Banking will never be the same; institutions need to rethink approaches in key areas
SRM (Strategic Resource Management), an independent advisory firm serving financial institutions, today shared information from its clients and subject matter experts on what to expect in 2021.
It Will Take More Than Understanding the Importance of Digital
- The lockdowns and closures used to battle the pandemic have led to the importance of digital becoming amplified and echoed by most all industry commentators. It is doubtful financial institutions will not scrutinize digital strategy in 2021, but there will be a subset that understand the less obvious factors destined to separate the winners from losers. One such factor relates to breaking with the standing model used by banks and credit unions to meet the needs of consumers.
- More institutions will join those that have already realized that online and mobile banking is not digital banking and that their digital brands will not be sustained by simply finding the right online and mobile banking vendor. Multiple vendors providing enhanced services, e.g., predictive analytics to anticipate a consumer’s need, will be integrated to create a transformative digital ecosystem that is flexible, configurable, scalable, and capable of continuous as well as frequent innovation.
- The movement to this framework for digital transformation will necessitate modern technology and API-driven architectures that create an environment where technology can be disposed of and/or replaced at a much faster rate. The banks and credit unions that embrace this approach will have both answers and opportunity regarding the invasion of big tech – e.g., Google’s digital banking and co-branded checking accounts. Increased agility will allow these institutions to defend their turf and act as a desirable partner with the non-traditional companies entering the industry.
Declining Branch Footprint Accelerates, New Use of Branch Space Emerges
- The total number of bank branches peaked in 2009 at close to 100,000 and has declined to slightly above 85,000 today. In 2021 and beyond, the pace of branch decline will increase materially as financial institutions apply the lessons learned during the pandemic to operate more efficiently – with less reliance on their physical footprints. Increases in M&A activity (more below) will also contribute to a decrease in branches above the pace observed pre-pandemic.
- Branch closures will be combined with institutions rethinking the function of the branch in a fashion more akin to that represented by the Capital One “cafes.” The pandemic has been a catalyst for an initial step in that direction as banks and credit unions have closed their lobbies, except by “appointment only.” Further, transactional activity at the branch has been pushed to the drive-through window.
- The basic “doctor’s visit” model for branch services will be retained for converting remaining branches to advisory and sales facilities in the near term (much of 2021), with other types emerging once socialization can be done without health concerns (beyond 2021), such as co-location with existing coffee chains.
Payments Preferences to Persistently Shift
- There has been exponential growth in payments that operate outside of traditional channels, e.g., P2P, push and disbursement transactions. Though many financial institutions have onboarded these non-traditional offerings, the economics of these payments differ significantly from traditional point of sale card payments and are further complicated by their propensity to attract fraud.
- Before COVID-19, the number of contactless card transactions in the United States was unimpressive. Since the beginning of the pandemic, hygienic concern about cash and point-of-sale device cleanliness has ignited its use. A contactless card allows its user to avoid cash and requires no contact with the point-of-sale device. Card issuers who have provided contactless cards to their cardholders will move to leverage these trends to promote their card and improve wallet position.
- Smart leadership in banks and credit unions will consider how many contracts, notably with card networks and card processors, were set in the wake of the last crisis and will need realignment. Therefore, institutions must consider the changes in debit and credit volume, the history of card usage, and strategically plan for the short- and long-term. The institutions whose agreements expire in the next two years should already have engagement with their vendors in order to leverage their negotiation position fully.
Changes to Occur as a Result of the Election
- The big question is: Will there be changes in regulatory approach and tax policy? It certainly looks like change is coming. The incoming president campaigned on a promise to reinstate most of the Dodd-Frank era financial reforms that the outgoing administration did not support (like lowering capital requirements). Likely there will be changes to corporate tax structures and the laws impacting the ultra-wealthy. Besides, bank regulators still have considerable leeway to mandate changes in capital and liquidity requirements, resolution and recovery planning, risk management procedures, and disclosure requirements.
