As we head into 2018, there are a few certainties for the banking industry. Institutions will have more opportunities to explore technology through partnerships, as well as creating their own new platforms. Regional banks will need to pursue strategies that make them distinct from the national players that are scooping up deposits at a fast clip. Customers — whether corporate or consumer — will give their banks a run for their money to get the best rates and the best service.
And then there are a slew of unknowns surrounding interest rates, regulation and merger activity.
While we don’t have a crystal ball, we know a lot of smart folks who spend time thinking about these issues. Here are some of their thoughts:
Olivier Sarkozy, founder and managing partner of Further Global, a private-equity firm that is focused on financial services
The next decade is likely to see a dramatic shift in the way we as a society view intermediate capital. The decline of the public markets will likely accelerate as the cost of these exchanges continues to increase while the benefit — namely liquidity — becomes increasingly less apparent in the face of a rapidly expanding — and by extension — increasingly liquid, private market. The implications of this fundamental shift are likely to have a profound impact on both the financial services industry as well as the broader economy. There will be negatives for liquid equity market players such as asset managers and exchanges, but it will be very good for private-market participants like private equity, distributors and service providers.
Thasunda Duckett, CEO of consumer banking at JPMorgan Chase
Consumer preferences and habits will continue to drive big changes in the banking industry in 2018. Investment in mobile banking will continue to advance as younger generations quickly adopt digital ways to bank at a faster pace than ever before. ATMs will play a more prominent role in connecting our physical spaces to digital by assisting customers with their everyday banking. Branches will remain a critical part of deposit growth and will become more closely aligned with digital offerings to make the customer experience even simpler. New branch formats will continue to emerge, like all-digital branches and more e-ATM kiosks, offering customers more choice depending on their banking needs.
John Douglas, partner in the financial institutions group at Davis Polk & Wardwell LLP and head of its bank regulatory practice
Legislative reform will continue to be extremely difficult, so look to the regulators for any real easing of the regulatory burden. Changes at the top of the regulatory house are all significant harbingers of relief. Higher interest rates, the Fed’s unwinding of its portfolio and continued revenue and cost pressures will remain drivers of bank consolidation, at least on the small end, and look for some of the traditional acquirers in the mid-size to re-enter the game. And the onslaught of fintech innovation will both threaten and provide interesting opportunities for banks as the struggle for primacy in customers’ minds, hearts and wallets continues. The business of banking will remain as tough and difficult as ever.
Hans Morris, founder and managing partner at NYCA Partners, a venture capital firm that is focused on fintech
Virtually every major bank, insurance company, payments company, and asset manager now has a strategy around their technology investments, with the goal of significantly improving customer experiences. Fintech start-ups are a central part of this strategy, and in fact many financial institutions are also investing in companies, either directly or through their own or external funds. In 2018, we should expect many more of these initiatives to get into production. Ditto for enterprise distributed ledger applications. Real-time P2P to banked consumers and low-risk business will be free, or close to it. So in 2018, we will see the rubber meeting the road in several core enterprise fintech themes, and we’ll see who are the winners and who is not cutting it. Similarly, many consumer-facing fintech companies will need to face up to the reality that customer acquisition costs are still way too high for the LTV of their existing business model.
E.J. Burke, co-president of Key Community Bank, responsible for commercial banking, residential mortgage and private bank at Key
Private-equity firms, loan funds and other ‘non-regulated’ lenders have seen a lot of growth and have benefited from the low rate environment and increased regulatory underwriting pressure on banks. I do not see this as a permanent trend. These entities have not solved the issue of how they will fund themselves when markets experience volatility which is not a question of ‘if,’ but ‘when’.
Rick Remiker, senior executive vice president, director of commercial banking at Huntington Bancshares Inc.
2017 witnessed unprecedented corporate optimism, and even though commercial lending has been steady, normal run-off has netted in a lack of meaningful growth. A likely cause of this is the gridlock in Washington which creates uncertainty. Should Congress pass tax reform in 2018, I believe it will stimulate corporate and
The Novantas View
Peter Gilchrist, executive vice president, Novantas.
2017 witnessed unprecedented corporate optimism, and even though commercial lending has been steady, normal run-off has netted in a lack of meaningful growth. A likely cause of this is the gridlock in Washington which creates uncertainty. Should Congress pass tax reform in 2018, I believe it will stimulate corporate and commercial activity.
Andrew Frisbie, managing director, Novantas
The Fed’s 2016-2017 actions are finally translating into additional churn in deposit portfolios, which will accelerate regardless of how FOMC “dot plots” evolve. Expect more separation between deposit ‘haves’ vs. ‘have-nots’, and large moves in direct banking, from established and new players alike.
Anthony J. Carfang, managing director, Novantas
Corporations worldwide are holding record levels of cash and that will continue in 2018. Historically low rates, even at slightly higher forecast levels, still encourage companies to borrow. More of this cash will be deployed directly in money market instruments as rates on bank deposits and earnings credits for transaction services lag the markets. The wild card is how quickly central banks right-size their own balance sheets and allow markets to find a true equilibrium.
Dave Robertson, managing director, Novantas
Corporate bankers will increasingly compete on advice and experience in 2018, even more so than functionality and price. As part of that effort, more than half of the regional and global banks will formally designate a chief customer experience officer who will own the vision and architect the design of the target customer experience. To drive high-value growth, at least six to eight banks will pursue out-of-footprint strategies to leverage distinctive expertise and capture national share in target segments.