By Evan Sparks
WAlthough the vast majority of banks do not offer cryptocurrency services, interest is growing, according to the 2022 Federal Reserve/Conference of State Bank Supervisors community banking survey released today. Only 1% of community banks currently offer it, but 11% of them reported planning to offer crypto services in the next 12 months. This interest grows from a very low baseline; 81% of the nearly 500 community banks surveyed still say crypto is only slightly or not at all important to meeting customer needs.
Other products that significant shares of community banks plan to launch for the first time in the coming year are electronic loan applications (23%), e-signature verification (22%), online loan closing (22%) and interactive ATMs (16%). %). But while a meaningful share of community banks plan to launch ITMs, nearly three-quarters of banks do not currently offer ITMs, and only 11% of respondents say ITMs are extremely or very important to their banks.
Consistent with previous years, mobile banking solutions have become nearly universal among community banks. 97 percent of community banks offer mobile banking, while 86% offer remote deposits and 80% offer electronic bill payment. After the Paycheck Protection program ended, the percentage of banks offering Small Business Administration loans fell from 77% in 2020 to 71% in 2022, with 6% planning to exit SBA loans in the near future.
Opportunities and obstacles
Technologies rated as most important to community banks were electronic signatures, remote deposit capture and integrated loan processing systems. While a growing number of small banks are exploring becoming a bank as a service provider to fintech firms, the share remains small – only 16% said BaaS partnerships are extremely or very important, while 58% said BaaS is somewhat or not in it absolutely important. to their banks. When exploring new technology, the biggest obstacle for banks is the cost associated with it. Almost half cited the cost of implementation as the most important barrier, while 15% cited the cost of maintaining technologies.
Bankers generally expressed high satisfaction with their banks’ technology solutions – except for core providers, with only 55% reporting satisfaction and 26% saying they were somewhat or extremely dissatisfied. Nearly 60% said core vendor responsiveness was a major challenge to implementing new technology over the next five years, and just over half of banks said cloud-based core systems would be a promising opportunity for their technology development over the same period. One in five banks said integrating core suppliers was their biggest obstacle to innovation.
Risk factors
The most prominent external risk for community banks was net interest margin – even when interest rates rose – with 88% describing it as “extremely” or “very important”. Other top-cited risks were economic conditions (84% extremely or very important), loan demand (78%) and technology costs (77%). Only 10% of community banks said climate risk was extremely or very important, while 65% said climate issues were somewhat or not at all important as a risk factor. Community bankers were cautiously optimistic about inflation. While 78% said inflation is likely to persist, 55% of bankers said they expect inflation to be a manageable challenge.
Cyber security remained the dominant internal risk factor, with 65% calling it extremely important and 31% saying it is very important. Other top-cited internal risks were employee retention (85% extremely or very important) and technology implementation (76%). Relatively few bankers mentioned liquidity as a major internal concern.
M&A priorities
The survey showed that mergers and acquisitions declined slightly from 2021, with 11% of bankers making a takeover bid and 8% considering an offer. Among those offering mergers and acquisitions, the dominant consideration was achieving economies of scale (77% extremely or very important), followed by new geographic market entry (66%) and expansion into an existing market (57%). Succession planning needs and new product markets were the least important factors in making an offer.
For the entertaining offerings, the top three factors were the inability to achieve economies of scale (71%), excessive costs of doing business (68%) and regulatory compliance costs (65%).
