With changing economic conditions, inflation, COVID-19’s continued fallout, and escalating consolidation in the financial services space, predicting what’s to come in the new year is anything but certain. Despite the challenging environment, the consultants and analysts at SRM have identified key trends that will impact banks, credit unions, and fintechs in 2022.
Rather than scrambling to adjust as they play out throughout the year, we advise financial institutions to embrace the wave ahead and implement these trends into their 2022 planning.
Enjoy part one of two in our series on what’s in store for the year ahead.
The Harder, Smarter, Digital Path to Loan Growth
The unprecedented influx of deposits that materialized in late 2020 has yet to show clear signs of reversal, leaving banks and credit unions with an acute need for loan growth to put these funds to use.
Headlines are touting skyrocketing home prices which disguises the fact that housing inventory is not keeping up with demand. Not only is overall growth in mortgage balances – by far the largest category of U.S. consumer debt – relatively muted, but an increasing share of new lending is being claimed by non-traditional players like Rocket Mortgage and SoFi. Further complicating matters for FIs, outstanding credit card debt has fallen by roughly 13% from pre-pandemic levels. The conclusion? New roads need to be paved to drive loan growth.
An ongoing shift away from branches to digital channels as the primary point of client contact exacerbates the situation. Human engagement, often in a branch interaction, has been the most effective vehicle for many FIs in identifying pain points and recommending solutions. With little reason to expect branch traffic to rebound, banks and credit unions face a critical need to upgrade their digital marketing and client engagement to create personal connections on par with an in-person experience. This requires an unvarnished look at the FI’s core processing technology and how it syncs to new technology layers and applications, which is no easy task.
It’s imperative to take a hard look at retaining originated loans that would have been sold off in the past. We’ve also seen FIs acquiring lenders typically engaged in selling loan originations to turbo-charge this process.
A Simpler Roadmap to Automation?
Another lasting effect of the pandemic is a persistent labor shortage, which has hit frontline support areas like call centers. Fortunately, these same functions tend to be good fits for automation. During pandemic shutdowns, many banks and credit unions delayed artificial intelligence (AI), automated loan decisioning, and robotic process automation (RPA) projects to free up IT bandwidth for short-term imperatives. We see these previously deferred initiatives as priorities in 2022 – especially those involving conversational AI, which promises to ease contact center bottlenecks.
Although significant technology initiatives are commonly associated with large national banks and credit unions, smaller institutions are increasingly stepping up to the plate. The key to success in such efforts is to avoid creating bespoke technology. The availability of robust APIs makes it possible to deliver a quality online experience without over-engineering the process. Like the core processing systems issue noted above, a key decision involves fully integrating tools like RPA or relying on a quick and straightforward approach.
The Bottom Line
Banks and credit unions that are quick to recognize these two important trends will gain ground on their competition. In addition to loan growth, automation, and enhanced online experiences, SRM’s subject matter experts foresee significant near-term developments in cryptocurrency and shifting payment preferences. Look for more on this in part two of our series.