5 Banking Challenges and Strategies for Growth in 2022
The past two years have witnessed massive upheavals in the financial services industry, including digital acceleration. What’s more, financial institutions face the potential for sweeping regulatory changes, and cybersecurity threats make the headlines so often that consumers are becoming numb to the risks.
Considering the many issues that financial institutions face, CSI asked banking executives from across the nation about their strategies and priorities for 2022. In their responses, bankers painted a vivid picture of their many concerns.
This blog unpacks the five issues they selected as most likely to affect the industry in 2022. To dig deeper into the tactics and technologies that will define banking this year, check out the complete 2022 Banking Priorities Executive Report.
1. Cybersecurity Threats Targeting Employees and Customers
With over 85% of banking executives across asset sizes reporting an increase in digital usage at their institution, cybersecurity concerns form an ever-present backdrop as more systems and users become vulnerable. Indeed, cybersecurity threats garnered 26% of the votes and ranked as this year’s top issue.
The threat is clear – bad actors are becoming increasingly sophisticated, and the more people transact online, the more risk rises. Consumers have also heard so much about cybercrime over the years that every new cybersecurity incident hits home a little less than the last.
In a self-rating scale, bankers graded themselves a 3.8/5 on cybersecurity readiness, but there’s plenty of work to do. Some steps, such as routine vulnerability scanning and penetration testing, are no-brainers and are explored in greater detail in the executive report. In addition:
- Don’t underestimate training – While financial institutions benefit significantly from informed customers, bankers reported an unsettlingly decreased emphasis on customer Even if customer buy-in has been limited, drip campaigns, videos and gamification go a long way in helping them use digital tools and distinguish the bad guys from your institution.
- Implement multi-factor authentication – You must bake safeguards into your banking design, especially for digital channels. Multi-factor authentication (MFA) requires customers or employees to verify their identities often, providing an extra layer of defense to accounts. The trick is balancing security with limited friction.
- IT must understand and vet vendors – Ensuring the right technology is in place and properly configuring security profiles also helps you shore up your defenses. Proper vetting in advance of investments ensures that you will maintain regulatory compliance, especially regarding unforeseen risk in vendor management.
- Increase frequency and maturity of social engineering testing – Sometimes, hands-on learning is the best way to spot real cyber threats. As you can’t always rely on the old telltale signs like font problems and spelling issues, deploy social engineering tests often to keep employees vigilant.
- Enhance cybersecurity with public cloud – 20% of respondents reported that their institution will not pursue cloud solutions in the foreseeable future. However, data backup and recovery and cybersecurity solutions are an excellent fit for cloud implementation and deliver benefits to your institution, including significantly reinforcing cybersecurity efforts.
2. Recruiting and Retaining Bank Employees
In a massive shift from previous years’ surveys, recruiting and retaining employees rose to second in bankers’ list of pressing issues, taking 21% of the vote. This is a consistent trend across industries and indicative of what many have labeled “The Great Resignation.”
With the rise of remote work, prospective employees are now seeking opportunities everywhere. Larger companies in bigger cities can hire from anywhere and offer salaries that far exceed living costs in smaller communities. So now, community financial institutions must compete more directly against all financial institutions and fintech companies.
This trend causes a unique problem for financial institutions, as turnover leads to a loss in expertise and untrained staff represent risk. Maintaining expertise in emerging channels and scaling operations will only continue to be a challenge for banks.
In addition to the obvious solution of raising salaries, financial institutions should take a few steps to combat these trends:
- Digitally transform backend processes – Legacy systems that require manual and paper-based tasks won’t help you attract and retain talent, especially younger professionals. Furthermore, many organizations have focused on automating these manual processes altogether to make up for a lack of workers to do them.
- Safely enable remote work where appropriate – Although remote work has undoubtedly driven this trend, it also presents an opportunity. Employees have more leverage than ever, and many would rather quit than not have the ability to work remotely. Strive to support remote workers in all lines of business, from operations to sales staff, and implement VPN requirements.
- Actively seek out new talent – Today, acquiring talent often requires poaching rather than waiting for someone to come to you. To appeal to top talent, you may have to seek out people who are not even looking for a new position and make your case for why they should work for your institution.
- Strategically leverage technology partnerships – The competitive talent market will invariably create challenges for institutions that can’t keep up. Utilizing trusted ‘as-a-service’ product offerings and outsourced expertise can help. For instance, a managed services partner can maximize your technology investments, modernize your IT infrastructure and enhance security of your systems without adding in-house staff.
3. Regulatory Compliance for Financial Institutions in 2022
Ranking third with 14% of the vote, regulatory change remains of constant significance to financial institutions, especially given a relatively new administration and potential for new sanctions. Banks expressed confidence (4/5) in compliance readiness, but there are still many compliance issues to watch.
