The coronavirus pandemic turned the world on its head, and some aspects of the way consumers conduct their financial lives will likely be changed forever. If there's any silver lining to it all, though, some of those changes will be positive as we head into the next year.
From policy improvements to advances in digital banking, here is what banking experts predict for 2021.
The Biden Administration Will Institute New Banking Policies
Over the past four years, several major policy changes were enacted that impacted the banking industry. Overall, the new Biden administration will likely exert greater scrutiny of the financial services industry at the federal level, according to Catherine Brown, advisor at advisory and investment firm Klaros Group.
However, the economic issues resulting from the pandemic will continue into 2021. The administration will likely be immediately focused on additional financial relief for individuals and small businesses, followed by a comprehensive infrastructure package, she says. Priorities will likely include undoing some of the changes made by the Trump administration, such as moves to hobble the Consumer Financial Protection Bureau and the reversal of certain payday loan rules.
[Read: Best Checking Accounts.]
Banks Will Get Creative About Encouraging Savers
In light of the financial turmoil caused by the pandemic, the Federal Reserve stepped in with emergency measures to keep the economy afloat. That included lowering the federal funds target rate to less than 0.25%, the lowest it's been since the Great Recession. The Fed stated it intends to keep rates near zero through at least 2023.
That's great news for anyone who wants to borrow money, but savers have seen their interest rates slashed to nearly nothing. As a result, banks will have to find other ways to encourage deposits, and prize-linked savings is one option that will see growth in 2021, says Adam Moelis, co-founder of Yotta Savings, which employs a lotterylike feature.
"Retail banking customers will be searching for new, creative ways to earn interest on their savings. ... What you'll see banks do is gamify the savings experience, so instead of paying everyone a meaningless amount of interest, they will pool the interest together in order to offer exciting payouts to a smaller number of savers," Moelis says.
Contactless Payment Will Be More Popular Than Ever
During the pandemic, the ability to pay digitally and in real time was not only safer than using cash, but also more convenient, according to Allison Beer, head of digital at Chase Bank. "We expect consumers to continue to use digital payments even more frequently in the new year," she says.
In fact, according to data collected by Chase, 30% of peer-to-peer payment users signed up within the last six months, while 45% of long-term users are relying on this form of payment more often than they were a year ago. The use of tools such as PayPal, Venmo and Zelle will continue to rise in 2021 as consumers and small businesses become more comfortable with the idea of going cashless.
[Read: Best Savings Accounts.]
The Customer Experience Will Be Largely Virtual
It's not just payments that have gone digital. With social distancing a key measure against COVID-19 exposure, businesses have had to get creative about how they interact with customers -- banks included.
"As more people, both consumers and commercial, are doing business from their homes, banks and financial institutions will continue to enhance the online experience so that it replicates the in-branch experience," said Priya Iyer, CEO of Vee24, a customer engagement platform.
According to Iyer, services such as live video chat and collaboration technologies such as high-performance co-browsing, secure form fill and secure file transfer will become commonplace next year. "These tools allow digital hand-holding during complicated processes such as mortgage or commercial loan applications, which reduces errors and friction for both the customer and the banking representative."
Physical Branches Will Become a Thing of the Past
With heightened focus on mobile apps, contactless payments and other digital services, banks will be better able to meet their customers virtually. But even as successful vaccines for COVID-19 are developed and distributed, the convenience and speed of virtual banking will make consumers less likely to visit physical bank branches for their financial needs.
According to a PwC survey during the spring, the pandemic made about a quarter of consumers prefer online banking to visiting a branch, accelerating a trend already in place.
"With self-service technology that covers most of their needs, the average customer will likely be able to bank without a physical branch," Blake Morgan, a customer experience futurist, wrote at Forbes in March.
[Read: Best CD Rates.]
Identity Theft Will Run Rampant
Though the increase in digital services makes banking more convenient, safe and accessible for many, it also opens the door for more fraud. Because more Americans will conduct their financial lives online in 2021, there likely will also be an increase in identity theft stemming from data breaches and social engineering scams, says Giselle Lindley, principal fraud consultant for ACI Worldwide, a payment services firm.
"Many people are experiencing social isolation and unemployment, and are therefore susceptible to romance scams, fake employment ads, and stimulus or support payment offers," she says. "Others are simply spending more time with online entertainment, where fraudsters are lurking with fake giveaways and investment deals, all with a goal to convince unsuspecting victims to hand over financial details and other sensitive personally identifiable information."
The good news? According to Lindley, increasing pressure will come from consumer protection regulators for financial institutions to take responsibility for protecting customers from fraud and assuming liability for loss.