Over the past decade, the landscape of finance has shifted so drastically that it is hardly the same industry it once was. While once a siloed sector, banking has undergone major changes, and those changes will continue to revolutionize banking throughout 2022.
In 2022, there are 3 factors to keep an eye on that will shape the future of banking. These are how banks adapt to the needs of younger generations, the adoption of new banking methods, and the growing acceptance and interest in cryptocurrencies.
In this article, I will discuss these 3 factors and what they mean for the future of banking in 2022 and beyond. Keep reading to discover how the financial industry has evolved and how it will continue to do so through further technological innovation.
The Long-Term Effects of Changes to Banking in 2021
To understand what is to come for banking in 2022, it is crucial to examine the long-term effects caused by the changes that occurred in 2021.
2021 proved to be a pivotal moment in the financial industry, as customers and businesses alike were forced to adopt and accept digital financial services in what felt like a matter of moments. This has led not only to increased competition amongst banks, but also a high rate of net closures of physical branches.
The S&P Global Market Intelligence 2022 Banking Industry Outlook examined how heightened digital adoption and cost-cutting efforts affected bank branch closures in 2020 and 2021. This report found that a record-breaking 2,414 net branch closures occurred in 2020 – a record that was soon shattered again in 2021 with 3,609 total closures.
Additionally, the report notes that FinTech has expanded its presence immensely in 2021, with FinTechs in the U.S. alone bringing in roughly $7.5 billion in venture capital funding in the second quarter of 2021 – a year-over-year increase of 70 percent.
Meeting the Needs of Younger Generations
The first major factor that will undoubtedly have a notable impact on banking is the growing presence of younger generations entering into the industry as new banking customers.
In 2020, Chase release their Digital Banking Attitudes study that examined 1,500 different banking customers. Of these, a whopping 80 percent of respondents stated a preference for managing their money digitally. This high preference for digital money management shows the increasing popularity of such services amongst average banking consumers.
While Millenials have been reshaping the financial world for some years now, it is only in recent years that the younger generation – Gen Z – has begun to reach adulthood and enter into financial relationships with banks as well.
Millennials and Gen Z both show a preference towards technological innovation, although Gen Z are considered to be inherently more digitally literate thanks to the level of technological advancements available to them since birth.
According to a whitepaper by MX, both Gen Z and Millenials are less likely to trust their primary financial institutions compared to older generations. Moreover, the top two priorities for these younger generations when choosing a financial institution include:
- The level of trust and security – this priority was the number one choice for all banking customers surveyed in this whitepaper.
- The rates, products, services, and special offers of an institution.
Open Banking, Blockchain, & Beyond: New Banking Methods for 2022
Though the financial industry has struggled against technological evolution, digital methods of banking have grown in prevalence and popularity nonetheless.
Open banking – a method of banking in which financial institutions can openly share customer data when given the customer’s explicit consent – is likely to see a higher level of both adoption and regulation in the coming years.
According to McKinsey & Company:
“The adoption of new digital habits and a dramatic movement toward online channels during the pandemic appears to have accelerated open banking. With so much more of their lives spent online, both consumers and small and medium-sized enterprises (SMEs) became much more open to fintech apps and other non-traditional financial products and services.”
As for Blockchain, the growing interest in its decentralized and digital public ledger is only increasing amongst consumers. Worldwide spending on blockchain products, services, and solutions is expected to grow to $11.7 billion by 2022 alone, according to IDC.
With this in mind, let’s look at the growth of cryptocurrencies and what cryptos mean for banking in 2022.
Embracing Cryptocurrencies: The Future of Cryptos and Banking
In October of 2021, the Office of Comptroller Currency (OCC) included cryptocurrencies in its regulator’s annual operating plan for 2022.
This was a major step forward for cryptocurrencies, as it paves the path for cryptos to become more mainstream forms of payments and investments, as well as potentially adding on new layers of regulation that make exchanging cryptos safer for both customers and financial institutions.
According to Markets Insider, the massively popular Bitcoin is projected to surge to $100,000+ in 2022, with other popular cryptos (such as Ethereum) expected to see similar growth. With major players in the crypto space forecasted to reach groundbreaking levels, cryptos are almost guaranteed to have a massive impact on the financial industry as a whole in the coming years.
The banking industry is changing, and digital innovation is quickly becoming king of the castle.
In 2022 and beyond, banking customers can expect to see major shifts in the adoption of new banking and payment methods, as well as large investments and regulatory reform for new blockchain-based cryptocurrencies and technologies.
To keep up with this digital wave, banks must adapt to survive and thrive in the technological era. This means a closer focus on what the new generations of banking clients want and need, furthering the shift towards a more customer-centric industry.
Only time will tell the impacts of such innovations, but we are sure to see remarkable feats and massive profits coming from the industry in 2022.