To avoid another crisis, regional banks must triple investment into digital apps

Recent reports revealed the number of weak US banks rose to 52 in the last three months of 2023, representing the largest jump since Silicon Valley Bank’s collapse. 

Meanwhile, the FDIC found earlier this year that delinquencies in credit card and commercial real estate loans are at the highest level in nearly a decade. According to comments from Yerbol Orynbayev, the previous Deputy Prime Minister of Kazakhstan from 2007-2013 and former Governor of the World Bank on behalf of Kazakhstan, regional banks need to substantially increase their investment into digital apps. 

How Can The Next Banking Crisis Be Averted?

Last year’s regional banking crisis, which saw the term collapse of Silicon Valley Bank, Signature Bank (OTC:SBNY), and First Republic Bank (OTC:FRCB), was driven by shaky risk management strategies in the challenging high-interest environment. 

Now, with the Federal Reserve expected to cut rates once this year Orynbayev has warned regional banks about going back to their old ways and giving out risky loans or making unpredictable investments. 

Orynbayev believes regional banks 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,” he stated. 

“While I don’t want to scaremonger, we’ve seen the consequences of doing this – an SVB-like collapse,” the former deputy Prime Minister of Kazakhstan adds. 

As a result, Orynbayev feels these banks “must adopt new strategies”, stabilize their balance sheets, and maintain confidence among their depositors. To do that, Orynbayev says regional banks “have to triple their investment in their digital apps – and become completely customer-forward.” 

He notes that reports show consumers increasingly want “super apps” from their banks, such as centralized tools for managing payments, money, and other everyday activities. Orynbayev says regional banks should follow this trend of consumer sentiment, adding that to achieve the goal, they need to learn from the neobanks. 

Neobanks Are Leading The Way

Neobanks are types of direct banks that operate exclusively using online banking and apps, for example, Revolut or Monzo. They do this without traditional physical branch networks that challenge traditional banks

Orynbayev, who now serves as an independent financial services consultant, said it is “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,” notes Orynbayev. “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 (NYSE:JPM) has done the same.”

More Investment Into Banking Apps Is Needed

Overall, Orynbayev argues that we are now in an era where the branch seems to be no more, and 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,” he concludes.