Editor’s Note: Digital innovation in banking doesn’t seem to be slowing down in 2022. Customers’ appetites for more accessible digital solutions and services are growing, and competition between banks is greater than ever. Such technological investments and offerings are what set some banks apart when it comes to mergers and acquisitions, which don’t appear to be slowing down either.
In 2022, we are almost certain to see continued consolidation in the financial services industry. Invest in your institution’s independence by leveraging reliable, secure and agile cloud connectivity.
Rapid transformation and constantly evolving consumer preferences over the past few years have meant that businesses and financial institutions have had to be ready for change on an almost daily basis.
The shifts that businesses have made in 2021 now provide a roadmap for how to navigate the new year, which will surely have more surprises in store. While the pandemic further accelerated changes we were already seeing, it created an inflection point requiring leaders, bankers, and businesses to reassess their priorities and adapt to this new operating reality.
Last year not only demonstrated the industry’s resilience and adaptability, it also laid the groundwork for the changes in the new year.
Here are some 2022 banking trends we anticipate:
In 2020, the U.S. economy hit all-time lows and contracted at a 3.5% annual rate—the lowest annual rate since World War II, according to ECLAC—but, by the end of the third quarter of 2021, we saw a slow but steady annual growth rate of 2 percent, signaling the economy was making headway in its recovery.
A recent surge in inflation has led to a new challenge for businesses, requiring them to stretch their budgets, consider raising prices, and most importantly, plan ahead.
According to a recent consumer price index report, prices rose 6.8 percent in November to a nearly 40-year high. Clearly, 2021 will go down in record books pointing to high inflation. While officials continue to maintain that rising prices won’t become a permanent fixture of the economy and policymakers have tools to keep inflation under control, inflation may pose longer-term business challenges than anticipated. With this in mind, the Fed has signaled two to three interest rate hikes are coming in 2022.
M&A activity continued at an unprecedented level this year in banking and beyond. Halfway through the year, there were more than $2.5 trillion of deals announced and the combined deal value of 2021 U.S. bank mergers grew to more than $61 billion at the close of November, according to S&P Global Market Intelligence.
In 2022, we can expect to see continued consolidation. Scale will be critical in order for companies to navigate changing regulatory landscapes, recruit top talent, and continue to make significant investments in digital infrastructure and new technologies.
Banks will push more capital toward product advancements and partnerships and continue to consolidate to manage the increasing costs of tech investments and the regulatory needs for those businesses. We’ll also see bank/fintech M&A increase. In fact, we are already seeing a number of announcements being made as the year ends. More recently, we’ve even seen fintechs acquiring small banks, a trend that could continue as fintechs look to expand their offerings.
Community banks were founded to serve their local communities, typically serving a radius surrounding their brick-and-mortar locations. As technology allows for new types of networks to be created online, geographic boundaries begin to collapse. Banks, in particular, will adapt to build and develop their offerings around their specific audiences and work to show up where their communities reside online. We’ll see the embedded banking trends continue as banks explore unique ways to layer financial services into businesses’ unique processes.
There are complicated new decisions banks and financial institutions will need to navigate in adopting, integrating, or creating new technologies that meet the specific needs of their business and customers.
An evolving regulatory environment
As banks explore new technologies, regulations will evolve accordingly. We’ll begin to see more regulation around banks’ use of blockchain and cryptocurrency take shape. In the past few weeks, we have seen more regulatory guidance on how these technologies can be used in a regulated and safe way along with the risks that banks should be prepared to manage.
In 2022, we can expect further guidance and regulation to evolve, resulting in more banks migrating processes and payments to blockchain and incorporating blockchain technology more deeply into their business and operating models. As that shift occurs, we will likely see even more companies surface to support the rising demand of the financial services industry.
Tackling the search for talent
“The Great Resignation” is impacting almost every industry in the U.S. and is something that businesses will continue to wrestle with this year. Talent management, upskilling and attraction will rise to the top of businesses’ key priorities. We’re seeing companies shift traditional HR departments to modern Talent Management areas with fusing sales, marketing and experience functions to deliver better employee experiences.
Ultimately, a company’s culture and brand matter more than ever and banks and financial institutions like other businesses will have to focus on that to retain their existing employees and appeal to a new workforce. Business models will have to adapt to find talent, and that means hiring outside of their geographical areas. In a technology-focused landscape, banks and FIs will be looking outside traditional financial background and more toward candidates with tech experience.
Last year was an unprecedented period of change—for banking, the broader business community and our economy at large. The trends catalyzed by current events do not appear to be waning—instead, they continue to expand, evolve and create more uncharted challenges for the banking industry to navigate.
With this change, comes new opportunities, and it’s imperative for businesses and leaders to continue to be nimble and adaptable in embracing a constantly evolving landscape to drive continued growth and expansion.