Financial institutions (FIs) have moved past the Great Recession and are focused on the future. The future includes addressing potential threats and challenges. What are the greatest strategic challenges for FIs this year?
The greatest economic challenges are a slow growth economy, continued low interest rates, and higher operating costs. FIs face several important demographic challenges, including the gradual loss of legacy customers and their large deposits. Another demographic challenge is the emergence of younger generations, many of whom are digital consumers, with vastly different banking preferences and expectations compared to their parents. FIs are also challenged with the difficulty of recruiting and retaining qualified younger generation employees.
Regulation challenges include the remaining implementation of the Dodd-Frank Act (only 50 percent complete) and new regulations issued by the Consumer Financial Protection Bureau. FIs face increases in regulatory costs, higher risks, greater operating complexity and continuous employee training requirements. Some new regulations threaten the viability of traditional business lines such as residential mortgage lending and servicing.
Technology delivers its own set of challenges. Financial institutions face the challenge of trying to keep up with the latest technology, budgetary constraints, increased risks and complexity, the need for more IT staff and continual employee training.
Finally, many executives that we have spoken with recently indicate that competitive challenges have increased this year. Non-bank competition, in particular, is stronger, especially in the areas of electronic banking and payments and alternative lending.
Financial institutions are not lacking meaningful strategic challenges. Banks and credit unions, however, are employing a variety of strategies to solve these challenges and to take advantage of the best opportunities available today. The various strategic approaches chosen by FIs will be the subject of my next blog.