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Bankers may need little convincing to see that we’re dealing with highly unusual market conditions, but the data certainly helps put the situation into perspective.

In 2020, the number of new checking households dropped by half compared to a typical year of account openings, however the average checking account balance grew by an astonishing $1,833. Indeed, many experienced a meaningful increase in liquidity, though not all higher checking balances reflect greater wealth. There have been unusually high shifts of expiring CD balances to more liquid savings vehicles, as well as an influx of government economic relief funds. On the other hand, fewer are opening new accounts. This could have dire consequences for individual institutions if it becomes a long-term trend since household growth is the lifeblood of community financial institutions (FIs).

The winds have shifted since 2020 made game-changing waves in debit card usage on multiple fronts, including:

• In-person versus online spending
• Categories of merchants patronized
• Contactless/mobile app adoption

Each of these factors carries implications for banks, credit unions, and other card issuers and their existing revenue models. Below are a few opportunities and recalibrations to consider for your next PIN network vendor negotiation.

In two previous blogs, SRM detailed the top trends we see driving 2021’s financial services landscape. In this final Trends post, we turn our attention to an emerging one we have observed on both sides of the Atlantic, Open Banking.

We are now living through a highly unusual economic scenario.

Dubbed a K-shaped recovery by some, a severe economic downturn has arrived hand-in-hand with a sudden and significant inflow of consumer deposits.

The reasons behind this phenomenon are debatable. The broad-brush US approach to government stimulus/relief certainly plays a role, but no bank or credit union leaders saw this coming as PPP funding scenarios began to unfold. The result is a bizarre banking dynamic that’s a far cry from the challenges of recent years. Gone are the days of fighting to grow deposits by more than low single digits per annum. In 2020, it was not unusual for institutions to have registered checking balance growth of 15-25%. One client we’re aware of saw deposits grow unexpectedly by $1 billion.

From a bank or credit union’s perspective, a historic, pandemic-grade deposit influx may be the proverbial good problem to have, but it’s a problem nonetheless.

Raise your hand if you miss in-person conferences.

SRM has attended hundreds of state, regional, and national events over the years. Still, last year’s GAC (Government Affairs Conference hosted by CUNA) was especially memorable because it was the last major destination event we attended before social-distancing measures went into effect.

Since then, the credit union conference scene and SRM’s participation has had to adapt to the virtual world.

In a recent blog post, we elaborated on several trends that our payments experts expect will impact the banking industry in 2021 - including trends regarding digital banking investments and the branch’s evolving role with consumers.

Let’s continue that conversation by exploring additional factors directly related to the retail banking industry’s current environment, specifically:

• The ongoing shifts in payments preferences
• Battening down for the next economic wave
• Changes in the regulatory climate

My colleague, Patrick Goodwin, recently wrote about the challenges of budgeting amid the uncertainty of a pandemic. Given the circumstances, it’s understandable some might be seeking a “hall pass,” to excuse themselves from long-range planning. Unfortunately, the hyper-competitive financial services marketplace doesn’t allow for such luxury.

Strategic planning is laced with uncertainty. Much of its value is derived from the team-based exercise of thinking through contingencies and gaming out some of the inevitable course corrections. In that sense, the effort may be more important than ever for the 2021-23 horizon.

Now that we’ve closed the book on 2020, we can count on a swift change to the financial services landscape, right? The answer is yes…and no.

With the ongoing vaccine distributions and a new administration in Washington, there’s even more reason to expect the new year to bring new behavior. On the other hand, conditions don’t turn on a dime simply because the calendar flipped to January.

With that in mind, SRM’s payments experts have identified several trends we expect to drive financial services dynamics in 2021. Although their full effect is unlikely to be visible early in the year, banks and credit unions must consider these trends in setting priorities for 2021 and beyond.

PayPal Holdings, Inc., recently announced enhancements that will enable its users to buy, hold, and sell cryptocurrencies within its app, and to pay for purchases with these crypto assets, as well. Most of the attention has naturally focused on Bitcoin - the household name of cryptocurrencies – and, by far, the largest. Not surprisingly, the price of Bitcoin quickly surged past $16,000, thanks to the associated visibility and implied credibility.

The annual budget process is usually an exercise in planning for uncertainty. Add to that, it’s challenging, time consuming, and complicated. Then, when finalized, all you know for sure, is that it is at best a pro forma. That’s because financial institutions (along with everyone else) operate in an environment with multiple variables they do not control…and that has become even more evident in 2020.