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Traditional financial institutions are facing a new wave of crypto-enabled payments disruptions, and many don’t see it coming. Even so, lending as we know it is about to change.

In a recent post, I stressed the importance of banks and credit unions preparing for rapidly emerging financial technologies like CBDCs (central bank digital currencies) and DeFi. This post will take a closer look at what DeFi means for banking as we know it, and encompasses borrowing, lending, investing, payments, and digital wallets.

It’s not surprising commerce continues to migrate to digital channels across all sectors and that the pandemic has pushed further the already speedy digital banking trend. In the FI world, consumers rely on their bank or credit union’s virtual branch to navigate real-life decisions.

A recent family trip to Florida’s gulf coast reminded me of how much importance customers put into “What it says on the website.” We visited an area decimated by Hurricane Michael the year prior; although it remains a beautiful destination, the storm’s impact was still evident. Some businesses only had websites left standing, as we soon came to learn.

Over the last year, chaotic disruptions have upended traditional operating models at financial institutions (FIs) worldwide, and many are only now stepping back from "fire drill" mode. As for the leaders of these institutions, their task is to now scale up and rebuild operating models - ones adapted to their current (and future) post-pandemic environment.

After a period of such intense disruption, here are three ways to check and double-check the blueprint when rebuilding an FI's business models.

Though the pandemic caused a slowdown in banking industry consolidations, a recent surge of M&A activity is already breaking records. New data published by S&P Global shows M&A transactions delayed by the pandemic are not only pent-up in numbers, but they’re also getting bigger - extending to regional and super-regional banks holding $10 billion to $1 trillion in assets.

Bitcoin’s value - which has doubled in 2021 - continues to generate headlines but, behind the scenes, something even more significant for banking, as we know it, is happening. Central bank digital currencies are now emerging from experimental trials, disrupting the norm, to take a leading role on the global payments stage.

As for banks and credit unions, we recommend researching and rehearsing your crypto lines (of business) for showtime.

With vaccinations ramping up and most businesses reopening this spring, it’s getting easier to envision a return to normalcy later in 2021. Even so, neither Main Street entrepreneurs nor bankers are quite ready to heave a sigh of relief.

As has been seen...and experienced, some need more assistance than others, and some have proven adaptable to new conditions, whatever comes next.

The business world is awash in trade groups and industry associations, but a new player's recent formation deserves special attention. The creation of the Payments Leadership Council (PLC) marks a significant milestone, one with the potential to shift the dynamic in the ongoing tug-of-war impacting card payments systems regulation.

The PLC brings together the CEOs of the four major card networks (Mastercard, Visa, American Express, and Discover) as well as those of the "Big Three" payment processors (FIS, Fiserv, and Global Payments). Equally notable is the PLC's appointment of Raj Date as its Founding Director. Date's past experience as Deputy Director of the Consumer Financial Protection Bureau – where he played a central role in the agency's launch – is a clear signal of the PLC's intent to engage more deeply in legislative corridors. Recent events demonstrate why this is a savvy move.

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.