As the economic tides shift, financial institutions are also changing gears and focusing on different use cases and challenges according to a recent report by Jack Henry.
Right now the biggest focus for banks seems to be growing their deposits and loans. 52% of banks surveyed report it as a top priority.
As non-bank institutions like Apple offer 5% APY on their high-yield savings accounts, banks not only have to compete with each other but have to be in fighting form against big tech companies and fintech. Deposits at U.S. commercial banks fell to $17.1 trillion in April, which was the lowest since June 2021. Deposits have recovered since then and increased to $17.22 trillion by June 14. Although deposits have rebounded, U.S. Treasury Secretary Janet Yellen expects more bank mergers may be on the horizon.
Despite the recent wave of layoffs, banks are concerned about talent and retention. Another key concern is the net interest margin compression. But unlike credit unions, banks are less worried about the possibility of a recession and more concerned with regulatory changes on the horizon.
Another threat to banking seems to be coming from the fintech sector. While 33% of credit unions see fintech companies as a threat, 27% of banks view fintech companies and community-based banks as emerging opponents.
For banks and credit unions, embedding fintech that offers payment solutions is a big priority. Despite the recent waves in generative AI-based chatbots like ChatGPT, interest in embedding fintechs that offer virtual assistants remains low for banks.
Other fintech types that remain of interest include those that enable digital marketing, consumer financial health, data related solutions, and treasury management. In May, Fifth Third acquired Rize Money, a payments infrastructure provider, claiming that the acquisition is going to be critical for their plans for Treasury Management moving forward.
While banks are worried about competition from fintech and also increasing deposits, American consumers are worried about the safety of their funds in FIs with 48% reporting concerns. Although the recession wasn’t among the top concerns for banks, it is likely that 2023 will prove to be about restoring trust in the banking system when it comes to consumers.