Three areas for banks to watch in 2025

Last year was filled with many ups and downs; the economy continued to cause widespread financial anxiety for consumers, while banks faced tightening margins and increasing pressure to compete with the large national institutions. As we march into a new year, there are notable challenges and opportunities ahead. For those community and regional banks striving to maintain their relevance and grow, three important areas to watch will include: the growing desire for self-directed wealth offerings, a reasonable understanding of core systems’ limits and the real value of payments (hint: it’s the data).

Preparing for the Great Wealth Transfer

However, a majority of Millennials don’t know how to manage this incoming wealth, meaning they’ll need solid financial advice and guidance more than ever. This group is more digitally savvy than their predecessors and have a strong preference for self-service, meaning they are unlikely to turn to traditional financial advisors, ones who require long discussions and regular face-to-face meetings. These conditions present a significant opportunity for banks.

By offerings a wider, comprehensive range of wealth and financial services – including equities trading, investment options and guidance and possibly even insurance – community banks have a strong chance to not only preserve and grow relationships, but also meaningfully compete with the large institutions that continue to steal deposits and customers. However, these tools and solutions must be offered in the way Millennials and younger generations want to consume them: through digitally optimized, self-directed channels embedded seamlessly into the digital banking experience. The digital banking solutions that don’t include wealth services simply won’t be able to complete moving forward.

Of course, this is easier said than done. Most banks lack the expertise, time and resources to create such a solution themselves. This is where relying on a proven, trusted third party partner can provide significant value. Those institutions that fail to rise to the occasion and provide robust, self-service wealth offerings will be forcing their customers to look to other providers, harming both loyalty and the bottom line.

Avoid core distractions

The industry has seen too many banks waste time, resources and focus being distracted by the influx of new cores that have recently emerged. There is a lot of fuss and hype around such new providers, however at the end of the day, the core will still be performing the same functions: calculations, accruals and tasks required for banks to be compliant. Reinventing these core systems simply won’t move the needle in most instances. Banks that allow themselves to get caught up in these neo cores or core-like systems are likely to lose focus on other strategic and growth-focused activities. In today’s environment with thinning margins and skyrocketing customer expectations, there is simply no time to waste on new providers who think they’ve come up with a new method of service charge routines.

Focus on the real power in payments – the data

The industry continues to buzz around the emergence of real-time payments and FedNow, but the truth is, such payment options are not yet ubiquitous; they will not be truly impactful until adoption is more widespread. Until then, banks would be better served to focus on the real value of payments – the data they reveal. Strategically mining and analyzing the data uncovered through transactions can provide valuable insights to customers’ lives and timely financial needs. For example, if a customer makes multiple transactions at a boating supply store, perhaps the bank should reach out to their customer about a boat loan.

This is just one example of how payments data, when leveraged properly, can lead to stronger relationships and profitable opportunities. While real-time payments will certainly be important, until it is more substance than hype, banks will be better served to prioritize spending time and resources on the data and insights gleaned from transactions.

By embracing digital, self-directed wealth offerings, leveraging payments data for actionable insights and avoiding distractions that don’t drive growth, community and regional banks will be well poised to maintain relevance and compete as we head into 2025. Success will depend on the right priorities and partnerships, ultimately enabling banks to deliver the tools and offerings customers want – in the way they want them. By taking note of these trends and adapting accordingly, banks can strongly position themselves for this year and beyond.

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