High inflation, rising interest rates, shaky economic activity, and volatile markets have raised the probability the U.S. economy will slip into a recession, according to a recent New York Times article.
While a typical response to a recession is to focus on efficiencies, conserve cash, and put off technology and innovation investments until the business environment improves, these strategies are often counterproductive. Delaying investments in digital banking transformation efforts will most likely backfire as big tech competition and fintech firms with innovative solutions steal market share.
In his recently published eBook, “Digital Banking Transformation Strategies to Withstand Recession,” industry influencer Jim Marous covers six ways organizations of all sizes can position themselves for a stronger future. The eBook includes insights from financial institutions globally and contributions from Cornerstone Advisors’ Ron Shevlin. Here’s a top-level view of the six future-ready strategies covered:
1. Double Down on Digital Banking Transformation
Organizations must take a proactive approach to the foundation of digital transformation. This includes data democratization, improved analytics, technology upgrades, back-office automation, employee re-skilling, and transformation of existing cultures.
2. Increase Automation for Improved Operational Efficiency
Improving operational efficiency is one of the best ways for financial institutions to invest now and see a payoff down the road. This is a great time to eliminate waste, use technology to automate the manual tasks that humans would typically perform, and free up capital.
3. Invest in Modern Technology
A downturn in the economy may not seem to be the best time to embark on an overarching core banking transformation, but it could be the perfect time to upgrade specific modules of your operations that can provide a near immediate return on investment. For example, technology that can improve the new account opening or loan application process often results in significant increases in new business. Any technology that can improve efficiency also has an immediate and long-term payback.
4. Pursue Fintech Acquisitions
The financial services industry is undergoing a dramatic shift in valuations, with legacy financial institutions experiencing significantly slower growth than fintech and big tech players that are built on digital technology infrastructure. More than ever, legacy financial institutions must rethink existing business models to provide customers with new, digital-focused solutions.
5. Upskilling, Reskilling, and Strategic Hiring
With labor shortages and skyrocketing labor costs, the first alternative during an economic downturn is to improve efficiency. Organizations must analyze what activities are being done and how those activities are being done, with a focus on automation and eliminating unnecessary steps. Talent upskilling activities like continuing education, skills development and cross-training must also be pursued.
Perhaps the biggest impact in financial services could be an influx of talent being released from fintech firms that aren’t getting the required outside funding to sustain an inflated cost of labor. This allows for banks and credit unions to pursue strategic hiring for high-impact positions to prepare for future growth.
6. The Power of Embedded Banking and Banking-as-a-Service
The rise of interest in banking as a service is the result of the growing embedded finance trend. Providing BaaS-related services enables banks to disaggregate the sources of revenue, and although they may have to share interchange revenue with the sponsoring brand (and third-party platform provider, if they use one), many of the banks pursuing or planning to launch a BaaS strategy view fees generated from ACH, fraud management, know your customer (KYC), account verification, and card issuing and processing services as very important to their efforts.
To learn more about what Marous has to say about getting through a recession stronger than ever before, download, “Digital Banking Transformation Strategies to Withstand Recession."