🔒M&A activity, fintech adoption, ‘talent wars’ will impact banks in 2022

Supply chain disruption, low interest rates, labor shortages and the path of the COVID-19 virus will all impact the business lending environment in 2022, bankers say, but there are many other issues top of mind for local and national banks operating in Connecticut.

Whether it’s the rush to invest in new technology to sate consumers’ virtual demands, or competition for top talent and continued M&A activity in the marketplace, banks have a lot to prepare for in the year ahead.

HBJ recently asked three top Connecticut bankers for their perspective on the major issues that will impact the industry in 2022. They included: David Glidden, president and CEO of Middletown-based Liberty Bank; Steve Webb, TD Bank’s regional president of southern New England; and Joseph Gianni, the Greater Hartford president of Bank of America.

Here are the top banking issues to watch in 2022:

Innovation and digital technology

As traditional banks face increased competition from financial technology companies, the pressure to invest in digital services is only increasing.

In some cases, that means investing in-house in new digital technologies, or partnering with a fintech company that has already developed an in-demand service.

Liberty Bank, which has $7.3 billion in assets, has chosen the partnership path, teaming up with several fintechs to launch new digital services like account-to-account transfers, new account funding, loan services, financial wellness and credit monitoring. It’s also planning to launch its first digital bank in 2022.

“Innovation is critical to the future of banking and will continue to grow more vital in 2022 as banks look to grow their balance sheets, enhance customer experiences and adapt to changing banking habits,” Glidden said. “The industry is experiencing tremendous competition from not only the big money center banks, but now fintechs are gaining scale. … Banks are not going to win in a ‘sea of sameness’ and growth is unrealistic by maintaining the status quo. It has to come from instilling a culture of innovation to deliver on shifting customer expectations.”

For many banks, the pandemic triggered the rapid adoption of digital services for business and retail consumers, Webb said.

TD Bank, for example, designed new processes and service offerings such as remote closings and an accounting service for small businesses that integrates into their online banking.

“With the pandemic now present for almost two years, it has shown not only how quickly banks can move in the space of technology innovation, but also highlighted the areas that needed the most improvement after being put in the pressure cooker of such a drastic world event,” Webb said.

Bank of America over the last few years has seen high rates of digital adoption among clients across all sectors, spanning from individuals handling their basic banking needs to managing their investments, and businesses small and large, Gianni said.

Market disruption

Industry experts predict increased M&A and consolidation in 2022 as banks cope with interest rate pressure and a struggle to compete in the ever-advancing digital transformation, Glidden said.

In turn, this is leading to an elevated market disruption that banks can leverage into 2022.

“There will be more bank consolidation this year,” Glidden said. “Community banks must continue to capitalize off this trend to acquire new customers looking to switch banks, recruit industry talent looking for new opportunities and grow market share as banks consolidate their branches.”

Two major deals dominated the headlines in 2021: New York-based M&T Bank’s planned acquisition of People’s United Bank and Webster Bank’s announced merger with Sterling National Bank. As those deals close, they could have a ripple effect in the marketplace, bankers said.

War for talent

There is also a recognized gap in the banking workforce as more Baby Boomers retire and younger generations enter work life, Webb said.

It’s an issue that has been exacerbated by the pandemic-induced “Great Resignation,” which will likely continue to impact all companies in 2022, including banks.

M&A activity is compelling banks to take advantage of ongoing market disruption, including recruiting top bankers and technologists searching for new opportunities when their current employer consolidates, Glidden said.

“Companies in Connecticut — banks included — will have to compete in the ‘war on talent’ in 2022,” Glidden said. “As we witness the changing outlooks of our teammates, we must implement ways to aggressively retain and recruit new talent in 2022. Workers will be weighing what is most important to them versus what their employers offer them. The banking industry needs to be nimble, prepared and decisive.”

Webb said banks must adapt to new ways of working and gain perspective on the role work plays in life in order to attract Millennials and Gen Zers, the oldest of whom are entering the workforce.

“The new generations tend to prioritize access to workplace technology and a focus on work-life balance, especially as remote work continues to be a big part of the new way of working,” Webb said. “That said, we live and work in a state that has a highly-educated and diverse workforce that banks will begin to leverage to develop the next generation of bankers.”

In addition to offering flexible and competitive benefits, fostering a diverse and inclusive work environment will also be key to retaining talent, Gianni said. To attract workers, Bank of America is also increasing its minimum wage, with the goal of hitting $25 an hour by 2025 for employees across the country, he said.

Strong residential real estate market

Since the pandemic began, Connecticut, known for decades as a slow-growing state, saw a population burst, particularly from New York City residents looking for a more spacious and suburban living environment.

Gianni said he expects to see that trend continue, giving financial institutions a broader, wealthier customer base to compete for, in addition to an active residential real estate market.

“Our state is a very desirable place to live and we anticipate that more people will continue swapping out their small city apartments for the suburbs, seeking the state as a destination for a second home or buying homes for the first time,” Gianni said. “The surplus of recently relocated city dwellers is producing a significant increase in wealth. Especially in the southern Connecticut region, our financial advisors at Merrill Lynch Wealth Management have seen unprecedented growth in new client relationships, and the number of net new households in 2021 has tripled compared to what it was five years ago.”