After a prolonged period of disruption in community banking, resiliency and flexibility will help organizations uncover new opportunities in 2022.
Financially, 2021 was a good year for community banks. The massive injection of liquidity from the Paycheck Protection Program and other relief and stimulus programs inflated deposits. And while there were initial concerns about substantial credit losses, especially in 2020, many community banks are experiencing lower than expected default rates.
In the months ahead, financial institutions will be under enormous pressure to grow and sustain the previous year's somewhat artificial performance in an increasingly competitive market.
Community banks are moving into 2022 with some uncertainty. Consumer spending is off the charts, but services-based industries are suffering, which hurts the community banks that serve them. At the same time, community banks are challenged to deliver the digital experiences consumers increasingly prefer, while striving to build and maintain strong accountholder relationships with fewer face-to-face interactions.
How will community banks respond to shifting economic conditions, new market players and increasing demands for digital in 2022? Here are three trends we're watching.
Community banks are embracing technology to think differently about the capabilities they provide, especially to nontraditional customers and markets.
1. Using Technology to Maximize Efficiency
Doing more with less is a bedrock issue for community banks, and technology offers new ways to find greater efficiencies.
For example, many organizations are automating routine, repetitive tasks with robotic process automation (RPA). In the same way, data integration, real-time capabilities and self-service tools are maximizing efficiencies for community banks while enhancing the financial services experience for consumers.
Delivering innovative digital technologies is dependent on investments in processes, agility and, especially, speed. Innovations must be brought to market as quickly as possible to capitalize on efficiency gains. Look for community banks to continue to condense their planning cycles to enable quicker delivery of new capabilities, whether through a technology provider or third-party fintech.
2. Staying Nimble to Quickly Meet Changing Consumer Preferences
Being nimble is about more than speed; it's also about organizations' ability to react and adapt quickly to changing market conditions and pressures. Our industry's response to the Paycheck Protection Program, for example, demonstrated how managed programs, collaboration and turnkey offerings can help community banks rapidly pivot to evolving priorities to deliver important value to their customers.
Most organizations don't have the luxury of time in bringing new products and services to market, which will make the extensibility of digital platforms increasingly important. Fintechs and open banking help community banks quickly deploy new capabilities to meet evolving consumer preferences. But the ultimate goal of integration with third-party fintechs should be to provide digital experiences so rich and seamless that customers are unaware they've left a bank's platform.
Community banks are embracing technology to think differently about the capabilities they provide, especially to nontraditional customers and markets. For example, technology offers financial institutions of every size the opportunity to grow without the limitations of geography. Instead of losing market share to fintechs, community banks can use technology to position their organizations for continued success.
Being nimble is about more than speed; it's also about organizations' ability to react and adapt quickly to changing market conditions and pressures.
3. Use Data and Analytics to Expand Capabilities
Just as cars are beginning to drive themselves, what if data, analytics and artificial intelligence (AI) could provide assistive, predictive decisioning to enable an autonomous, self-driving bank?
It starts by moving banking relationships from just transactional and advisory functions to more predictive capabilities – and by helping financial institutions automatically make sense of all the information at their fingertips. Let's say a customer has been receiving regular payroll deposits every two weeks for 20 years, and then those deposits stop. Did that customer lose or change jobs, retire or change banks? Analytics reveals that information so the bank can take actionable next steps.
Technology scans merchant, card and banking transactions to look for buying behaviors and trends. Knowing how money is moving in and out of a financial institution can help organizations identify good candidates for preferred rates on home loans or lines of credit, for example. These offers can then be automatically advertised directly to the consumer using AI and machine learning.
Data and analytics can provide added visibility and risk mitigation to processes and portfolios. Before the next round of funding is released for a commercial lending project, for example, lenders can use AI to ensure next steps, such as necessary inspections, are completed.
For most community banks, using data and analytics to expand capabilities, offer tailored experiences and improve bottom-line results is a baseline competency. In 2022, look for organizations to step up their use of information to increase efficiencies and enhance their offerings.
Finding Success in 2022
The world has changed, and community banks are changing with it.
Community bankers once knew the names of nearly every retail and commercial customer who walked in a branch. But now, personal connections are built and maintained mostly through financial institutions' new storefront – digital touchpoints and experiences.
Organizations that continue to innovate and maintain strong customer relationships, while responding to changing consumer expectations, preferences and behaviors, will be well equipped to find success in the coming year.