs looking to solve specific problems for financial institutions,” says Kirk of a robust FinTech support system that includes Georgia Tech’s Financial Services Innovation Lab in Midtown Atlanta. The lab unites students and faculty with established FinTechs and startups for research and discovery.

Digital Currencies

Digital currencies – known as cryptocurrencies – have been gaining in popularity since about 2008, when Bitcoin was created. Today, it’s the most recognizable brand of digital currency but more than 5,000 others have emerged. These virtual currencies are touted as a decentralized alternative to the traditional financial system. Transactions are done online among cryptocurrency users via blockchain technology, which provides a secure distributed ledger. It’s been described as a checkbook that can be accessed by thousands of computers worldwide. Some businesses are accepting these digital currency payments alongside credit cards. The promise is that digital currencies could make sending and receiving payments faster and more efficient.

A 2021 Pew Research Center study revealed 16% of Americans have invested in, traded or used cryptocurrency to pay for a transaction. Some reports predicted cryptocurrency payment volume would surpass $10 billion this year – a more than 70% increase from last year. But that was before the crypto crash in May when nearly $2 trillion in market value was lost. In light of this volatility, along with the forecast that approximately 3.6 million people will pay with digital currency this year, banks are actively evaluating ways to safely and responsibly allow their customers to buy, hold and sell digital assets. “Despite virtually all banks considering how they serve their customers’ needs related to the holding, trading and creation of crypto assets, the regulatory environment applicable to digital assets remains uncertain,” says James Stevens, partner at Troutman Pepper law firm. “There is no uniformity and very limited regulatory guidance regarding permissible crypto activities for banks.”

“While cryptocurrencies like Bitcoin were initially marketed to disrupt banking by decentralizing finance, with the volatility in the market and concern about the safety of their investment, consumers are increasingly looking for trusted partners and are turning to banks as they engage with these products,” says Brannen.

One type of digital currency that is getting a lot of attention is Stablecoins, which were designed in response to cryptocurrency volatility. Stablecoins typically are pegged one-to-one to a flat, government-issued currency or to an exchanged commodity like gold. That is supposed to make their value more stable.

A group of Federal Deposit Insurance Corp.-insured banks, including Columbus-based Synovus, has formed the USDF Consortium to advance the adoption of a stablecoin that is exclusively minted by banks in a regulatory-compliant manner. By offering its own stablecoin, the consortium is attempting to address consumer protections and regulatory concerns around nonbank-issued digital currencies.

In addition, governments around the world are wading into digital money, exploring Central Bank Digital Currencies (CBDC) that would digitize traditional flat currency. The advantage over other digital assets like crypto is that CBDCs would have full currency status and be backed by the central government banking system, which in the U.S. is the Federal Reserve.

“Banks are subject to rigorous oversight and supervision to ensure compliance with appropriate safety, soundness and consumer-protection requirements,” says Brannen. “Cryptocurrencies have great potential, but they can also pose risk to consumers and the financial system when they are being offered by nonbanks that do not have to meet the same rigorous standards. Our view is consumers who choose to accept these digital or virtual [assets] are best served when they can do so through financial intermediaries like traditional banks.”

Whether it’s new technologies, navigating the impact of rising interest rates or delving into digital currencies, Georgia’s banks are focused on the future as they retain their traditional advantages.