Banks focused on securing deposits, efficiencies

Community and regional bankers are most focused on deposits, loans, data and efficiencies both this year and in 2024, according to a recent Jack Henry survey of CEOs from banks of $500 million to $50 billion.

Total bank deposits fell for the first time since 1942 last year as record high inflation led to rising interest rates and reduced loan demand. “As consumers chase higher rates in 2023, deposit churn will accelerate,” Jack Henry stated. “The instinctive response to a downturn is one of withdrawal and retrenchment. As a financial institution, however, you are uniquely positioned to lean on your risk competence and capital reserves to tap upside potential while less experienced, unchartered and poorly capitalized providers struggle.”  

Ninety percent of banks and credit unions plan to add payments services over the next two years, according to the survey. Seventy-nine percent expect to increase their tech spend over the next two years; digital banking, fraud and security and data analytics are the top three planned investments. The vast majority expect to embed fintech into their digital banking experiences, with 65 percent planning to embed payments fintech. 

Banks were most concerned about retaining talent, handling compressed net interest margins and addressing regulatory changes. Phishing and real-time payments were the most concerning fraud/security threats. Banks cited “other community financial institutions” as their second biggest threat. “Banks also named wealth-techs and brokerage firms as important competitive threats,” the report stated.

According to Jack Henry, many neobanks and direct-to-consumer fintechs will either consolidate or fail this year as many smaller companies neither have the capital nor competence to handle growing loss ratios as interest rates rise. The layoffs of more than 150,000 tech workers last year gives banks their first chance to acquire talent necessary to modernize tech stacks, launch digital initiatives and develop cloud competence, according to the firm.

Nearly every financial institution plans to enhance their lending capabilities. Sixty-five percent expect to expand services to small and medium-sized businesses.“For banks, digitizing loan applications and a single, end-to-end loan platform for commercial/retail lending takes precedence,” Jack Henry stated.