MEMPHIS, Tenn.–An overview of the trends seen in the first half of 2021 and predictions for what lies ahead in the second has been released by the advisory firm Strategic Resource Management (SRM).
According to SRM, key trends in the first half of 2021 have included:
- Mergers delayed due to the pandemic are now in full force and more complex. The company noted new data from S&P Global show M&A transactions pushed back due to COVID-19 are not only pent-up in numbers but also getting bigger - extending to regional and super-regional banks holding $10 billion to $1 trillion in assets. “We expect to see even more mergers among these banks in the coming months, which will continue to impact competition in the marketplace,” SRM said.
- The creation of the Payments Leadership Council (PLC) has been “monumental.” SRM said the group seems to be positioning itself for “round two” of the Durbin Amendment. “Although skirmishes surrounding its enactment may be fading, signs abound that both camps are girding for another round of battles,” SRM said. “Institutions need to be closely monitoring developments with both the PLC and those on the legislative front.”
- The digitalization of payments continues to progress with further. That progress will lead to mobile wallet developments, increasing contactless payment and P2P usage, more buy-now-pay-later options, and crypto implementations, SRM said. “We’ve also seen many institutions revamping their loyalty and rewards programs to better serve their customers and members, including crypto reward programs for credit and debit cards,” the analysis added.
- While consumer behavior continues to evolve, digital usage is steadying, and the digital revolution won. In a recent US consumer survey conducted by SRM, only 8% of respondents were new to doing their banking via digital channels. Virtual assistants are also beginning to gain more traction. “On average, 1 in 5 respondents said they would prefer using a virtual assistant (Alexa or Google Home, for example) over using an app to do their banking. Institutions need to adapt to their consumers - including those working from home - to stay relevant and competitive,” according to SRM.
Recalibrating FIs’ Revenue Streams
- Card networks are planning for post-pandemic consumer payments. “With card dynamics shifting, financial institutions must carefully execute their portfolio optimization strategy, which will depend on location, merchant composition, and other factors,” SRM stated. “Banks and credit unions must make sure to optimally calibrate their network agreements.”
- Central Bank Digital Currencies (CBDC) continue to emerge, with organizations like the Chinese and European central banks disrupting the global payments landscape. “These must be carefully launched, though, as there are many monetary policy objectives a CBDC must accommodate in its design,” SRM said. “Institutions should dedicate resources to understanding the ins and outs of crypto, including non-fungible tokens (NFTs) and decentralized finance (DeFi).”
- Institutions are now recovering from the chaotic disruptions they faced during the pandemic, and it is now time to rebuild operating models. “The past year’s events have raised the stakes for three critical areas: product portfolio mix, supplier management, and branch planning/location strategy,” SRM said. “To achieve operational excellence in the post-pandemic environment, institutions must strategically rebuild these business models.”
Looking Forward
“The pandemic massively disrupted the financial services industry, but banks and credit unions showed great agility in this chaotic time,” said Brad Downs, CEO of SRM. “Now, with the world trending toward slowly opening back up, it is time to look forward and prepare for what’s next. Institutions need to keep adapting to new consumer behaviors and preferences, restructure internal operations, and recalibrate revenue models to successfully scale this year and next.”