US banks continue to face challenges, but are better times ahead?

Things have not been easy for the US banking industry over the past year with fragility and uncertainty in the economy, high interest rates, inflation, and regulatory pressures among the biggest concerns.

But as some of these challenges begin to ease, is the outlook for community banks and credit unions nationwide starting to improve?

According to the latest edition of the report What’s Going On In Banking? from Cornerstone Advisors, there are better times ahead. Eight in ten of the 300+ senior executives polled said they are optimistic about 2025.

"While it might be a stretch to claim that happy days are here again, at least we can say that happier days are here," said Ron Shevlin, Cornerstone chief research officer and author of the report. "This year, financial institutions look to set sail on much calmer seas to explore ways they and their technology providers can plan for the changes and challenges ahead."

Shevlin says that poll participants are "forward-thinking about technology, aggressive about growth and market share, and unafraid to take on the megabanks, upstart fintechs, and others competing with them for mind and market share."

Investment in technology is part of the improving outlook with adoption of AI growing and generative AI tools expected to play a key role in areas like fraud management, lending, and customer interactions. Nearly 30% of banks and credit unions plan to implement generative AI tools for the first time this year.

However, non-bank entities, fintechs, and big tech firms pose increasing competition, especially in niche offerings and customer experience. Cost of funds top bank execs' list of concerns for 2025, while new member growth is the greatest concern for credit unions.

Among the main regulatory burdens is the introduction of Rule 1033, the provision under Dodds-Frank that allows consumers to have greater control over their data, creating a pathway for open banking. Many of the executives who took part in this research view the rule as burdensome and potentially counterproductive without further safeguards.

Deposit gathering, efficiency, and cybersecurity are among other key concerns for respondents, the report highlights.