The mixed bag of challenges and opportunities the economy presents in the second half of 2024 is quickly becoming a catalyst for action. Conducting a mid-year check-in is an opportunity to evaluate strategic progress and serves as a springboard for future state planning. Conversely, inaction leaves your financial institution vulnerable to unexpected challenges, potentially derailing strategic initiatives.
The State of the Economy
Given the dynamic nature of the current economic landscape, it is crucial for banks and credit unions to conduct thorough analyses of key economic indicators to assess their impact on operations. The most relevant factors include the following:
GDP – Although predicted to moderate in 2024, economic growth remains healthy and continues to trend upward since the second half of 2023, signaling a rebound from the economic impact of the pandemic. While a severe recession appears unlikely, financial institutions should remain prepared for a slowing economy.
Unemployment – Current rates show resilience; while certain sectors are facing higher levels of job loss, we are currently at low levels when compared with those over the past 30 years. Financial institutions should monitor these trends closely, as they can impact loan demand and credit quality.
Inflation - Continues to be a concern. Median household income, consumer prices, and the cost of living are victims in its wake and, although it has declined from its peak of 9.1% in June 2022, it continues to remain high, with consumers feeling the pinch.
Bottom Line - The inverted yield curve is setting records. When short–term interest rates are higher than long–term rates, the money-making engine many financial institutions leverage is suddenly feeling the squeeze of profits and tightening lending conditions. While the economy has shown resilience, banks and credit unions must remain vigilant and adaptable.
From Boomers to Zoomers – The Generational Shift
The banking sector is experiencing a significant transformation driven by the shift in demographics of its customer base. Baby boomers, the longstanding dominant force in the economy, have all but passed the baton to a younger generation made up of both Millennials and Zoomers. As with most things associated with change, a new set of expectations abounds.
To remain competitive, this generational shift demands financial institutions to rethink their strategies to cater to a more tech-savvy and digitally native customer base. Millennials and Zoomers are digitally native. The emergence of digital banks and direct banks demonstrates the industry’s response to the younger generation’s need for convenience, speed, and seamless digital banking experiences.
Millennials and Zoomers are beginning their foray into gainful employment with a much higher debt burden than their boomer parents or grandparents. Carrying $1T in consumer debt alone, Zoomers will require their respective financial institutions to guide their finances forward. Their financial well-being must become a strategic focal point for banks and credit unions.
Moving Forward: Digital Shapes Everything
As financial institutions look to the future, embracing digital transformation to meet the needs of an evolving consumer base is no longer an option, but a necessity. To initiate this progressive step forward, banks and credit unions must consider the following:
The banking industry is at a pivotal moment, influenced by economic dynamics and demographic changes. This is the ideal time to adopt innovative approaches and reimagine the customer/member experience. As the industry becomes more complex, the significance of strategic planning sessions increases. Planning that has not already begun puts financial institutions at a disadvantage to their counterparts preparing for the rest of this year and those to follow.
Struggling with putting the pieces together? Let Engage fi help. More information about our strategic advisory services is available here.