As the calendar turns and we enter the New Year, I thought it would be useful to share a few of my own bank-related forecasts for 2017. Note that this sort of thing is usually folly as few predict the future with much certainty.
We are going to see higher interest rates in 2017.
While interest rates today are not much higher than a year ago, they spent most of 2016 at much lower levels than the current market. What is driving this? There is a newfound optimism in the industry that a new Trump administration will oversee a more robust economy than at any time during the past eight years. Indeed, recent levels of consumer confidence about the future indicate a newfound optimism is spreading. The market expects deficit spending to increase along with the expected demand for credit as the economy expands.
This means that borrowers will pay a bit more and over time, savers will begin to earn more respectable returns on their savings. At times during the past eight years, interest rates were held artificially low by the Federal Reserve, so this means we are returning to normalcy. A caveat: what I am writing is conventional wisdom and conventional wisdom is often wrong! Pay your money, place your bets … mine is on interest rates going slightly higher during 2017.
Technology will continue to spread.
And then there is Financial Technology, aka Fintech. Even the casual observer knows that every industry is undergoing a revolution of sorts that is driven by technology. Banking is no different. Fintech is about to take our industry by storm. While consumers continue to benefit from technological advances in banking – such as mobile banking and mobile deposit (via your phone) – much more is on the way.
Community banks are in an interesting situation. On the one hand, consumers are generally more supportive of community banks than their larger brethren. However, consumers (especially our younger ones) demand technological excellence from their financial provider and industry surveys show that these consumers increasingly bank where they believe the technology is at least competitive.
The challenge for MidWestOne and other community banks is to invest in technology at a level that will make us competitive to those who demand current technology in their financial provider. That’s why our company in 2017 will have a group that is dedicated to researching and bringing to market solutions that are driven by better technology.
We know we cannot afford every “bell and whistle,” but we also know that Fintech is pushing us to run faster than ever before to stay relevant with our customers. So, expect to see things such as faster and automated loan approval – even for small business loans. Expect to see more online account opening capabilities. These are not coming in the next three months. But they are coming and we have resolved that we will stay relevant with our customers.
More sensible regulation
Immediately following the last Presidential election, a venerable banker approached me. This banker was highly disappointed in the outcome of the election and said “you cannot do away with all regulation.” I smiled and assured my friend that nothing of the sort was going to happen under a President Trump.
What I did say was that I think regulation is about to get somewhat smarter and more balanced. I will not go “into the weeds” here, but perhaps one will only have to fill out 20 pages of forms, rather than 150, when obtaining a mortgage loan. Perhaps, we will get to the point where we do not have to ask for forms of identification for customers who we’ve known for 30 years. Perhaps we will appoint persons with a balanced perspective at the heads of our regulatory agencies. More than one chief regulator has been in “attack mode” for several years and it does not feel good to be on the receiving end of this. So, my forecast is for more sensible regulation in 2017. But, in no way will all regulation be undone. Nor should it be.
Student loan reduction programs will increase.
It’s not often that I believe our company is on the cutting edge. On the next topic, I think we may be! We recently announced a benefit for our employees who have student loan debt outstanding. While we are working out the final details, in 2017, we will be instituting a program whereby MidWestOne Bank will make a monthly contribution toward debt reduction of the employee.
We recently surveyed our employees and of those who responded, 43 percent of our employees with student loan debt owe more than $20,000 with 14 percent exceeding $50,000 in debt. It is estimated that only 4 percent of companies nationwide offer this type of program as a benefit for its employees. I first learned of this program through my affiliation as a board member of the American Bankers Association. So, here is my last prediction for 2017: student loan debt reduction programs will be on the rise over the next few years, beginning in 2017.
Student loan debt has become problematic for a growing percentage of the work force and employers will be helping ease this burden in ways such as described above. Another good thing!
Happy New Year!