No one would be shocked by the conclusion that banking will see much change in 2022. They might be relieved if the pace slowed for a year, but the market never waits for anyone or any institution. One consolation is that some of next year’s changes will be related to existing trends, such as the increased use of cloud services.
Other shifts — such as growth in lending — are the result of the rebounding economy. But some of the forthcoming changes will likely surprise even seasoned participants within the industry. Many trends are positive, but not all.
Below are nine key trends we believe will set the stage for, and impact, the now rapidly evolving business of banking.
1. Generous Credit Card Offers and Increased Cross-Selling
Consumers will benefit from a swath of new credit card offers in the year ahead as card issuers try to cash in on a likely continued surge in spending. Based on quarterly earnings calls, card spending already surged significantly during the first half of 2021 versus the same period the previous year, impacted by the pandemic lockdowns. Already some banks, including Wells Fargo and Citibank, launched new cards with generous benefits, that have included welcome bonuses and cashback on all purchases. In early December, Bank of America weighed in with super-generous offers on its new high-end metal Premium Rewards Elite card.
The hefty cash balances that consumers accrued during the pandemic period are also prompting financial institutions to cross-sell services across business lines. For instance, depositors with substantial savings with near-zero yields will likely become the focus of the drive to sell investment services.
To effectively target prospects with such product and service offerings, banks and credit unions will need to break down data silos to run marketing campaigns that are relevant, contextual and personalized.
2. Bigger Boom Ahead for Buy-Now-Pay-Later Offerings
Buy-now-pay-later (BNPL) offers will continue to gain scale, with U.S. volumes forecasted to surpass $100 billion annually by 2024 according to Mercator Advisory Group. As Andrew Walduck, chief operating officer, Latitude Financial Services puts it, “People like the transparency of no added fees, and a pre-determined installment plan helps them budget.”
3. A Rise In Delinquencies and Regulatory Changes Will Drive Collection Digitization
At the same time, delinquencies on consumer debt look set to rise in 2022, and changes in regulations in certain jurisdictions mean savvy institutions will not try to solve the problem by adding more collections agents. In late 2021, the Consumer Financial Protection Bureau began enforcing its new debt collection rule that limits the number of so-called “close contacts” between third-party collections agencies and borrowers. So, adding staff to help recover unpaid debt is not a long-term solution.
Instead, financial institutions will look to tech-savvy approaches, such as expanded use of advanced analytics, to reimagine customer outreach and optimize collections.
4. The Shift to 100% Digital Onboarding
The pandemic added to an existing trend away from the need for bank branches, and this accelerated trend will continue in 2022. Hand-in-glove with the move to branch-free banking will come 100% digital onboarding of customers. A historic shift to intuitive digital technology and consumer expectations are already making this happen fast. According to a J.D. Powers study, a record 41% of U.S. retail bank customers are now classified as digital-only.
The move is reducing the time necessary to sign up new customers. Already some major financial institutions are using advanced technologies – such as blockchain-based know-your-customer solutions and artificial intelligence for faster decision making — in pursuit of 100% digital onboarding.
5. Financial Crime Will Increase, Forcing Institutions to Strengthen Their Defenses
This rapid uptake of online commerce has driven a surge in so-called “card-not-present” fraud — where card details get used online for nefarious reasons. Limited regulations for BNPL companies, which lead to a lack of risk controls, may also contribute to the jump in fraud, as will the fact that (legitimate) identities are increasingly easy to acquire on the dark web.
This increase in fraud combined with stricter financial crime regulations, such as the Anti Money Laundering Act of 2020 in the U.S., and new threats coming from the growing use of alternative payment methods, such as cryptocurrency including Meta’s Novi, will lead financial services providers to deploy more high-tech fraud prevention measures.
For example, biometrics can decrease risk while improving customer experience. Australia’s OCR Labs provides facial recognition technology that both Westpac and NAB have recently piloted to allow customers to verify their identity via a smartphone.
6. Contact Center Staff Will Matter Even More
There will be a heightened emphasis on ensuring a better customer agent experience. The change comes as 68% of companies view their contact center team as more valuable now than they did prior to the pandemic, according to a survey from trade publication Customer Contact Week Digital.
Already some high-profile multinational financial institutions are doing more to improve the work experience for their agents and help them achieve optimal performance — for example, by rolling out artificial intelligence “coaches” for their agents.
In a similar vein, wealth managers will be emphasizing the experience of registered investment advisors (RIAs). Attrition has been a significant concern of many RIA firms over the last few years. After two years where many companies focused on cutting costs, they will do what’s necessary to keep these professionals.
7. Green Light for Changes In Auto Lending
The auto-finance sector will see an increased focus preparing for an ‘ACES’ future — one in which vehicles are autonomous, connected, electric, and shared. The largest share of auto financing in 2020 was held by captive finance divisions of the manufacturers, with large banks close behind. However, the sector’s tumult, partly caused by the global microchip shortage, is leading companies, including Genpact clients in Asia and Europe, to seek cost-saving and optimization measures. This includes consolidating customer contact and loan servicing into centralized digital contact centers to improve both efficiency and customer experience.
In 2022, auto manufacturing and financing will need to unify the customer journey and experience. In addition, soaring prices for used cars will prompt the captive subsidiaries that finance cars on behalf of original equipment manufacturers to develop a separate vertical market for second-hand vehicles.
8. Financial Institutions Will Focus More on Cloud Platforms
Commercial banks will likely spend more on migrating their originations and servicing platforms to the cloud. After all, CIOs in the banking industry were most likely to say that “re-platforming applications to function in the cloud” helped their companies to adapt over the past 12 months (tied with insurance at 44% vs 32% in other industries), according to a Genpact CIO study. Most U.S. regional banks and some prominent Wall Street heavyweights are now involved in this change process.
9. Every Financial Institution Will Become a Technology Company
The move to digital financial services will accelerate over the next year. This will be driven by increasing competition in the sector from fintechs such as Square (Block) and Stripe and ‘big tech’ giants such as Google and Apple, which are steadily staking claim to the payments and parts of the financial space.
To stay competitive and meet customer expectations, banks and credit unions will increasingly pursue the holy grail of a single, 360-degree view of their customers.
Ben Dunne, head of operational outsourcing for Santander U.K. (formed by the acquisition of several banks) says, “Data integration is a top priority for us. Immediately, it allows us to manage and reduce operational risk. And as the processes and models we use for integrating our data mature, it empowers us to provide seamless services for our customers by eliminating manual intervention and gives us an advantage in terms of supporting [our] digital transformation efforts.”
To obtain this single customer view, organizations will consolidate a wide variety of internal and external data.
What is the one thing all these predictions have in common? “At the end of the day,” says Rajesh Ganshani, global head of transformation services for banking and capital markets at Genpact, “every financial institution will be a technology firm or it won’t survive.”