SCOTTSDALE, Ariz.–A new report from Cornerstone Advisors on what 2021 holds for the financial services industry has found a “mixed bag,” at least “one pleasant surprise,” and a surprisingly high number of CUs indicating they may be involved in bank acquisitions.
The report, “What’s Going On in Banking 2021 and authored by Ron Shevlin,” states that “2021 will be a mixed bag for the banking industry. On the whole, bank and credit union executives are more optimistic than pessimistic about 2021. The reality will be positive and negative. One pleasant surprise in 2021 will be lower loan losses than anticipated.”
But “thanks to the new occupant of the White House, however, the industry will see two unpleasant developments: 1) slow economic recovery, and 2) re-regulation of the industry,” the report’s analysis suggests.
The Forecast
Among the predictions made in the report:
- Merger and acquisition (M&A) activity will restart. “2020 was an understandably slow year for mergers. In 2021, M&A activity might not get back up to the 2019 level but it will be substantially higher than last year—in particular, among credit unions,” the report states. “Nearly four in 10 credit union execs think it’s somewhat or very likely that their institution will acquire another one in 2021 (a percentage that seems excessively high).”
- Realestateisthenewpariah. “For the past few years, we’ve been telling banks to diversify their loan portfolios away from commercial real estate (CRE). It looks like 2021 might be the year that some of them finally do it,” according to the analysis. “The percentage of banks putting a high priority on CRE lending drops from two-thirds in 2020 to a little less than half in 2021, and the percentage placing a high priority on home equity lending falls from 39% to just 9%.”
- Fintech partnerships grow up. “Bank and credit union directors often ask managers what their institutions are doing about fintech, and the exec team often points to a partnership the institution has (often around digital account opening),” wrote Shevlin. “2021 will be different. Boards will tire of not seeing results and realize that dedicating one or two people to fintech partnerships isn’t sufficient to get real results. Well, at least that’s what should happen.”
- Digitaltransformationinitiativesaccelerate. “Weakness in the lending markets will expose the reality that the gains FIs saw pre-pandemic had little to do with their digital transformation initiatives and were just the result of a rising tide floating all boats,” according to the report. “In addition, banks will find out that if they don’t replace their core systems, there may be no digital ‘transformation.’”
- Digitalaccountopening(DAO)stayshot. “For the fourth straight year, digital account opening is at the top of the list of technologies for which banks and credit unions will select a new or replacement system,” the report states. “It’s also at the top of the list of bank/fintech partnerships. Hopefully this will be the last year financial institutions obsess over DAO and start focusing on other capabilities they’ve been ignoring.”
For info and the full report: www.crnrstone.com