Highlights Week of 6.05.23

Staffing

Banks are facing a significant technology talent crunch, with research suggesting that by 2025, 40% of job postings seeking tech and business skills in retail banking will remain unfilled. Competition for digitally savvy candidates from various sectors, including fintech, insurance, payments, and even far-removed industries, complicates the recruiting challenges – particularly for smaller financial institutions. The most successful companies shift their recruitment strategies to prioritize next-gen skills, sometimes trying to attract talent from outside the banking industry. These efforts should be coupled with initiatives to improve internal retention and upskilling.

Financial Wellness

A new digital bank targeting the 62+ age group debuted in the US in May. Called Charlie, the distinguishing features for customers include the ability to receive Social Security checks up to four weeks early without fees or interest, phone support, and 3% earnings on average monthly balances. With traditional financial institutions having the bulk of senior citizens as customers, Charlie aims to make inroads by enhancing digital banking for this age group. The startup’s vision includes transaction monitoring tools that alert loved ones to unusual activity, embedded discounts, and home pension plans. Making phone support available at launch using real humans was a smart move to help build trust with an audience who grew up with the in-branch experience. Charlie addresses a growing need for inclusive fintech solutions for the aging population considering that 56% of adults aged 50 and older were reported to have made financial transactions on their smartphones in 2022, a significant rise from 37% in 2019.

Financial Wellness

Venmo has introduced a Teen Account for users aged 13-17 years aimed at encouraging smart spending decisions and improving financial literacy. Linked to parents’ existing accounts, the Teen Account offers a personalized Mastercard debit card with a separate balance from parents’ accounts. The account includes educational resources for both parents and teens accessible anytime after setup. Parents can monitor transactions, receive alerts, review privacy settings, and manage PIN settings. Teen Accounts are not eligible for certain features like Venmo credit or crypto products. Teens can receive direct deposits, view spending in the Venmo app, and withdraw money from any ATM within a daily limit. The offering is rolling out to select customers in June 2023, with general availability to follow.

Banking Challenges

The three most significant challenges facing the banking sector as identified by attendees to a Big Bank Theory Conference are talent acquisition, regulation, and balancing old versus new practices. The attendees cited the difficulty of finding and attracting the right talent, especially young talent, and managing large teams due to a general talent shortage. Regarding regulation, attendees pointed to a lack of regulatory clarity, perceived uneven playing fields between banks and non-banks, frequent changes, regulatory constraints, and how these issues limit innovation in banking. Lastly, the attendees highlighted the challenge of balancing the management of traditional banking operations with the need to prepare for and implement new products, services, and business models.

Digital Services

Pressure is mounting against screen scraping in the community banking sector due to increasing regulatory scrutiny and technological shifts towards API-based data sharing. The Consumer Financial Protection Bureau (CFPB) is expected to issue a new rule implementing Section 1033 of the Dodd-Frank Act, which gives account holders ownership of their financial data. The rule is expected to mandate financial institutions to block all inbound screen scraping of accounts, with the ultimate goal of eliminating credential sharing across the financial services industry. However, smaller banks and credit unions are struggling with the costs and technical demands of shifting to an API-based infrastructure and have called on the CFPB to extend deadlines and design implementation schedules based on asset size. The transition to APIs also raises issues of data access revocation and API standardization. The future of data sharing and open banking is expected to continue to move away from screen scraping, with regulations likely to be introduced by the end of 2023 with implementation in 2024.

Digital Services

Advanced personal financial management tools delivered via mobile apps are the future of banking and payment services according to research by JD Power. These “super tools” demonstrably increase customer satisfaction: when banking app users actively engage with three or more of these tools, their satisfaction with their financial institution increased significantly. However, many providers, particularly regional banks, have had difficulties connecting with customers using more advanced tools like budgeting assistance. Although their successes have been mixed, providers that optimize their digital formulas can position themselves as a central hub in their customers’ financial lives.

Staffing

Over a third of all job openings on Wall Street are for candidates with Artificial Intelligence (AI) skills. These high-paying roles are aimed at leveraging AI in areas like wealth management, institutional trading, and risk modeling. For instance, JP Morgan has filed a patent for an AI service to help investors select investment options, while Wells Fargo has built a chatbot-based customer assistant using an AI platform called Dialoguflow. While the industry consensus is that AI will transform banking, there is an ongoing debate about the speed of adoption and concerns about increasing reliance on this technology.

Financial Wellness

Only 4% of Gen Z are credit union members. A significant majority of millennials (73%) and Generation Z individuals (66%) are living paycheck to paycheck, leading them to seek support from their financial institutions (FIs). To meet the unique needs of these demographics, credit unions must seek innovative ways to support and educate them about financial matters. The University of Hawaii Federal Credit Union (UHFCU) is using Zogo, a gamified financial literacy app, to cater to younger members. Meanwhile, PSCU has released a credit card-based “buy now, pay later” (BNPL) solution for CUs, which is particularly popular among millennials.

Digital Services

The “pay by bank” initiative allows consumers to make payments directly from their bank account at checkout and is expected to gain popularity. Headed by Bank of America, this initiative offers an alternative to credit card use, thereby avoiding associated fraud risks and card processing fees. Payment companies like Catch, GoCardless, and Trustly enable pay-by-bank transactions via API connections. As this payment method grows in popularity, financial institutions risk losing card-processing revenue. To remain competitive, institutions should promote and streamline debit cards, partner with payment platforms and P2P services, focus on distinct industry verticals, and offer merchants additional services beyond payment processing. The pay-by-bank method’s rise is still a new market development, with further advancements anticipated.

Digital Services

Fintechs have been the primary driver of Open Finance due to their agility and less stringent regulatory constraints. However, as this integrated data experience grows, traditional banks, such as DBS, BBVA, and Citigroup, are showing increased interest and investment. To compete effectively, banks must go beyond Open Banking APIs and invest in advanced data management, artificial intelligence, and machine learning. The most successful will aggregate customer data through Open Banking APIs from various industries to offer highly personalized solutions. The top current use cases for Open Finance include: