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The ‘Great Consolidation’ and future of banking


A history of “Greatness”

You may have noticed a tendency for the media to designate certain events in our history as “Great” like the Great Resignation that began in 2021; the Great Recession spanning from 2007 to 2009, and the decade-long Great Depression that began in 1929.

A person’s first instinct may be to question why you would use such a positive word to describe such negative events but when viewed from a different perspective, you could find pros and cons for each of these “Great” incidents.

The Great Resignation empowered workers to find a better work-life balance. The Great Recession helped end the misallocation of investment capital.

Even the Great Depression brought us national retirement, unemployment insurance, disability benefits, minimum wages, maximum hours, mortgage protection, and the electrification of rural America.

So what can we expect from the next Great on the horizon?

The Great Consolidation of banks

The combining of bank institutions through mergers and acquisitions became widespread in the 80s as regulatory changes permitted banks to operate in multiple states.

This trend gained momentum throughout the early 2000s when technology-enabled banking institutions to provide services at lower costs.

Consolidations have become such a common practice that the average rate of branch closures was 99 per month in the 10 years prior to the pandemic; however, since March 2020 more than 4,000 branches have been closed, doubling the average rate to 201 closures per month.

Benefits for the industry

Mergers and acquisitions may bring glad tidings to bank workers by reducing the disparity in wages and making service conditions more uniform. Redundant roles and designations can be eliminated, which leads to career growth opportunities as well as financial savings for institutions.

Indeed, the governing boards of these institutions will find consolidations most advantageous as they result in reductions in operation costs, financial inclusion, and a broadening of the geographical reach of banking operations.

But these buyers should beware. Mergers can also leave larger banks more vulnerable to global economic crises, the absorption of bad loans, and poor governance in public sector banks, as well as staffer disappointment which can lead to employment issues.

Disappearing branches

While the benefits of consolidating are clear for banking institutions, the benefits and costs for the consumer are less so, especially as media headlines often associate consolidation with the closing of bank branches.

And with two-thirds of U.S. banking institutions vanishing in the last three years, an alarming rate by even industry standards, consumers may be right to be concerned.

Despite the increase in online or digital banking services, research shows that customers still value in-person interaction for a lot of their banking needs. There are still security concerns when performing certain transactions, such as opening accounts, resolving account issues, and transferring large sums in person rather than online.

Banking deserts

Intended to help correct the history of public and private redlining, the Community Reinvestment Act (CRA) of 1977 requires banks to assist the communities in which they operate. The focus is access to loans and financial services for households and businesses in low- to moderate-income neighborhoods.

As a result of the Great Consolidation, one-third of the banks closed between 2017 and 2022 were located in low-income and/or majority-minority neighborhoods where access to branches is crucial in ending inequities in access to financial services.

As the top 25 banks continue to absorb more and more of the assets that once belonged to small banks, they fail to increase the number of brick-and-mortar branches effectively creating banking deserts.

Although there are more online banking services than ever, the presence of physical branches where customers can interact directly with loan officers who know them and their neighborhoods is something technology has yet to find a substitute for.

An increased responsibility

These economic shifts may have weakened the business structure on which the CRA was built, but they do not alter banks’ obligations. Larger, less-local banks are still responsible for serving the credit needs of every community they operate in.

Changes in how the public interacts with their bank do not create exemptions to the law. They could, however, create new opportunities for growth in both banking and technology.

As we’ve learned from the “greats” of the past, necessity drives innovation, and we can’t know the perception another decade or two might afford us.

New technologies such as smart contract systems, biometric and multi-factor authentication, secure online customer onboarding, and application programming interfaces (API) have already emerged, allowing banks the capacity to accelerate automation and deliver more widespread services.

But the expansion of financial institutions and their obligations, combined with rapid advancement in technology, creates another hurdle for banking in the form of talent acquisition.

The tech savvy-banker

In the past, banking jobs have always been considered highly coveted roles for candidates looking to get into finance, but with the emergence of crypto and other decentralized peer-to-peer payment systems banks are left struggling to acquire talented, skilled, and competent employees.

Automatic teller machines (ATM), Internet banking services, electronic money transfers, and telephone banking have changed the skills necessary to be a bank employee forever.

Tech firms are redefining our society in business practices on a daily basis, which means in order to get the most out of their employees, banks will need to train and re-train them on a regular basis.

Most notably in sectors such as information technology, artificial intelligence, machine learning, mathematics, and software engineering.

And there is no shortage of tech startups and firms that are ready to scoop up the diminishing pool of skilled workers currently available.

New tech to find tech

The growing demand for tech-savvy workers means that banks aren’t simply competing with other banks. Recruiters across every industry are desperately searching for candidates with increasingly similar skills.

At Leoforce, we understand the need to identify a clear strategy for faster human resource acquisition and development.

That is one of the many reasons we developed Arya Quantum, to help financial institutions modernize their recruiting infrastructure to find the specific skills required to succeed in both analog and digital banking.

Arya saves the time it takes to search and rank candidates by providing recruiters with a prequalified and ranked list of diverse individuals that not only meet your skill needs but also blend well with your company culture.

Look to the future

We may not have a crystal ball that can divine how this great change will affect the landscape of banking, but we can continue to glean insights from the greats of the past.

There will almost certainly be layoffs as well as role changes and staff reshuffling, which will lead to opportunities for recruiters and workers alike.

We can also expect to see more pressure put on banking institutions and their reliance on technology to meet the needs of their ever-growing customer base.

As banking continues to evolve, industry players will need to keep an eye on the state, federal, and global regulators, preparing for new laws and regulations in emerging focus areas like climate, financial inclusion, and digital assets.

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