Like almost every other industry in North America, the banking sector is undergoing massive transformation, with shifts in technology, consumer preferences, government regulations, and competition from startups. Innovation can help solve some of these problems, but legacy institutions which are slow to respond to changes may find themselves with a difficult transition.
Here are some of the challenges the banking industry is facing in 2020:
Regulations
New regulations come down the pike every year, but they tend to hit regional and local banks the hardest. Regulations passed in recent years include the Bank Secrecy Act, the Gramm-Leach-Bliley Act, the Basel Accords, and the Dodd-Frank Wall Street Reform and Consumer Protection Act.
While that’s a lot to swallow, one key take-away to keep in mind is that smaller banks do have a big advantage when it comes to rules: they are agile. Smaller banks can move and adapt quicker to changing regulations thanks to smaller footprints, smaller workforces that need to change, and smaller chains of command.
Increased competition
Mobile banking, cashless systems, and fintechs are reshaping the banking industry, and Goldman Sachs estimates that fintechs alone will account for as much as $4.7 trillion in diverted revenue annually. These new industry entrants are forcing many established companies to seek partnerships and/or pursue acquisition strategies—or get into the game themselves, as Goldman Sachs did with a heavy investment in fintech.
Digital transformation
Tech is reshaping the banking industry, with Big Data providing powerful insights and AI easing and automating workflows. Thing is, it’s not necessarily easy to adopt new tech, and it’s almost never cheap. How much adoption of new tech is necessary, and how much is just tech for tech’s sake? When considering new technology, banks should focus on new customers, boosting trust, and managing capital.
Mobile banking
Mobile banking is no longer a cool option for banks—it’s a necessity, with 89% of customers saying they use it. Customers will look at your mobile app before committing just like they may have kept an eye on your drive-thru lines in years before. Providing additional mobile features is a prerequisite to attracting and retaining customers. Opportunities for you include fraud detection, biometric authentication, voice banking, and mobile ATM withdrawals.
The economy
Rising housing prices and falling interest rates create a complex set of intertwined factors affecting the banking and loan industry. With limited housing stock in many areas and housing prices at unattainable levels from one end of the country to the other, banks may have to fight to write traditional loans. Contrast that, however, with interest rates at all-time lows, which means mortgage lenders should be prepared for a wave of refinancing.
CX and UX
Where the rubber meets the road is with CX and UX—customer experience and user experience. These heavy acronyms need to be top of mind for banks at all times. A 2018 retail banking survey found that financial institutions winning the CX game have higher recommendation rates and better add-on sales. Those that let it slide reported deposit losses of up to 12.5%. Simply put, customers are used to and demand high-quality customer experiences and user experiences. What does this mean? Your institutions needs smooth and satisfying interfaces ranging from your mobile app to your online presence to the vibe you project when customers walk in the door.
It’s no doubt that the banking industry is stronger than it was a decade ago, but there are still great strides to be made with the integration of tech, the creation of friendly customer interactions, and how you face external forces like economic trends and government regulations. Confront these challenges head-on and with bold thinking to succeed in 2020 and beyond.