Major League Baseball just completed its All-Star Break, which is traditionally seen as an opportunity to assess the season’s performances to date. We at SRM do something similar, revisiting our annual list of industry trends impacting banks and credit unions’ growth strategies and vendor contract relationships.
It’s been an action-packed first half of 2019. The trends we highlighted at the beginning of 2019 are actively shaping the financial services market and decisions being made by banks and credit unions. Here’s a quick summary to detailed analysis of the topics we’ve provided throughout the year.
The Other Side(s) of Consolidation
Predicting consolidation in the financial services industry is similar to suggesting that Ronald Acuna, center fielder for the Atlanta Braves, will likely send a hanging curve ball into orbit. Consolidation is the key to scale, and scale is a basic requirement for many entities seeking to capture market in financial services.
Most of the time when the topic of mergers and acquisitions arises, it is in reference to consolidation among community banks and credit unions. While activity in that space has continued at a brisk pace, the “big” (literally BIG) M&A news from the first half of 2019 came on the other side of the ledger. Fiserv surprised the financial services world in January with its $22 billion acquisition of First Data. Announced combinations of FIS/Worldpay and Global Payments/TSYS swiftly followed, and within a mere three months the payments landscape had been transformed resulting in less choice for financial institutions.
Consolidation isn’t the only trend worth recognition in payments. Growth in mobile transactions continues at a steady rate, not to the surprise of anyone, as consumers increasingly use their smartphones or tablets for purchasing decisions. In fact, research suggests that mobile devices influence more than half of every dollar spent. On a related note, a resurgence of financial institution-branded mobile wallets may be on the horizon. If banks and credit unions attempt to make a play here, their efforts will not be without some errors or, perhaps, an “Applesque” result.
Blue Skies Ahead?
Now back to the trends we spoke of back in January. It seems like a distant memory, but less than a decade ago, most bankers laughed at the notion that financial services processing could safely be moved to the cloud. Quickly but quietly, Software as a Service (SaaS) has become the largest segment of the cloud market in the United States with revenue expected to grow 17.8 percent in 2019. The primary impetus for most of these moves to date has been a desire to reduce IT complexity and, by extension, cost. The greater long-term benefit, however, will be their ability to execute upgrades and add new functionality more rapidly and seamlessly.
Even with the positives that the “cloud” presents, it brings with it does not address a challenge that threaten to make many financial institutions irrelevant. As with on premise and/or aged legacy solutions, cloud technology choices can hamstring banks and credit unions through sheer inertia. The speed at which technology is advancing creates an additional obstacle since keeping up with the advances are often far broader in impact. To address this challenge, more banks and credit unions are building partnerships with those in the industry that make their living studying technology and its potential impact on financial institutions.
Use Your Voice…Intelligently
My colleague Simon Rose recently shared his thoughts on why voice technology faces steep hurdles in the UK and Europe. The United States is a different story; the smart speaker market reached critical mass in 2018, with around 41 percent of U.S. consumers now owning a voice-activated speaker, up from 21.5 percent in 2017.
Financial institutions are racing to introduce voice commands for banking functions, which, as Simon suggests, raise issues around authentication and security. In addition, there’s a natural tension at work here, balancing the benefit of preserving a direct customer relationship with the fact that it is much easier for consumers to use a device they already have from Amazon, Google or others than to access a voice assistant living in a mobile banking application.
And, voice-enabled solutions are often powered by artificial intelligence (AI), a technology that financial institutions can ill afford to ignore given its projected $15.7 trillion impact on the global economy by 2030. Venturing onto this terrain can be intimidating, but there are incremental, affordable steps banks and credit unions currently are taking to build an understanding of how AI can deliver efficiency, improved quality and standout customer service. The institutions taking these initial steps are not just multibillion dollar regional organizations; AI can and is bringing savings and improved service levels into banks and credit unions that are in the community space as well.
The Bottom Line: These trends are taking most banks and credit unions outside of their comfort zones, and they are not going alone. Technology is moving at such a rapid pace that community institutions are taking the time required to find the counsel they need to be successful from third parties. These partners are providing everything from strategic guidance to vendor evaluations and contract negotiation. As we enter the second half of the 2019, we can be certain that technology and supplier-related decisions are only becoming more complex.