A new report from Greenwich Associates, Top Trends in Banking: 2017 and Beyond, says a combination of rising interest rates, a less zealous regulatory environment, tax cuts, and optimism among business owners will provide a much-needed profit boost for banks in 2017.
The report, authored by Greenwich Associates Managing Director Don Raftery, identifies the following top trends to watch for in the coming year and beyond:
1. Onerous C.A.R.L. (Compliance, Audit, Risk, and Legal) costs abate: While few are expecting a near-term full repeal of Dodd-Frank, Greenwich Associates expects to see a regulatory environment that is less zealous in enforcement and more measured in leveling fines.
2. Banks accelerate transformation into tech companies: As it evolves into more of a tech industry, banking will become a scale business in which the largest providers will be able to invest in solutions that will differentiate their client experience. On the flip side, since scale is often the enemy of nimble innovation, partnering with and/or purchasing fintech firms will be an important part of the strategy.
3. Banks get more disciplined on resource allocation: “Juniorization” of staffing models and low-touch delivery channels for “lower value” clients will be the norm. Only “high value” clients will command the best and brightest resources. Technology will help augment the more streamlined human touch.
4. Rising battle for banker talent: The war for banker talent will become fierce. Highly skilled advisors that help clients through uncertain times with complex solutions will become more difficult to find and retain.
5. Artificial intelligence takes transformational steps: Artificial Intelligence will evolve from a buzzword to a critical capability that helps drive better outcomes for clients, increase efficiency for banks, and solve for talent shortfalls in banker advisory skills.
6. Blockchain moves beyond hype: Greenwich Associates expects to see initial use cases for blockchain/distributed ledger technology in internal bank processes (where visibility of transactions is less of an issue), bank-to-bank functions, transactions, and trade finance.
7. Global banking doesn’t shrink: Brexit, Trump’s potential trade tariffs, and upcoming European elections fueled by nationalistic sentiment all lead to greater complexity in international business. Clients need expert advice to help navigate uncertainty, avoid potential pitfalls, and optimize their decisions.
8. Specialist providers win wallet from traditional banks: For the next several years, specialist providers will continue to capture business, especially in peripheral products (401(k), wealth, merchant services, M&A, etc.). Specialists are generally easier to do business with and often have better pricing, service, and/or product capabilities.
9. The fintech herd is culled: Sky-high multiples for fintechs will be seen less often as it becomes clear most need banks as partners to scale quickly enough to compete. The balance of power will shift, with fintechs aggressively seeking out bank partners the same way banks were aggressively courting fintechs not long ago.
10. Dominant digital brands emerge with foundations on security: Increasingly sophisticated hacking and fraud schemes force companies to manage their exposure by limiting the number of financial services partners that have access to sensitive information flows. The relatively small number of providers that are perceived as having high platform security, easy-to-use platforms, and digital functionality that enables broad capabilities will emerge as leaders.
11. Banks get “Minted” via open APIs: In the consumer space Mint does a good job of account aggregation across providers and for many of its clients, it becomes the sole front-end digital-user experience—”owning the customer interface.” Just as mom-and-pop stores have been “Amazoned” for the past decade, watch for banks to get “Minted.”
“Looking ahead, banks can create value by providing the expertise companies will need to navigate an increasingly complex environment with rapidly changing rules,” says Greenwich Associates Managing Director Don Raftery.