- With the new administration and a new majority in the Senate, 2021 will see continued economic support programs implemented as the PPP program was in early 2020. With the most recent stimulus program containing $284 billion more funds for small business relief, it seems unlikely the end of government announced support programs is near. Financial institutions wishing to streamline their participation in their programs will continue to focus on improving their ability to link their systems with the SBA or other govt agencies.
Adapting to Today’s Economy
- In 2021, financial institutions will continue to address the changing economy with traditional balance sheet strategies by monitoring deposit fluctuations, evaluating client refinancing deals, and considering how government stimulus may create lending opportunities/risks. Engaging the credit risk and accounting team to determine how increases in expected losses will affect earnings will also allow them to consider opportunities to refinance existing debt, raise new funding at attractive rates, and/or revise any planned capital actions.
- In 2020, SRM saw an increased number of financial institutions looking for ways to go on the offensive as they adapted to economic conditions. Institutions are more carefully scrutinizing vendor costs and using renegotiations with vendors as an opportunity to ensure the economics of their arrangements are “at market.” Optimizing vendor relationships will continue to be an area where focus can pay off for a bank or credit union.
- With many institutions facing continued net interest margin pressure, subdued loan demand, and threats from traditional and non-traditional players, the desire to get enhanced scale will be one of the dominant stories for the industry in 2021. The several large deals consummated in the last several months are just a hint at what is to come. Over the next several years, deals will easily outpace the approximately 250 deals per year averaged over the last 10 years.
Brad Downs, CEO of SRM, commented, “The pandemic has brought many changes to banking but what might be the most significant is the rate at which consumer expectations and business needs have and continue to change. In 2021, the banks and credit unions that can understand the depth and breadth of this and other impacts introduced into financial services over the last 10 months will be the ones to gain a competitive edge in today’s complex marketplace.”
Keynotes Announced: SAP Financial Services Live 2020
We are delighted to announce our Keynote Speakers & Session Titles for the upcoming free to attend digital event for banking, insurance, capital markets and central banks professionals; SAP Financial Services Live 2020 (17-19 November).
Meet Our Keynote Speakers:
Luka Mucic, CFO & Member of the Board, SAP
Financial Services: An Evolving Landscape
Christoph Böhm, CIO/COO, Deutsche Börse
Financial Markets and Technology in Transition
Maria Surmava, CIO, Discovery Health
Shared-Value Health Platform
Karsten Crede, CEO, ERGO Mobility Solutions
How to Become an Ecosystem Player
Peter Maier, President SAP Industries and Customer Advisory, SAP
Industry Convergence – Keynote Interview
Timo Elliott, VP – Global Innovation Evangelist, SAP
Opening Keynote; The World has Changed, and it’s Time to Adapt to the “Next Normal”
Alongside our keynotes, this event will be packed with SAP user case studies from leading global companies including: Bank of Ireland, Bank of Montreal, Capital One, Cornèr Bank, Discovery, Edelweiss, London Stock Exchange, MB Ageas, Munich Re, Samsung Life, Swiss Re, Vast Bank, Vienna Insurance Group, Zurich Insurance and many more to be announced.
Keep up to date with the latest information on our website >
Ahead of the event, you will have the opportunity to plan your own agenda with multiple live presentations each day to choose from. Then following the event, a library of on-demand content will be at your disposal so you can continue to strengthen your financial services business over the coming months.
Don’t miss the opportunity to connect online to debate, discuss and determine the current trends and hot topics for the financial services industry.
Sounds interesting? Register to join us here >
This is a Sponsored Feature
FinTech in Credit Markets: Efficiency and Potential Risks – Free webinar
With the help of alternative technologies, FinTech firms have begun to challenge the traditional banks’ role in financial services, from payment service to the provision of credits. This taster session aims to provide an overview of this development, with some focus on credit markets. We will discuss the scope and the drives of FinTech, its efficiencies, potential risks, as well as its relationship with traditional banking.
In this interactive session on Tuesday 10 November, Kebin Ma of Warwick Business School will discuss why FinTech has become a buzzword in the financial industry.
