Episode 35: Banking Industry Trends in 2023 (pt. 1)

With the height of a pandemic in arears, 2022 saw continued shifts in customer behavior, business models and economic concerns. So, what does 2023 have in store for the financial services landscape? We invited Shane Ferrell, CSI’s Vice President of Product Strategy and Innovation, to discuss the trends he’s seeing plus some notable findings from CSI’s 2023 Banking Priorities Executive Report. In this first half of our wide-ranging conversation, we discuss the landscape as well as hot topics like employee churn, using data to its full potential and banks’ technology priorities.


Laura Sewell (LS): The new normal of 2022 saw waves of innovation and disruption across the financial services industry.

Saxon Prater (SP): It was a year full of headlines about the economy, hybrid work, shifts in the crypto space, new regulations and the spread of innovative business models like banking as a service.

LS: So, what does 2023 have in store?

SP: CSI asked bankers across the country to offer their perspective in our annual Banking Priorities Executive Survey.

LS: For today’s episode, we invited Shane Farrell CSI’s, Vice president of Product Strategy and Innovation, to unpack some of the survey’s findings and explain some of the major shifts in the industry.

SP: We covered so much ground, we decided to split the conversation into two parts. In this first half, we tackle topics like how the landscape has changed, employee churn and bankers technology investments. Here is a preview.

Shane Ferrell (SF): They’ve been built to analyze credit. They’ve been built to understand if you’re a good customer from a lending perspective, but they haven’t necessarily been built with the right talent that helps them see the right ways to cut through data to get the insights that they need. And so, this may be an area where you can pick up some really good talent right now in the market that we’re seeing. And again, that might not have to be local talent, that might be a remote talent that would be hard to get in other circumstances, but is available in the market today.

LS: I’m Laura Sewell.

SP: I’m Saxon Prater and this is Fintech Focus from CSI.

LS: Hi Shane, Welcome and thanks for joining us on Fintech Focus.

SF: Thank you. I’m happy to be here.

LS: So, let’s jump right in. How was the financial services landscape changed over the past couple of years?

SF: Oh, that’s a… that’s a broad question. I think if you look at our survey, the results speak to how broad that is. And I think the intro today speaks to how broad that is. If you go back to COVID, right, we’ve seen the impact COVID had on technology needs, driving digital to the top of the stack really fast. And then since COVID, we’ve gone through the Great Resignation – we’ve seen the effect that that’s had on Talent Resources. And now we’re seeing the regulatory impacts come along with all the digital changes.

And so the landscape has just been, I don’t know, hectic may be the best word for it. There’s lots of opportunity, there’s lots of concern, and I think we see a lot of that inside the survey results.

LS: Yeah, it’s kind of like growing pains at this point.

SF: Yeah, I think you’re exactly right. You know, a couple of years ago we like to talk about how COVID sped up everything in the technology world, especially in the banking technology world. It sped up the shift in adoption of digital. So growing pains may be the best way to describe it.

SP: Shane, we’re going to dig into some of the specifics of our Banking Priorities Survey soon. But as our resident innovation guru, first we wanted to ask you just your unvarnished opinion. What should we be looking for in 2023? Or to put it another way, what do you think will affect financial institutions the most this year?

SF: I’m not sure I can pick out the most, but I can give a couple of thoughts here. I really think the economic uncertainty that we are looking at in 2023 is driving several different things. But overall, I think it’s all economic uncertainty that’s the most impactful with the downstream effects of talent that’s all of a sudden available in the market as we’ve seen layoffs already start taking place and some of the biggest technology companies in the world.

I think that we’re seeing rising interest rates. And in 2023, it’ll be interesting to see the effect that that has on the consumer and the business accounts that are out there and how the banks have to respond in turn because of that. Then the technology side comes into play. And what are the investments that make sense in a year like this that help customers or help the bank gain efficiencies, so that they’re looking at how they invest their capital a little bit differently.

But again, all of that kind of downstream effect of the uncertainty that we see going on economically in the country right now.

LS:  It seems a little… not a little. It feels daunting. Right? The uncertainty in the economy and those are what you mentioned, are, you know, some negative effects or concerns. Is there any good news?

SF: Yeah, you know, I think there’s always good news in these sorts of situations. And it’s interesting over time, and especially in the innovation side of this, you can point back to economic downturns as when some of the biggest companies in the world got started. It’s a fresh time. It’s a time when people have to get inventive. And we see that in banking as well.

And so especially in the community banking space, this is an opportunity for them to support new ideas, to support new ventures, to support new ways of deploying capital, to help in their communities. So, I think that’s one of the biggest upsides is how we’ll see banks make impacts in their communities and how we’ll see new people come to market with brilliant ideas that, you know, maybe they wouldn’t have had if it wasn’t for the downturn and kind of the negative effects of the economy.

LS: Yeah, great outlook.

