USAA has provided the military with digital banking for years, but needs to continue to innovate to stay on the top of the digital banking world.

USAA, originally the “United Services Automobile Association” when it was formed in 1922, is now a diversified financial services group of companies that is among the leading providers of financial planning, insurance, investments and banking products to members of the U.S. military veterans, who have honorably served, and their families, and is committed to delivering excellent service and great guidance.[i]

For a company like USAA to provide top quality service, one would think that it would need to have many retail locations to meet the needs of its customers. However, that’s not the case. Despite serving customers all over the country (and the world), USAA has only 16 physical locations outside of their headquarters in Texas[ii].

This fits well with their moto “Legendary Service and Simple Tools.” Through USAA’s mobile app, members can send money, get proof of insurance, pay bills, deposit checks, and more. And, if any problems arise, USAA is ready to provide customer support over a hotline.

I interviewed two USAA customers to see if USAA is actually able to deliver on its promise of “Legendary Service” to its 11.4 million global customers with very few physical locations:

Former Navy Lieutenant and USAA customer Tabitha Strobel noted that, “I initially thought it was weird that [USAA] didn’t have any physical locations near me, but they absolutely provide high quality service even without physical locations, which is exactly what you need for military customers, who are all over the world and need high-quality service everywhere”[iii]

According to former Navy Submarine officer Billy Strobel, also a USAA customer, their service “really is top quality. When you call them they are always there and very helpful.”

USAA has clearly been a forerunner in the digitization of the banking industry. However, in order to stay ahead of the technology curve, USAA needs to digitize even further.

Even though USAA reduces costs by eliminating overhead that many bank spend on their physical branches, USAA, like most financial institutions, still spends a lot on costs that should be eliminated or drastically reduced with further digitization.

Blockchain will soon drastically reduce closing costs on mortgages and other transactions. As it is now, in many states, USAA pays a closing attorney to witness the mortgagee sign the mortgage and ensure money changes hands properly. Blockchain could perform the same function for a fraction of the price with smart contracts. In the same way, the banking industry often gets into trouble for losing loan documents or inability to show that it had provided a Good Faith Estimate (GFE) as required by law within the proper period of time before the closing. Blockchain could eliminate the worries associated with recordkeeping, as blockchain keeps a permanent record of transactions. This could even help the mortgagee (and everyone else involved in the ecosystem) to keep track of who owns the loan if it’s sold on the secondary market.[iv] According to bankrate.com, the closing fee paid to a real estate attorney in Massachusetts is typically $648.[v] This could be almost completely eliminated using blockchain. USAA should partner with other financial institutions to invest in blockchain technology, with the goal of lowering transactions costs, particularly on mortgage loans. Sooner or later USAA’s competitors will, so it behooves USAA to be the first bank to use blockchain in this way, as it will give them a competitive advantage to be one of the first movers. Digitization of financial and regulatory reporting is also key in the banking industry. An EY regulatory reporting survey found that most large banks have separate department for regulatory reporting in addition to their financial/SEC reporting. This group can be up to 100 FTEs (see the graph below from the study). [vi]Many of these roles could be eliminated through digitization of the regulatory reporting process, at a significant cost savings to the bank, that could be passed on to its members.

USAA has been a leader in digitalization in the past and needs to continue to be a leader going forward. Blockchain and digitization of its regulatory reporting process are a couple ways it can continue to be a leader in digitization but only the start of a digitization that will continue to profoundly affect the banking industry for decades to come. (708 words)

[i] Welcome to USAA!. 2016. Welcome to USAA!. [ONLINE] Available at: https://www.usaa.com/inet/wc/about_usaa_corporate_overview_main. [Accessed 18 November 2016].

[ii] Welcome to USAA!. 2016. Welcome to USAA!. [ONLINE] Available at: https://www.usaa.com/inet/ent_locationServices/UsaaLocator/?0&wa_ref=pub_globalnav_help_atm_usaalocations . [Accessed 18 November 2016].

[iii] Interview with Billy Strobel and Tabitha Strobel on 11/18/2016. Interview performed by Dave Vitello on the Harvard Business School campus.

[iv] http://www.bankrate.com/finance/mortgages/closing-costs/massachusetts.aspx

[v] Massachusetts Closing Costs | Bankrate.com. 2016. Massachusetts Closing Costs | Bankrate.com. [ONLINE] Available at: http://www.bankrate.com/finance/mortgages/closing-costs/massachusetts.aspx . [Accessed 18 November 2016].

[vi] “Setting the pace of change,” 2011 Federal Reserve: Bank regulatory reporting survey, January 2012, http://www.ey.com/Publication/vwLUAssets/Federal_Reserve:_bank_regulatory_reporting_survey/$File/ErnstYoungFRBsurveyreportfinal.pdf