Taming Third-Party Risk in Banking Ecosystems  

Regulatory scrutiny of banking ecosystems that include third-party partners is rising. Are you prepared? 

Partnering with best-in-breed, third-party providers is one-way financial institutions have filled gaps in capabilities without building them. When high-performing, these business ecosystems can catapult a company’s performance. They also make certain aspects of business harder to manage, namely customer experience. With the outsized influence customer experience quality has on metrics like customer retention and satisfaction, coupled with certainty that ecosystems will keep expanding, strategies and tools that streamline service governance must be a growing priority.

This year, bank regulatory bodies have announced a number of enforcement actions related to the management of third-party fintech relationships. From Mode Eleven Bancorp, Piermont Bank, Sutton Bank, Blue Ridge Bank, Cross River Bank and First Fed Bank, the message is consistent… financial services providers are responsible for what happens throughout their business ecosystem, including CX by third parties that fulfill parts of their customer journey. 

Service Governance of Bank Partnerships Has Regulators’ Notice

McKinsey predicted that the trend toward more consumer protection and “conduct” regulation around banking ecosystems is going to continue and potentially accelerate. 

Since the main financial services regulators: Office of the Comptroller of the Currency (OCC), the FDIC (Federal Deposit Insurance Corporation) and the Federal Reserve System (Fed) came together in an unprecedented instance to issue joint guidance on banking third-party relationships, this prediction has been quickly affirmed.

Their report is lengthy and includes specific details on how to handle partnerships, but two things come through clearly, according to Alex Johnson:

1. Banks are responsible for understanding their third-party partners’ impact on customers as they consider creating those relationships. That includes how partners handle information, interactions and customer complaints and inquiries. 
2. All interactions on behalf of the financial institution, including with partners, are the bank’s responsibility. 

Johnson concludes: “At no point do the agencies even entertain the idea that these aren’t the bank’s customers. But they do acknowledge that the third parties may have more of a direct and sustained relationship with the end customers, which is a pretty big shift.”

The OCC tagged partnerships and “activity outsourcing” by banks as a main supervision priority for 2024, so scrutiny of partner ecosystems will continue.

Third-Party Risks Come in Different Types

The FDIC and the OCC break down risk into different categories.The FDIC names five; the OCC is more granular, citing nine. Several align with customer service delivery: 

• Compliance risk: Non-compliance with rules and regulations as well as contractual and ethical standards. 
• Operational risk: The day-to-day risk of simply transacting business. It includes internal controls, processes and employee activity. 
• Reputational risk: Fueled by negative public opinion, it affects ongoing customer relationships and attracts new business. It usually results from un-managed risk in other areas.

Two Ways to Manage Service Governance 

As service delivery across ecosystems continues to expand, the systemic risk of compliance and regulatory missteps naturally increase. Financial institutions must take steps to 1) monitor and minimize gaps in service as much as possible and 2) install methods to document and respond to complaints more efficiently.

1. Unlock Visibility Into Customer Interactions With Partners

Since the bank is ultimately responsible for a customer’s experience, even with partners, it needs to see and monitor all of those interactions if it wants to confirm they are living up to banking regulations as well as contractual agreements. 

“Creating an effective compliance program is challenging due to the complexity of the regulatory environment and the use of outdated tools or even the lack of tools at all,” notes Evgeny Likhoded, president at Corlytics. He believes the number of enforcement actions shows the need for technology to bolster compliance work.

CX Management platforms (CXM) are an ideal solution. Built to streamline how a customer experiences an organization and in turn, how the organization orchestrates that service, CXM solutions naturally align with the key assertion of regulatory agencies -  that customers must be the priority. Not all CXM technology fits the bill, however.

Financial institutions should look for CXM platforms with these features:

1. Enables data liquidity: Harmonizes customer data across the financial institution and its partnerships, within security and controls set by the bank. 
2. Works with existing technology investments: The CXM platform should plug into legacy platforms within the organization easily, without re architecture. It should not just enable better service governance within a company - but must expand within the ecosystem. An orchestration layer, ensures everyone working with a customer is holding up their end of the agreement. 
3. Unlocks real-time visibility and collaboration: Resolving customer needs in one contact may be the single-best strategy to minimize complaints that make their way to regulators. The best CX platforms are specially built for ecosystem relationships, and provide a centralized collaboration hub that powers real time communication and bypasses lengthy email threads or phone queues 
4. Leverages AI-powered tools: 83% of the time spent by a bank contact center agent today is answering process-related questions and only 9% on customer needs. AI is already being used to streamline manual customer support tasks, and as of this writing, it is reducing support volume by up to 50%, through capabilities like case and customer summaries, GenAI chatbots and prompt-style knowledge delivery. This intelligent knowledge delivery also solves another issue - gaps in the training of new contact center agents.

AI models can also analyze expanded ecosystem data in real time and make specific recommendations to minimize risk, reduce customer frustration and attrition and boost customer satisfaction. A CX orchestration platform specifically built for ecosystem delivery extracts the most value from AI. 

2. Streamline Compliance Investigation, Reporting and Responses 

Bank Automation News notes the importance of documentation, specifically “internal audit scorecards, communications, and assessments. The publication notes: “[They] are legally discoverable in court matters. They can be used to demonstrate a bank’s negligence or prior awareness of potential issues.” 

This “unstructured” data stored in phone call transcripts, case notes and chat sessions, however, can be difficult to locate and pull together for reporting and responding to complaints. In one online banking forum, a compliance leader lamented the time it took to respond to the FDIC about a consumer’s litany of complaints; they had filed 12 separate complaints, and the bank had to reply with 12 separate responses, taking hours of research and staff time.

Orchestrate Your Ecosystem For More Complete Brand Control

Our CXM platform aggregates customer experience and operational data from different channels and organizations into a centralized location that serves as fuel for GenAI to summarize cases and customer histories greatly streamlining the process of responding to complaints 

Multiply the hours saved by the hundreds or thousands of complaints financial institutions receive and respond to; the cost savings are significant.

KeyBank Uses OvationCXM to Manage Partner CX

Many banks utilize partnerships to fast-track innovative offerings their customers are demanding. KeyBank is doubling down on its partnership strategy using best-in-breed third-party providers to launch services more quickly. 

KeyBank leverages OvationCXM to manage its partner ecosystem, overcoming data silos and visibility gaps in its merchant services business line. 

Read the KeyBank case study.

Within 13 months, KeyBank turned its merchant services business line into a profit driver. With OvationCXM it:

• Boosted revenue by 10%
• Reduced attrition by 20% 
• Increased customer satisfaction by 50%
• Expanded service visibility by 75% 

If you have partners that fulfill steps in your customer journeys, you will be held accountable for their service delivery. Manage your CX from end to end with our AI-powered platform, without changing your existing technology. We can show you how.

Get your questions answered about CXM and managing service in your banking ecosystem.