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.
Elections Have Consequences
Arguably, regulations impact financial services more than any other US business sector. Over the past four years, the Trump administration relaxed restrictions imposed in the wake of the 2008 global financial crisis, which gave rise to the Dodd-Frank Act and the creation of the Consumer Financial Protection Bureau (CFPB).
President Biden campaigned on reinstating many of these reforms. Appointed regulators have leeway to implement many such changes without the passage of new laws. Given narrow Senate margins, however, some of the more dramatic changes feared by banks and credit unions are likely off the table.
Besides, President Biden’s administration has more pressing issues to address than financial regulation. Unlike the 2008 crisis, financial institutions are not cast in the role of the perpetrator, so there’s less urgency to fix an imperfect system.
The most likely immediate changes will be at the CFPB, particularly given the strain felt by many consumers in the economic downturn. To this point, President Biden has named Rohit Chopra as his pick to lead the CFPB. Mr. Chopra has been a member of the Federal Trade Commission (FTC) since 2018 and was the CFPB’s first student loan ombudsman. The agency, under new leadership, is expected to apply a heavy focus on how banks, lenders, and debt collectors treat their customers. Specifically, enforcing legal protections for distressed renters, student borrowers, and others facing debt struggles due to the pandemic. Furthermore, the CFPB is likely to make racial justice and equality an objective; with the goal of improving financial access for the roughly 20 million unbanked Americans. Broadly speaking, however, expect the regulatory tone to shift to something resembling 2016 levels.
Which Part of “The Future is Digital” Remains Unclear?
Positive news on the vaccine front has opened the window to speculation on how soon Americans might return to something resembling a pre-COVID lifestyle. An equally important question for financial institution leaders is how closely their operating environment will resemble their pre-March 2020 world.
The rapid migration to digital channels over recent months, though driven by necessity, mainly represents the acceleration of a trend already well underway. A new cohort of consumers- many from demographics considered “digital-averse”- have now become comfortable with these tools. There will be a return to on-site banking to some extent, but customers are unlikely to disconnect from digital, entirely.
To be responsive to changes in consumer behavior, banks and credit unions must focus on digital investments. In recent months, there has been a dramatic shift to Card Not Present transactions, demand for technologies like contactless and P2P payments, mobile deposit, and online account opening. Single sign-on and biometric authentication will become essential, particularly to support increasing consumer expectations of anytime, anywhere access. Development teams should become versed in API integration and open banking techniques, allowing financial products to be embedded within other apps and services.
As part of this digital shift, branches are likely to become less “transaction hubs” and more centers for service, sales, and advice. This will impact both physical layout and real estate portfolios over the coming years- it does not mean that branches will vanish overnight, however.
Bracing for the Long Haul
We would be remiss to ignore the multiple waves and new variants of COVID-19, which will likely cause longer term operational impacts - such as longer work-from-home arrangements and heightened cybersecurity risks.
Recent experience with our clients has reinforced the importance of business continuity planning and preparedness for worst-case scenarios. A pandemic is hardly the only potential natural disaster - be sure to review both your and your vendor partners’ plans.
Even without additional waves, consider also the “bread and butter” banking issues like the downturn’s ultimate severity and its impact on delinquencies, loan demand, and creditworthiness.
Suffice to say, flexibility will be critical and items like third-party payments and technology agreements should be closely reviewed, creating latitude for your strategic plan to react to shifts in account-holder habits and even uncover additional revenue.
The Bottom Line: While recalibrating your strategic plan amid all the uncertainty in our world can seem overwhelming, it is now more important than ever to do so as we all, together, enter a new, post-pandemic age. For our part, SRM is always here to lend a hand to our bank and credit union clients in this ever-changing environment.
For more related to this topic, read “Show Me the Budget | Five Covid-19 Savings and Revenue Strategies.”