When: Tuesday 10 November 2020, 18:00 – 19:00 (UK time)
For information about the Global Central Banking & Financial Regulation qualification from Warwick Business School, in partnership with the Bank of England please visit wbs.ac.uk/go/banking
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Habits to bring back to the boardroom after the holidays
By Royston Guest is a leading authority on growing businesses and unlocking people potential. Entrepreneur, author of #1 best-seller Built to Grow and RISE: Start living the life you were meant to lead, CEO of Pathways Global and founder of The Business Growth PathwayÔ .
After a break from work, you feel refreshed, re-energised and re-focused and the quality downtime has given you the headspace you needed. Take this new energy and focus as an opportunity to introduce four new winning habits…you may be surprised at what you discover both personally and professionally.
Winning Habit #1 – Look At Your Business Through A Fresh Lens
When you’re working in your business every day, it is so easy to become blinkered. You start to see what you want to see, not the reality. I call this ‘focus distortion’.
It’s like at home when you’ve been away for a while and when you return you notice the pile of old magazines in the corner of the lounge or the DVD’s clogging the shelf beneath the TV. You start to question how long they’ve been there as you’ve failed to notice them previously. You decide to do a spring clean and set about creating a new reality as you look at your world through a fresh lens. Apply the same fresh lens to your business.
Post-holiday is a great time to do this, to imagine your first day back as your first day ever in the business. Challenge yourself to imagine you’re a new executive who has been newly appointed. With a fresh lens, challenge yourself to question everything, and I mean everything!
Ask quality WHY questions, review systems, processes and procedures and ask is it adding value, helping us to be a relevant, agile, resilient business? Is it adding value for the customer? Challenge the seven most expensive words in business; ’that’s not the way we do things’ or its sister statement; ’We’ve never done it that way before’.
Walking through your business with a restless curiosity and fresh lens is a cathartic experience and will certainly awaken your senses.
Winning Habit #2 – Question What Is Truly Worthy Of Your Time?
To create the stretch and growth potential for your people and business, you should focus on the things that only you can do. Yes, you’ll have oversight and a contributory role in other areas, but your primary focus should be on the high-value activities which allow you to realise the potential in your business and yourself.
On your return to the office, ask yourself this; what is truly worthy of my time?
If you find you’re spending more time on tasks and activities which quite clearly you shouldn’t be, then now is the time to change this because if you don’t, nobody else will.
Winning Habit #3 – Design Your High Performing Week
We all come back from holiday with good intentions; managing our workload more effectively, being home earlier from work to put the children to bed, not travelling as much. BUT, before you know it, the first few days and weeks pass, you were so busy catching up after your holiday your good intentions are out the window, and you’re back into your old ways of working. One of your highest callings is to be conscious and deliberate in how you set your high performing weeks up for success.
- focus on the things that only you can do, the areas genuinely worthy of your time?
- master the skill of saying NO to the unimportant things so you can say YES to the important things.
- create more time to work ON the business, not just the busy fool working IN the business.
- book quality thinking time in your diary, knowing the time you spend thinking will make the doing more effective.
- are home for bath and story time with your children or a meal out with your loved one.
Time and memories – you will never get back. Remember in life, you make your choices, and then your choices make you.
Winning Habit #4 – Become Your Own Performance Coach
Successful leaders have an insatiable thirst for learning, for showing up every day being the best version of themselves they can be. They spend their life being their own performance coach, ensuring they reach their true and maximum potential.
Maintaining relevance in the fast-moving arena of life is about being fresh, living life with deliberate conscious intent as the architect of your destiny. It’s about learning and developing yourself. Perhaps most importantly, it about applied learning and having the attitude of action.
It’s so easy to get caught up in the mechanics of the working day, and before you know it days, weeks or even months have passed since you spent time on you.
Invest time in you.
One of the six core human needs is the need for growth – for emotional, intellectual or spiritual development. If you are not learning and bettering yourself every day, then you are not growing.
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