SP: It’s interesting you mentioned the economy and a potential recession. That was actually one of the most common responses in our banking priority survey. We had some open responses in it. How do you think these concerns have affected bankers’ priorities overall? And do you have any tips for these bankers to prepare for such a scenario?

SF: Yeah, you know, it’s interesting. I think oftentimes banks are somewhat on the leading edge of being prepared for these sorts of things. They plan on it, right. It’s part of their risk control. But part of it gets back to the basics of banking, looking at credit a little bit closer and exploring a little bit deeper when someone try to get a loan, increasing reserves against the negative impacts that people may feel for the economy.

But at the same time, banks are in the business of risk control and so they get to make smart use of their capital investments. And whether those investments are in new technologies or whether those investments are in efficiently getting better at things they do. But it’s interesting because I think even in our survey results, we may see a little shift if we were to survey again in the next couple of months.

Financial wellness, for instance, was it one of the highest rating rated items of investment this year? But it may swing to the top very quickly if we see a negative impact happen to consumers out there as they’re dealing with the economy. We may see that helping them through these times comes down to educating them on ways the debate can be helpful.

Educating consumers on the right ways to budget and save and prepare. And so we may see a swing in a shift in priorities even during the first part of this year as the economic turmoil continues to change our perspectives a little bit.

LS: Yeah, we kind of just have to be ready for anything.

SF: For sure.

LS: So, another topic that we saw throughout the executive report based on the survey, you know, we mentioned this a couple of times already about talent. So, a big concern for the survey respondents was the topic surrounding employee churn. Do you have any tips/recommendations for institutions that are struggling to find and keep talent?

SF: Yeah, it’s interesting. There’re really two sides to right – the fighting and the keeping. On the keeping side, I think it’s continuing to look at the right ways to incentivize employees to make employees happy, to make employees feel like they belong to something bigger than just their job and that the work they do is making an impact. Community banks have a great story to tell there, right?

Because you can see that the way that they interact with their customers impacts the communities that they all live and work in. But, you know, if it’s giving a little bit different version of a time off policy, if it’s giving a little bit different version of how you reimburse for gym memberships or other things on the health care side, there’s all sorts of those perks of a job that can come into play that makes someone want to stay and work there in combination, of course, with believing in the cause of the institution.

On the ability to attract talent, those same things come into play. But one tip I would look at there is most institutions went through figuring out how to allow people to work from home during COVID. Most of them have come back to work at this point in time. I would say with the influx of talent, especially from the technology point of view, from the different types of employee environments, point of view, look to see what remote talent is out there.

Do you need the person who is a great project manager to be someone who’s in your location? Do you need the person who can help build strategy and has experience? Maybe working in a fintech or somewhere else in the industry? Do they have to live locally? Do they all have to be on site? Or can you attract some of this talent, allow them to work remote and come on site when it’s needed, but take advantage of talent that maybe you couldn’t source locally that’s available in the marketplace right now?

SP: Yeah, we’ve seen a ton of layoffs and turnover, especially in the tech sector. And I wonder, you mentioned technology – beyond enabling remote work potentially and that being appealing to a hybrid or remote workforce, are there any other ways that technology plays a role here in potentially making the employee life easier?

SF: Oh, for sure. You know, I’m sure we’ll talk about it because of the study, but some of the best gains in in the banking institution right now around open APIs is the efficiency gains and is the automation gains that bankers can see that make their employees happy. Right? Most employees don’t want to come in and do a job that is the exact same every day where that doesn’t challenge them.

And if you can automate some of the simple tasks with technology and allow that employee to think on a different level or get to experience work on a different level, I think that that’s a huge impact that the technology can provide when trying to keep that talent and get the best talent.

(Quick Break) LS: This is Fintech Focus. We’re talking with CSI’s Shane Farrell what bankers are prioritizing for 2023.

SP: Speaking of technology, let’s go ahead and dig into some of these specific survey results. And one of the questions that was asked was bankers top technology priorities. As far as these technologies go, digital seems to still take the day, especially for meeting customer expectations.

What do you make of bankers highest technological priorities?

SF: Yeah, you know, it’s not real surprising that digital account opening still rates high. There’s been lots of investment in this space, but there’s still a lot lacking in some regards, and that can be many different things. That can be the user experience that the customers have to go through, whether that’s trying to open up a deposit account or apply for a new loan.

And it’s interesting, the second highest rated round data analytics and reporting play right in hand there as some of the things that I think are still lacking. We don’t have a good grasp within the industry about the things that are working really well or the things that aren’t working so well. And some of that can be intuned with good technology analytics.

And some of that needs to come from good old fashioned conversations. Are we serving these people in a good way to understand what was easy for them in the process, what was hard for them in the process to make sure that we are creating the seamless experience that we’re desiring to create? And, you know, there’s always a need for new bank customers.

So, getting that right, it’s a multiyear journey. So, I’m not really surprised that we’ve seen that as the top item for a few years now.

