New payment methods such as account-to-account transfers and digital wallets are gaining traction in the U.S. Their growth comes at the expense of credit cards and other traditional payments. Accenture estimates that such changes in consumer payment preferences will put up to $31.4 billion of revenue at risk for U.S. banks in the coming years (2023 through 2026). To avoid these snowballing revenue losses, banks must begin to explore newer payment channels in earnest or come up with competitive moves to counter the growing consumer trend.
A recent survey highlights the top priorities of banks for 2023. These include improving customers’ digital experience, enhancing data and analytics capabilities, reducing operating costs, and recruiting talent needed to meet changing needs. However, many companies have a legacy culture that continues to be a barrier to making the changes needed to become digital banking organizations. The fear of risk and/or a focus on cutting costs can also limit the potential of digital banking transformation.
“We must be agile and able to learn quickly.” That quote comes from the OCC’s recently released Strategic Plan 2023-2027 which addresses both changes within its own operations and the need for a more robust, modern community banking system. One internal priority that many other companies can relate to is the need to develop a diverse, well-skilled, and adaptable workforce. Understanding where the regulator is emphasizing change within its own operations and for the industry as a whole is a good way to help anticipate future regulations.
Silvergate Capital was an early innovator in providing services to the digital asset industry. Unfortunately, the California-based financial institution has suffered a significant drop in deposits as a result of the crypto-currency implosion and is now facing “a sustained period of transformation” including a 40% reduction in headcount. Their challenges highlight the importance of having a well-developed risk management and mitigation strategy in place when entering new markets. This would include the active modeling of those two-sigma and three-sigma event possibilities.
