Retail banking, bonds, and Bitcoin: 3 financial institution trends to watch in 2021

“The banking industry can uniquely act as a primary source of stability,” McKinsey journalists wrote in an article on U.S. banking and the pandemic in May 2020. Despite the fluctuating economy, financial institutions rose to meet the challenges posed by the pandemic. They stayed strong for the last year and a half, acting as a stabilizing force for both national and local economies—and that stability makes them an attractive market for sureties in 2021 and beyond. But stability isn’t permanent. In this piece, we’re investigating three trends that will likely shape financial institutions and their relationships with surety agents this year.

In the surety underwriting space, larger financial institutions remain strong, particularly in major metro areas like New York City. While the pandemic has shifted the need for retail space across the industry, many banks continue to grow their retail footprint in select growth markets and underserved communities. According to a recent article from S&P, many large consumer banks experienced a net growth in retail space—particularly ATM locations—in select urban areas, despite a net decline in retail space for financial institutions nationwide. JP Morgan’s 2020 Annual Report reflects that trend. The report states that the bank will open “16 new community branches in traditionally underserved neighborhoods and hire 150 community managers by 2022… Another 100 new branches are being opened in low- to moderate-income communities across the United States as part of the firm’s market expansion initiative.”

For surety underwriters, this trend offers the opportunity to provide major consumer banks with several types of bonds:

In the aftermath of Covid, many industries—not just financial institutions—will likely experience a greater need for appeal bonds. A type of court bond, surety firms offer these bonds to guarantee payment of monetary damages from civil lawsuits during and after the appeals process.

The need for additional appeal bonds across industries is due primarily to pandemic-related litigation. One study by an analytics company tracking the rise in Covid-related court filings found more than 1,500 cases in just four months, from March 1 to July 4, 2020. By May 2021, that number had increased to 6,900 Covid-related cases, with pandemic-related filings likely to continue for months, or even years. For some companies, audits and investigations prompted by pandemic-related suits may uncover other areas for potential scrutiny—for example, if a company is not following a proper procedure.

Surety companies should anticipate a rise in appeal bond demand for years to come, both from pandemic-related filings and cases brought to light by Covid-era investigations.

Although U.S. banks have been notoriously skeptical of Bitcoin and other forms of cryptocurrency, rising demand and pressure from smaller banks is accelerating interest in this area. According to Forbes, 15% of American consumers own some form of cryptocurrency, and 60% of those consumers said that they would prefer to use their bank to invest in cryptocurrency if given the option.

As of March 2021, major institutions like Goldman Sachs and JP Morgan announced plans to offer cryptocurrency services to their clients. This change comes as hundreds of banks, mostly smaller, regional institutions, enrolled in a forthcoming cryptocurrency program with fintech leader Fidelity National Information Services. Currently, there are no uniform regulations for cryptocurrency dealers, but as more banks get involved that will likely change.

From a surety perspective, these transactions would fit within the Money Transmitter bond requirement—an area that Liberty Mutual Surety and other brokers are well-versed in, particularly in this class of business. Sureties should watch for regulation changes as the industry expands and consider how those regulations may impact bond requirements.

Liberty Mutual Surety offers specialized commercial surety solutions for businesses in the financial sector and beyond.