Banks Grapple with Financial Hurdles, Maintaining an Outlook of Expansion in 2025
Banks Grapple with Financial Hurdles, Maintaining an Outlook of Expansion in 2025
Paul Davis, Creator, Slate Bank.
The predicted budget scenarios for financial establishments in 2025 exhibit a mix of cautious optimism and notable challenges.
An investigation conducted by Slate Bank between August and October, involving 80 banking professionals, revealed that over 80% anticipate an increase in expenditure the following year. This suggests an industry striving to strike a balance between growth necessities and rising operational costs. Let's delve deeper into the emerging trends, challenges, and strategies that banks and credit unions are adopting.
Technology: The Two-Sided Weapon
More than 40% of those surveyed expect expenditure increases ranging from 1% to 5%, while nearly 30% envision growth between 5% and 10%. Technology emerges as the primary catalyst for higher spending, with around 70% of respondents planning to augment their tech budgets to meet changing customer expectations and counter competitive pressure.
Technology assumes various roles as a protective measure and a means of advancement for financial institutions. Bankers have reported a strong focus on cybersecurity to thwart the growing sophistication of fraud and data breaches. Moreover, data analytics catches the interest of more than half of the banking professionals, who view it as essential for refining decision-making and enhancing client experiences.
These observations are reinforced by a study conducted by Jack Henry, which indicates that approximately 80% of all financial institutions intend to boost their technology spending in 2024 and 2025, with fraud detection/mitigation, digital banking, and data analytics among the top tech priorities.
Interestingly, despite the industry's buzz around artificial intelligence, our survey found that only about a quarter of the bankers plan to boost their investment in AI for next year. Institutional priorities often lean towards short-term, practical solutions like integrated loan processing systems and mobile app enhancements, rather than emerging technologies like machine learning and open banking.
Investments by the banking sector extend beyond technology, with risk management, compliance, and personnel receiving significant attention.
Personnel: The Balance Act of Automation and Talent
Two-thirds of the bankers surveyed plan to allocate more resources to hiring and retaining talent, particularly in areas like technology and compliance.
This represents an ongoing development in the financial services sector. For instance, more than 90% of bankers surveyed by Bank Director reported a surge in compensation expenses in fiscal year 2023, showing a median increase of 7.1% compared to the previous year.
However, staff layoffs are anticipated by some, as institutions optimize their operations through branch consolidation and the automation of routine tasks. Banks are also encouraged to upskill their existing employees for leveraging advanced tools while maintaining high service standards.
Marketing in a Cutthroat Market
Marketing budgets are under examination. About 50% of bankers anticipate modest increases, with a strong emphasis on promoting deposit products in the face of intense rivalry for low-cost funding. Consistent with these findings, a recent BAI study showed that 54% of financial institutions expect larger marketing budgets in 2025.
Digital and data-based marketing techniques are gaining traction among institutions as they seek budget-friendly methods to boost visibility and customer engagement.
Strategies for Resilience and Growth
Based on our findings, here are some things that banking professionals can do to prepare for next year, maintain focus on financial objectives, and seize unforeseen opportunities:
• Zero in on scalable technology. Smaller institutions must opt for scalable solutions addressing immediate needs, while larger entities should invest in sophisticated tools for differentiation. Cloud-based banking platforms, for instance, are scalable, enabling banks to grow their operations, integrate with new systems, and securely manage data.
• Empower security and efficiency. Financial institutions can strengthen their resilience and profitability with cloud-based systems and incremental tech upgrades, mitigating risks and streamlining operations.
• Adopt agile budgeting. Embrace contingency plans and conservative forecasts for potential economic uncertainties and emerging opportunities.
• Foster a culture of innovation through upskilling. Training personnel in newly emerging technologies fosters innovation while optimizing resource allocation.
• Emphasize communication and collaboration. Engage leadership, boards, and departmental heads in collaborative planning to align budgetary priorities with institutional objectives.
A Strategic Approach to Evolution
The 2025 budgeting perspective highlights the delicate balancing act that financial institutions must perform: driving transformation while maintaining a practical outlook. By aligning spending with strategic goals and inculcating adaptability, banks can navigate uncertainties and pave the way for sustainable growth.
Maintaining a watch on expenses while setting aside some funds to address potential market shifts can be pivotal for banks and credit unions in navigating the year ahead.
Paul Davis, the creator of Slate Bank, might be interested in the findings of the survey, as nearly 80% of banking professionals expect an increase in their expenditure next year. Additionally, about 70% of these professionals plan to augment their tech budgets, a trend that Paul Davis, being involved in technology-driven Slate Bank, would likely find noteworthy.