Written by: Benjamin P. Seesel 

This is an inspiring time for commercial banking leaders. Commercial banks were a critical engine of the recovery in 2020, helping businesses of all types navigate COVID-19 and remain on a firm footing. And across this year the commercial bank has been an equally-critical instrument of the renewal, helping companies accelerate back to life despite a bumpy economic recovery and an unending pandemic.

To maintain the commercial bank’s critical role as the growth engine of the economy, leaders in the business must stay ahead of emerging threats and opportunities driving the future of the industry. In November 2021, Gartner hosted a roundtable of commercial banking and treasury leaders from some of the biggest financial institutions in North America for a spirited discussion about forces of disruption impacting the business. Participants pointed to the following five trends that commercial banks must navigate in order to sustain the growth of the business:

• Competition from Private Equity – private equity and changing business owner retirement patterns are disrupting succession planning among clients. Fewer clients today pass their businesses along to the next generation. Many business owners are willing to take private equity buy-outs and redirect the windfall rather than continue the business and, with it, the banking relationship. Leaders at the roundtable reported that there is a lot of private equity money in the market and any family business is for sale at the right price.
• The War for Talent – the commercial banking employment value proposition is evolving amid the war for talent. In this hotly competitive talent market, commercial banks risk losing not just their RMs, but also technology staff as well as support roles such as credit team members. In the case of RMs, flexibility is already built into the role of a commercial banker. They are free to travel to meet clients and set their own schedules. The advent of hybrid work has just accelerated that dynamic. Compensation and benefits are evolving too. Technology roles want a pay structure that matches big tech companies while support roles like underwriters, credit management, and portfolio management want flexibility and remote work. The next generation of talent values flexibility, development and purpose. They want to know what impact their roles have, and value commitment to the community much more highly than previous generations.
• The Rise of Cryptocurrency – while some banks are experimenting with crypto, lack of a clear regulatory framework is currently a major limiting factor. This provides an opening for fintechs, as many already facilitate cross-border payments with cryptocurrencies and blockchain in a way that is cheaper and faster than what banks currently provide. Although the regulatory structure remains uncertain, it is certain that cryptocurrencies are becoming more widely accepted. Leaders at the roundtable referenced research projecting that thousands of banks might accept cryptocurrencies in the next 5 years, and that a surprisingly high percentage of people in the U.S. already own crypto. In any case, many banks are already facilitating cryptocurrency purchases and sales without even knowing it.
• Supply Chain Disruption – the near-term impacts of supply chain problems could be profound. The supply chain slowdown is causing clients to carry more inventory as they move away from just-in-time production. Some are helped by upward pressure on pricing, but others are hurt as they lack key inputs. Some clients struggle to pass on costs to their customers, while others are able to do so but wonder where inflation will stop and what effect it will have in the long run. That said, commercial banking leaders’ general posture is that supply chain disruption is temporary and will normalize. As a result, commercial banks are not altering loans for clients who have been impacted positively or negatively by supply chain issues.
• Accelerating Cyber-Fraud – Banks are seeing cyber-fraud increase substantially and are doing more to monitor and preempt issues through data analysis. Some commercial banking leaders are considering productizing these data assets and skills as a value-add for clients. The sense among leaders at the roundtable is that commercial banks lag retail and small business banking in the use of data to provide client value and must catch up. But some doubt whether the loan and fee income model leaves room for these additional products, and if clients are willing to pay extra for them.

To learn more about technology investments commercial banking leaders are making to stay ahead of these and other trends, click here to see the results of Gartner’s 2021 Financial Services Technology Survey. For info on additional trends affecting the commercial bank and other lines of business, click here for our perspective on four major forces affecting the industry. Additionally, schedule a call with a Gartner expert to discuss how we can help you identify and preempt emerging trends impacting your business, via our scenario planning toolkit and other resources.