Financial consultant Yerbol Orynbayev urges regional banks to triple their investment in digital apps to avoid a Silicon Valley Bank-like collapse and, subsequently, another banking crisis.
The intervention from the former World Bank governor follows reports that the number of weak U.S. banks rose to 52 in the last three months of 2023 – the largest jump since Silicon Valley Bank’s collapse. At the same time, the FDIC has found that delinquencies in credit card and commercial real estate loans are at the highest level in nearly a decade, according to Financial Times.
Last year’s regional banking crisis – the term used to describe the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank, all lenders with a combined $440 billion in assets, according to IMF – was caused by shaky business and risk management strategies in the challenging high-interest environment.
As Federal Reserve chair Jay Powell looks to cut rates, Orynbayev is warning regional banks from going back to their old ways – and giving out risky loans or making unpredictable investments. Instead, they must triple their investment in their digital apps.
“When Jay Powell cuts rates and eases the economic pressures on business, there’s a risk regional banks will be tempted to return back to their old ways – and give out shaky loans with minimal risk management strategies in place,” Orynbayev said. “While I don’t want to scaremonger, we’ve seen the consequences of doing this – an SVB-like collapse. These banks must adopt new strategies, stabilize their balance sheets and maintain confidence among their depositors. To do that, they have to triple their investment in their digital apps – and become completely customer-forward.”
Recent reports have shown consumers increasingly want “super apps” from their banks – centralized tools for managing payments, their money and other everyday activities. According to a study by PYMNTS, 72% of respondents were at least “slightly” interested in a super app, and 25% were “very” or “extremely” interested. Orynbayev believes regional banks must follow this trend of consumer sentiment – and to do that, they must take a leaf out of the neobanks’ books.
“It’s time regional banks follow the sector’s new kids on the block – the neobanks. These financial institutions have prioritized CX over everything else – and have fostered confidence and loyalty among their customers. In fact, big banks are starting to ride on their coattails: under the pressure of Revolut, Wise, and the like, HSBC, with their app Zing, has expanded its services and has shown the importance of the digital experience in modern banking. With the launch of its media network, Chase Media Solutions, JP Morgan Chase has done the same,” Orynbayev said. “We are, unfortunately, in an era where the branch seems to be no more – the in-person banking experience has lost clout among consumers. Regional banks must evolve. They have to triple their spending on their digital apps, avoid a mass customer exodus and eliminate the possibility of collapse.”
