US Financial Executives Upbeat on 2014 Prospects despite Regulatory Burden

The US economy will continue on a steady path to recovery in 2014, with lending a noticeable bright spot, but the mounting burden of compliance will challenge growth and innovation at financial institutions (FIs) reports Fiserv.

The financial services technology group based the prediction on its
‘2014 Fiserv Boardroom Series Outlook Survey’
, that included responses from more than 900 senior level leaders at banks, credit unions and other FIs.

More than 46% of respondents were somewhat optimistic for the overall economy in 2014, with another 42% expecting the year to play out about the same as 2013. Only 9% were somewhat or very pessimistic, signaling that, in the opinions of a majority of surveyed financial professionals, the worst of the US economic malaise is over.

Recurring macro themes in the survey comments provided by participants were focused on: dysfunction in Washington, DC, persistent long-term unemployment, uncertainty from Federal Reserve policies and the potential for a stock market correction. However, many participants cited more positive fundamentals, such as strengthening home prices, and institution-specific metrics like increased mortgage and auto lending that have shown increased consumer confidence in their markets.

“Much of the distress has worked its way out of the banking system, and [financial professionals] can finally look forward instead of in the rearview mirror,” said Virginia Heyburn, vice president for insights and advocacy at Fiserv. “Banks and credit unions have done a remarkable job of cleaning up their balance sheets. Institutions are more nimble and efficient than they were six years ago when the crisis hit, so they’re in a much more advantageous position to leap forward to start growing.”

Financial services executives saw various opportunities for growth, depending on asset size. For institutions with less than US$1bn in assets, consumer lending was rated highest, followed closely by consumer banking. For institutions with US$1bn or more in assets, corporate and small business customers are seen as most important to growth: Business/corporate Lending was rated first, followed by corporate/small business banking.

With loan-to-deposit ratios still substantially off pre-crisis levels, Heyburn says it’s no surprise that FIs are prioritising lending. However, the data also indicate the need to grow across all categories.

“FIs are saying they can’t just rely on growth in any one area, they’re going to have find growth across the entire span of their business,” says Heyburn. “This is a challenge because they have to differentiate and specialise at the same time. That means practicing segmentation to target certain customers with certain products but also differentiating across all of their products and services to stand out. It’s not about looking to be all things to all people, but practicing segmentation across all areas of the operating model.”

In terms of technology investments, lending, compliance, and mobile/tablet and online channels were rated as the most anticipated for institutions. When segmented for asset size, lending was slightly less important for larger institutions, while customer relationship management (CRM) and integration/technology infrastructure were rated as higher priorities. For institutions with less than US$1bn in assets, core banking was a higher technology priority than at larger institutions.

Not surprisingly, financial professionals are worried about regulation and rated it highest among factors that would impact their institutions in 2014. The challenge of keeping pace with consumer technology adoption – driving demand for more, better and faster digital services – was second, while competition from other FIs was third.

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