What are the main challenges for commercial and retail banking in 2022?

Looking ahead to the rest of 2022, businesses and individuals will have reflected on the past 12 months and will look forward to the challenges ahead in 2022.

As in all industries, there will always be challenges. There is no doubt that retail and commercial banks will have their own hurdles to overcome throughout the year, but they must both keep up with increasing regulations, stay with or ahead of the technology curve, and deal with the competition from FinTechs, challenger banks and alternative lenders. .

This blog will highlight some of the key challenges these industries will face over the rest of the year and beyond.

1. The exponential growth of competition

Something that has increased in recent years is the exponential growth of competition. The banking industry is changing rapidly due to new competition from FinTechs, challenger banks and alternative lenders. With the influx of start-ups specializing in a small number of products and unique customer service (i.e. a flexible journey through digital banking), revenue is being diverted from traditional financial services (large banks) to FinTechs / challenger banks. FinTech companies are bridging the gap between traditional banks and the expectations of the modern consumer.

This leads me to wonder:

“Should traditional banks invest more in FinTech to try to maintain a competitive advantage and meet growing consumer expectations? Should banks seek partnerships or seize opportunities with FinTech companies to maintain their competitiveness? »

2. Is artificial intelligence the future of banking?

FinTech companies are accelerating to new heights by using artificial intelligence (AI) to win and retain customers through personalized (and more efficient) customer experiences.

Banks have a wealth of data, but many of them can also have significant technological gaps. This is where AI can help elevate service levels to new heights. AI is not new to banking, many banks have been using it for some time to create their own virtual assistants/chatbots. Banks are looking to personalize the banking experience through digital interactions, especially since the younger generation (millennials and Gen Z) are much more likely to switch to digital banking than older consumers. However, there is still work to be done to ensure that these digital interactions are truly effective and beneficial to the end consumer (as well as the organization itself). I’m a millennial and my personal experience with chatbots has rarely been good. I always feel like I find myself answering the same question over and over, going around in circles, or playing a game of snakes and ladders. In the end, I hastily search the website or Google for a contact number to call and speak to a human!

This leaves us with the question:

“What role for AI and what role best suits humans?”

AI can provide great insight into customer behavior and, with the right application, can help banks adopt a more customer-centric stance to stay competitive. Bank systems and processes currently generate large amounts of data; banks should therefore use this data to uncover customer information and better target and serve customers.

It’s clear that AI and machine learning are critically important to business success in today’s world. There is no doubt that automation will affect all industries. Business leaders must therefore prepare their organizations and their employees for the changing nature of work.

3. ESG matters, is it too important to ignore?

While 2021 has seen growing global attention on climate change, the broader topic of sustainability and the integration of sustainability risks is also high on the regulatory agenda for banks and insurers. Environmental, social and governance (ESG) considerations are integral to financial services operations, transformation and risk management.

Financial institutions should prepare for more stringent disclosure requirements set by regulators in addition to defining sustainable and material benchmarks to achieve their publicly disclosed emissions reduction goals (reducing their portfolio’s exposure to carbon emissions and adopting net zero commitments). A key part of holding a bank accountable and delivering on its commitment to how it measures risk, transparency, and ethical behavior is creating new performance metrics to measure progress. As I mentioned earlier in this blog, banks have a wealth of data; this sustainability data still needs to be structured and translated into tangible measures. This is where FinTech and BigTech companies can really make a difference by developing new solutions for banks to meet ESG objectives.

As banks disclose their goals and roadmap for how to reduce their exposures, we will soon see them ramping up their stress testing and credit risk modeling capabilities. This will not only improve banks’ risk management, but also prepare them for the anticipated regulatory pressures of increased disclosure on the subject as more information and expectations are set in the coming months of 2022.

4. Navigate Regulatory Compliance Changes

Meanwhile, regulatory compliance continues to be one of the banking industry’s most significant challenges. The Financial Services Regulatory Initiatives Forum presents regulatory initiatives planned for the next 24 months. This enables stakeholders to understand and plan initiatives that may have an operational impact on them. You can find the latest initiatives grid on the FCA website

In line with the FCA regulatory landscape, several regulations were implemented and/or submitted to the Bank of England (BoE) and the FCA during the first quarter of 2022. One that I am very familiar with is the framework resolvability assessment (RAF). This framework builds on work since the financial crisis to create a resolution regime that ensures companies can fail in an orderly fashion. This framework was requested for leading companies first and moving to mid-tier companies from 2022. These companies were to assess their own resolvability and publish a summary report on the progress made towards this objective; which the BoE would in turn assess in a public statement. These companies will have already issued reports on the results of the resolution to the authorities. In June 2022, the first public disclosures will take place. Mid-cap companies will have until January 2023 to establish their framework and submit reports to the authorities to show that they can achieve the results of the resolution.

By mid-March, merchants and payment service providers will have to adhere to a new set of rules that will change the way consumers confirm their identity when shopping online and banking online. SCA (Strong Customer Authentication) for e-commerce will force companies to strengthen payment security to limit fraud during the authentication process.

Regulatory reporting has been a hot topic for some time now. The ESMA (European Securities and Markets Authority) review of transparency requirements under MiFIR (markets in financial instruments) is set to launch in 2022, creating potential for divergence from the UK transparency regime. Divergence could also be on the horizon under European Market Infrastructure Regulation (EMIR) – although UK and EU proposals to change reporting requirements under REFIT ( Regulatory Fitness and Performance Programme) are broadly similar, they are not identical and will therefore require special attention. review, particularly for companies declaring under the UK and EU regimes.

In summary

In summary, retail and commercial banks still have a lot to do this year, from increased competition to AI, ESG and changing regulatory requirements, so it’s essential that banking firms stay ahead of the game. on the competition and remain compliant.

Be UK’s team of consultants have a wealth of knowledge and experience to help clients of all sizes (from blue chip to mid-tier companies) meet these challenges. This experience allows us to successfully deliver projects adapted to different client situations. Contact us if your business needs to navigate the sea of ​​challenges that will present itself in 2022, and we look forward to helping you shape your business for future success.

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