Shocked but not surprised
Though alarming, the recent crisis is hardly a surprise to those close to the banking industry.
According to the latest Community Bank Sentiment Index survey, 96% of respondents believed the U.S. economy was already in a recession. The overall sentiment reading was 85, well below the “neutral” rating of 100, indicating a high degree of pessimism from within the banking sector. Top challenges cited by community banks included inflation, government regulation, rising interest rates, and the cost and availability of talent.
Similar worries were noted in a recent RMA survey of community bank executives, in which respondents named cybersecurity risk, credit risk, operational risk, and IT risk among the top risk priorities for the coming year. Specifically, “the combined demands of technology costs, managing third-party vendors, reputational risk, and increasing regulatory pressures are pushing cybersecurity and technology risk to the top of the list,” according to the survey’s creators.
“Over the years that RMA has conducted the Community Bank Survey, community bankers have registered increasing interest in cybersecurity and its relationship with other risks. In this year's survey, another operational risk—IT risk—is frequently cited as important, as community banks work to enable remote workforces and improve effectiveness through automation, in addition to managing data security and erecting defenses against cyberattacks.”
The tech talent gap is another frequently cited concern, as it’s become abundantly clear that for many community financial institutions, the capabilities of in-house tech departments are not sufficient to meet the increasing challenges of stretched resources, expanding workloads, and overworked employees. With tech staff stretched thin just doing the basic job of running the bank, it leaves precious little time for projects related to growth and innovation.
But the tech talent gap isn’t the only challenge faced by financial institutions. Many are dependent on an increasingly complex technology stack, even as they prioritize efficiency and productivity. In fact, twice as many global execs are focusing on enhancing productivity through technology and automation now versus 2016.
Meanwhile, legacy processes are walled off inside operational silos that don’t speak to each other, limiting organizations’ ability to extract and transfer data across the enterprise, let alone understand customer needs and behaviors.
Compounding this issue is increasing competition from fintechs and challenger banks, which are capitalizing on changes in consumer behavior and the broad shift toward digital banking. To enhance customer satisfaction through a compelling and convenient digital experience, incumbent institutions are rapidly bringing on new systems and employing emerging technologies like AI, machine learning, and data analysis. But these systems must be able to integrate and communicate with legacy systems effectively in order to provide customers with a seamless digital experience without adding manual tasks.