As 2022 beckons, we review issues affecting banks and other payment providers that will continue to drive strategy in the new year.
Leaving 2021 Behind
As we move into 2022, it’s a good time to take stock of a number of developments affecting banks, issuers, and other payment providers this year that will continue to drive business strategy and activity for our clients and partners in the new year. Here are a few items our team considered to be the most impactful this year.
Increasing Digitization of Commerce
The year of the QR code, digital wallets, personalized offers, and simplicity - It is safe to say that the onset of the pandemic greatly accelerated a shift to digital purchasing, with consumers clamoring for a safer way to buy goods. And in 2021, e-Commerce channels continued to evolve as more consumers became accustomed to the improved simplicity, convenience and safety offered.
In a recent Global Payments survey, 67% of issuers reported rolling out new digital capabilities to customers in 2021 to improve purchasing experiences for their customers. Evolution will be continuing in 2022.
Installment Lending Enters the Mainstream
Buy it now, pay it off in six months - Buy Now Pay Later, low APR installments, and greater flexibility when making purchases all became mainstream for many. A number of transformational changes in the payments industry emerged as consumers increasingly demanded more flexible and convenient payment options and the ability to define payment terms of their choice. The competition exploded with fintechs such as PayPal, Klarna, Square offering new technology and capabilities.
Consumers are expected to continue to take advantage of BNPL, driving banks to differentiate and merchants to gain a greater presence through higher online conversion rates, larger ticket sales, improved customer loyalty, and the promise of attracting younger consumers. Participating in this market growth should be a primary focus for banks and issuers of all sizes. Customers have come to expect it and we look forward to seeing how payment providers of all types work to create and maintain lasting relationships with clients.
Remote Work Now the Norm
Office space/dining room/rec room? - Across the financial industry at firms of all sizes, workers are resisting calls from employers to return to the office. Many who previously could not have imagined working from home are now struggling to think about going back to the office full-time. A pivotal shift away from the lost time and high cost that comes with long commutes while embracing the greater flexibility which results in higher productivity and improved well-being for many will become a staple of the work environment.
A recent Gallup poll reported that 45% of all full-time employees in the U.S. were working partly or wholly remotely in September, while 9 in 10 of them wished to maintain remote work to some degree in the future. Workers clearly prefer and will expect a hybrid approach moving forward, splitting time between the office and home. In a tight job market, employers may risk losing talent if they do not find a way to accommodate this new reality. This, too, will be something to watch closely in 2022.
Overdraft Fees – Fading Away
Good-bye fees - Banks have used overdraft fees to subsidize free and reduced-fee checking account offerings for over two decades. Regulations requiring customers to opt-in for the service slowed the growth, but U.S. banks collected over $30 billion in 2020, most from customers living paycheck to paycheck. Pressure from lawmakers and regulators has gained momentum and is focused on reducing reliance on this source of revenue. Months after launching a formal review of overdraft practices, the Office of the Comptroller of the Currency has provided some clarity about the types of changes it would like to see from banks, including giving a grace period before charging an overdraft fee, making changes to posting practice and not charging multiple fees in a single day. A number of large U.S banks including JPMorgan Chase, PNC, TD, Regions, and Fifth Third announced changes during the year that will significantly reduce their overdraft income going forward, while others such as Ally Financial and Capital One will be dropping overdraft fees entirely across all of their products.
After decades of marketing “free checking” to customers, banks will be under pressure to make up for lost income either by returning to monthly account fees or taking other steps to identify incremental sources of revenue.
2022 And Beyond
We have witnessed many changes in 2021 likely laying the foundation for many more to come. Can traditional players such as banks and card issuers be nimble enough to meet fintech players head-on with customers, especially the younger generations? Can product enhancements keep up with consumers’ desires for more flexible payment structures and ease of use? What will the remote work landscape look like in a year, and what effect will this have on hiring, pay scales, and employee satisfaction? What changes will banks undertake to offset reduced overdraft income?
2022 will be a year to watch!
Wishing you a Happy Holiday Season from all of us at Profit Insight!