Take a lesson from Linus of "Peanuts" fame: You can wait all you want for the proverbial Great Pumpkin to bring the candy and toys. But that ain’t happening. In fact, a good many banking pundits would forecast the diametrical opposite. To wit: The longer you sit still in that pumpkin patch for profits, the more likely you'll have a run-in with a few good ghouls.
What dominates banking industry discussion these days? Here’s a quick look at five challenging issues that impact the headlines and bottom lines.
It comes and it ghosts: Is a Fed rate hike dead? Or ahead?
Considering interest rates have barely grown for the better part of a decade, rate increase speculation in 2016 has sparked enough heat to bring a witch's cauldron to a boil. Hike or no hike? It depends on when you tried to call it. In September, three members of the Federal Reserve's Open Market Committee called for a quarter-point uptick. Still, the Fed passed on rate increases. And just a month before that non-move, Fed chairwoman Janet Yellen said, "The case for an increase in the federal funds rate has strengthened in recent months." Right now the rate sits at between 0.25 and 0.50 percent. But could it go up, say, right after the general election? Despite whatever Yellen and the Fed crew have just done, Goldman Sachs economists now see a 75 percent chance of a Fed rate hike by the end of the year. If you've stared into your crystal ball all year long, you’re twisting your head 'round and 'round to rival the best of goblins.
Here, there and everywhere wolf: The howl of cybersecurity threats
This month's hacker smackdown that crippled the likes of Airbnb and Twitter didn't touch any banking players. But it was enough to send shivers down the spines of many an IT pro and data watchdog. Even as new security technologies and encryptions evolve, hacker sophistication keeps pace. Ever-present risks run the gamut from malware to stolen confidential emails. Even the mighty EMV chip has its flaws; Hackers, it turns out, can rewrite magnetic strip code to fool payment terminals into reading the card as though it lacks a chip.
The cyberspace alien: Payments disruption has landed
The industry has weathered some false alarms these past few years regarding payments disruption. While mobile wallets sparked initial concern, at this stage they have not reached critical mass among consumers. Yet what happens when they do? One big cause for concern is that banks will face the challenge of differentiating their virtual credit cards from those of their competitors: And let’s face it, fancy graphics alone won’t cut it. Experts advise banks to figure out what features will make cards unique to mobile wallet users. Meanwhile, person-to-person payments using Venmo and other PayPal-like accounts have the potential to remove banks from the cash equation. Entirely. True, the technology is mainly in development. But it isn’t going to go away, either. At BAI Beacon, Conny Dorrestijn, the owner of Shiraz Partners, cited the example of a Dutch holiday to show how much the payments world is changing. On King’s Day, thousands of homespun vendors sell their wares simply by taking payments on a smartphone; “Everyone,” she noted, “is an ecommerce player.”
Haunted houses: The branch closing conundrum
Cost savings? Or lost business? Truly scary stuff. In the short term, banks that close branches gain from cost savings. But over the long haul, they fritter away valuable investments in staff training. Customers may stay if there’s another branch nearby. But those in certain demographics (seniors, for example) may leave your bank in favor of one with a convenient location. For all their digital savvy, Millennials would seem not to care about branches or banks in general. But the statistics don’t necessarily bear this out. BAI’s recent Consumer Market Pulse Survey found that across all age groups, 79 percent of consumers trusted their primary financial institution above any other outlet for services—four times as many as Amazon, Google and Apple combined. And a minority of consumers—just over a third—agreed that branches can be reduced without impacting a bank’s market share.
That cutting-edge blade: How much more will FinTech slice up banking?
Just as Uber turned the taxi industry upside down—and created a Taxi-land crisis in its wake—so FinTech has its pockets where the goal, stated or otherwise, is to sidestep traditional banking. With its peer-to-peer student loan refinancing, SoFi created a borrowing model that has turned it into America’s most valuable FinTech startup, with a worth surpassing $4 billion. Yet the co-founders literally started it the day after finishing grad school at Stanford. How many banks bow that way these days? Meanwhile, many banks working diligently to innovate find themselves surprised, even shocked, by the latest turn of the FinTech wheel.
But there is good news: FinTech today is for everyone. As innovation expert Josh Linkner noted in his BAI Beacon keynote speech, banks already have a resource more powerful than the biggest mound of big data: the creative muscle of loyal employees. In today’s competitive marketplace, leveraging that resource in 2017 is one way to avoid chilling nightmares in favor thrilling dreams.
Lou Carlozo is the managing editor of BAI. He can be reached at email@example.com.