California Banker Issue 1 2025

2025’s Top Challenges and Opportunities for Community Banks By Allison Maddock, Chief Product Officer, CSI

C

the threat doesn’t spread. Solutions like data loss prevention (DLP) help institutions protect their data and control how it’s shared. Implement ing cyber hygiene is another effective strategy to improve security and keep employees and consumers safe. 2025’s Second Most Significant Challenge: Interest Rates Interest rates surged in 2022 and 2023, due to the Federal Reserve’s efforts to curb inflation, creating a challenging environment for com munity banks. Bankers’ concern for interest rates has lowered since 2023, potentially due to stabiliz ing rates and anticipated future rate changes from the Fed. Nevertheless, it ranked second highest on their list of concerns. This economic uncertainty is prompting a prioritization of digital account opening and related tech nologies, emphasizing gaining new accounts and low-interest deposits. Institutions should also evaluate op portunities within their existing mar ket and portfolio. Diversifying port folios through resources like lending marketplaces is another avenue in stitutions are exploring to weather the effect of high interest rates. Bankers’ Top Technology Investments Financial institutions are doubling down on digital-first technology in

vestments to meet the evolving needs of a convenience-driven, tech-savvy clientele. 2025’s Leading Investment: Efficiency Drivers like Automation or AI At the forefront of technology in vestments lies efficiency drivers like automation or AI, with 43 percent of bankers acknowledging its im portance. Most banks are seeking efficiencies in back-office processes, with some beginning to utilize AI and automation to remove manual steps and add new functionality. The rise of generative AI tools, which we discuss further below, offers the potential for heightened efficiency in the banking sector. Automation en ables banks to streamline processes, improve customer interactions, and strengthen fraud detection. 2025’s Second Highest Ranking Investment: Data Analytics and Reporting Garnering 42 percent of the vote, data analytics and reporting are transforming banking and customer experience. Data analytics and re porting provide banks with insight to understand customer behavior and identify areas to better serve them, including customizing offer ings and promoting them via the digital experience.

ontinued adoption of open banking, enhanced cybersecu rity and evolving regulatory concerns shape what financial

institutions must consider when devel oping their strategies. However, these areas also represent a tremendous op portunity for those who adapt. CSI’s Banking Priorities Survey — which asked a cross section commu nity bankers nationwide about their strategies and priorities for 2025 — explored both, taking the industry’s pulse and plans for the year. 2025’s Foremost Challenge: Cybersecurity/Data Privacy Although we’ve made advances in cybersecurity monitoring technol ogy, cyberattacks continue making headlines and concern institutions of all sizes. The average cost of a data breach rose from $5.9 million in 2023 to $6.08 million in 2024. A successful cyberattack can also ex pose an institution to reputational and legal consequences. For all these reasons, paired with regulatory scru tiny, 28 percent listed cybersecurity/ data privacy as the most pressing is sue, surpassing all other concerns. To stay ahead of cyber threats, institu tions need around-the-clock monitor ing and response. A managed cyber security monitoring platform helps institutions identify anomalies and send alerts for investigation to ensure

12 www.CalBankers.com | CaliforniaBanker