Glancing Back and Looking to the Future in Banking 

Glancing Back and Looking to the Future in Banking

As we wrap up 2019, I wanted to take a minute and look at some of the key items that changed banking and at the same time take a peek into 2020 (which depending on the economist you listen to, will present even more excitement and challenges). 2019 was the year of “digitalization”, with bankers everywhere reaching for the goal to make every borrowers interaction become a truly digital experience. Customers expectations are now set to experience this digitalization through a mobile first channel, informed by data driven insights, and expand the scope of the interaction by leveraging an open banking platform.

There have been a lot of achievements in getting to this truly digital end goal, but as the Accenture Digital Leadership study called out, there is still a significant population of financial institutions (over 88%) that are not where we as an industry would want them to be. Looking back at 2019, there have been some headlines worth examination and considering as we look forward to 2020.

Opening Banking is Open For Business

We start 2019 with the news of Finxact getting over $30 million in funding from the ABA and others.  This was huge in my eyes because it answered the question “is open banking sustainable?”  The answer is absolutely YES!   I see an array of options in 2020 for bankers to connect, expand and explode into new opportunities and markets by connecting into opening banking and most importantly connecting with your customers where and how they want to engage.  Ask yourself how open, in a digital sense, your customer engagement is, and consider if you are a leader or maybe somehow challenged, in getting to this digital end point.

Digital is the On-ramp to Growth

Like I mentioned in the onset, growth via a digital platform was the theme for 2019.  From deposit growth by engaging customers to create more sticky relationships, to AI designed to help with financial education, to a stream of online, alternative loan origination options, the common factor was a digital footprint. The efficiency of a digitally focused bank is that the process can extract more revenue per dollar of asset.  This is critical because the pressure to grow by fee income is quickly becoming an outdated strategy. Baker Hill has many clients that have come onboard to a digital landscape with amazing results – look and see what you could experience as well.

CECL Hot, CECL Cold, CECL Just Right

Coming into 2019, you could not Google anything without getting a “CECL readiness” article in your search.  It was the industry’s favorite four-letter word. But when FASB decided to give most banks and credit unions a pass until 2023, it went dark and went dark fast.  In my opinion, we made the pendulum go too far both ways – especially as we look at a potential slowdown in 2020.  I think that there is a “just right” stage for CECL and it is up to banks to get to that point.  To learn more, Baker Hill has a CECL guide to help your institution – take a look.

Competition is Growing and Not Leaving

Kabbage, Stripe, Apple Card, Square, and Amazon are just a few of the players that are changing the marketplace and more importantly customer expectations.  Primarily, we are seeing influences on either side of the pond, with a few unicorns out there like Ant Financial and they are clearly changing the landscape as well.  We don’t know at this time, who will be the next unicorn, but one thing is certain, there will be one prancing around the ecosystem in 2020. More information to come here.

So, What Is Next… 

A lot of economists are talking about Summer 2020 as the start of a slowdown, and yet every banker I speak to is not tightening credit, while at the same time they are not loosening credit as well.  So, where do we go from here?  Banks are going to have to make some game changing plays in the first part of 2020, and that will require that they truly become digital banks that can rapidly gain steam in the banking industry. This will allow those tech-savvy, Amazon-adapted, consumers to adopt and cause a massive transformation in demands for digital banking and mobile-first services.

Additionally, with a slowdown on the horizon, institutions are going to have to focus on growth, but manage risk at the same time (kind of sounds like “just right” CECL).  With a balanced approach, your institution will be in the driver seat for growth.  So, I think that 2020 may look a little like 2019, but with a lot more digital play space – leading to a lot more opportunities for growth.