While we all hope that 2021 is less interesting than 2020 was, there’s no doubt we’ll continue to grapple with challenges and opportunities resulting from the pandemic. As we look to a new year, I consider these the top three issues financial institutions face.

The Millennial Issue

The pandemic has pushed millennials, and to a lesser extent Gen X, in record numbers to the largest banks. While some of this movement comes from the perception of more convenience, both in person and via mobile banking, some also comes from perceived better customer service. Raddon research from The 2020 Challenge shows that, throughout the pandemic, major banks contacted more of their primary accountholders (44 percent) than did community banks (38 percent) or credit unions (34 percent). And among those contacts, more major bank primary customers had an improved opinion of their bank (26 percent) than did community bank customers (14 percent) or credit union members (7 percent). By winning at both convenience and service quality, the largest banks are dominating the younger market.

According to Raddon Performance Analytics analysis of about 400 financial institutions, millennials now represent 32 percent of non-interest income, 28 percent of loans and 11 percent of deposits, up from 26 percent, 18 percent and 7 percent respectively in 2015. That’s a big jump in importance, certain to increase even more. Losing millennials’ business could deal a death blow to many financial institutions.

To manage this challenge, financial institutions need to be honest with themselves about several questions. Are you relevant to young people in your market? Are you offering financial solutions rather than selling products? Are you ensuring that your interfaces, whether in person, online or mobile, are as easy to use and understand as they can be?

Transforming Delivery

Delivery is the second key strategic issue for 2021. Financial institutions need to transform delivery from a 20th century model that puts transactions at the center to one that puts the consumer’s needs first. That means making mobile banking as easy to use as possible, but it also means having a robust and effective branching network that gives consumers the face-to-face interaction they want. Raddon research from before the pandemic (in Branch Transformation) found that 71 percent of banking consumers preferred to conduct at least some transactions face-to-face, including 56 percent of millennials. Even during the pandemic, 77 percent of consumers claimed to use a branch at least monthly.

But at the same time, mobile banking usage has surged during the pandemic, with 68 percent of consumers now using that channel at least once a month. As we have so often seen, each new delivery channel doesn’t eliminate an old one but instead adds to a consumer’s expectations of convenience. So institutions must manage their infrastructure to modernize branches while improving mobile delivery, all with an eye on maximizing the accountholder’s experience.

Unfortunately, institutions must manage this delivery transformation while operating in a low-rate environment that compresses margins and limits the ability to invest in infrastructure. So institutions must make tough choices – strategically and tactically – about which improvements will provide the greatest bang for the buck.

Operational Efficiency Through Margin and Data Management

The tough choices made necessary by adapting to a new world of delivery also make operational efficiency critically important. While expense management is the usual focus for efficiency gains, two other areas represent strong opportunity. The low-rate environment makes margin management essential. Not all consumers have the same sensitivity to deposit rates, and understanding those differences can improve the bottom line.

An even greater opportunity to improve efficiency lies in data management. Financial institutions have millions of individual transaction records that tell the story of their accountholders’ lives, including their financial needs. For example, an accountholder might be making payments or transfers to an investment house or a check cashing company. In each case, the institution learns something of that accountholder’s behavior and can offer a better solution. Using that data to offer solutions and find opportunities to improve customers’ or members’ lives can increase loyalty, services and balances, bringing needed revenue and the possibility of additional growth.

Other institutions and fintechs are already pursuing this strategy, putting pressure on smaller institutions to keep their accountholders loyal and engaged – not through individual product sales, but through total solutions for their changing financial lives.

The pandemic accelerated already existing patterns, and now financial institutions face new challenges. We will be discussing these three issues in detail, along with much more, at the 2021 Virtual Raddon Conference February 9–11.