For instance, new incident response rules will require institutions to update their incident response programs and notify federal regulators more rapidly if there has been a cybersecurity incident. In addition, federal regulators have a renewed focus on overdraft fees. BSA/AML modernization also remains a high priority for many institutions.
While there is a host of regulatory issues to consider, several of which are outlined in the executive report, bankers should:
- Stay on top of data privacy – Data privacy ranked as the top regulatory concern for a reason, as it goes hand in hand with cybersecurity. Beyond GDPR, more states are adding privacy regulations, with likely more to come. Your institution should take a holistic approach to data privacy, including biometric data.
- Run your CECL platform parallel to your ALLL platform– Come 2023, there are no more what-ifs regarding CECL. If you aren’t already doing so, run your CECL platform parallel to your ALLL platform so you can make strategic decisions around how your CECL solution will affect your capital.
- Review fair lending practices – There may not be significant changes to filing instructions under the Home Mortgage Disclosure Act (HMDA), but institutions should watch Dodd-Frank Section 1071. On Sep. 1, 2021, the Consumer Financial Protection Bureau (CFPB) made moves to bring this section to fruition. Compliance officers would be wise to reexamine lending practices and ensure they do not create disparate impacts or treatment.
- Plan around LIBOR replacement – Although many smaller banks do not have the data on past dues and non-accrual loans for SOFR to be the suitable replacement, they need to be aware of and understand what they’ll use instead. Leadership should know that systems can handle the change. Examine contracts and loans to ensure fallback language is in the contract, including expiring contracts.
- Assess supply chain risk – Regulators now include supply chain risk when assessing third-party risk and vendor management. Do your due diligence before entering a technology partnership, as compliance violations up the supply chain could also put you at risk.
4. Meeting Customer Expectations
Meeting customer expectations fell to fourth in bankers’ priorities this year, but that doesn’t mean this issue is any less critical. Even if you’re not interacting with customers at your branch, you should be able to promote the right products and deepen customer relationships with your bank.
Many banks that recently invested in new technologies have pivoted to honing and adjusting their existing solutions. Strive to:
- Transform your company into a digital one – Too many institutions still attempt to merge legacy, paper-based processes with digital tools, ultimately creating a disjointed experience. Some struggle because they haven’t embraced a simple digital deposit and account opening process. Others lack the flexibility to keep up with emergent competitors and fintechs. Digitalizing the customer experience and backend processes the right way makes serving customers far simpler.
- Leverage customer data – If you’re optimizing existing digital solutions or determining gaps in the populations you serve, data makes all the difference. Whether by CRM or other data and analytics dashboards, analyzing customer behavioral data can illuminate which markets you’re serving well and what changes you need to make.
- Deploy technology strategically – Bankers listed digital account opening, lending, mobile app and CRM as high priorities. These investments further reflect the need to expand digital footprints and expand market share, even beyond regions that institutions traditionally serve. It makes sense, as a robust CRM and mobile banking apps together can create exceptional customer self-service. Add account opening and lending to the mix, and many customer expectations can be met.
5. The Rise of APIs and Open Banking
Open banking APIs are on the minds of financial institutions everywhere, as they enable game-changing technology like banking as a service (BaaS), platform banking and embedded banking.
In practice, APIs allow separate environments and applications to communicate, enabling you to do far more than previously thought possible. Opening a bank and exposing data and capabilities to third parties still sounds unsettling for some, especially those who have been accustomed to wielding sole custody of customer data. But open banking APIs offer a host of benefits, including:
- Optimizing or modernizing existing systems
- Integrating new technologies with ease
- Securely sharing data in real time to create a seamless customer experience
- Opening new revenue streams through platform banking
And it’s not just a core concern. Open banking rounds all banking data and capabilities to give a complete view of customers, drive efficiency and enable better tools. This includes digital banking, connectivity, workflow integration and even payments.
Banks with larger asset sizes lead the charge in open banking API adoption. But according to a recent Digital Banking Report, less than a quarter of banks do not have a plan for open banking right now. It’s no longer a question of whether to invest in open banking, but how to maximize your investment.
What Else Will Drive Banking in 2022? Read the Report.
Financial institutions are beginning 2022 with a lot on their plate and these are just a few issues on the industry landscape. Bankers provided far more insight on their performance, technological investments and strategies in CSI’s 2022 Banking Priorities Executive Survey.
Download your copy of the 2022 Banking Priorities Executive Report today to unpack the complete survey results and receive strategic recommendations for 2022 and beyond.
Shane Ferrell is Vice President of Product Strategy at CSI.