A Closer Look at Six Predictions for 2022
As we roll into 2022, the definition of “normal” remains fluid, and “business-as-usual” is anything but. For financial institutions, navigating this perpetual evolution remains challenging.
In the financial space, still under the shadow of the pandemic, trends have come and gone. But, despite the ups and downs, some are undoubtedly here to stay. Among industry professionals and experts, a casual consensus has emerged when it comes to predictions for 2022.
In uncertain times, there is one thing we know for sure: customer loyalty is no longer a given.
Steadily increasing consumer consideration for an organization’s values pressures financial institutions (FIs) to demonstrate corporate, social and climate responsibility.
“Consumers are increasingly seeking brands that align with their personal values and beliefs.”
According to the IBM Institute for Business Value, “Purpose-driven consumers, who choose products and brands based on how well they align to their values, now represent the largest segment (44%) of consumers.”
Kate Rock, a director of consumer finance at Guidehouse Consulting, says, “Investors and consumers have learned to become more conscious of the decisions businesses make or the causes they support, especially as they relate to environmental, social, and governance (ESG) principles.”
A study conducted by Cone/Porter Novelli revealed: “78% of Americans believe companies must do more than just make money; they must positively impact society as well.”
FIs are on deck to prove their commitment to ESG. The increased oversight of ESG-related risks presents an opportunity to strengthen customer relationships and drive loyalty by adjusting their strategy.
The complexities introduced by the first wave of the pandemic threw the demand for digital banking into hyperdrive. The race to perfect the customer experience was thrown off course when the global population rapidly shifted into digital-first consumers. Results of a McKinsey Global Survey of Executives indicate that, in North America, the pandemic accelerated the adoption rate of digitized customer interaction by three years.
Multiple waves later, the growing demand for an elevated, humanized, omnichannel experience shows no sign of slowing. Beyond delivering on technology, the FI quest for consumer loyalty is further complicated by the nebulous process of distilling transitory trends from permanent consumer expectations. According to McKinsey, compared to pre-pandemic data, executives were 3x as likely to say at least 80% of their customer interactions are digital.
An increasingly crowded marketplace continues to challenge FIs. Already contending with neo and challenger banks, they continue to jockey for position in the arena of BNPL.
No longer a dark horse, BNPL stole the spotlight this holiday season. An 81.2% YOY increase in users is indicative of its broad appeal. According to Salesforce, overall use of BNPL increased by 40% over the 2020 shopping season. Adobe reported that revenue on BNPL purchases rose 27% year-over-year.
Big issuers and traditional FIs continue to raise the bar – launching competitive products to drive customer loyalty and improve value proposition.
As digital assets move from the periphery to the mainstream, their growing intrigue shows no sign of slowing. The increase in charter applications by crypto firms, the buzz around NFTs and the adoption curve of cryptocurrency are sending clear signals about the staying power of the digital economy. With the YOY tripling of cryptocurrency penetration, financial institutions are no longer facing “if” but “when.”
“53% of Gen Z, 52% of millennials and 30% of older generations are invested in crypto. But 76% of financial service leaders say they have no plans for cryptocurrency. There’s quite a gap between consumers and their investments and bankers and their offerings.”
Already offering features to buy and hold cryptocurrency, PayPal has its toe in the water. In a January 2022 report on Bloomberg.com, Jose Fernandez de Ponte, PayPal Sr. VP of Crypto and Digital Currencies, said the company is exploring the launch of its own stablecoin. Alongside Meta’s Diem and Visa’s acceptance of U.S. dollar-backed stablecoin for transaction settlement, the PayPal news is indicative of the evolution of cryptocurrency within the mainstream economy.
The End of NSF and Overdraft Revenue?
Under the scrutiny of the Consumer Finance Protection Bureau, FIs are shifting from the traditional overdraft revenue model to reducing or even eliminating fees. Annually, industry-wide NSF and overdrafts generate an estimated $15B in revenue. Some of the largest FIs have already implemented the change, heating up the battle for customer loyalty.
In 2017, banks threw their hat into the P2P transaction ring, collaborating to bring the Zelle product to market. In Q2 2021, over 1,700 FIs were signed with Zelle – representing more than 75% of DDA accounts. Zelle processed $127 billion on 466 million transactions in Q3 2021.
Despite a mixed outlook by industry experts, P2P technology development marches forward. The Federal Reserve is expected to launch its FedNowSM Service in 2023. A real-time payment service, FedNowSM will give FIs a seat at the P2P table. The role of FIs is often minimized or eliminated in P2P transactions. According to FRB Services, FedNowSM ”…could enable financial institutions to reimagine P2P payments and allow them to offer the service through their online and mobile portals.”
“P2P has been on a rocky road for banks, and the wheels will finally come off the wagon in 2022. Market-dominating fintechs prove too strong for banks’ homegrown P2P initiatives, and banks will switch to partnerships and consortium ventures. “
Making headway in a market dominated by non-bank incumbents like Venmo and Google Pay is no small undertaking. Whether FI P2Ps can stand up to the overwhelming velocity of existing P2P fintechs remains to be seen, but a boost from FedNowSM could be a game-changer.
The Value of Experience and Resilience
The challenges facing FIs today differ from the challenges of the past. But, as history shows, the industry is nothing if not resilient. 2022 offers endless opportunities for financial institutions to disrupt the disruptors and once again prove their staying power.