Trends 2022: How to Survive the Evolution of Banking


Interest rates are low, consumers are demanding digital delivery of banking products, employees need to access data from anywhere and cybercrime is on the rise. The challenges facing banks are complex – and the market in which they operate is evolving. For many traditional banks, these challenges are made harder by a historic lack of investment in technology for initiatives outside of addressing regulatory issues.

Despite this, European banks have proven their resilience in the face of severe economic downturn brought about by the pandemic. They are starting to invest in technology and reimagine their businesses.

Post-pandemic, the success of these banks will depend on how effectively they’ve managed the structural challenges that plagued them before the pandemic started. Traditional banks need to continue to invest in digitization projects so they can streamline their operations and give customers the control, apps and services they want.

In 2022, banks will need to focus their attention in nine core areas.

  1. Look beyond lending for growth and revenue. European banks have seen their net interest margins squeezed by low interest rates and demand for loans. This is forcing banks to explore new ways to drive revenue, including investing in emerging markets, increasing bank charges and exploring new product lines. As they move away from legacy IT systems, banks will start to reshape their businesses and business models to maximise efficiency and make the most of the new technology at their disposal. It’ll be an essential part of regaining profitability.
  2. Drive cost efficiencies through cloud and technology investment. Banks will need to focus heavily on reducing their cost-to-income ratio in 2022, through a slow recovery. Closing branches and reducing headcount will play a part here, but the bigger opportunity is to rethink operating models. More banks are investing in cloud strategies, including moving to a public cloud as an integral part of IT modernization programs – something they will have to do to compete with their digital- and cloud-native challenger competitors.
  3. Invest in the prevention of cybercrime. Cybercrime has evolved quickly during the pandemic as consumers demand digital communication over social media and live chat or messaging. The number of cybercrime incidents have increased and the risk of incorporating third-party platforms into core banking services has made banks more vulnerable. While retail banks have long been able to manage card fraud, this new wave of cybercrime sets new risk parameters, and increases exposure to fines under data protection regulations. It’s no longer enough to simply budget for these fines (as banks have done in the past); shareholders and regulators are putting increased pressure on banks to de-risk and avoid repeated fines. We are also seeing an increase in “hacktivism” attacks on banks, something that must be considered in 2022.
  4. Grow your digital platforms and new business models. As banks digitize their front and back-end processes, this involves more third-party services and technology. Banking-as-a-service (BaaS) will become more widespread as banks look to partner with platforms, challengers and other non-banking firms under open banking agreements. To reach a broader market and deliver the kinds of mobile, on-the-go banking and payments services consumers are demanding, banks will need to embed finance into other apps and platforms. This means investing in innovation – something that banks have typically insufficiently funded. Partnering with a more agile third-party is a valid solution, but it raises the question of risk, particularly around shared data.
  5. Prepare for increased pressure from regulators. The European Commission’s Digital Operational Resilience Act (DORA) is tasking EU banks with adhering to a comprehensive risk framework and upgrading ICT risk requirements. This means investing in the right technology to address risk and modernize IT systems. Investment in advanced analytics, artificial intelligence and machine learning will help banks increase their agility, reduce costs and upgrade their technological, operational and reporting capabilities.
  6. Invest in ESG. In the wake of COP26, banks – like other organisations – will come under pressure to reduce their environmental impact, enhance their social impact and improve governance. Some European banks are already exploring ways to tie executive pay to ESG targets. While the European Commission’s Basel III regulations set clear goals for the banking sector, NGO, Finance Watch, is sceptical about the implementation timeframe and a lack of focus on climate-related risks. We may very well see current regulations become more stringent and pressure put on banks to improve their ESG reporting.
  7. Consider how you will manage the workplace of the future in a post-pandemic world. CIPD research found that while 65% of U.K. employers didn’t allow regular virtual working before the pandemic, only 37% are expected to take the same stance after the pandemic is over. The pandemic has resulted in fast-paced changes to the workplace, and traditional banks have struggled to keep up with the digital-native competitors. Increased employee flexibility and new working models will be needed to recruit and retain the best talent (and remain competitive). Offering increased flexibility will be especially important for traditional banks as challenger banks are likely to be much more agile in this regard. Investment in collaboration technology and improved customer and employee experience will continue through 2022, as flexible and remote working becomes the norm.
  8. Anticipate continued merger and acquisition activity but at a slower rate. We’re seeing some of the highest levels of consolidation that we’ve seen for a long time. Interest rates are low, and money is cheap to fund acquisitions. Banks are building capability through acquisitions of fintechs and startups to use in their own operations. However, these deals will slow down as investors of all kinds want to see proof of profits before investing and are less prepared to take risks.
  9. Simplify your service lines. Banks are seeking to simplify their product and service lines, reduce complexity and consolidate offerings. That means they are divesting some less profitable product lines and offerings and doubling down on more profitable ones. This will reduce the complexity of legacy systems used to support these services, making banks more agile and nimble.

This is a time of real change for banks. Those that streamline services, increase digital capabilities and refocus investment in technology will thrive in the future. The banking landscape could look very different indeed at the end of 2022.

ISG helps banks navigate change, decide where to invest and plan for the future. Contact us to find out how we can help you.

This article first appeared in Global Banking and Finance.