Banks and credit unions need to embrace emerging technologies to ensure growth and overcome impending challenges, according to the latest report from Q2 Holdings, a digital transformation solution provider for financial services.
In its State of Commercial Banking January 2025 Market Analysis report, Q2 Holdings outlines the biggest emerging trends for commercial banks, as well as the challenges and opportunities that banks and credit unions will face in the coming year.
Q2 reveals that although liquidity has improved, it has become more costly, squeezing net interest margins. However, financial institutions have emerged from the liquidity crisis with a solid foundation of deposits, approaching pre-crisis levels.
Despite successfully rebuilding liquidity, higher interest-bearing deposit expenses have squeezed profitability, forcing banks to prioritise cross-selling and adopt emerging technologies such as AI and ERP integration to drive growth.
“The commercial banking industry demonstrated resilience and adaptability in 2024, successfully rebuilding liquidity to near pre-crisis levels,” explained Gita Thollesson, senior strategic business advisor at Q2 Holdings. “2025 will present its own challenges and opportunities, including combating payment fraud and strengthening primacy in a competitive digital landscape. For banks and credit unions to maintain their edge, they should strategically leverage digital offerings to enhance profitability and meet customer demands for efficiency and innovation.”
The report is based on findings from Q2 PrecisionLender’s proprietary database of 2024 commercial lending deal flow, along with economic data from public sources, including the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve.
Overcoming remaining challenges
While there are some positive signs, significant challenges remain for banks and credit unions – the largest of which appears to be continually rising fraud levels. However, Q2 says that by collaboration, advanced technologies like AI, and a centralised approach, banks and credit unions can become a strong ally for business customers in this ongoing battle against fraud.
The underserved small and medium-sized business (SMB) market presents an opportunity for FIs looking to grow deposits. To take advantage, Q2 says that FIs need digital platforms that integrate with fintech solutions, deliver exceptional customer interaction, and leverage data for personalised outreach.
Unsurprisingly, efficiency and user experience are becoming even more pivotal for midsize and large companies; as commercial clients look to their banks and credit unions to help them manage their business more efficiently.
Q2 PrecisionLender data reflects commercial relationships from more than 140 geographically diverse banks and credit unions in North America, ranging in size from small community banks to top 10 US institutions.
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