SP: You mentioned data and analytics, and that was actually one of the questions that I wanted to ask you. Obviously, to make the most out of these technologies, you have to have data to inform what’s working and what’s not. And yet this is one of the areas of concern for a lot of institutions where they’re not quite as confident with how to use it.

They’re aware that data is important, but actually leveraging that customer data is much more difficult. Do you have any recommendations for how they can better use it to their advantage?

SF: Yeah, that’s a… it’s a great question and I think there’s a couple of things that go on here. Banks and financial institutions were very interested in getting access to the data. Once they’ve gotten access to a lot of that data, it’s created this kind of quandary. Right? And I think there’s kind of two things going on. One is having a clear strategy around the data and what it is you’re trying to derive from that and what results you’re hoping to gain from analyzing that data.

The other thing that I’ll throw out there that kind of relates great with this whole conversation is… talent is a little bit of a gap there many times. The banks haven’t been built on this type of data and analysis. They’ve been built to analyze credit. They’ve been built to understand if you’re a good customer from a lending perspective. But they haven’t necessarily been built with the right talent that helps them see the right ways to cut through data to get the insights that they need.

And so this may be an area where you can pick up some really good talent right now in the market that we’re seeing. And again, that might not have to be local talent, that might be a remote talent that would be hard to get in other circumstances, but is available in the market today. So, I would encourage banks to consider what are the insights they’re looking for, how does that align with the strategies that they’re trying to implement?

And do they need to look externally to find talent that can help them?

LS: Gotcha. So, before we leave the technology priority topic, what else? You know, again, we’ve talked about how important digital is, but are there… are there are some technologies out there that you think aren’t being talked about enough or banks might be missing out on and should consider?

SF: I think there’s so many things being talked about. It’s talking heads everywhere, if you will. I think the thing that I would encourage banks to do is always figure out how they’re driving that back to the strategy of their bank. If you’re looking to grow in the next town over, what is the technology that helps you do that?

Do you need brick and mortar, or can you do that all digitally If you’re looking to grow purely digital in a new type of community, let’s say that you’re focusing in on doctor’s offices or dentist offices, making sure that you’re focusing in on the right technology decisions that help you get there. And I know we’ll turn and talk about some of these other things in a little bit, but cybersecurity and regulatory concerns have to be a part of that strategy as well.

And so often we hear about all these shiny new technologies and want to make sure that we really bring that back down to what’s driving the business strategy around those technologies.

LS: Gotcha. Well, you also just mentioned brick and mortar, and that kind of factored in in the survey this year. Are you at all surprised that In-branch Technologies kind of made a reappearance this year?

SF: You know, I guess at first glance it is a little bit surprising. But with a little bit of thought, it makes a lot of sense. I think that COVID, as we talked about earlier, caused such a shift in the speed of transformation towards digital priorities. I think what we’re really experiencing here is a little bit just as a natural swing back a little bit towards the middle, that puts a little bit clearer, clearer picture on the on the branch technologies that we still have to have priority around those.

Now, I think the survey still clear that digital is at the top of the list, but we can’t just forget about the branch technologies. There are some great things going on inside branch technology. Again, we talked about kind of the operational efficiency and the analytic pieces. Those are really all driven inside of branches for the most part, and I think banks are really just trying to balance back out a little bit towards what happened with COVID back to kind of the norm that we need to be on the normal growth curve here.

SP: Yeah, and you read about the younger generations that actually want a physical person. They want to talk to somebody in a brick and mortar institution to feel comfortable in opening their first bank account or taking out their first loan. And I also wonder how tied this might be to that talent question. And you already alluded to this this idea that improving internal branch technologies might make the employee life a little bit more seamless as well.

What do you think of that?

SF: No, I think you’re spot on, Saxon. I think that there’s a need for employees to see that upgraded in technology. It’s probably a retention effort if we go all the way back to that question. And the other thing that I think it helps point out is that if you’re investing and making your digital technologies better, your branch technology has to get better with it because, as you said, they still want to come in the branch for certain pieces of their experience.

And if that doesn’t resonate or correlate with what they’re experiencing online, either negatively or positively, it can be a hindrance to overall customer satisfaction. So you may have the best online tools available, but if they come into the branch and it takes them an hour to accomplish anything, you’re probably losing that customer. So, it’s a little bit of an even investment that has to take place to make sure that the customer experience feels the same everywhere.

SP: Right. And if you go into the branch and used to see reams of paper everywhere, it probably doesn’t instill a whole lot of confidence.

SF: Yeah, it probably makes them feel like they’re walking backwards in time. Right?

SP: This ends part one of our two-part interview. Next time, we’ll continue our conversation with Shane and talk about open banking, Banking as a Service, payments and more. We hope to see you there. In the meantime, check out our Interactive Banking Priorities Research Report or learn more about us at csiweb.com. You can also subscribe to Fintech Focus wherever you get your podcast or find us on Twitter @CSIsolutions or on our Facebook page, facebook.com/csisolutions. Until next time.

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