Let’s forget about COVID-19 for a minute. What are the issues and trends that we can expect to have the biggest impact on Arizona’s banking industry heading into 2021?
“That is a difficult question, as I think most of the issues, trends and innovations will all be a direct result of COVID-19,” says Kyle Kennedy, Bell Bank’s Phoenix president and Arizona banking director. “Interest rates, technology, physical workspaces — what will they look like by the end of 2021? — and culture will have the biggest impact that will extend into the next few years.”
So it appears we cannot look past the tremendous impact the pandemic has had on Arizona’s banking industry. But acknowledging the elephant in the room, here are 10 issues, trends, and innovations that experts expect to have the biggest impact on the banking industry in 2021 and beyond.
“Technology continues to push the innovation envelope, especially in the banking industry,” says Don Garner, CEO of Alliance Bank of Arizona. “Customer demands are also creating a shift in how banks are delivering their services. At Alliance Bank of Arizona, we have implemented countless 24/7 tools, including online business banking, secure mobile business banking apps, fraud protection, remote deposit resources, and more to better serve businesses.”
“Prior to the days when most of us did not know the difference between COVID-19 and coronavirus, the trend of how customers use different service channels in banking was well underway,” says Brent Cannon, executive vice president and director of community banking for National Bank of Arizona, when discussing banking industry trends. “The numbers of customers using physical branches have been declining over the last decade, online usage has been relatively flat, while mobile usage has continued to surge. Look for the trend in mobile/digital usage to continue and thus investment in these channels, and for banks to look to leverage virtual tools, especially consultative services that have historically been the domain of physical channels.”
“Lenders always must assess whether a prior credit risk remains a viable customer in the present market,” says D. Lamar Hawkins, an attorney at Guidant Law. “For instance, a borrower that used to manufacture a gas-generated vehicle may be pushed into alternative forms of electric vehicles or it may find that it has no customers to purchase its products. If a borrower used to own commercial property in an area that is losing business because the businesses are moving overseas, the borrower may not have enough tenants to fill its buildings and can no longer afford to pay its mortgage payments. Lenders must stay attuned to changes in the economic sector to ensure that the lending risks stay acceptable or may need to find ways to shrink their lending portfolios in less desirable markets.”
“The banking industry is working to develop and enhance digital solutions for all customers – consumers, small businesses and large corporations – that make it easier for them to apply for mortgages, manage investments or pay vendors in real time,” says Amy Anderson-Vali, Arizona consumer and business banking market leader for U.S. Bank. “These are trends gaining speed and importance in the coming years across the financial services industry.”
“In 2021, the overall banking service emphasis will shift to balancing digital technology with human relationships,” says Rachel Guerrero, senior treasury management specialist, Phoenix metro market, with Alerus. “Technology demands have steadily grown over the past few years, and this year proved clients need quick, secure, cost-effective digital options. But not every financial need can be serviced online and on your own. Clients also need quick access to a banker who knows them, knows their business, and can immediately offer guidance and help find a resolution. Banks who haven’t built relationships or acknowledge their clients when they need help will lose out to banks that blend technology with personal relationships.”
“Interest rates are a big question mark heading into 2021,” Kennedy says. “Last time we saw rates this low, it took seven years to see an increase. Will it take that long, and what impact will the $6 trillion being pumped into the economy have? And how does all that impact banks’ deposit strategies? Are banks thinking short term and enjoying the ability to borrow at .25 percent or do they take a long-term approach and pay up for deposits, in the event we hit an inflationary environment? Turning the deposit machine on and off takes some time. Good asset-liability committees will earn their pay in 2021.
“Going in to next year, we’ll continue to see an acceleration of the digitization of banking capabilities,” says Neal Crapo, Wells Fargo’s commercial banking division executive for the Southwest. “Customers will see less paper processes and more online capabilities.”
“The banking industry is especially challenged by the payments industry,” says Bud Heintz, president of Heintz Wealth Management. “Many people don’t see the need for traditional banking and extra fees when transactions can be handled seamlessly via PayPal, Venmo and the like. Big banks are reacting by pushing their own easy-to-use payment services, yet smaller banks need to find more creative ways to add value in order to remain competitive.”
Revenue and net interest margin
“Revenue and net interest margin compression will continue to be the strongest headwind for banks in 2021 due to the historically low interest-rate environment,” Cannon says. “This will force banks to make difficult decisions in terms of resource allocation, expense controls given revenue reductions, and ultimately short-term vs. long-term performance. However, banks must continue to invest in digital tools and platforms, which have likely already become a requirement to compete, acquire, and retain customers.”
“One of the many things that the pandemic has highlighted is that cash flow is critical,” says Josh Shade, Arizona market president for U.S. Bank. “That’s why we’ve focused on real-time payments for business of all sizes so they can receive payments several times a day, seven days a week, including holidays. And, we’re working on solutions that provide simpler online and mobile access, data security, contactless virtual credit cards and more do-it-yourself services. Banks fundamentally exist to help and enable customers live their lives, and the banking industry will continue working to develop and enhance digital solutions for all customers as technology continues to integrate into everything we do.”