Technology Helped Community Bankers Embrace Opportunities During Pandemic

October 5, 2021
A year after the pandemic hit, U.S. community bankers are optimistic about existing technologies but concerns about cybersecurity have grown to be their biggest fear.

A year after the pandemic hit, U.S. community bankers are optimistic about existing technologies but concerns about cybersecurity have grown to be their biggest fear.

COVID-19 has accelerated the pace with which banks have adopted or enhanced their technological products and will bring positive long-lasting effects, says the 2021 National Survey of Community Banks.

Embracing Technology

The study, sponsored by the Federal Reserve System, the Conference of State Bank Supervisors (CSBS), and the Federal Deposit Insurance Corporation (FDIC) that surveyed 470 community banks across the U.S., found 96 percent of banks increased their online services, noting that their approach to the adoption of technology has changed significantly.

This is reflected in their views on the cost of technology, which was named by 88 percent of the bankers as an important or very important challenge. Technology costs now rank among the most important issues facing bankers, compared with two years ago when it was ranked among the least important ones.

More than 34 percent of the respondents said the adoption of new technologies is very important, compared with 23 percent last year and 8 percent the year before.

Among community banks, “the COVID-19 pandemic fundamentally changed the nature of technological evolution,” the report notes.

The embracing of new technologies is not without its reservations, however. Just under 60 percent consider it both a threat and opportunity equally, compared with 37 percent that primarily see it as an opportunity.

Mobile banking is the most widespread banking product community banks offer. Almost 96 percent of the surveyed banks offer mobile banking. Looking to the future, 78 percent of bankers believe e-signatures to be a promising technology opportunity, while 53 percent consider person-to-person (P2P) payment either important or very important. Less popular were technologies around interactive teller machines or financial planning tools.

In general, community bankers are also satisfied with the use of technology for compliance risk management (80.8 percent) and for anti-money laundering (AML) compliance (89.1 percent).

“The community banking industry will remain strong and viable as the country emerges from the COVID-19 pandemic,” one banker said. “There will be more customer reliance on technology, such as online account opening, internet banking, mobile banking, and mobile deposits.”

Risks and Opportunities

The coronavirus crisis has had a significant impact on how community banks work.

More bankers believe that the pandemic permanently improved their operational efficiencies (41 percent), compared with 23 percent that noted a temporary decrease in efficiency. In terms of customer service, the response was more evenly split, with 35 percent noting that the pandemic enabled them to improve compared with 36 percent who believed it temporary hindered it.

Cybersecurity is almost universally regarded by community bankers as the top internal risk, with 95 percent ranking it either as important or very important. To put this in perspective, this is way up on last year’s 60 percent and more than double the rate of any other type of operational risk.

Concerns over employee retention, potentially affected by remote working, and AML compliance has also increased compared with last year.

Regulatory Compliance

Regulatory compliance remains a continuous challenge to community bankers, although the pandemic created new and unique issues.

Almost 60 percent of the respondents flagged the guidance to promote consistency and flexibility important or very important, while half of the banks considered reduced focus on exam activity important or very important.

Regulatory risks, which are traditionally ranked by banks as high risk, continue to rank highly, with nearly 90 percent of the banks considering it important or very important.

Consumer compliance and compliance generally ranked higher than they did last year, with more than two-thirds of respondents flagging them as important or very important.

However, when asked about the compliance portion of the costs, the survey found that overall relative costs of compliance declined, mostly due to the decrease in personnel expenses, which constitute more than 80 percent of overall compliance expenses.

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